Dive Brief:

• The Federal Energy Regulatory Commission (FERC) has set the base return on equity (ROE) for transmission owners in New England at 10.57 percent. The decision comes response to a 2011 complaint from New England states and industrials, which said the 11.14 percent base rate of return was unreasonable, Platts reports.
• Under the ruling, New England transmission owners’ maximum ROE, including incentives, cannot exceed 11.74 percent. The ruling also directs the New England Transmission Owners (NETO) to issue refunds to customers, including interest, for October 2011 through the end of 2012.
• The commission also set for hearing a complaint on the Midcontinent ISO returns, which alleged a 12.38% base ROE is unjust.

Dive Insight:

FERC's Oct. 16 decision determined that the gross domestic product is the appropriate long-term growth rate projection to use in determining the return for transmission in New England. The commission in June adopted a new discounted cash flow methodology for electric utility ROEs that is the same used for natural gas and oil pipeline ROEs. Opinion No. 531 applied the new methodology in a pending complaint involving New England transmission owners’ ROE, but it also established a paper hearing on the appropriate long-term growth rate.

"The whole purpose of our rate regime, including the ROE cases, is to make sure that the rates are just and reasonable to give a fair opportunity for a fair return on investment," Platts reported FERC Chairman Cheryl LaFleur said.

While setting the MISO base ROE for hearing, FERC denied all other aspects of the complaint, finding that it failed to show that the use of actual or commission-approved hypothetical capital structures that include more than 50% common equity was unjust and unreasonable. 

Regulators also denied the request that it terminate ITC Transmission’s 50-basis-point incentive for participating in an RTO, and ITC Transmission’s and Michigan Electric Transmission Co.’s 100-basis-point incentive for being independent transmission companies. "However, the order notes that because the total ROE is limited to a zone of reasonableness, the transmission owners’ ability to implement the full amount of previously granted incentives may be affected by the outcome of the hearing," FERC noted in a statement on the decision.