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MISO transmission ROE emptied by DC Circuit and FERC returned to the drawing board

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Dive briefs:

  • A federal appeals court on Tuesday reversed an order from the Federal Energy Regulatory Commission, setting a return on equity for transmission owners in a mid-continent independent system operator’s footprint and establishing a methodology for determining appropriate ROE. It added another twist to the agency’s long-running effort to

  • FERC failed to adequately explain in its rehearing order why it reinstated the use of the risk premium model as part of its ROE-setting methodology after previously rejecting its model, Court of Appeals for the District of Columbia Circuit said. by decision.

  • “Encouraged to see today’s DC Circuit decision void @FERC’s 3-1 MISO [transmission owner]return on equity,” said FERC Chairman Richard Glick, who voted against the overturned order. Tweet Tuesday. “Reversing his FERC with a risk-premium model would be a huge benefit to consumers and help make energy costs more affordable.”

Dive Insight:

FERC has been working for years to fine-tune the process for determining the appropriate ROE for transmission owners. ROE helps determine how much transmission owners (usually utility companies) have earned from transmission assets and how much consumers have paid.

The appeals court’s ruling stems from a 2013 complaint alleging that MISO’s ROE was too high. Using a methodology developed by FERC, New He set her ROE for transmission owners in England in 2016. Reduced MISO transmission owner profit margin from 12.38% to 10.32%.

A year later, an appeals court found the FERC’s decision in the New England case flawed, so the agency decided to reconsider MISO’s decision as well.

The FERC responded by developing a four-part methodology for setting ROE that includes the use of a risk premium model.

But when FERC finally set the ROE for MISO transmission owners, it abandoned the risk premium model from its methodology. The agency set her ROE at 9.88% of his.

MISO transmission owners and customer groups have asked FERC to reconsider its decision. In response, FERC reverted his risk premium model to its methodology in May 2020, determining that ROE should be 10.02%.

Commissioner Glick at the time partially against from decision. “The European Commission appears to have once again opted for a path guided by results, where it is recognized that a higher ROE should be awarded rather than by law or fact,” Glick said, adding that authorities He added that the decision could not be justified.

According to Glick, the rehearing order that reinstated the risk premium model was based on a “less persuasive” rationale than the original decision. while emphasizing the extent to which subjective factors appear to be operating in the background, it also exposes the Commission to considerable risk of judicial review, which should be minimized. It creates more uncertainty,” Glick said.

Glick urged the FERC to stop “endless tinkering” with the ROE methodology. He said this undermines the predictability that helps transmission owners make long-term investments.

In its ruling, the Court of Appeals said the FERC failed to adequately explain its decision to reintroduce the risk premium model after it first “forcefully” dismissed it.

“FERC has adopted material parts of its model in such an arbitrary and capricious manner that the new returns generated by its model are intolerable,” the court said. “Therefore, it nullifies the FERC’s order.”

The court said the issue was substantially moot because the FERC refused to address appeals from transmission owners and customer groups over the refunds ordered in this case, and reversed the underlying decision. rice field.

According to Larry Gasteiger, executive director of WIRES, a trade association for utilities, grid operators and other companies in the transmission sector, only opponents of building transmission could be satisfied with the court’s decision. I can do it.

“More transmission is increasingly becoming a national policy, and lingering lawsuits over how much utility companies can make on their transmission investments add to the uncertainty and build the needed transmission. It will only undermine the national priority of

update: This article has been updated to include comments from WIRES Executive Director Larry Gasteiger.