FERC Update and Key Developments in Energy Regulation
Highlights from the FERC Update meeting at the NASUCA Mid-Year Meeting in Portland, covering topics such as base returns on equity, transmission rate incentives, and natural gas act reform. Discusses FERC opinions, recent court rulings, and ongoing regulatory inquiries related to determining and adjusting ROEs and transmission incentives in the energy sector.
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Vignette: FERC Update NASUCA Mid-Year Meeting | Portland, OR | June 21, 2019 Jason T. Gray Jason T. Gray Partner Partner Duncan & Allen Duncan & Allen (202) 842 (202) 842- -8197 jtg@duncanallen.com jtg@duncanallen.com 8197
Outline Vignette 1: Base Returns on Equity Vignette 2: Transmission Rate Incentives Vignette 3: Natural Gas Act Reform 1
Vignette 1: Base Returns on Equity FERC s June 19, 2014 Opinion 531: adopted the two-step DCF ( 32-41 ) BUT found anomalous conditions reduced confidence in the midpoint ( 145) SO turned to alternative benchmarks for insight on placement within the zone (id.). In considering these other methodologies, we do not depart from our use of the DCF methodology; rather, we use the record evidence to inform the just and reasonable placement of the ROE within the zone of reasonableness established in the record by the DCF methodology. ( 146 see also Opinion 531-B at 49, 56). 2
Vignette 1, continued The DC Circuit s Emera Maine opinion vacated Opinion 531: [T]he only conclusion FERC drew from these analyses was that [TOs] were entitled to an ROE somewhere above the 9.39 percent midpoint of the zone of reasonableness. (854 F.3d 9, 28 (D.C. Cir. 2017)). FERC failed to explain how any evidence demonstrated that 10.57 percent was . . . just and reasonable. (Id.). FERC stressed that it used the alternative analyses only to inform the just and reasonable placement of the ROE within the zone of reasonableness. (Id. at 29, emphasis in original). 3
Vignette 1, continued FERC issued orders directing briefs in October and November 2018. Proposed new frameworks for (i) determining whether existing ROEs remain just and reasonable; and, if not (ii) determining a replacement ROE. The new frameworks use alternative benchmarks expressly not relied upon. FERC subsequently issued a Notice of Inquiry on March 21, 2019 soliciting comments on, inter alia, (i) strengths and weaknesses of the various models, (ii) how to determine whether existing ROEs are no longer just and reasonable ( 35, 37-38). Initial Comments are due June 26, 2019 and Reply Comments are due July 26, 2019 4
Vignette 2: Transmission Incentives Long history EPACt 2005, Order 679, 2012 Policy Statement, etc. October 2018 Open Meeting On March 21, 2019, FERC issued a Notice of Inquiry posing 105 questions. Initial Comments are due June 26, 2019 and Reply Comments are due August 26, 2019 5
Vignette 3: Reforming the Natural Gas Act Federal Power Act Natural Gas Act Consumer-protection statute requiring FERC to protect against excessive rates Provisions governing utilities rate proposals X Authorizes reductions below a refund floor * Provisions governing investigation of existing rates X Authorizes refunds back to a refund effective date * A refund floor is the pre-existing, or last clean rate. 6
Resources Opinion 531 https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=13576249 Opinion 531-B https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=13792661 Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017) https://scholar.google.com/scholar_case?case=9327819909108348859 &q=854+F.3d+9+&hl=en&as_sdt=20006 Order Direct Briefs in ISO-NE ROE Complaint https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=15074100 7
Resources, continued Notice of Inquiry, Docket No. PL19-4 https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=15192397 NASUCA Resolution on Incentives https://www.nasuca.org/transmission-planning-and-development- 2010-01/ Order No. 679 https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=11089376 Notice of Inquiry, Docket No. PL19-3 https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=15192396 8
