On June 26, 2013, a non-profit association of investors (WIRES) petitioned FERC to initiate a generic proceeding to clarify and reform policies regarding regulated rates of return on equity (or ROE) for existing and future investments in high voltage electric transmission infrastructure.  According to WIRES, evolving and unpredictable application of FERC’s discounted cash flow (DCF) methodology for determining allowed ROEs may have unintended consequences by chilling investment in needed transmission facilities, disrupting infrastructure planning and growth, and delaying projects.

WIRES recommends a new policy that (1) standardizes selection of proxy groups; (2) denies complainants a hearing on ROEs for existing facilities unless it is shown that existing returns are at the extremes of the zone of reasonableness; (3) allows consideration of competing infrastructure investments of other industries; (4) permits use of ROE methodologies other than DCF; and (5) supports use of more forward-looking data and modeling.

Regulated ROEs for new and existing transmission infrastructure have been declining in recent years, and FERC has been less inclined to grant ROE adders.  Single issue rate cases challenging allowed ROEs have undermined regulatory certainty needed to support infrastructure investment and created uncertainty in capital markets.

A copy of the petition is available here.