Dive Brief:
- A federal appeals court on Friday upheld the Federal Energy Regulatory Commission’s decision in 2024 to lower the return on equity for transmission owners in the Midcontinent Independent System Operator footprint and to order refunds to ratepayers.
- The U.S. Court of Appeals for the District of Columbia Circuit dismissed arguments from the transmission owners that the Federal Power Act limits refunds to a single 15-month period.
- The decision could affect Eversource Energy and other transmission owners in New England that have challenged a March FERC decision to lower their allowed ROE and issue roughly $1.5 billion in refunds, according to Ari Peskoe, director of Harvard Law School’s Electricity Law Initiative. When the utilities asked FERC to stay its decision — a request the agency rejected in May — they primarily used arguments the appeals court just rejected, Peskoe said in an email Wednesday. The utilities in May asked the appeals court to overturn FERC’s ROE decision.
Dive Insight:
The court’s ruling on FERC’s MISO order comes amid broad concerns about how to balance electric affordability — which can be affected by how much ROE utilities are allowed to earn on their infrastructure — and efforts to expand the grid to replace aging infrastructure and accommodate growing electric use.
It also is the latest action stemming from a November 2013 complaint that argued that MISO transmission owners were earning excessive ROEs.
In the leadup to Friday’s decision, the appeals court in August 2022 vacated a previous FERC decision, saying the agency failed to adequately explain in a rehearing order why it reinstated the use of a risk-premium model as part of its methodology in setting ROEs after it had previously rejected that model.
In response, FERC in October 2024 ordered MISO transmission owners to adopt a 9.98% base ROE for their transmission assets, starting on Sept. 28, 2016, down from a 10.02% ROE. FERC also ordered refunds based on the lower ROE, with interest, for the period from Nov. 12, 2013, to Feb. 11, 2015, and from Sept. 28, 2016, to the date of its order.
The transmission owners asked the appeals court to overturn FERC’s 2024 decision, arguing that the agency lacks the authority to retroactively order refunds for more than a single 15-month period.
Some of the utility companies that challenged FERC’s decision are Ameren, Duke Energy, Entergy, MidAmerican Energy and Xcel Energy.
Generally, the Federal Power Act only allows refunds for a 15-month period, the court said. But, there is “clear precedent” for an exception when FERC is correcting a mistake that it made, the court ruled.
FERC “reasonably” backdated the refund date to its initial September 2016 order, which the appeals court ruled was flawed, according to the ruling.
“This result makes sense,” the court said. “An alternative approach would deprive FERC of the ability to give effect to judicial reversals and would undermine its statutory obligation to ensure just and reasonable rates.”
MISO runs the grid and wholesale power markets in 15 states and the Canadian province of Manitoba.
Besides potentially weakening the appeals case of the New England transmission owners, the court action highlights why FERC needs to reform cost recovery of lawyers’ fees, according to Peskoe.
FERC allows utilities to recover their legal fees from ratepayers.
“FERC’s approach to cost recovery of lawyers’ fees forces ratepayers to fund litigation that could result in higher prices for the benefit of investors,” Peskoe said. “Utilities have every incentive to hire the most expensive lawyers — perhaps charging as high as $2,000 per hour — since the legal costs will be recovered in rates and will not reduce investors’ profits.”
