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Commissioner Honorable Statement
March 3, 2015
Docket Nos. EL11-66-002 and EL11-66-003 PDF

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Coakley Rehearing

“In denying the requests for rehearing, the Commission sets forth a cogent defense of Opinion No. 531 and duly considers and adequately addresses the arguments of the petitioners in the numerous requests for rehearing. Additionally, it is within the Commission’s discretion to alter the DCF methodology for determining the just and reasonable rates of return for the NETOs.

“I write separately to emphasize two important points to ensure that they are not lost in the shift in the DCF methodology and the placement of the base ROE above the central tendency of the zone of reasonableness. These points relate to: (1) the determination of the just and reasonable rate; and (2) the anomalous market conditions that prompted the consideration of alternative methodologies which ultimately led to the placement of the base ROE halfway between the midpoint and the top of the zone of reasonableness.

“The just and reasonable rate of return for a public utility necessarily must consider both the protection of the consumer and the capital attraction standards set forth in Hope and Bluefield. The Commission appropriately relies upon the landmark Hope and Bluefield decisions to make the point that the allowed return should be adequate to enable it to secure the funding necessary for the proper discharge of its public duties. The duty to ensure the NETOs’ ability to attract capital prompted consideration of additional record evidence and led to the use of alternative methodologies as benchmarks against which the DCF results were measured. However, while the Commission in Opinion No. 531 tacitly recognizes that a just and reasonable rate protects consumers, it does not emphasize consumer protection as forcefully as it could have. The primary purpose of the authority granted to the Commission to ensure a just and reasonable rate is to protect the consumer. 1 Indeed, the Hope decision, relied upon by this Commission to articulate the just and reasonable standard, explicitly provides that the Commission must balance both “investor and consumer interests.”2 In finding that balance, the Commission dedicates significant effort to ensuring that the NETOs are able to attract sufficient capital. While capital attraction is essential, Opinion No. 531 should not be interpreted as tipping the scale in favor of investor interests. As intended by Congress and confirmed by the Courts, consumer protection is in the DNA of FERC’s ratemaking authority. Opinion No. 531 does not, and cannot, change that fact.

“Keeping in mind the delicate balance that the Commission must strike when weighing investor and consumer interests, it is important to note that the finding of “anomalous market conditions” in Opinion No. 531 did not create a bright line test nor did it create a presumption that market conditions will be found to be anomalous going forward. The anomalous, or unusual, market conditions that were found in the original order to justify the placement of the base ROE above the central tendency of the zone of reasonableness were, by definition, atypical. Any public utility that seeks to rely upon anomalous market conditions to justify placement of its base ROE in the upper end of the zone of reasonableness will be tasked with demonstrating, in each case, that market conditions are indeed anomalous and that the adequacy of a base ROE set at the midpoint of the zone of reasonableness should be scrutinized. The utility should expect a rigorous analysis of the record when it attempts to make such a demonstration.

“The decision in Opinion No. 531 is within the Commission’s broad discretion to determine the just and reasonable rate. I concur with this denial of the requests for rehearing to emphasize the points discussed above.”


    1See, e.g., Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty., Wash., 554 U.S. 527, 564 (2008) (“Congress enacted the FPA precisely because it concluded that regulation was necessary to protect consumers from deficient markets.”).