FERC Revises ROE Methodology For Transmission Owners

Commission Abandons Risk Premium Model, Relies Exclusively on Discounted Cash Flow and Capital-Asset Pricing Models

On October 17, 2024, the Federal Energy Regulatory Commission (Commission) issued an order revising the methodology for establishing the return on equity (ROE) for transmission owners (TOs) operating within the footprint of the Midcontinent Independent System Operator, Inc. (MISO). This same methodology likely will be applied to other TOs with an RTO-wide ROE who are subject to a complaint filed pursuant to Section 206 of the Federal Power Act.

Specifically, the Commission clarified that the methodology to evaluate ROEs in response to a Section 206 complaint should rely only on two financial models: the Discounted Cash Flow (DCF) model and the Capital-Asset Pricing model (CAPM). In prior orders vacated by the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit), the Commission had also incorporated a Risk Premium model into its ROE methodology.