Summary
The United States Court of Appeals for the District of Columbia Circuit upheld FERC's approval of a 100-basis-point return-on-equity incentive for certain New England transmission projects. The court held that FERC reasonably linked the incentive to accelerating project completion and adequately supported its determination that the incentive could benefit consumers through improved reliability and reduced congestion.
Topics
Practice areas
Questions Presented
- Whether FERC's requirement that the incentive be rationally related to the proposed transmission investment was an adequate legal standard.
- Whether substantial evidence supported FERC's conclusion that the incentive could accelerate completion of the transmission projects and benefit consumers.
- Whether FERC acted arbitrarily or capriciously by granting the incentive for projects completed before December 31, 2008 based partly on administrative burden and project-owner reliance.
- Whether the court had jurisdiction to review arguments that were not adequately presented in FERC's petition for rehearing.
Holdings
- FERC permissibly required that the proposed return-on-equity incentive fall within the zone of reasonable returns and have a rational relationship or nexus to the investment being made.
- Substantial evidence supported FERC's conclusion that the incentive could benefit consumers by accelerating completion of needed transmission projects.
- FERC reasonably limited the incentive primarily to projects completed by December 31, 2008 and declined to reopen the record under a later, more demanding standard.
Key quotations
“the applicable standard [as] whether (i) the proposed incentive falls within the zone of reasonable returns; and (ii) there is some link or nexus between the incentives being requested and the investment being made, i.e., to demonstrate that the incentives are rationally related to the investments being proposed.” (593 F.3d at 33)
“Hence the case is quite different from New England Power Pool, 97 FERC ¶ 61,093, 2001 WL 1297757 (2001), which petitioners characterize as establishing a rule against "reward[ing] [utilities] for doing what [they are] supposed to do" anyway.” (593 F.3d at 34)
Factual background
FERC approved a 100-basis-point return-on-equity adder for certain New England transmission projects intended to address congestion and reliability problems and to accelerate project completion. The transmission owners' evidence estimated that the incentive would cost customers $148.2 million in present-value terms but could produce benefits of $76 million for each year that completion was accelerated. Although the projects would eventually be completed without the incentive, FERC found that financial motivation could induce utilities to push projects through the approval process more quickly.
Procedural history
ISO New England and transmission owners sought approval of a regional transmission organization and return-on-equity incentives. FERC approved a 50-basis-point participation incentive, referred the proposed 100-basis-point transmission investment incentive to an administrative law judge, and then reversed the ALJ's determination that the record did not establish a need for the incentive. On rehearing, FERC limited the incentive primarily to projects completed by December 31, 2008. State utility regulators petitioned for review, and the D.C. Circuit denied the petition.