Setting the return on equity (ROE) that utility stockholders may earn from providing certain services, primarily electric transmission and pipeline services, is a fundamental aspect of FERC’s cost-of-service regulatory regime. FERC has used the same basic method to determine ROE since the 1980s but recently made some reforms that applied to a few electric transmission cases. Now FERC has issued a Notice of Inquiry (NOI) seeking public comments regarding those reforms and whether reforms should also be applied to interstate gas and oil pipelines.
The ROE along the with debt interest rate is applied to a utility’s invested capital in setting the revenue to be collected by rates and is a principal driver of profitability. By the same token, an appropriate ROE policy that balances both investor and consumer interests is critical to achieving FERC’s overarching mission of ensuring just and reasonable rates. Accordingly, changes in the way FERC sets the ROE should be of great importance to energy consumers and to any company or investor with an interest in an electric utility, gas pipeline, or oil pipeline that is subject to FERC’s cost-of-service regulation. Continue Reading