171 FERC ¶ 61,154

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Neil Chatterjee, Chairman;

 Richard Glick, Bernard L. McNamee,

and James P. Danly.

Association of Businesses Advocating Tariff Equity 

Coalition of MISO Transmission Customers

Illinois Industrial Energy Consumers 

Indiana Industrial Energy Consumers, Inc.

Minnesota Large Industrial Group

Wisconsin Industrial Energy Group

 v.

Midcontinent Independent System Operator, Inc. 

ALLETE, Inc.

Ameren Illinois Company 

Ameren Missouri

Ameren Transmission Company of Illinois

American Transmission Company LLC

Cleco Power LLC

Duke Energy Business Services, LLC

Entergy Arkansas, Inc.

Entergy Gulf States Louisiana, LLC

Entergy Louisiana, LLC

Entergy Mississippi, Inc.

Entergy New Orleans, Inc.

Entergy Texas, Inc.

Indianapolis Power & Light Company

International Transmission Company

ITC Midwest LLC

Michigan Electric Transmission Company, LLC 

MidAmerican Energy Company

Montana-Dakota Utilities Co.

Northern Indiana Public Service Company

Northern States Power Company-Minnesota

Northern States Power Company-Wisconsin

Otter Tail Power Company

Southern Indiana Gas & Electric Company

 Docket No. EL14-12-004
Docket Nos. EL14-12-004 and EL15-45-013 - 2 -

Arkansas Electric Cooperative Corporation

Mississippi Delta Energy Agency

Clarksdale Public Utilities Commission

Public Service Commission of Yazoo City

Hoosier Energy Rural Electric Cooperative, Inc.

 v.

ALLETE, Inc. 

Ameren Illinois Company 

Ameren Missouri

Ameren Transmission Company of Illinois

American Transmission Company LLC

Cleco Power LLC

Duke Energy Business Services, LLC

Entergy Arkansas, Inc.

Entergy Gulf States Louisiana, LLC

Entergy Louisiana, LLC

Entergy Mississippi, Inc.

Entergy New Orleans, Inc.

Entergy Texas, Inc.

Indianapolis Power & Light Company

International Transmission Company

ITC Midwest LLC

Michigan Electric Transmission Company, LLC 

MidAmerican Energy Company

Montana-Dakota Utilities Co.

Northern Indiana Public Service Company

Northern States Power Company-Minnesota

Northern States Power Company-Wisconsin

Otter Tail Power Company

Southern Indiana Gas & Electric Company

 Docket No. EL15-45-013

OPINION NO. 569-A

ORDER ON REHEARING

(Issued May 21, 2020)
Docket Nos. EL14-12-004 and EL15-45-013 - 3 -

On November 21, 2019, the Commission issued Opinion No. 569.1 In that order, 

the Commission acted on the then-pending rehearing requests and the Initial Decision, as 

well the Order Directing Briefs,

2 in the above-captioned proceedings. In brief, Opinion 

No. 569 applied a revised methodology for analyzing the base return on equity (ROE) 

component of public utility rates under section 206 of the Federal Power Act (FPA) that 

used the discounted cash flow (DCF) model and capital-asset pricing model (CAPM), 

instead of only the DCF model, and established a range of presumptively just and 

reasonable ROEs based on the quartiles of the zone of reasonableness. Multiple parties 

request rehearing of Opinion No. 569.3

 In this order, we grant in part and deny in part the 

requests for rehearing.

In particular, in Opinion No. 569, the Commission used the DCF model and 

CAPM in its determinations under the first and second prongs of section 206, giving 

each model equal weight under both prongs, and did not use the expected earnings 

(Expected Earnings) or risk premium (Risk Premium) models, as proposed in the 

Briefing Order. In addition, the Commission used the ranges of presumptively just and 

reasonable ROEs in its analysis under the first prong of section 206, as the Commission 

proposed in the Briefing Order, used the high-end outlier test as proposed in the Briefing 

Order, used the Institutional Brokers’ Estimate System (IBES) as the source of short-term 

earnings growth estimates in the DCF and CAPM, and used a revised low-end outlier test 

that eliminates DCF and CAPM proxy group ROE results that are less than the yields of 

generic corporate Baa bonds plus 20% of the CAPM risk premium. In this order, we are 

granting rehearing of Opinion No. 569 to use the Risk Premium model under both prongs 

of our section 206 analysis, to give the short-term growth rate 80% weighting and the 

long-term growth rate 20% weighting in the two-step DCF model, to modify the high-end 

outlier test to treat any proxy company as high-end outlier if its cost of equity estimated 

under the model in question is more than 200% of the median result of all of the potential 

proxy group members in that model4 before any high or low-end outlier test is applied, 

subject to a “natural break” analysis, to consider the use of Value Line short-term 

earnings growth estimates in the CAPM in future proceedings, and to calculate the ranges 

1 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., Opinion No. 569, 169 FERC ¶ 61,129 (2019).

2 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 165 FERC ¶ 61,118 (2018) (Briefing Order).

3 See infra PP 23-24.

4 As noted below, the high-end outlier test only applies to the DCF model and 

CAPM because they utilize results of the relevant analysis applied to a proxy group, 

while the Risk Premium model is derived from actual ROEs.
Docket Nos. EL14-12-004 and EL15-45-013 - 4 -

of presumptively just and reasonable base ROEs by dividing the overall composite zone 

of reasonableness into equal thirds. 

Applying this revised methodology to the facts of the November 12, 2013, 

complaint filed in Docket No. EL14-12-000 pursuant to section 206 (First Complaint), 

we review the Midcontinent Independent System Operator, Inc. (MISO) 

transmission-owning members’ (MISO TOs) 12.38% base ROE that was the existing 

ROE reviewed in Opinion No. 551, which was pending on rehearing before the 

Commission when it issued Opinion No. 569, and continue to find that this base ROE 

is unjust and unreasonable. Having found that MISO TOs’ 12.38% ROE is unjust and 

unreasonable, we then find that a just and reasonable replacement ROE for the MISO 

TOs in the First Complaint proceeding is 10.02%. As discussed further below, in the

second section 206 complaint (Second Complaint) proceeding in Docket 

No. EL15-45-000, the ROE to be reviewed is the 10.02% base ROE established in the 

First Complaint proceeding that is effective prospectively from September 28, 2016—the 

date of the issuance of Opinion No. 551. Under the revised base ROE methodology 

applied in this order, the 10.02% base ROE that the Commission is reviewing for 

purposes of the Second Complaint proceeding falls within the applicable range of 

presumptively just and reasonable base ROEs, therefore, the Commission presumes it 

to be just and reasonable. As discussed below, we find that this presumption has not been 

rebutted by the evidence in the Second Complaint proceeding. Accordingly, we affirm 

the Commission’s decision in Opinion No. 569 to dismiss the Second Complaint, and its 

finding that no refunds should be issued as a result of the resolution of that complaint.

I. Background

A. Opinion No. 531 et seq.

In Opinion No. 531, the Commission adopted certain changes to its use of the 

DCF methodology for evaluating and setting the Commission-allowed ROE for the New 

England transmission owners (New England TOs). In particular, the Commission elected 

to replace the “one-step” DCF model, which considers only short-term growth 

projections for a public utility, with a “two-step” model that considers both short- and 

long-term growth projections.5

 The Commission also departed from its typical practice 

of setting the just and reasonable ROE of a group of utilities at the midpoint of the zone 

of reasonableness. The Commission explained that evidence of “anomalous” capital 

5 See generally Coakley Mass. Attorney Gen. v. Bangor Hydro-Elec. Co., Opinion 

No. 531, 147 FERC ¶ 61,234, at PP 8, 32-41, order on paper hearing, Opinion 

No. 531-A, 149 FERC ¶ 61,032 (2014), order on reh’g, Opinion No. 531-B, 150 FERC 

¶ 61,165 (2015), rev’d, Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017) (Emera 

Maine).
Docket Nos. EL14-12-004 and EL15-45-013 - 5 -

market conditions, including “bond yields [that were] at historic lows,” made the 

Commission “less confiden[t] that the midpoint of the zone of reasonableness . . . 

accurately reflects the [ROE] necessary to meet the Hope and Bluefield capital attraction 

standards.”6

 The Commission therefore looked to four alternative benchmark models: 

three financial models—the Risk Premium model, CAPM, and Expected Earnings

model7

—as well as a comparison with the ROEs approved by state public utility 

commissions.8

 In considering those models, the Commission emphasized that it was 

not departing from its long-standing reliance on the DCF model, but rather relying on 

those models only to “inform the just and reasonable placement of the ROE within the 

zone of reasonableness established . . . by the DCF methodology.”9

 Based on these 

alternative models, the Commission determined that an ROE of 10.57%, the midpoint of 

the upper half of the zone of reasonableness produced by the two-step DCF model, would 

be just and reasonable. Because that figure differed from New England TOs’ existing 

11.14% ROE, the Commission concluded that the existing base ROE had become unjust 

and unreasonable and it therefore set New England TOs’ base ROE at 10.57%, pending a 

paper hearing concerning the long-term growth projection to use in the DCF analysis. 

Following that hearing, in Opinion No. 531-A the Commission reaffirmed its conclusion

that New England TOs’ existing ROE was unjust and unreasonable and that 10.57% was 

the just and reasonable ROE. The Commission required New England TOs to submit a 

compliance filing to implement their new ROEs effective October 16, 2014—the date of 

issuance of Opinion No. 531-A.

6 Opinion No. 531, 147 FERC ¶ 61,234 at PP 144-145 & n.285. “Hope” and 

“Bluefield” refer to a pair of U.S. Supreme Court cases that require the Commission “to 

set a rate of return commensurate with other enterprises of comparable risk and sufficient 

to assure that enough capital is attracted to the utility to enable it to meet the public's 

needs.” Boroughs of Ellwood City, Grove City, New Wilmington, Wampum, & 

Zelienople, Pa. v. FERC, 731 F.2d 959, 967 (D.C. Cir. 1984) (citing FPC v. Hope Nat. 

Gas Co., 320 U.S. 591, 603 (1944) (Hope) and Bluefield Waterworks Improvement Co. v. 

Pub. Serv. Comm’n of W.V., 262 U.S. 679 (1923) (Bluefield)).

7 As discussed further below, the Risk Premium model estimates cost of equity 

using the implied premium that provided over Baa-rated utility bonds by regulatory 

decisions and settlements. The CAPM derives the ROE through the risk premium 

observed from the risk premium of a DCF analysis of S&P 500 dividend-paying 

companies. The Expected Earnings model is a method of calculating the earnings that 

an investor expects to receive on the book value of a particular stock.

8 Opinion No. 531, 147 FERC ¶ 61,234 at PP 147-149.

9 Id. P 146.
Docket Nos. EL14-12-004 and EL15-45-013 - 6 -

B. Opinion No. 551 et seq.

On November 12, 2013, multiple complainants10 filed the First Complaint in 

Docket No. EL14-12-000 pursuant to section 206 of the FPA, alleging, among other 

things, that the MISO TOs’ base ROE reflected in MISO’s Open Access Transmission, 

Energy and Operating Reserve Markets Tariff was unjust and unreasonable.11 At the 

time of the First Complaint, MISO TOs had a base ROE of 12.38% (except for the 

ATCLLC zone which had a 12.20% ROE),12 and their total ROE (i.e., the base ROE 

plus any ROE adders approved by the Commission) was not permitted to exceed 15.96%. 

The Commission established the MISO TOs’ preexisting 12.38% ROE in a 2002 

decision.13 That ROE was based on a DCF analysis using financial data for the 

10 The complainants consist of a group of large industrial customers: Association 

of Businesses Advocating Tariff Equity (ABATE); Coalition of MISO Transmission 

Customers (Coalition of MISO Customers); Illinois Industrial Energy Consumers (IIEC); 

Indiana Industrial Energy Consumers, Inc. (INDIEC); Minnesota Large Industrial Group

(MLIG); and Wisconsin Industrial Energy Group.

11 The following MISO transmission owners were named in the First Complaint: 

ALLETE, Inc. for its operating division Minnesota Power (and its subsidiary Superior 

Water, L&P); Ameren Services Company, as agent for Union Electric Company, Ameren 

Illinois Company, and Ameren Transmission Company of Illinois; American 

Transmission Company LLC (ATC); Cleco Power LLC; Duke Energy Corporation for 

Duke Energy Indiana, Inc.; Entergy Arkansas, Inc.; Entergy Louisiana, LLC; Entergy 

Gulf States Louisiana, L.L.C.; Entergy Mississippi, Inc.; Entergy New Orleans, Inc.; 

Entergy Texas, Inc.; Indianapolis Power & Light Company; International Transmission 

Company; ITC Midwest LLC; METC; MidAmerican Energy Company; Montana-Dakota 

Utilities Co.; Northern Indiana Public Service Company; Northern States Power 

Company, a Minnesota corporation, and Northern States Power Company, a Wisconsin 

corporation, subsidiaries of Xcel Energy Inc.; Northwestern Wisconsin Electric 

Company; Otter Tail Power Company; Southern Indiana Gas & Electric Company; and 

Wolverine Power Supply Cooperative, Inc. Intervenor Xcel Energy Services Inc. did not 

join certain of the MISO TOs’ pleadings in this proceeding, but generally supported the

brief on behalf of respondents Northern States Power Company, a Minnesota corporation, 

and Northern States Power Company, a Wisconsin corporation.

12 For the sake of clarity, we refer to this ROE of the MISO TOs as 12.38% in this 

order, without separately identifying that the ATCLLC zone had a 12.20% ROE. Our 

discussion and decisions with respect to the MISO TOs’ 12.38% ROE also apply to the 

12.20% ATCLLC ROE.

13 See Midwest Indep. Transmission Sys. Operator, Inc., 99 FERC ¶ 63,011, initial 

decision affirmed as to base ROE, 100 FERC ¶ 61,292 (2002), reh’g denied, 102 FERC 
Docket Nos. EL14-12-004 and EL15-45-013 - 7 -

six-month period ending February 2002.14 On October 16, 2014, the same date that the 

Commission issued Opinion No. 531-A, it set the First Complaint for hearing before an 

Administrative Law Judge and established a refund effective date of November 12, 

2013.15

Following the hearing, the Presiding Judge issued an Initial Decision,16 and the 

Commission subsequently issued Opinion No. 551.17 In Opinion No. 551, the 

Commission calculated the just and reasonable ROE using the two-step DCF 

methodology from Opinion No. 531 and financial data for the period January 1 through 

June 30, 2015. The Commission affirmed the conclusions of Initial Decision (I), finding 

that the Presiding Judge correctly applied the two-step DCF analysis required by Opinion 

No. 531.18 The Commission also affirmed the Presiding Judge’s determination that, as in 

Opinion No. 531, there were anomalous capital market conditions such that the 

Commission had less confidence that the midpoint of the zone of reasonableness 

produced by a mechanical application of the DCF methodology satisfied the capital 

attraction standards of Hope and Bluefield.

19 The Commission found that the Presiding 

Judge reasonably considered evidence of alternative methodologies for determining the 

¶ 61,143 (2003), order on remand, 106 FERC ¶ 61,302 (2004). The ATCLLC zone base 

ROE of 12.20% was established as part of a settlement agreement that was filed with the 

Commission on March 26, 2004. In Docket No. ER04-108-000, the Commission 

approved the uncontested settlement. Am. Transmission Co. LLC, 107 FERC ¶ 61,117 

(2004).

14 Midwest Indep. Transmission Sys. Operator, Inc., 99 FERC ¶ 63,011, app. A.

15 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 149 FERC ¶ 61,049, at P 188 (2014) (MISO I Hearing Order), order on reh’g, 

156 FERC ¶ 61,060 (2016) (MISO I Rehearing Order). In the MISO I Rehearing Order, 

the Commission denied requests for rehearing and clarification of the MISO I Hearing 

Order and clarified that non-public utility transmission owners are subject to the outcome 

of that proceeding. MISO I Rehearing Order, 156 FERC ¶ 61,060 at PP 47-48.

16 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 153 FERC ¶ 63,027 (2015) (Initial Decision (I)).

17 Ass’n of Businesses Advocating Tariff Equity v. Midcontinent Indep. Sys. 

Operator, Inc., Opinion No. 551, 156 FERC ¶ 61,234 (2016) (affirming Initial 

Decision (I), 153 FERC ¶ 63,027).

18 See generally Opinion No. 551, 156 FERC ¶ 61,234 at P 9.

19 Id.
Docket Nos. EL14-12-004 and EL15-45-013 - 8 -

ROE and the ROEs approved by state regulatory commissions, for purposes of deciding 

to set the ROE at the central tendency of the upper half of the zone of reasonableness, 

setting the base ROE for MISO TOs at 10.32%.

20 The Commission required MISO TOs 

to submit a compliance filing to implement their new ROEs effective September 28, 

2016, the date of Opinion No. 551, and to provide refunds for the November 12, 2013-

February 11, 2015 refund period. Following the issuance of Opinion No. 551, numerous 

parties submitted requests for rehearing.

C. Second Complaint Against MISO TOs’ ROE

On February 12, 2015, a new set of complainants21 filed the Second Complaint in 

Docket No. EL15-45-000 also alleging that the MISO TOs’ base ROE of 12.38% was 

unjust and unreasonable.22 Relying on an updated two-step DCF analysis, the Second 

Complaint complainants argued that the base ROE should be no higher than 8.67%.

23 On 

20 Id.

21 Complainants for the Second Complaint consist of: Arkansas Electric 

Cooperative Corporation (Arkansas Electric Cooperative); Mississippi Delta Energy 

Agency and its two members, Clarksdale Public Utilities Commission of the City of 

Clarksdale, Mississippi and Public Service Commission of Yazoo City of the City of 

Yazoo City, Mississippi; and Hoosier Energy Rural Electric Cooperative, Inc. (Hoosier 

Cooperative).

22 The following MISO transmission owners were named in the Second 

Complaint: ALLETE, Inc. (for its operating division Minnesota Power, Inc. and its 

wholly-owned subsidiary Superior Water Light, & Power Company); Ameren Illinois 

Company; Union Electric Company (identified as Ameren Missouri); Ameren 

Transmission Company of Illinois; ATC; Cleco Power LLC; Duke Energy Business 

Services, LLC; Entergy Arkansas, Inc.; Entergy Gulf States Louisiana, LLC; Entergy 

Louisiana, LLC; Entergy Mississippi, Inc.; Entergy New Orleans, Inc.; Entergy Texas, 

Inc.; Indianapolis Power & Light Company; International Transmission Company, ITC 

Midwest LLC, and Michigan Electric Transmission Company, LLC; MidAmerican 

Energy Company; Montana-Dakota Utilities Co.; Northern Indiana Public Service 

Company; Northern States Power Company-Minnesota; Northern States Power 

Company-Wisconsin; Otter Tail Power Company; and Southern Indiana Gas & Electric 

Company.

23 Ark. Elec. Coop. Corp. v. ALLETE, Inc., 151 FERC ¶ 61,219, at P 1 (2015) 

(MISO II Hearing Order), order on reh’g, 156 FERC ¶ 61,061 (2016) 

(MISO II Rehearing Order).
Docket Nos. EL14-12-004 and EL15-45-013 - 9 -

June 18, 2015, the Commission established hearing procedures and set a refund effective 

date of February 12, 2015.24

Parties filed requests for rehearing of the MISO II Hearing Order, and on July 21, 

2016, the Commission generally denied these rehearing requests.25 Following the 

MISO II Hearing Order, the Presiding Judge issued the Initial Decision on June 30, 

2016.26 The Presiding Judge adopted a zone of reasonableness of 6.75% to 10.68% based 

on financial data for the period July 1, 2015 through December 31, 2015. The Presiding 

Judge also determined that the anomalous capital market conditions identified in Opinion 

No. 531 persisted and, after considering the alternative benchmark methodologies, that 

the just and reasonable ROE was 9.70%—halfway between the midpoint and the upper 

bound of the zone of reasonableness. The participants filed briefs on and opposing 

exception.

D. Emera Maine

On April 14, 2017, the United States Court of Appeals for the District of Columbia 

Circuit (D.C. Circuit) issued its Emera Maine decision, vacating and remanding Opinion 

No. 531 et seq. As an initial matter, the D.C. Circuit was not persuaded by New England 

TOs’ argument that an ROE within the DCF-produced zone of reasonableness could not 

be deemed unjust and unreasonable. The D.C. Circuit explained that the zone of 

reasonableness established by the DCF is not “coextensive” with the “statutory” zone of 

reasonableness envisioned by the FPA.27 Accordingly, the D.C. Circuit concluded that 

the fact that New England TOs’ existing ROE fell within the zone of reasonableness 

produced by the DCF did not necessarily indicate that it was just and reasonable for the 

purposes of the FPA.28

Nevertheless, the D.C. Circuit found that the Commission had not adequately 

shown that New England TOs’ existing ROE was unjust and unreasonable. The D.C. 

Circuit explained that the FPA’s statutory “zone of reasonableness creates a broad range 

of potentially lawful ROEs rather than a single just and reasonable ROE” and that 

whether a particular ROE is unjust and unreasonable depends on the “particular 

24 MISO II Hearing Order, 151 FERC ¶ 61,219 at P 1.

25 See MISO II Rehearing Order, 156 FERC ¶ 61,061.

26 Ark. Elec. Coop. Corp. v. ALLETE, Inc., 155 FERC ¶ 63,030 (2016) (Initial 

Decision (II)).

27 Emera Maine, 854 F.3d at 22-23.

28 Id. at 23.
Docket Nos. EL14-12-004 and EL15-45-013 - 10 -

circumstances of the case.”29 Thus, the fact that New England TOs’ existing ROE did 

not equal the just and reasonable ROE that the Commission would have set using the 

current DCF inputs did not necessarily indicate that New England TOs’ existing ROE fell 

outside the statutory zone of reasonableness.30 As such, the D.C. Circuit concluded that 

Opinion No. 531 “failed to include an actual finding as to the lawfulness of [New 

England TOs’] existing base ROE” and that its conclusion that their existing ROE was 

unjust and unreasonable was itself arbitrary and capricious.31

The D.C. Circuit also found that the Commission had not adequately shown that 

the 10.57% ROE that it set was just and reasonable. Although recognizing that the 

Commission has the authority “to make ‘pragmatic adjustments’ to a utility's ROE based 

on the ‘particular circumstances’ of a case,” the D.C. Circuit nevertheless concluded that 

the Commission had not explained why setting the ROE at the upper midpoint was just 

and reasonable.32 The D.C. Circuit noted, in particular, that the Commission relied on the 

alternative models and state-regulated ROEs to support a base ROE above the midpoint, 

but that it did not rely on that evidence to support an ROE at the upper midpoint.33 

Similarly, the D.C. Circuit noted that the Commission had concluded that a base ROE of 

9.39%—the midpoint of the zone of reasonableness—might not be sufficient to satisfy 

Hope and Bluefield or to allow the utility to attract capital, but that the Commission had 

not similarly explained how a 10.57% base ROE was sufficient to meet either of those 

conditions. Because the D.C. Circuit found that the Commission had not pointed to 

record evidence supporting the specific point at which it set New England TOs’ ROE, the 

29 Id. at 23, 26.

30 Id. at 27 (“To satisfy its dual burden under section 206, FERC was required to 

do more than show that its single ROE analysis generated a new just and reasonable ROE 

and conclusively declare that, consequently, the existing ROE was per se unjust and 

unreasonable.”).

31 Id.

32 Id. (quoting FPC v. Nat. Gas Pipeline Co. of America, 315 U.S. 575, 586 

(1942)).

33 Id. at 29 (“FERC’s reasoning is unclear. On the one hand, it argued that the 

alternative analyses supported its decision to place the base ROE above the midpoint, but 

on the other hand, it stressed that none of these analyses were used to select the 

10.57% base ROE.”).
Docket Nos. EL14-12-004 and EL15-45-013 - 11 -

D.C. Circuit held that the Commission had not articulated the “rational connection” 

between the evidence and the rate that the FPA demands.34

Based on the D.C. Circuit’s conclusion that the Commission had not met its 

burden either under the first or the second prong of section 206 of the FPA, it vacated 

and remanded Opinion No. 531 et seq.,

35 meaning that Opinion No. 531 is no longer 

precedential,

36 even though the Commission remained free to re-adopt those 

determinations on remand as long as it provided a reasoned basis for doing so.37 The 

Commission relied extensively on its determinations in Opinion No. 531 in its order on 

the First Complaint (i.e., Opinion No. 551).

E. Briefing Orders

On October 16, 2018, the Commission issued an order proposing a methodology 

for addressing the issues that were remanded to the Commission in Emera Maine and 

established a paper hearing on whether and how this methodology should apply to the 

four complaint proceedings concerning New England TOs’ ROE.38 In the Coakley

Briefing Order, the Commission proposed to change its approach to determining base 

ROE by giving equal weight to four financial models, instead of primarily relying on the 

DCF methodology. The Commission stated that evidence indicates that investors do not 

rely on any one model to the exclusion of others. Therefore, relying on multiple financial 

models made it more likely that the Commission’s ROE determination would accurately 

reflect how investors make their investment decisions.

Specifically, the Commission proposed to rely on three financial models that 

produce zones of reasonableness—the DCF model, CAPM, and Expected Earnings 

model—to establish a composite zone of reasonableness. The zone of reasonableness 

produced by each model would be given equal weight and averaged to determine the 

composite zone of reasonableness.39 

34 Id. at 28-30.

35 Id. at 30.

36 Id.

37 Id.

38 Coakley v. Bangor Hydro-Elec. Co., 165 FERC ¶ 61,030 (2018) (Coakley

Briefing Order).

39 See id. PP 16, 30.
Docket Nos. EL14-12-004 and EL15-45-013 - 12 -

The Commission also proposed a framework for using the composite zone of 

reasonableness in evaluating whether an existing base ROE remains just and reasonable. 

The Commission proposed that, in order to find a utility’s existing ROE unjust and 

unreasonable under the first prong of section 206 of the FPA, its ROE must be outside a 

range of presumptively just and reasonable ROEs for a utility of its risk profile, absent 

additional evidence to the contrary. In other words, the Commission would dismiss an 

ROE complaint if the targeted utility’s existing ROE falls within the range of 

presumptively just and reasonable ROEs for a utility of its risk profile unless that 

presumption is sufficiently rebutted. The Commission explained that, by the same token, 

a finding that the existing ROE of a utility falls outside that range would support a 

holding that the ROE has become unjust and unreasonable, absent additional evidence to 

the contrary.40

The Commission explained that it would be appropriate to calculate the applicable 

ranges of presumptively just and reasonable ROEs based on a utility’s risk profile 

because a utility’s risk profile remains the “particular circumstance[]” most relevant to 

determining whether a point within a zone of reasonableness is a just and reasonable 

ROE for that utility.41 The Commission further concluded that the “principal 

consideration for determining whether an existing ROE within the overall zone of 

reasonableness has become unjust and unreasonable is the risk profile of the utility or 

utilities for which the Commission is setting the ROE.”42

The Commission proposed that the applicable range of presumptively just and 

reasonable ROEs for a utility should correspond to those points that are closer to the ROE 

that the Commission should set for that utility than to the ROE for a utility of a different 

risk profile.43 For example, the Commission explained that it typically would be unjust 

and unreasonable for an average risk utility to receive an ROE that is closer to the ROE 

that would be just and reasonable for a utility of above- or below-average risk.44 In 

particular, for average risk utilities, the Commission proposed that the presumptively just 

and reasonable range would be the quartile of the zone of reasonableness centered on the 

central tendency of the composite zone of reasonableness. For below average risk 

utilities, the Commission proposed that such range would be the quartile of the zone of 

reasonableness centered on the central tendency of the lower half of the zone of 

40 See id. PP 16, 28.

41 Id. P 24 (quoting Emera Maine, 854 F.3d at 23).

42 Id. P 28.

43 Id. P 27.

44 Id. P 26.
Docket Nos. EL14-12-004 and EL15-45-013 - 13 -

reasonableness. For above average risk utilities, the Commission proposed that such 

range would be the quartile of the zone of reasonableness centered on the central 

tendency of the upper half of the zone of reasonableness.45 The Commission illustrated 

how these presumptively just and reasonable quartile ranges would be divided as follows:

For purposes of establishing a new just and reasonable base ROE when the 

existing base ROE has been shown to be unjust and unreasonable, the Commission 

proposed using the above three models, plus the Risk Premium model. The Risk 

Premium model produces a single numerical point rather than a range; therefore, the 

Commission did not propose to use it to establish a composite zone of reasonableness. 

The Commission proposed to determine a new just and reasonable ROE for average risk 

utilities by determining the midpoint/medians of each zone of reasonableness produced 

by the DCF, CAPM, and Expected Earnings models and averaging those ROEs with the 

Risk Premium ROE, giving equal weight to each of the four figures.46 The Commission 

45 Id.

46 See Opinion No. 569, 169 FERC ¶ 61,129 at P 344 (“In determining the central 

tendency of the zone of reasonableness, the Commission has distinguished between cases 

involving an RTO-wide ROE and cases involving the ROE of a single utility (or 

pipeline). In cases involving an RTO-wide ROE, the Commission has held that the 

midpoint is appropriate. The Commission has reasoned that, because an RTO-wide ROE 

will apply to a diverse set of companies, the range of results becomes as important as the 

central value, and the midpoint fully considers that range, because it is derived directly 

from the endpoints of the range . . . By contrast, in cases involving a single utility, the 

Commission has held that using the median is appropriate, because the median ‘is the 

most accurate measure of central tendency for a single utility of average risk.’”) (citing 

SoCal Edison, 131 FERC ¶ 61,020, at P 91 (2010), remanded on other grounds sub nom. 

S. Cal. Edison Co. v. FERC, 717 F.3d 177, 183-87 (D.C. Cir. 2013) (S. Cal. Edison v. 

FERC)); Briefing Order, 165 FERC ¶ 61,118 at n.40: “The Commission will continue to 

use the midpoint of the zone of reasonableness as the appropriate measure of central 
Docket Nos. EL14-12-004 and EL15-45-013 - 14 -

proposed to use the midpoint/medians of the lower and upper halves of the zones of 

reasonableness to determine ROEs for below average and above average risk utilities, 

respectively, and average those ROEs with the Risk Premium ROE.47 

On November 15, 2018, the Commission issued the Briefing Order in these 

proceedings. In that order, the Commission similarly established a paper hearing on 

whether and how the methodology proposed in the Coakley Briefing Order should apply 

to the two proceedings pending before the Commission involving MISO TOs’ ROE.48

F. Opinion No. 569

On November 21, 2019, the Commission issued Opinion No. 569 in which it 

applied a revised methodology for analyzing existing base ROEs under section 206 of the 

FPA. The revised methodology applied in Opinion No. 569 did not use the Expected 

Earnings or Risk Premium models as was proposed in the Briefing Order, and instead 

used only the DCF model and CAPM in the Commission’s determinations under the first 

and second prongs of section 206. The methodology applied in Opinion No. 569 gave 

equal weight to the DCF model and CAPM by averaging the top and bottom of the DCF 

and CAPM zones of reasonableness to produce a composite zone of reasonableness.49 In 

addition, in Opinion No. 569, the Commission reaffirmed its use of a two-step DCF 

analysis that gives one-third weight to a long-term growth rate based on projected growth 

in gross domestic product (GDP).

50 The Commission also held that it would continue to 

rely exclusively on the IBES as the preferred source for the DCF short-term growth 

projection, absent compelling reasons otherwise.51 The Commission further held that 

only the short-term growth rate should be used to calculate the (1+.5g) adjustment to 

dividend yield in the DCF analysis for the CAPM.

52

tendency for a diverse group of average risk utilities and the median as the measure of 

central tendency for a single utility.”

47 Id. P 17.

48 See Briefing Order, 165 FERC ¶ 61,118 at P 1.

49 See, e.g., Opinion No. 569, 169 FERC ¶ 61,129 at PP 37, 276. 

50 Id. PP 151-159.

51 Id. P 133.

52 Id. PP 98-100.
Docket Nos. EL14-12-004 and EL15-45-013 - 15 -

In Opinion No. 569, the Commission also adopted a specific CAPM methodology. 

First, the Commission adopted the use of the 30-year U.S. Treasury average historical 

bond yield over a six-month period as the risk free rate.53 Second, the Commission held 

that the CAPM expected market return should be estimated using a forward-looking 

approach based on applying the DCF model to the dividend paying members of the 

S&P 500.54 In addition, the Commission approved the use of a one-step DCF model 

using only short-term three to five-year growth projections for the DCF analysis of the 

dividend paying members of the S&P 500. The Commission also held that IBES should 

be the sole source of the short-term earnings growth estimates used in the DCF analysis

that is part of the CAPM analysis55 and that S&P 500 companies with growth rates that 

are negative or in excess of 20% should be screened from the DCF analysis.56 Finally, 

the Commission held that the CAPM analysis should include a size premium 

adjustment.57

In addition to the above holdings concerning the DCF and CAPM models, the 

Commission also adopted a revised low-end outlier test that eliminates DCF and CAPM 

proxy group ROE results that are less than the yields of generic corporate Baa bonds plus 

20% of the CAPM risk premium.58 The Commission also adopted the high-end outlier 

test that was proposed in the Coakley Briefing Order and the Briefing Order in these 

proceedings, which treats as high-end outliers any proxy company whose cost of equity 

estimated under the model in question is more than 150% of the median result of all of 

the potential proxy group members in that model before any high or low-end outlier test 

is applied, subject to a “natural break” analysis.59 The Commission also reaffirmed its 

use of the midpoint, rather than the median, as the measure of central tendency for ROEs 

that applied to groups of utilities.60

53 Id. P 238.

54 Id. PP 260-273.

55 Id. PP 274-276.

56 Id. PP 267-268.

57 Id. PP 296-303.

58 Id. PP 19, 387-89.

59 See id. PP 367-68, 375.

60 Id. PP 409-413.
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G. Requests for Rehearing

On December 23, 2019, the following parties to one or both of these proceedings 

filed requests for rehearing of Opinion No. 569: MISO TOs, the Complaint-Aligned 

Parties (CAP);

61 the Resale Power Group of Iowa (RPGI); Louisiana Public Service 

Commission (LPSC); Exelon Corporation (Exelon); Transource Energy, LLC 

(Transource Energy); and Ameren Services Company, on behalf of its 

transmission-owning public utility affiliates Ameren Illinois Company d/b/a Ameren 

Illinois, Union Electric Company d/b/a Ameren Missouri, and Ameren Transmission 

Company of Illinois (collectively, Ameren). In addition, on December 20, 2019, DTE 

Electric Company, Consumers Energy Company and Alliant Energy Corporate Services, 

Inc. (collectively, DTE), parties to both proceedings, filed a request for rehearing. On 

December 23, 2019, the Indicated PJM Transmission Owners (PJM TO)62 filed a motion 

to lodge and request for rehearing.

61 For purposes of the their request for rehearing, CAPs include the following 

entities: American Municipal Power, Inc. (AMP); ABATE, Coalition of MISO 

Customers, IIEC, INDIEC, MLIG, and Wisconsin Industrial Group (WIEC) (collectively, 

Joint Complainants); Joint Consumer Advocates, including Indiana Office of Utility 

Consumer Counselor, Iowa Office of Consumer Advocate, Michigan Citizens Against 

Rate Excess, Minnesota Department of Commerce, and Citizens Utility Board of 

Wisconsin; Joint Customers, including Arkansas Electric Cooperative, Cooperative 

Energy, and Hoosier Cooperative; Organization of MISO States, Inc. (OMS); Mississippi 

Public Service Commission (MS PSC), Missouri Public Service Commission (MO PSC) 

and Missouri Joint Municipal Electric Utility Commission (MJMEUC) (collectively, 

Missouri-Mississippi Parties or MOMs); and Southwest Electric Cooperative, Inc. 

(SWEC). For purposes of the CAPs briefs in the Second Complaint proceeding, CAPs 

include Industrial Consumer Groups (ICG), comprising ABATE, Coalition of MISO 

Customers, IIEC, INDIEC, MLIG, and WIEC; Joint Consumer Advocates, comprising 

Illinois Citizens Utility Board, Indiana Office of Utility Consumer Counselor, Iowa 

Office of Consumer Advocate, Michigan Citizens Against Rate Excess, Minnesota 

Department of Commerce, and Citizens Utility Board of Wisconsin; Joint Complainants 

and Intervenor (JCI), comprising Arkansas Electric Cooperative, Cooperative Energy, 

and Hoosier Cooperative; OMS; Missouri-Mississippi Parties; and SWEC.

62 For purposes of this filing, the PJM TOs are American Electric Power Service 

Corporation, on behalf of its affiliates, Appalachian Power Company, Indiana Michigan 

Power Company, Kentucky Power Company, Kingsport Power Company, Ohio Power 

Company, Wheeling Power Company, AEP Appalachian Transmission Company, AEP 

Indiana Michigan Transmission Company, AEP Kentucky Transmission Company, AEP 

Ohio Transmission Company, and AEP West Virginia Transmission Company; 

Duquesne Light Company; Exelon; PPL Electric Utilities Corporation; and Public 
Docket Nos. EL14-12-004 and EL15-45-013 - 17 -

In addition, multiple non-parties filed requests for rehearing and other motions. 

On December 23, 2019, the following entities filed such requests and/or motions: PPL 

Electric Utilities Corporation (PPL Electric) filed a motion to intervene out-of-time and 

motion to lodge; Southern California Edison Company (SoCal Edison) filed a motion to 

comment; American Electric Power Service Corporation63 (AEP) filed a motion to 

intervene out-of-time and motion to lodge; San Diego Gas & Electric Company

(SDG&E) filed a motion to intervene out-of-time and motion for Clarification, or in the 

alternative, request for rehearing; FirstEnergy Service Company (FirstEnergy) filed a 

request for rehearing and motion for late intervention; WIRES LLC filed a motion to 

intervene out-of-time, motion to lodge, and request for rehearing; Public Service Electric 

and Gas Company (PSEG) filed a motion to intervene out-of-time; Edison Electric 

Institute (EEI) filed a motion to intervene out-of-time, motion to lodge, and request for 

rehearing; AEP Indiana Michigan Transmission Company, Inc. filed a motion to 

intervene out-of-time; and the Southwest Power Pool, Inc. (SPP) Transmission Group64

filed public comments concerning Opinion No. 569. On December 23, 2019, New 

England TOs65 filed a letter requesting that, if the Commission intends to use the 

Service Electric and Gas Company. Some, but not all, of the PJM TOs have timely 

intervened in these proceedings.

63 American Electric Power Service Corporation filed on behalf of Appalachian 

Power Company, Indiana Michigan Power Company, Kentucky Power Company, 

Kingsport Power Company, Ohio Power Company, Wheeling Power Company, AEP 

Appalachian Transmission Company, AEP Kentucky Transmission Company, AEP Ohio 

Transmission Company, and AEP West Virginia Transmission Company.

64 For purposes of this filing, the SPP Transmission Group is Evergy Kansas 

Central, Inc., Evergy Metro, Inc., Evergy Missouri West, Inc. (subsidiaries of Evergy, 

Inc. that were formerly known as Westar Energy, Inc., Kansas City Power & Light 

Company, and KCP&L Greater Missouri Operations Company, respectively), American 

Electric Power Service Corporation, on behalf of its affiliates, Public Service Company 

of Oklahoma, Southwestern Electric Power Company, Oklahoma Transmission Company 

and Southwestern Transmission Company (collectively AEP-West), The Empire District 

Electric Company (a Liberty Utilities company), Oklahoma Gas & Electric Company, 

and Southwestern Public Service Company.

65 For purposes of this letter, the New England TOs are: Emera Maine f/k/a 

Bangor Hydro-Electric Company, Central Maine Power Company, New England Power 

Company d/b/a National Grid, New Hampshire Transmission LLC, Eversource Energy 

Service Company (on behalf of its operating company affiliates: The Connecticut Light 

and Power Company; NSTAR Electric Company; and Public Service Company of New 

Hampshire, each of which is doing business as Eversource Energy), The United 
Docket Nos. EL14-12-004 and EL15-45-013 - 18 -

outcome of these proceedings to establish any ROE policies or precedent that would 

apply to the New England TOs, then the Commission consider the arguments that the 

New England TOs made in their supplemental brief in the complaint proceedings 

regarding their base ROE in which the Coakley Briefing Order was issued. On January 7, 

2020, the American Public Power Association (APPA) and Transmission Access Policy 

Study Group (TAPS) filed a conditional motion to intervene out-of-time and conditional 

motion to lodge.

H. Subsequent Filings

On January 7, 2020, CAPs filed an answer in opposition to the late motions to 

intervene and alternative motion for leave to respond to non-party comments. On 

January 10, 2020, EEI and WIRES LLC filed a motion for leave to answer and answer 

to CAPs’ January 7 answer. On January 13, 2020, FirstEnergy filed a motion for leave to 

answer and answer to CAPs’ January 7 answer. On January 21, 2020, PPL Electric filed 

a motion for leave to answer and answer to CAPs’ January 7 answer. On January 28, 

2020, CAPs filed a motion to strike portions of various entities’ requests for rehearing 

and motions. On February 12, 2020, MISO TOs filed a motion for leave to answer and 

answer to certain portions of entities’ requests for rehearing, as well as CAPs’ January 7 

answer and the APPA and TAPS January 7 conditional motion to intervene out-of-time 

and conditional motion to lodge. On February 12, 2020, the PJM TOs, MISO TOs and 

Exelon filed separate answers to CAPs’ January 28 motion to strike. On February 13, 

2020, Transource Energy also filed an answer to CAPs’ January 28 motion to strike. On 

February 27, 2020, CAPs filed an answer to MISO TOs’ February 12 answer.

II. Procedural Matters

We deny the motions to intervene out-of-time and the requests for rehearing and 

other motions included with those motions to intervene out-of-time. In ruling on a 

motion to intervene out-of-time, we apply the criteria set forth in Rule 214(d) of the 

Commission’s Rules of Practice and Procedure.66 When late intervention is sought after 

the issuance of a dispositive order, the prejudice to other parties and burden upon the 

Commission of granting the late intervention may be substantial. Thus, movants bear a 

higher burden to demonstrate good cause for the granting of such late intervention.67 In 

addition, it is generally Commission policy to deny late intervention at the rehearing 

Illuminating Company, Unitil Energy Systems, Inc., Fitchburg Gas and Electric Light 

Company, and Vermont Transco, LLC.

66 18 C.F.R. § 385.214(d) (2019).

67 See, e.g., Midwest Indep. Transmission Sys. Operator, Inc., 102 FERC ¶ 61,250, 

at P 7 (2003).
Docket Nos. EL14-12-004 and EL15-45-013 - 19 -

stage, including when the petitioner claims that the decision establishes a broad policy of 

general application.68 

None of the entities that filed motions to intervene out-of-time have met their 

burden to justify granting late intervention, and we therefore deny their motions to 

intervene. We find that granting these late interventions at this stage of the proceedings 

would substantially disrupt the proceedings,

69 as well as prejudice and place significant 

additional burdens on the existing parties to these proceedings.70 The entities seeking 

late intervention have not demonstrated good cause that would justify granting late 

intervention despite these negative consequences. This is particularly true in light of the 

fact that, as discussed below, parties will have an opportunity to argue that the base ROE 

methodology applied in any of these proceedings should be modified or applied 

differently because of the specific facts and circumstances of the proceeding involving 

that party.71 Accordingly, we deny the motions to intervene out-of-time of PPL Electric, 

AEP, SDG&E, FirstEnergy, WIRES LLC, PSEG, EEI, AEP Indiana Michigan 

Transmission Company, Inc., and APPA and TAPS. As these entities are not parties to 

these proceedings, they may not seek rehearing of Opinion No. 569, and we reject their 

respective pleadings on that basis.72 

SoCal Edison filed a motion to comment and the SPP Transmission Group filed 

what it styled as “public comments” regarding Opinion No. 569, without motions to 

intervene out-of-time. We find that these pleadings are effectively requests for rehearing 

and, because these entities are not parties to these proceedings, they may not seek 

rehearing of Opinion No. 569, and we reject their respective pleadings on that basis. 

We note that only some of the PJM TOs have timely intervened in these 

proceedings—Duquesne Light Company and Exelon—therefore we will address the 

requests for rehearing that those two parties made as part of the PJM TOs.

The motions to lodge filed by PPL Electric, AEP, WIRES LLC, EEI, and APPA 

and TAPS are essentially components of requests for rehearing of Opinion No. 569, and 

68 See, e.g., Seminole Elec. Coop., Inc., 153 FERC ¶ 61,037, at P 11 & n.14 (2015) 

(citing PáTu Wind Farm LLC v. Portland General Elec. Co., 151 FERC ¶ 61,223, at P 39 

& n.85 (2015) (citing Columbia Gas Transmission Co., 113 FERC ¶ 61,066, at 61,243 

(2005))).

69 See 18 C.F.R. § 385.214(d)(1)(ii).

70 18 C.F.R. § 385.214(d)(1)(iv).

71 See infra at P 204.

72 16 U.S.C. § 825l (2018); 18 C.F.R. § 385.713(b).
Docket Nos. EL14-12-004 and EL15-45-013 - 20 -

we therefore deny those motions because those entities are not parties to these 

proceedings. Moreover, even if we were to consider those motions to lodge, and the 

motion to lodge filed by PJM TOs, as not a component of a request for rehearing, we 

would deny those motions on the merits. Rule 716 provides that a proceeding may be 

reopened only when reopening is warranted by a change in condition of fact or law, or by 

public interest.73 Additionally, a decision to reopen the record is a discretionary one for 

the Commission, and Commission policy discourages reopening records, except in 

extraordinary circumstances in order to prevent administrative chaos and provide finality 

to proceedings.74 Further, a demonstration of extraordinary circumstances requires a 

showing of a material change that goes to the very heart of the case.75 We find that the

entities that filed motions to lodge have failed to show any compelling changes in law, 

fact, or public interest that would necessitate reopening of the record to lodge the 

materials that they seek to lodge. As discussed further below in section XV, to the extent 

that these entities are concerned that Commission actions in these proceedings will affect 

them and they have filed pleadings or materials in other proceedings that they want the 

Commission to consider before taking action with respect to their base ROEs, such 

entities will have an opportunity to present those pleadings or materials and argue that 

any Commission actions in these proceedings should be modified or applied differently 

because of the specific facts and circumstances of the proceeding involving that entity.

Given that we are denying the motions to intervene out-of-time, we find that 

CAPs’ January 7 answer in opposition to the late motions to intervene or, in the 

alternative, motion for leave to respond to the pleadings, comments and requests for 

rehearing submitted by those entities, is moot and we reject it. We therefore also reject 

the answers to CAPs’ January 7 answer submitted by EEI, WIRES LLC, FirstEnergy, 

PPL Electric, and MISO TOs. We also reject CAPs’ January 28 motion to strike portions 

of various entities’ requests for rehearing and motions. To the extent that this motion 

relates to contents of a motion to lodge that has been denied, as discussed above, we find 

that it is moot. To the extent that this motion relates to requests for rehearing, it is an 

answer to a request for rehearing and we reject it because it is prohibited by 

Rule 713(d)(1) of the Commission’s Rules of Practice and Procedure.76 We find that 

73 18 C.F.R. § 385.716(c).

74 See, e.g., Gas Producing Enterprises, Inc., 28 FERC ¶ 61,008 (1984) (citing 

Consolidated Gas Supply Corp., 24 FERC ¶ 61,283 (1983), Transcontinental Gas Pipe 

Line Corp., 23 FERC ¶ 61,152 (1983), and ICC v. Jersey City, 322 U.S. 503 (1944)).

75 See, e.g., CMS Midland, Inc., Midland Cogeneration Venture Limited 

Partnership, 56 FERC ¶ 61,177, at 61,624 (1991).

76 18 C.F.R. § 385.713(d)(1).
Docket Nos. EL14-12-004 and EL15-45-013 - 21 -

CAPs have not shown good cause for us to waive this rule to allow their answer.77

Because we are rejecting CAPs’ January 28 motion to strike, we also reject the answers 

to that motion filed by PJM TOs, MISO TOs, Exelon, and Transource Energy. We reject

MISO TOs’ February 12 answer to requests for rehearing for the same reasons, and find 

that this answer is moot as it relates to the APPA and TAPS January 7 conditional motion 

to intervene out-of-time because, as discussed above, we are denying that motion to 

intervene out-of-time. Given that we are rejecting MISO TOs’ February 12 answer, we 

also reject CAPs’ February 27 answer to that answer.

III. General Model Issues

This section pertains to the Commission’s decision in Opinion No. 569 to use 

two models in its base ROE analysis under section 206 of the FPA, rather than either 

using only the DCF model or using all four models proposed in the Briefing Order. It 

does not address the specific merits of the individual models, which are discussed in 

subsequent sections.

A. Opinion No. 569

The Commission found that averaging of multiple models reflected how investors 

made investment decisions and reduced model risk to the greatest extent possible. The 

Commission cited MISO TOs’ witness, Mr. McKenzie, who explained that “when 

conditions associated with a model are outside of the normal range, there is a risk . . . 

that the theoretical model will fail to predict or represent the real phenomenon that is 

being modeled.”78 The Commission also cited Dr. Morin, who found that “Reliance on 

any single method or preset formula is inappropriate when dealing with investor 

expectations because of possible measurement difficulties and vagaries in individual 

companies’ market data.”79

The Commission, for reasons specific to the Risk Premium and Expected Earnings 

Models, determined that they were not appropriate to use for determination of ROEs, for 

either the first or second prong of section 206 analyses. Opinion No. 569, applying the 

DCF model and CAPM, reduced the MISO TOs’ ROE from the 10.32% prescribed in 

Opinion No. 551, which was itself a reduction from 12.38%, to 9.88%.

77 See id. § 385.101(e).

78 Opinion No. 569, 169 FERC ¶ 61,129 at PP 38-39 (citing Docket 

No. EL14-12-001, Ex. MTO-22, at 18-19).

79 Id. (citing Roger A. Morin, James, New Regulatory Finance (Public Utilities 

Reports, Inc. 2006) (Morin) at 428).
Docket Nos. EL14-12-004 and EL15-45-013 - 22 -

B. Requests for Rehearing

CAPs contend that the Commission erred by finding that the results of the DCF 

model alone were not just and reasonable. Specifically, CAPs contend that the 

Commission did not address the testimony of its expert, Dr. Keith Berry, arguing against 

the Commission’s finding of model risk justifying the use of multiple models.80

Certain parties argue that the Commission acted arbitrarily and capriciously or 

otherwise did not engage in reasoned decision-making when it determined that the Risk 

Premium and Expected Earnings models should not be used for ROE determinations. 

Parties point out that the Commission endorsed using the Risk Premium and Expected 

Earnings Models in Opinion Nos. 531, 531-A, and 551, as well as the Briefing Order 

in these proceedings. Specifically, Exelon states that, in the Briefing Order, the 

Commission found that “it is clear that investors place greater weight on one or more of 

the other methods for estimating the expected returns from utility investments, as well as 

taking other factors into account.”81 Exelon contends that the Commission, in Opinion 

No. 569, insufficiently justified reversing course on this point. Exelon also argues that 

the Risk Premium and Expected Earnings Models should not be ignored due to their 

alleged deficiencies, asserting that the CAPM and DCF also have deficiencies. Ameren 

similarly contends that the Commission’s reversal from the Briefing Order was 

unsupported and contradictory to its findings that investors rely on a diverse set of data 

sources.82 

Transource Energy argues that the Commission, in Opinion No. 569, was 

internally inconsistent by giving no weight to the Expected Earnings and Risk Premium 

Models despite finding that investors rely on multiple models.83 Transource Energy

contends that four models provide a more complete picture than two models, which 

themselves share many common inputs. Transource Energy asserts that the Commission 

in Opinion No. 569 issued findings inconsistent with those in Opinion No. 531, which 

considered three other models, and notes that the Court did not find fault with this 

finding.

84 Transource Energy states that the CAPM results indicate that a 9.88% ROE 

was inadequate. Transource Energy also states that the midpoint of the CAPM was 

10.45% and contends that no record evidence suggests that 10.45% is overstated. 

80 CAPs Rehearing Request at 85-87.

81 Exelon Rehearing Request (citing Briefing Order, 165 FERC ¶ 61,118 at P 37).

82 Ameren Rehearing Request at 11-13.

83 Transource Energy Rehearing Request at 15-16.

84 Id. at 17-18
Docket Nos. EL14-12-004 and EL15-45-013 - 23 -

Transource Energy argues that the Commission has previously determined that the DCF 

is not reliable and that substantial evidence in the record demonstrates that the cost of 

capital is more consistent with the CAPM result than the DCF result for the complaint 

time period.85

Certain parties also argue that the reduction of MISO TOs’ ROE in Opinion 

No. 569 is unjust and unreasonable on the basis that it reduces MISO TOs’ ROE to an 

unreasonably low level. MISO TOs state that, in Opinion No. 551, “the Commission 

concluded that a 175-basis point ROE reduction . . . could put transmission investment at 

risk.”86 MISO TOs also argue that the ROE resulting from Opinion No. 569 could cause 

capital to be diverted to other purposes. Transource Energy similarly contends that the 

Commission has not supported a 9.88% ROE, and notes that it is below many of the 

benchmarks provided by state ROEs and other models.87 Ameren also contends that this 

methodology threatens utility credit ratings and thus violates Hope and Bluefield. 

Specifically, they cite Bluefield’s finding that the return “should be sufficient to assure 

confidence in the financial integrity of the enterprise, so as to maintain its credit and to 

attract capital.”88 

Ameren and Transource Energy state that the Commission should not have 

excluded the Expected Earnings and Risk Premium models because they have flaws 

while keeping the DCF and CAPM models, which the Commission acknowledged also 

have flaws.89 As an example of DCF and CAPM flaws, Transource Energy notes the 

Commission’s finding in Opinion No. 551 that the DCF model is distorted by a 

low-interest rate capital market.90 Ameren and Transource Energy argue, therefore, 

that the Commission’s assertion that there exist imperfections in the Expected Earnings 

and Risk Premium models is not a valid justification for excluding those models.

91 

According to Transource Energy, excluding the Expected Earnings and Risk Premium 

models results in twice the weighting for the DCF model, and Transource Energy notes 

85 Id. at 14-15.

86 MISO TOs Rehearing Request at 19 (citing Opinion No. 551, 156 FERC 

¶ 61,234 at P 263).

87 Transource Energy Rehearing Request at 11.

88 See, e.g., id. at 6 (citing Bluefield, 262 U.S. at 693).

89 Ameren Rehearing Request at 12; Transource Energy Rehearing Request at 23.

90 Transource Energy Rehearing Request at 21-22.

91 Ameren Rehearing Request at 12; Transource Energy Rehearing Request at 23.
Docket Nos. EL14-12-004 and EL15-45-013 - 24 -

that only including one other model with inputs which share similar characteristics to the 

DCF does not obviate the issue of whether the DCF is less reliable due to capital market 

conditions.

92

Ameren and Transource Energy argue that the Commission should keep the 

four-model framework proposed in the Briefing Order because the Commission has 

stated that use of multiple models provides more accuracy, consistency with investor 

expectations, and robustness.93 Ameren contends that the addition of the Expected 

Earnings and Risk Premium models would prevent an unreasonable restriction of the 

zone of reasonableness, and Transource Energy notes that the DCF and CAPM models 

provide the least diversification benefits of the four the Commission originally 

proposed.94 Ameren argues that, when the Commission moved to a two-model ROE 

methodology, it failed to explain why it excluded certain models (i.e., the Expected 

Earnings and Risk Premium models) that are relied upon by investors. Ultimately, the 

new methodology gives zero weight to the excluded models when they were previously 

assigned a 25% weight in Opinion No. 569. Ameren asserts that the resulting ROE based 

on only the CAPM and DCF models is not supported by the record and is therefore 

arbitrary and capricious.95 Ameren and Transource Energy state that the Commission’s 

use of only the DCF and CAPM models fails to compensate MISO TOs for the actual 

risks associated with transmission infrastructure development.96 Ameren and Transource 

Energy argue that this inadequacy amounts to failure of the capital attraction standards 

and threatens utility credit metrics, in violation of Hope and Bluefield.

97

92 Transource Energy Rehearing Request at 21-22.

93 Ameren Rehearing Request at 12-13; Transource Energy Rehearing Request 

at 15, 26.

94 Ameren Rehearing Request at 12-13; Transource Energy Rehearing Request 

at 16-17, 19.

95 SoCal Edison Comment, Docket No. EL14-12, at 11-12; Indicated PJM TOs 

Rehearing Request, Docket No. EL14-12, at 11; Ameren Rehearing Request, Docket 

No. EL14-12, at 23-25; Wires Comment Rehearing Request, Docket No. EL15-45, et al., 

at 17; Wires Comment Rehearing Request, Docket No. EL14-12, et al., at 7, 17; 

FirstEnergy Hearing Request, Docket No. EL15-45, at 3; Transource Energy Rehearing 

Request, Docket No. EL14-12, at 18-19.

96 Ameren Rehearing Request at 6; Transource Energy Rehearing Request at 9-12.

97 Ameren Rehearing Request at 6-7; Transource Energy Rehearing Request 

at 9-12.
Docket Nos. EL14-12-004 and EL15-45-013 - 25 -

MISO TOs also argue that the court’s analysis in Emera Maine did not require 

the Commission to construct a new paradigm to satisfy the second prong of section 206. 

Instead, they argue, the Commission can remedy its error simply by evaluating “the 

alternative benchmarks and additional record evidence” that warrant selecting a base 

ROE greater than the midpoint (of whatever range of estimated returns on which the 

Commission elects to rely) to determine a new, just and reasonable base ROE.98 

MISO TOs contend that, regardless of whether the base ROE prescribed by 

Opinion No. 569 is a midpoint value of some range of estimated ROEs, section 206 still 

requires the Commission to explain why, based on the evidence in the record, the new 

ROE is just and reasonable. MISO TOs contend that the Commission’s new approach

still fails to do so. MISO TOs contend that the mere fact that the newly prescribed ROE 

is the midpoint of the composite DCF-CAPM range of estimates does not make that value 

a just and reasonable ROE. According to MISO TOs, the Commission’s selection of the 

average of the DCF and CAPM midpoints is no better justified in Opinion No. 569 than 

was the selection of the upper half midpoint found to be arbitrary and capricious in 

Emera Maine.

99 

With regard to the First Complaint, MISO TOs argue that Emera Maine does not 

require, and establishes no reason why, the Commission should fundamentally modify 

the approach of Opinion Nos. 531 and 551, other than to correct or avoid the specific 

errors the court pinpointed. They argue that the evidence more than amply supports the 

Commission’s conclusion in Opinion No. 551 that the DCF midpoint of 9.29% (stated as 

9.3% in Opinion No. 569) is too low to pass muster under Hope and Bluefield.

100

C. Commission Determination

We disagree with CAPs’ contention that the record does not support our finding of 

model risk as justifying no longer relying solely on the DCF model. Model risk includes 

the broad conceptual issue of models being imperfect and not always working well in all 

situations. It also entails errors of specific model inputs, such as the error discussed with 

respect to the Portland General Electric inputs, discussed in paragraph 145 below. We 

continue to find that ROE determinations should consider multiple models, both to 

capture the variety of models used by investors and to mitigate model risk. With respect 

to the former, we reiterate our findings from Opinion No. 569 in support of the finding 

98 MISO TOs Rehearing Request at 30-31.

99 Id. at 31-32.

100 Id. at 32.
Docket Nos. EL14-12-004 and EL15-45-013 - 26 -

that use of multiple models reduces model risk. Dr. Morin speaks of the type of potential 

model errors that comprise “model risk” and why use of additional models is warranted:

In the absence of any hard evidence as to which method outdoes the 

other, all relevant evidence should be used and weighted equally, in 

order to minimize judgmental error, measurement error, and conceptual 

infirmities. A regulator should rely on the results of a variety of methods 

applied to a variety of comparable groups, and not on one particular 

method. There is no guarantee that a single DCF result is necessarily the 

ideal predictor of the stock price and of the cost of equity reflected in 

that price, just as there is no guarantee that a single CAPM or Risk 

Premium result constitutes the perfect explanation of that stock price.101

We also disagree with contentions that Opinion No. 569 resulted in rates that fail 

to meet the Hope and Bluefield standards for just and reasonable rates because they 

reduce the ROE. As an initial matter, the ROE resulting from this order will be 

materially higher than the 9.88% resulting from Opinion No. 569 for the First Complaint, 

rendering such concerns at least partially addressed. Second, cost-of-service principles 

dictate that the ROE should increase or decrease with the cost of capital. The 

Commission employs, and at times modifies, financial models, to determine this cost of 

capital. Although any rate reduction, by reducing earnings, will necessarily adversely 

affect certain financial metrics, that does not preclude the Commission from reducing 

rates. It is not incumbent on the Commission to demonstrate that any rate reduction, if 

supported by evidence demonstrating reduced cost of capital, would not adversely affect 

utilities’ financial metrics. By the logic of certain parties, virtually any rate reduction 

would be unjust and unreasonable simply because it reduces the ROE and thus harms 

financial metrics for the affected utilities. In this case, the reduction in ROE from 

10.32% in Opinion No. 551 to 9.88% in Opinion No. 569 was less than 4% and Opinion 

No. 569 extensively supported this such reduction.

As described below, we now find that the flaws for the Risk Premium model, 

when mitigated by certain adjustments, do not render use of the model unreasonable, 

while the flaws of the Expected Earnings model are significant enough to render the 

model inappropriate for ROE calculations. We are not persuaded by Ameren’s and 

Transource Energy’s arguments that the Expected Earnings model’s flaws constitute an 

insufficient reason to exclude the model because the Commission has acknowledged that 

other models also have flaws. As the Commission explained in Opinion No. 569, the 

Commission considered the disadvantages and advantages of each model and concluded 

that, on balance, the disadvantages of the Expected Earnings model outweigh its 

101 Morin at 429.
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advantages.102 Simply because other models also have disadvantages does not mean 

that they have the same level of disadvantages or advantages as those of the Expected 

Earnings model. The Commission may use its discretion to determine which flaws in 

various models render the models unreasonable, and thus unusable, and which do not. 

Regarding arguments that the Commission should include all four models 

because more models provide additional robustness, we agree—if the models are 

methodologically and legally sound. As described below, we conclude that the Risk 

Premium model, with adjustments, is sound, while the Expected Earnings model is not. 

We are not persuaded by arguments that all four models should be included because they

broaden the zone of reasonableness. Such assertions, without support, suggest adopting 

a zone of reasonableness that is far wider than what the Commission has historically 

determined would be just and reasonable without sufficient justification as to why such 

a broader zone of reasonableness is appropriate. Nonetheless, our decision to now 

construct the ranges of presumptively just and reasonable ROEs by dividing the full zone 

of reasonableness into equal thirds instead of using the quartiles applied in Opinion 

No. 569, as discussed in section XIV below, at least in part addresses such concerns 

by widening the range of presumptively just and reasonable existing ROEs.

IV. DCF

A. Opinion No. 569

1. Short-Term Growth Rate

In Opinion No. 569, the Commission found that the DCF and CAPM models

should employ IBES short-term growth rates.

103 In the context of the DCF, the 

Commission explained that IBES was preferable because the IBES growth projections 

generally represent consensus growth estimates by a number of analysts while Value Line

growth estimates represent the growth projection of a single analyst.104 The Commission 

explained that, while many investors use both IBES and Value Line growth rates, only 

IBES growth rates reflect the analysis of a diverse group of persons in the investment 

community.105 The Commission cited academic research that supported the use of IBES 

102 See Opinion No. 569, 169 FERC ¶ 61,129 at P 209.

103 Id. P 251.

104 Id. P 125.

105 Id.
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because of its use of multiple analysts’ growth projections instead of a single analyst.106 

In addition, the Commission noted that IBES growth projections are generally more 

timely than the Value Line projections because IBES updates its data base on a daily 

basis as participating analysts revise their forecasts, whereas Value Line publishes its 

projections on a rolling quarterly basis.107

2. Long-Term Growth Rate Weighting

In Opinion No. 531, the Commission adopted the same two-step DCF model for 

electric utilities as it has used for natural gas and oil pipelines since the mid-1990s. That 

model includes a projection of the long-term growth in dividends based on the growth in 

GDP, in addition to the short-term three to five-year growth projection. The long-term 

growth projection is given one-third weight, with a short-term growth projection given 

two-thirds weight.

In the Briefing Order, the Commission proposed no changes to its existing 

two-step DCF model. In Opinion No. 569, the Commission rejected the MISO TOs’ 

contention that, if the Commission applied a high-end outlier test to the ROE results 

produced by the two-step DCF analysis, the Commission should eliminate the long-term 

growth projection.108 Specifically, the Commission rejected MISO TOs’ assertion that, 

if the Commission applies a high-end outlier test to the DCF model, there will remain no 

rationale for requiring the long-term growth component of the two-step DCF model.109 

The Commission found that the existence of the high-end outlier test is irrelevant to the 

question of whether a long-term growth projection should be included in a DCF analysis 

of public utilities.110 The Commission stated that the high-end outlier test eliminates 

outlier proxy group members and that it does not address the fact that, over the long-term, 

companies cannot maintain their short-term growth rates and must, to some extent, 

converge on the growth rate of the overall economy.111 Furthermore, the Commission 

stated that the high-end outlier test that it adopted in Opinion No. 569 does not screen out 

any of the ROEs produced by the DCF analysis of the proxy groups in these two cases, 

106 Id.

107 Id. P 128.

108 Id. PP 151-159. 

109 Id. P 159

110 Id.

111 Id.
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including the ROE results discussed above that establish the top of the zones of 

reasonableness in these two cases.112 

B. Rehearing Requests

1. Short-Term Growth Rate

RPGI states that the Commission correctly used IBES consensus earnings growth 

estimates rather than Value Line earning growth estimates.113 

MISO TOs state that the Commission erred in finding that “IBES is more reliable 

and robust” than Value Line and choosing to use the IBES three to five-year growth 

projection over Value Line growth projections.114 MISO TOs assert that the Commission 

erred in finding that there was a general consensus by citing a witness’s belief that IBES 

growth estimates have a higher potential for representing a broader investor community, 

and the Commission cannot accurately characterize IBES estimates as consensus 

estimates.115

MISO TOs assert that the Commission wrongly attempted to relegate Value Line’s

estimates as “projections by a single institution.”116 MISO TOs argue that the 

Commission’s statement minimizes the fact that Value Line estimates are consensus 

estimates that are the results of a committee composed of peer analysts, and not simply

the product of a single analyst.

117 MISO TOs also state that merely averaging analysts’ 

estimates does not create a consensus, and there is no indication that the analysts behind 

the IBES estimates agree on the published value.118

112 Id.

113 RPGI Rehearing Request at 61.

114 MISO TOs Rehearing Request at 63 (citing Opinion No. 569, 169 FERC 

¶ 61,129 at P 133).

115 Id. at 64 (citing Opinion No. 569, 169 FERC ¶ 61,129 at P 127 (quoting 

Commission Trial Staff witness Mr. Robert J. Keyton)).

116 Id. (citing Opinion No. 569, 169 FERC ¶ 61,129 at P 125 n.278).

117 Id. at 64-65.

118 Id. at 65.
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MISO TOs assert that the Commission’s stated preference for IBES over Value 

Line because it is more current is not supported by the record and is arbitrary and 

capricious.119 MISO TOs state that the Commission appears to rely on the misperception 

that IBES’ estimates are more up-to-date than Value Line simply because IBES can 

update its daily estimates on a daily basis.120

2. Long-Term Growth Rate Weighting

MISO TOs request rehearing of the Commission’s decision not to adopt any 

changes to its existing two-step DCF model, averring that, if the Commission adopts a 

high-end outlier test, it should remove the long-term growth rate portion of the two-step 

DCF analysis.121 MISO TOs contend that although no single approach provides a 

“one-size-fits-all” scenario for estimating the cost of capital, a constant growth DCF 

better represents investor expectations for the MISO TOs than a two-step DCF model 

using a long-term growth rate component.122

C. Commission Determinate

1. Short-Term Growth Rate

We will maintain the longstanding practice of using IBES short-term growth rates

for the DCF model, absent compelling reasons for using an alternative source.

123 The 

record in this and numerous prior proceedings illustrates that the IBES growth rates 

appropriately inform the DCF analysis.124 We continue to find that IBES is a reliable 

source of short-term growth rate data for the DCF model125 and find that it is appropriate 

to continue to rely on IBES short-term growth rates in the DCF model given the 

119 Id. at 66.

120 Id. at 66-67.

121 Id. at 77.

122 Id. at 80 (citing McKenzie Supplemental Initial Brief Affidavit, Docket 

No. EL14-12, at 51–52).

123 See, e.g., Opinion No. 569, 169 FERC ¶ 61,129 at P 133 (“absent compelling 

reasons why, we will continue to rely exclusively on IBES as the preferred source for 

short-term growth projections for the purpose of performing the DCF analysis.”).

124 See, e.g., id. at PP 120-133.

125 See id. PP 125-128.
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Commission’s longstanding practice of relying on those IBES short-term growth rates in 

the DCF model126 and the experience that entities coming before the Commission have 

gained in using IBES in the DCF model in light of that practice. However, we find that, 

although IBES short-term growth rates should be used for the DCF model,127 the 

Commission will consider use of Value Line in future proceedings for the CAPM 

methodology, as discussed below. 

2. Long-Term Growth Rate Weighting

We disagree with the MISO TOs’ request that, if the Commission adopts a 

high-end outlier test, it should remove the long-term growth rate portion of the two-step 

DCF analysis and that a constant growth DCF better represents investor expectations for 

a two-step DCF model using a long-term growth rate component. However, as we note 

below, we are modifying the high-end outlier test to treat any proxy company as high-end 

outlier if its cost of equity estimated under the model in question is more than 200% of 

the median result of all of the potential proxy group members in that model before any 

high or low-end outlier test is applied, subject to a “natural break” analysis. Although 

we are not adopting MISO TOs’ proposed change, upon reconsideration, we agree that 

changes to the long-term growth rate are warranted.

We grant rehearing to give the short-term growth rate 80% weighting and the 

long-term growth rate 20% weighting. We note that the court in CAPP v. FERC128 held 

that the Commission has broad discretion in its weighting choice. Since the Commission 

established its one-third weighting policy of the GDP in the long-term growth rate, 

short-term growth rate projections for electric utilities have declined and are now closer 

to the current GDP growth projection than those from the 1990s when the Commission 

adopted the two-step DCF using one-third weighting for GDP in the long-term growth 

126 See id. PP 121-123.

127 In addition, with respect to the First Complaint proceeding, IBES short-term 

growth rates are the only data available in the record for the study period. See, e.g., 

MISO TOs Initial Br. (I) at 22 (“MISO Transmission Owners do not propose reliance on 

growth rates from a source other than IBES to resolve the First Complaint.”); MISO TOs 

Rehearing Request, Docket No. EL14-12-000, at 3 (“The MISO Transmission 

Owners . . . did not take exception to the Presiding Judge’s adoption of the June 2015 

Update Period as the appropriate study period for this case. Since they did not object to 

the June 2015 Update Period, and since there was no Value Line growth rate evidence 

related to that period, the MISO Transmission Owners had no quarrel with, and did not 

take exception to, the ALJ’s ruling that his adoption of the June 2015 Study Period 

“dictate[d] use of IBES growth rates” insofar as Docket No. EL14-12 was concerned.”).

128 254 F.3d 289 (D.C. Cir. 2001).
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rate for natural gas and oil pipelines129 that was subsequently adopted for public 

utilities.130 For example, in Opinion No. 531, which considered market conditions during 

the time period from October 2012 to March 2013, the IBES growth projections of the 

proxy group (before the exclusion of low-end outliers) ranged from -1.90% to 8.10% and 

averaged 4.58%, only 19 basis points above the 4.39% GDP growth projection in that 

proceeding.131 In the First Complaint proceeding, which considered market conditions 

during the time period from January 2015 to June 2015, the IBES growth projections of 

the proxy group (before the exclusion of low-end outliers) ranged from -0.64% to 11.66%

and averaged 5.03%, 64 basis points above the projected growth in GDP in that 

proceeding of 4.39%.

132 By contrast, when MISO’s 12.38% base ROE was established in 

2002, the average IBES short-term growth rate estimate for that year was 7.79%,

133 a full 

158 basis points above the estimated 6.21% GDP growth rate from a contemporaneous 

natural gas pipeline filing.134

Additionally, average electric utility IBES growth projections are only marginally 

higher than GDP growth projections. Under these circumstances, investors are likely to 

view electric utility IBES growth projections as more sustainable than the substantially 

higher natural gas pipeline IBES growth projections when the Commission established 

its two-thirds/one-third weighting policy. Therefore, it is reasonable to give the IBES 

growth projection more weight and give the GDP growth projection less weight. This 

finding is consistent with Opinion No. 414-A’s findings that “long-term projections are 

129 For example, New York State Electric & Gas Corp., 85 FERC ¶ 63,002 (1998). 

In Footnote 22, the Initial Order references a GDP growth rate of 5.08%, which was an 

average of three estimates: 5.10% from Data Resources Inc., 4.95% from Wharton 

Econometric Forecasting Associates, Inc., and 5.20% from the Energy Information 

Administration.

130 See Opinion No. 531, 147 FERC ¶ 61,234 at PP 17-23, 32. 

131 See id. P 38 and Appendix.

132 Opinion No. 569, 169 FERC ¶ 61,129 at P 135; Appendix A.

133 See Midwest Indep. Transmission Sys. Operator, Inc., 100 FERC ¶ 61,292 

at app. A.

134 See Trailblazer Pipeline Company, Testimony of Peter J. Williamson, Docket 

No. RP03-162-000, at P 19. 
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inherently more difficult to make, and thus are less reliable than short-term 

projections.”135

We still believe that it is appropriate to consider the long-term growth rate to some 

extent, but now find that it is appropriate to afford less influence to the long-term growth 

rate. As the Commission held in Opinion No. 531:

The DCF model is based on the premise that an investment in common stock 

is worth the present value of the infinite stream of future dividends 

discounted at a market rate commensurate with the investment’s risk.[136] 

Corporations have indefinite lives and therefore will pay dividends for an 

indefinite period. For that reason, the Commission stated as long ago as 

1983, when it first adopted the constant growth DCF model for gas pipeline 

cases, that ‘projections by investment advisory services of growth for 

relatively short periods of years into the future’ cannot be relied on ‘without 

further consideration.’ Thus, as the Commission held in Ozark, the constant 

growth DCF model requires consideration of long-term growth 

projections.137

As the Commission found in Opinion No. 531, we continue to recognize the 

need for a long-term growth projection to “aid in normalizing any distortions that 

might be reflected in short-term data limited to a narrow segment of the economy.”138 

135 Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 FERC ¶ 61,084, 

at 61,423 (1998).

136 As the Commission explained, “The DCF model assumes growth for an infinite 

period of time. This can be approximated as 50 years because the present value of a 

one dollar dividend received 50 years in the future, discounted at 12%, is less than 

one cent.” Ozark Gas Transmission Sys., 68 FERC at 61,105 n.32 (citing Eugene F. 

Brigham & Louis C. Gapenski, Financial Management 291 (1991)).

137 Opinion No. 531, 147 FERC ¶ 61,234 at P 33 (quoting Consol. Gas Supply 

Corp., 24 FERC ¶ 61,046, at 61,105 (1983)) (footnotes omitted).

138 Id. P 38 (quoting Opinion No. 414-A, 84 FERC at 61,423-24).
Docket Nos. EL14-12-004 and EL15-45-013 - 34 -

V. CAPM

A. Opinion No. 569

1. Use of Betas and Size Adjustments

In Opinion No. 569, the Commission noted that the Commission found in Opinion 

No. 531-B that the size adjustment was “a generally accepted approach to CAPM 

analyses” and continued to find this to be the case.139 The Commission stated that there 

was substantial evidence in the record that investors rely on Value Line betas. While the 

Commission acknowledged that there is an imperfect correspondence between the size 

premia being developed with different betas, it concluded that the size adjustments 

improve the accuracy of the CAPM results and cause it to better correspond to the costs 

of capital estimates employed by investors.140

The Commission also found that the application of size adjustments based on the 

New York Stock Exchange (NYSE) to dividend-paying members of the S&P 500 is 

acceptable, as the use of the NYSE for the size premium adjustment enabled Ibbotson 

Associates to develop a rich data set,141 and found no evidence that companies in the 

S&P 500 feature different risk premiums than those in the NYSE.142

The Commission disagreed with intervenors that the utility industry is unique, and 

that the size premium adjustment would therefore be inapplicable, as the size premium 

adjustments are supported by a robust data set. The Commission noted that there are 

variations in the risk profiles of firms of any industry and there was insufficient evidence 

in the record to conclude that factors specific to the utility industry insulate smaller 

utilities from risks such that the CAPM betas sufficiently account for any increased risks 

and corresponding returns demanded by investors.143

139 Opinion No. 569, 169 FERC ¶ 61,129 at P 296 (citing Opinion No. 531-B, 

150 FERC ¶ 61,165 at P 117).

140 Id. P 297.

141 Ibbotson Associates, now under Duff & Phelps, has long published a series 

quantifying this effect for various sizes of firms, pulling from data going back to 1926.

142 Id. P 298.

143 Id. P 303.
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2. Exclusion of Growth Rates

In Opinion No. 569, the Commission accepted Trial Staff’s proposal to screen 

from the CAPM analysis S&P 500 companies with growth rates that are negative or in 

excess of 20%. The Commission stated that such a screen is consistent with the 

elimination of outliers elsewhere in the ROE methodology, as such high or low growth 

rates are highly unsustainable and non-representative of the growth rates of the electric 

utilities in the proxy groups.144

B. Rehearing Requests

1. Use of Betas and Size Adjustments

CAPs state that the size adjustment is inconsistent with other elements of the 

adopted CAPM model. CAPs explain that the CAPM analysis incorporating a Value Line

adjusted beta designed to measure market capitalization and a size premium adjustment 

based on raw betas is not based on substantial evidence.145 Additionally, CAPs assert 

that the academic articles cited in Opinion No. 569 do not support the notion that 

investors rely on size factors.146

CAPs also argue that Opinion No. 569 appears to have misunderstood CAPs’ 

concerns about the impact of mismatched betas as being whether the Value Line adjusted 

betas are appropriate for use in the CAPM. RPGI states that the issue before the 

Commission, however, was whether it is appropriate to combine adjusted and raw betas 

when performing a base CAPM analysis and applying a size premium adjustment.147 

LPSC contends that the size adjustment is flawed because including such an 

adjustment conflicts with the Commission’s determinations that utility growth rates will, 

in the long run, grow at the rate of the average firm in the economy.148 LPSC also states 

that the Commission failed to address its contention that Value Line betas are 

methodologically mismatched to the S&P 500 because Value Line betas are calculated 

144 Id. P 267.

145 CAPs Rehearing Request at 77.

146 Id. at 80.

147 RPGI Rehearing Request at 77.

148 LPSC Rehearing Request at 10.
Docket Nos. EL14-12-004 and EL15-45-013 - 36 -

using the NYSE, a different stock index.149 LPSC asserts that the Commission 

incorrectly relies on raw betas in its size adjustment portion of the CAPM, while relying 

on adjusted betas in the rest of its CAPM analysis.150

RPGI states that the Commission erred by authorizing a size adjustment to the 

CAPM methodology that is unsupported by substantial record evidence and which 

arbitrarily inflated the ROE to an unjust and unreasonable level.151 RPGI asserts that 

MISO TOs’ comments did not recognize that the size premium adjustment is narrowly 

tailored to address an inability of beta to fully account for the impact of firm size within 

the CAPM, but failed to recognize that the size adjustment is of firms across the entire 

economy.152 RPGI contends that Mr. Parcell’s analysis shows that the size adjustment is 

inappropriate for regulated monopoly electric utilities. They aver that the Commission’s 

silence on the simplification of Mr. Parcell’s analysis is a central issue, and that the 

evidence contradicts the Commission’s analysis.153

2. Exclusion of Growth Rates

MISO TOs argue that the Commission erred in excluding growth rates that are 

negative or in excess of 20% and argue that this adjustment has no economic 

justification.154 

Exelon asserts that the Commission discards without justification companies with 

an IBES growth rate of greater than 20% from the CAPM.155

CAPs contend that the equity market return estimate, if calculated based on the 

short-term growth rate, should not exclude S&P 500 companies with negative growth 

rates. They aver that such exclusions are inappropriate because companies can feature 

negative growth rates for an extended period. Further, CAPs argue that, for the analysis 

149 Id. at 11.

150 Id. at 14-15.

151 RPGI Rehearing Request at 31.

152 Id. at 32.

153 Id. at 32-33.

154 MISO TOs Rehearing Request at 69.

155 Exelon Rehearing Request at 13.
Docket Nos. EL14-12-004 and EL15-45-013 - 37 -

to be appropriately diverse, these companies should be included, noting that such 

exclusions include some companies in the electric proxy group.156

3. Other Issues

Transource Energy asserts that the anomalous capital market conditions that called 

the DCF midpoint into question also suggest that the CAPM result would be too low, as 

the CAPM is premised in part on long-term Treasury bond yields.

157

CAPs state that Opinion No. 569’s specification of the CAPM methodology is 

erroneous and produces excessive results.158 CAPs also note that independent estimates 

of the CAPM equity market return by financial institutions and other regulators are much 

lower than the Commission’s estimates in Opinion No. 569.159

LPSC argues that the use of a one-step market DCF analysis in the CAPM fails to 

account for the long-term growth of stocks in the S&P 500, despite that utility stocks are 

long-term investments.160 LPSC argues that the dividend-paying firms in the S&P 500 

are not representative of the required return of the market as a whole, and solely relying 

on those firms results in the required market return being overstated. LPSC further 

argues that the exclusion of long-term GDP growth rates suggests that these high 

short-term growth rates will continue in perpetuity, which cannot be true.161 LPSC 

further argues that the inclusion of mature, large market cap companies is not a remedy, 

as even these companies have an average growth rate significantly higher than long-term 

GDP growth.162

156 CAPs Rehearing Request at 65-68.

157 Transource Energy Rehearing Request at 14-15.

158 CAPs Rehearing Request at 59.

159 Id. at 61-65.

160 LPSC Rehearing Request at 6.

161 Id. at 7-8 (citing Opinion No. 569, 169 FERC ¶ 61,129 at P 264).

162 Id. at 8 (citing Opinion No. 569, 169 FERC ¶ 61,129 at P 265).
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C. Commission Determination

1. Use of Betas and Size Adjustments

We continue to find reasonable the use of Value Line adjusted betas in the CAPM 

methodology, as well as the use of raw betas based on the NYSE in the size premium 

adjustment. We also continue to find that the size adjustment is necessary to correct for 

the CAPM’s inability to fully account for the impact of firm size when determining the 

cost of equity. As we found in Opinion No. 569, there is substantial evidence indicating 

that investors rely on Value Line betas in making investment decisions.

163 Furthermore, 

we are not persuaded by LPSC’s argument that betas calculated based on the NYSE 

cannot be used with the S&P 500. We continue to find that size adjustments are 

appropriate for the utility industry and improve the overall accuracy of the CAPM 

results.164 

We agree with LPSC that there is imperfect correspondence with applying Value

Line betas derived from the NYSE to risk premiums developed using the S&P 500. 

However, we find that it is not reasonable to calculate the risk premium using the full 

2800 companies in the NYSE. Furthermore, no parties assert that investors do not use 

Value Line betas or that such betas are materially different from betas derived from only 

the S&P 500. Thus, while not a perfect match, we find that the use of Value Line betas is

appropriate for the CAPM calculation.

2. Exclusion of Growth Rates

We are not persuaded by MISO TOs’ arguments that the CAPM methodology 

should consider growth rates that are negative or above 20% and continue to find that 

such a screen is consistent with the elimination of outliers elsewhere in the ROE 

methodology. Similarly, we disagree with CAPs that negative growth rates should be 

included. Negative and very high growth rates are both unsustainable and should thus be 

excluded from the determination of the CAPM risk premium, even if they enhance the 

diversity of covered companies.

165

3. Source of Short-Term Growth Rates

For the reasons discussed above, we find that IBES is a reliable source of 

short-term growth rate data and therefore we find it reasonable for IBES growth rates to 

163 See Opinion No. 569, 169 FERC ¶ 61,129 at P 297.

164 See id. PP 297-298, 301, 303.

165 See id. PP 267-268.
Docket Nos. EL14-12-004 and EL15-45-013 - 39 -

be used in the CAPM model. However, we clarify here that we will consider the use of 

Value Line short-term growth rates for the CAPM model in future proceedings. 

Consistent with our finding that it is beneficial to use different models in the ROE 

methodology, we find that it may be beneficial to diversify the data sources as well. We 

believe that diversifying data sources may better reflect the data sources that investors 

consider in making investment decisions and mitigate the effect of any unusual or 

incorrect data in a given source. Furthermore, as MISO TOs assert, there is substantial 

evidence that Value Line is used by numerous investors.166 The Commission has, since 

Opinion No. 531, recognized the merit of Value Line data, as illustrated by its support for 

Value Line betas, discussed above. 

We are purposefully taking different approaches for the sources of short-term 

growth rate data in the DCF and CAPM. We believe that, in keeping with the 

Commission’s historic use of IBES for the DCF, the DCF should continue to use IBES 

short-term growth rate data, as discussed above. By contrast, we believe that the CAPM 

is a better candidate for a new growth rate data source given that the Commission is 

newly adopting the CAPM as a direct input into its determination of the zone of 

reasonableness under the first prong of section 206 and its selection of a just and 

reasonable replacement ROE under the second prong of section 206.

While the Commission found in Opinion No. 569 that IBES data is preferable 

because it represents consensus growth estimates by a number of analysts, upon further 

consideration, we conclude that, while Value Line estimates may come from a single 

analyst, those estimates are vetted through internal processes, including review by a 

committee composed of peer analysts, and thus they similarly incorporate the input of 

multiple analysts.

The Commission also found in Opinion No. 569 that IBES data is preferable 

because IBES projections are updated more often than the Value Line projections. 

However, after further consideration of the record, including broad requests to allow the 

use Value Line projections,

167 we find here that there is also value in including Value 

Line projections because they are updated on a more predictable basis. Value Line’s 

regular updates provide certainty about updates to key model inputs. 

Therefore, we conclude that IBES and Value Line data both have advantages and 

thus it is appropriate to consider both data sources. As stated above, however, we believe 

166 See, e.g., MISO TOs Rehearing Request at 63-69.

167 See, e.g., id. at 63-67; MISO TOs Initial Br. (I) at 22-23; MISO TOs Initial Br. 

(II), App. 2 McKenzie Aff. (II) at 19-20.
Docket Nos. EL14-12-004 and EL15-45-013 - 40 -

it is appropriate to only consider using Value Line in the CAPM, which is being newly 

adopted, while continuing the traditional exclusive use of IBES data in the DCF model. 

Although we find it appropriate to consider the use of Value Line short-term 

growth rates in the CAPM in future proceedings, we find that the record in these 

proceedings is insufficient to adopt use of Value Line growth rates for the CAPM at this 

time. Rather, we will evaluate proposals to use Value Line short term growth rates in the 

CAPM based on evidence produced in future proceedings. As we determine here,

consistent with Opinion No. 569,168 the Commission will screen from the CAPM analysis 

S&P 500 companies with growth rates that are negative or in excess of 20%. The only 

CAPM analyses in the record here that apply this screen are those provided by Trial Staff, 

which use only IBES short-term growth rates.169 Thus, there is no CAPM analysis in the 

record that applies the growth rate screen to Value Line short-term growth rates. 

Moreover, we note that, even if we could determine a way in which to apply this screen 

to the data available in the record, no party has provided a CAPM analysis using only 

Value Line short-term growth rates or another analysis that would allow us to reliably 

derive a CAPM analysis using only Value Line short-term growth rates. The CAPM 

analyses provided by MISO TOs in these proceedings, which average IBES and Value 

Line short-term growth rates, do not contain sufficient information to allow us to reliably 

produce a CAPM analysis using only Value Line short-term growth rates because those 

analyses do not specify the weighted average earnings growth rates from Value Line that 

were used in arriving at the short-term growth rates which average IBES and Value 

Line.

170 Accordingly, although we believe, as discussed above, that it may be appropriate 

to use Value Line short-term growth rates in the CAPM, we find that we do not have 

sufficient record evidence to support adopting such use in these proceedings. Therefore, 

we will continue to use the CAPM analyses provided by Trial Staff here, but we will 

consider Value Line data in future proceedings.

171

168 See Opinion No. 569, 169 FERC ¶ 61,129 at PP 19, 267-268.

169 See id. PP 513 n.1002, 555 n.1048. 

170 See also CAPs Rehearing Request, Docket No. EL14-12-002 at 55-56 n.193 

(“The record on this issue . . . does not break out the Ex. MTO-30 growth inputs either by 

source or by S&P 500 company.”).

171 These analyses are reflected in page 6 of Attachment A to Trial Staff’s Initial 

Briefs. See also Trial Staff Initial Br. (I), Attachment A to App. 2 at 6; Trial Staff Initial 

Br. (II), Attachment A to App. 2 at 6.
Docket Nos. EL14-12-004 and EL15-45-013 - 41 -

4. Other Issues

We disagree with Transource Energy’s and CAPs’ assertions that the 

Commission’s CAPM methodology produces inadequate and excessive results, 

respectively, and continue to find the Commission’s CAPM methodology to be consistent 

with conventional CAPM methodologies. Regarding assertions that the CAPM results 

here exceed those used in other contexts, the Commission is not obligated to use the same 

exact ROE calculations as other regulatory bodies or investment services, and our CAPM 

calculations are specific to the electric utility industry. Regarding assertions that the 

results are unreasonably low, as discussed above, the mere decline of the ROE does not 

demonstrate that results are unreasonable, and, as discussed below, state-jurisdictional 

retail ROEs do not serve as an explicit floor on Commission-jurisdictional transmission 

ROEs. 

We also continue to find that the CAPM should use a one-step DCF for its risk 

premium. This is because the rationale for using a two-step DCF methodology for a 

specific group of utilities does not apply when conducting a DCF study of the 

dividend-paying companies in the S&P 500, as the Commission found in Opinion 

Nos. 531-B and 569.172 A long-term component is unnecessary because of the regular 

updates to the S&P 500, which allows it to continue to grow at a short-term growth rate 

and because S&P 500 companies include stocks that are both new and mature, the latter 

of which have a moderating effect on the short-term growth rates.173

We also find unsupported Transource Energy’s assertion that the anomalous 

capital market conditions the Commission found rendered the DCF results too low also 

render the CAPM too low. We are no longer relying on such arguments based on the 

court’s remand of Opinion No. 531. Furthermore, Transource Energy offers no evidence 

that the CAPM results in this proceeding were unreasonably low.

VI. Risk Premium

A. Opinion No. 569

In Opinion No. 569, the Commission determined that it would not use the Risk 

Premium model for either the first or second prong of the ROE analysis under 

section 206 of the FPA. It concluded that the Risk Premium model’s deficiencies

outweigh the additional robustness that it provides. Furthermore, the Commission found 

that the Risk Premium model requires methodological decisions that would likely 

172 See Opinion No. 531-B, 150 FERC ¶ 61,165 at P 113; Opinion No. 569, 

169 FERC ¶ 61,129 at P 263.

173 See Opinion No. 569, 169 FERC ¶ 61,129 at PP 264-266.
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undermine transparency and predictability in Commission outcomes.174 The Commission 

also explained that the Risk Premium model is largely redundant with the CAPM in that 

both models use indirect measures to ascertain the risk premium.175

The Commission agreed with CAPs that the Risk Premium model is likely to 

provide a less accurate current cost of equity estimate than the DCF model or CAPM 

because it relies on previous ROE determinations. It found that those determinations’

ROE results may not necessarily be directly determined by a market-based method, 

whereas the DCF and CAPM methods apply a market-based method to primary data. 

The Commission noted that many previous ROE determinations used in the Risk 

Premium model were from rate case settlements and that such settlements often involve 

compromises on a variety of non-ROE issues.176

The Commission also determined that circularity is particularly direct and acute 

with the Risk Premium model because it relies on past Commission ROE decisions. The 

Commission found that MISO TOs’ regression analysis accentuates such circularity by 

largely offsetting the effects of changes in interest rates.177

The Commission also expressed doubt concerning the application of the regression 

analyses used by MISO TOs in their Risk Premium model. The Commission contrasted 

the impact of MISO TOs’ analysis, which indicated an increase in the risk premium of 

75 basis points for every 100 basis point decline in interest rates, with Dr. Morin’s 

analysis, which indicated an adjustment of 48 basis points. The Commission found that, 

unlike for DCF and CAPM calculations, MISO TOs did not update and add to the data 

set for ROE proceedings through the end of the test period in June of 2015, further 

reducing the robustness of the data set. The Commission observed that, due to using the 

average of ROEs from each year, MISO TOs’ regression in the First Complaint

proceeding only has nine observations in its regression, which is a low number of 

observations for a linear regression and could impact the reliability of the results. The 

Commission found that MISO TOs’ regression created a dynamic in which the Risk 

Premium analysis will keep the ROE essentially stable in contravention of general 

financial logic that lower interest rates make it easier to raise capital based on both the 

reduced opportunity cost of investing in bonds and greater availability of revenue to 

174 Id. P 340.

175 Id. P 341.

176 Id. P 342.

177 Id. P 343.
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invest due to the opportunity for carry trades where borrowing low-cost debt is used to 

finance equity purchases.178

Additionally, the Commission found that there was insufficient record evidence to 

conclude that investors rely on risk premium analyses utilizing historic Commission ROE 

determinations or settlement approvals to determine the cost of capital and make 

investment decisions.179 The Commission was also unpersuaded by MISO TOs’ 

arguments that the nature of the industry and the resulting risk premiums changed 

following the Energy Policy Act of 2005 sufficiently to ignore prior data.

The Commission also reconsidered its finding in Opinion No. 531-B that “[g]iven 

the varying duration of regulatory proceedings, it is difficult, if not impossible, to ensure 

precise contemporaneity between long-term Treasury bond yields and the cost of equity 

allowed by a regulator.”180 The Commission found that, although an analysis with such 

imprecision may have been sufficient for using the Risk Premium model for 

corroborative purposes, direct use of the model to determine the risk premium would 

require actual alignment of the test periods and the dates assigned for purposes of 

comparing the ROE to the risk free rate of return. The Commission stated that, if it were 

to adopt a precise timing in this proceeding, as a practical matter, such a decision would 

likely require the Commission to exclude certain proceedings whose test periods predate 

2006 and include others, as well as potentially change the dates assigned to yet other 

proceedings.181

The Commission also noted that the Risk Premium model entails numerous 

judgment calls which could be disputed by parties, such as: determining the risk 

premium resulting from proceedings resolved by settlements with different ROEs for 

different parties or time periods; whether the ROEs should be assigned to different times 

for purposes of the Risk Premium analysis; and whether ROEs from settlements resolving 

multiple proceedings with the same ROE should be counted once or twice. The 

Commission also noted other methodological decisions, including whether to look at the 

annual average of ROEs and corresponding risk-free rates of return or look at them 

individually. Because of this, the Commission found that the Risk Premium model 

178 Id. P 344.

179 Id. P 345.

180 Id. P 348 (citing Opinion No. 531-B, 150 FERC ¶ 61,165 at P 98).

181 Id.
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features far more ambiguity and potential for dispute than the DCF and CAPM models, 

which would lead to higher costs for participation and less predictable results.182

The Commission stated that the output that the Risk Premium model produces is 

a single numerical point, and therefore, it does not produce a range which can be used to 

determine a zone of reasonableness. Accordingly, the Commission explained, the 

Briefing Order proposed to only use the Risk Premium model in the second prong of the 

section 206 analysis, but not in the first prong. The Commission stated that it preferred to 

use the same models in the prong one and prong two analyses to ensure that our ROE 

determinations under each prong are based on the same data and models and that there 

was no compelling justification to use different models and data sources to apply this 

same standard under the two prongs.

B. Rehearing Requests

Transource Energy argues that the Commission should utilize the Risk Premium 

model. Transource Energy argues that none of the Commission’s justifications for using 

the DCF model and CAPM but not the Risk Premium model support reversing its prior 

findings that the imperfections of the Expected Earnings analysis and Risk Premium 

models do “not undermine” their usefulness.183 Transource Energy contends that the 

Risk Premium model adds useful information that does not rely on the same assumptions 

as the DCF and CAPM models.184 

Transource Energy also avers that the Commission has not shown that investors 

do not rely on the Risk Premium (or Expected Earnings) model and that, at most, the 

Commission shows that investors use those approaches differently than the DCF and 

182 Id. PP 346-350.

183 Transource Energy Rehearing Request at 23 (citing Opinion No. 531-B, 

150 FERC ¶ 61,165 at P 98).

184 Id. (citing Avera Test., Ex. MTO-1, Docket No. EL14-12, at 94 (explaining that 

unlike DCF models, which indirectly impute the cost of equity, risk premium methods 

directly estimate investors’ required rate of return by adding an equity risk premium to 

observable bond yields)).
Docket Nos. EL14-12-004 and EL15-45-013 - 45 -

CAPM models.185 Transource Energy further points to the publication of returns granted 

by regulators as evidence that investors rely on the Risk Premium model.186

MISO TOs contend that the implementation questions raised in Opinion No. 569 

do not undermine the probity of the Risk Premium analysis supplied by MISO TOs. 

MISO TOs contend that the Commission’s decision in Opinion No. 569 to disregard this 

evidence is inconsistent with Opinion No. 551, where the Commission evaluated those 

issues and found that the model was probative.187

MISO TOs disagree with the Commission’s finding that the Risk Premium model 

is redundant with the CAPM. MISO TOs note that the Risk Premium model focuses on 

the bond market while the CAPM focuses on the equity market, using different inputs. 

MISO TOs contend that investors independently rely on both models and note that many 

jurisdictions employ a Risk Premium approach for determining utilities’ cost of equity.188 

MISO TOs argue that the Commission’s finding that the stability of the Risk Premium 

model “defies general financial logic” overlooks that the data inputs used in the Risk 

Premium model inherently smooth out volatility.189 They also argue that the 

Commission’s assertion that the DCF and CAPM approaches may have a greater 

prevalence does not go to the merits of the Risk Premium approach, and it contradicts the 

record and the Commission’s prior finding that Risk Premium is a traditional method 

investors may use to estimate the expected return from an investment in a company.190

MISO TOs argue that implementation issues associated with the Risk Premium 

method are neither insurmountable nor unique to the Risk Premium method. They argue 

that the Commission’s concerns about which ROE inputs to include and “how far back 

such data should go” are directly analogous to questions regarding proxy group selection 

and the determination of the study period for the DCF analysis.191

185 Id. at 24.

186 Id. at 25, n.13 (citing MISO TOs, Supplemental Reply Brief, Docket 

No. EL14-12-003, App. 2 at 44).

187 MISO TOs Rehearing Request at 52-53.

188 Id. at 47-49.

189 Id. at 48.

190 Id. at 49 (citing Briefing Order, 165 FERC ¶ 61,118 at P 36).

191 Id. at 50.
Docket Nos. EL14-12-004 and EL15-45-013 - 46 -

MISO TOs assert that the Commission’s concerns regarding circularity arising 

from using Commission-approved ROEs as inputs are overblown and present in other 

methodologies. MISO TOs contend that such circularity is limited because of the

presumption that orders and settlements are based on market-based methodologies.192 

MISO TOs also aver that the lack of a resulting zone of reasonableness from the Risk 

Premium model is not a problem because the evaluation of whether an ROE remains just 

and reasonable is less exact than setting a new base ROE. MISO TOs contend that, while 

the Commission should include the Risk Premium in setting new ROEs, it does not 

necessarily need to include it in evaluating existing ROEs.193

MISO TOs also contend that the Commission’s failure to provide guidance on the 

Risk Premium model’s implementation is not a valid justification for omitting the model, 

particularly since the Commission has reopened the implementation of the models in this 

proceeding.194

PJM TOs contend that investors recognize that each of the four financial models in 

the Briefing Order has its own advantages and disadvantages. PJM TOs contend that 

investors use multiple models because no single model provides accurate results under all 

market conditions.195

PJM TOs argue that the Risk Premium model complements the Commission’s 

DCF model by recognizing that the Risk Premium varies over time and with interest rates 

whereas the DCF model does not account for this variation.196 PJM TOs argue that the 

Commission-authorized ROEs used in the Risk Premium model reflect inputs and 

analyses of multiple experts as well as the Commission’s judgment concerning factors 

that affect the cost of equity, and contend that investors are likely to consider 

Commission-authorized ROEs to an extent.197

192 Id. at 50-51.

193 Id. at 51-52.

194 Id. at 49-50.

195 PJM TOs Rehearing Request at 12.

196 Id. at 26.

197 Id. at 15-16.
Docket Nos. EL14-12-004 and EL15-45-013 - 47 -

C. Commission Determination

Upon reconsideration and with the modifications described below, we find that the 

defects of the Risk Premium model do not outweigh the benefits of model diversity and 

reduced volatility resulting from the averaging of more models.

In Opinion No. 569, the Commission expressed concerns that the Risk Premium 

model was an iteration of the CAPM, where both compared a derived return to a risk-free 

rate of return, affording too much weight to similar models. Upon reconsideration, we 

agree with the PJM TOs that the Risk Premium model is sufficiently distinct from the 

CAPM to use in our ROE analysis. The Risk Premium relies on corporate utility bonds 

while the CAPM uses Treasury Bond yields. Additionally, the Risk Premium model 

relies on the risk premiums implicit in regulatory judgements, including those using the 

DCF model, while the CAPM relies upon a different set of inputs, including S&P 500 

dividend yields and growth rates as well as adjusted betas.

The Commission, in Opinion No. 569, found that the Risk Premium model 

contained substantial circularity. Upon reconsideration, we agree with MISO TOs198 and

find that, while it contains some circularity, the averaging of the results with those of the 

DCF and CAPM models sufficiently mitigates that circularity. Additionally, all of the 

models contain some circularity. And, upon consideration of the rehearing requests, we 

believe that the level of circularity in the Risk Premium model is acceptable.

The Commission also found that use of the Risk Premium model was inconsistent 

with the other models because it could only be used for the second prong of the 

section 206 analysis because it does not produce a zone of reasonableness. We continue 

to find that this is a serious concern, particularly in a circumstance where the Risk 

Premium model’s ROE differs substantially from those of the DCF and CAPM models, 

such that the ROE produced in the second prong could fall within the applicable 

presumptively just and reasonable range from the first prong despite the challenged ROE 

falling outside that range or vice versa. To remedy this problem, we will impute the 

average width of the zones of reasonableness from the CAPM and DCF models onto the 

ROE produced by the Risk Premium model, with that ROE serving as the measure of 

central tendency of the zone of reasonableness. Doing so creates a zone of 

reasonableness for the ROE from the Risk Premium model, which can then be averaged 

with those of the other models in the first prong of the section 206 analysis. For example, 

if the Risk Premium model produces an ROE of 10% while the CAPM and DCF produce 

zones of reasonableness that average 400 basis points wide, the imputed zone of 

reasonableness for the Risk Premium would be 8% to 12%. We find that this is 

appropriate because the average width of those zones of reasonableness from models that 

198 See MISO TOs Rehearing Request at 51.
Docket Nos. EL14-12-004 and EL15-45-013 - 48 -

produce a zone of reasonableness is the best estimate of how far a zone of reasonableness 

should span from a single point like that produced by the Risk Premium model. 

Moreover, addition of the Risk Premium model to our analysis under the first prong of 

section 206 will not impact the size of the overall composite zone of reasonableness. 

Instead, it will merely reflect the Risk Premium model in the zone of reasonableness, 

based on equally weighted information from the models that directly produce a zone of 

reasonableness, allowing the Commission to use this model in both prongs. Accordingly, 

we find that it is appropriate to impute a zone of reasonableness for the Risk Premium 

model so that our ROE determinations under both prongs of section 206 are based on the 

same data and models.

199

The Commission also expressed concerns regarding the regression analysis, noting 

specifically that the low number of observations could impact the reliability of the 

results.

200 Here we propose to use the individual cases for the Risk Premium analysis and 

not the average of the data from each year. Consequently, instead of nine observations in 

the regression analysis as proposed by the MISO TOs, there are 71 observations used in 

the First Complaint regression and 77 in the Second Complaint regression, leading to a 

much more robust and reliable result. Although the resulting regression coefficients are 

similar to those in the MISO TOs’ calculations, we conclude that they are now based on 

more sound inputs and are thus more reliable.

The Commission cited use of settlements as a deficiency of the Risk Premium 

model. Parties may consider many factors when settling rate case proceedings. 

However, because of how directly ROEs affect rates, we conclude that parties engaged 

in arms-length negotiations seriously consider the ROE in the course of reaching 

settlements, even if the records in certain proceedings do not contain specific ROE 

calculations or testimony. Consequently, upon further consideration, we find that the 

ROEs from such settlements are reasonable to include in the Risk Premium analysis. 

However, because of the need to more precisely correspond the timing of ROEs to the 

corresponding bond yields, discussed below, we revise the bond yields (and 

corresponding risk premiums) to correspond to the six months preceding the offer of 

settlement and not Commission orders approving the settlements, as discussed below. 

199 See Opinion No. 569, 169 FERC ¶ 61,129 at P 351 (“We would prefer to use 

the same models in the prong one and prong two analyses to ensure that our ROE 

determinations under each prong are based on the same data and models. It would not be 

logical to use different models and data sources to apply this same standard under the 

two prongs unless there is some compelling justification for the difference.”).

200 See Opinion No. 569, 169 FERC ¶ 61,129 at P 344.
Docket Nos. EL14-12-004 and EL15-45-013 - 49 -

This period, not the six months preceding Commission approval of settlements, best 

reflects when parties evaluated the ROE.

We also find that it is appropriate to eliminate certain cases from the Risk 

Premium analysis where the Commission did not consider the justness and 

reasonableness of the base ROE or the zone of reasonableness in making decisions. For

example, we are excluding cases where transmission owners joined MISO and received 

the prevailing 12.38% ROE that was approved in 2002 without examination of the 

justness and reasonableness of that ROE. Similarly, in an order on a transmission rate 

incentives filing by PSEG,201 the Commission explicitly stated that the ROE was beyond 

the scope of the proceeding.202 In other cases, the MISO TOs’ analysis unjustifiably 

contained multiple ROEs counted in the analysis from the same case.203 We are also 

eliminating cases where the test period is in 2004, well before other proceedings on the 

list, given that there were likely other proceedings with test periods during 2004 and 2005 

that were not included. We also propose, in order for the results of the Risk Premium 

analysis to be consistent with those of other models, to update the list of applicable cases

to include data up through the conclusion of the test periods, which conclude June 2015 

and December 2015 for the First Complaint and Second Complaint, respectively.

The Commission, in Opinion No. 569, also considered whether the bond yields

used to determine the risk premium should more precisely align with test periods of Risk 

Premium cases. It found that, although a misalignment of the timing of bond yields and 

test periods might be acceptable when using the Risk Premium model corroboratively,

using the model to set the actual ROE demanded correcting this imprecision. We 

continue to find that the risk premiums should not contain inconsistent dates for the 

ROEs and for the bond yields. Rather, they should be aligned by corresponding the ROE 

to the test periods on which it is based. For settlements, the relevant date is the date that 

parties file the settlement, not when the Commission approves it. Consequently, the 

six-month time period bond yields should be the six months preceding the settlements. 

Such information is reflected in the data in Appendix I.

In Opinion No. 569, the Commission also found that the record contained 

insufficient evidence to conclude that investors rely on risk premium analyses utilizing 

historic Commission ROE determinations or settlement approvals to determine the cost 

201 PJM Interconnection, L.L.C. and Pub. Serv. Elec. & Gas Co., 147 FERC 

¶ 61,142, at P 48 (2014).

202 However, the analysis does include those cases where the Commission made 

this finding, but the ROE was modified by settlement.

203 See Appendix I. Note that when a case has multiple different ROEs, each of 

those are counted in the analysis.
Docket Nos. EL14-12-004 and EL15-45-013 - 50 -

of capital and make investment decisions. On rehearing, we find that investors do expect 

to earn a return on a stock investment that reflects a premium above the return they 

expect to earn on a bond investment,204 and that the Risk Premium model is a method of 

estimating the premium over bond yields that investors require to invest in electric utility 

equities. In addition, as the Commission noted in Opinion No. 569, investors do observe 

regulatory ROEs and how changes in authorized ROE levels could affect utility 

earnings,205 and while such considerations differ from the type of analysis employed by 

the Risk Premium model, it is a model that considers regulatory ROEs in estimating the 

premium that investors require to make equity investments instead of bond investments.

The Commission discussed in Opinion No. 569 that the MISO TOs’ sample 

period, beginning in 2006, was substantially shorter than the period used by Dr. Morin, 

potentially leading to less credible results. We find that, although the data set for 

determining the risk premium would ideally be longer, that 10 years of data yielding over 

60 observations is sufficient, noting that we are extending the sample periods slightly to 

the end of the updated test periods, as discussed above. Furthermore, the record lacks 

information on ROE proceedings whose order dates precede 2006.

The Commission also noted concerns, raised by Trial Staff, that the Risk Premium 

model should exclude periods of high volatility, specifically around the beginning of the 

Great Recession. We conclude that all periods should be included because the Risk 

Premium analysis should factor in periods where the bond yields change. A full sample 

size in this case does include the outlying periods because they reflect the Risk Premium 

at the time and such economic disturbances, which periodically recur.

VII. Expected Earnings

A. Opinion No. 569

In Opinion No. 569, the Commission determined that, in light of the record as 

supplemented after issuance of the Briefing Order, it is not appropriate to use the 

Expected Earnings model in our new base ROE methodology.206

204 See, e.g., Morin at 108 (“[B]ased on the simple idea that since investors in 

stocks take greater risk than investors in bonds, the former expect to earn a return on a 

stock investment that reflects a ‘premium’ over and above the return they expect to earn 

on a bond investment.”).

205 Opinion No. 569, 169 FERC ¶ 61,129 at P 345.

206 Id. P 200.
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In particular, the Commission found that the record does not support departing 

from our traditional use of market-based approaches to determine base ROE.207 The 

Commission determined that under Hope—which declares that “the return to the equity 

owner should be commensurate with returns on investments in other enterprises having 

corresponding risks”208—it is appropriate to consider the value of investment that is 

actually available to an investor in the market. Outside of the unlikely situation in which 

the market value and book value are exactly equal, investors do not have the opportunity 

to invest in an enterprise at its book value. Accordingly, the Commission deemed it most 

appropriate to exclude the Expected Earnings model, which relies on an enterprise’s book 

value instead of the market value.

The Commission explained that the return on book value is not indicative of what 

return an investor requires to invest in the utility’s equity or what return an investor 

receives on the equity investment, because those returns are determined with respect to 

the current market price that an investor must pay in order to invest in the equity.209 

Specifically, the Commission found that the Expected Earnings model measures returns 

on book value, without consideration of what market price an investor would have to pay 

to invest in the relevant company, so it does not accurately measure the investor’s 

expected returns on its investment, and, therefore, has been “thoroughly discredited.”210 

In other words, the return on book value does not reflect “the return to the equity owner” 

that we must ensure is “commensurate with returns on investments in other enterprises,” 

as Hope requires; therefore, the Commission found that this model is not useful in 

ensuring that these standards are satisfied.211 Furthermore, the Commission found that 

there was insufficient record evidence to conclude that investors rely on the Expected 

Earnings analysis to estimate the opportunity cost of investing in a particular utility.212

The Commission also explained that, while it may be true that the Expected 

Earnings model does not involve the same complexities as the market-based approaches, 

this is because it does not reflect a utility’s cost of equity.

213 Furthermore, applying the 

207 Id. PP 201, 221.

208 Hope, 320 U.S. at 603.

209 Opinion No. 569, 169 FERC ¶ 61,129 at P 202.

210 Id. PP 205, 221.

211 Id. PP 202, 221-22.

212 Id. P 210.

213 Id. P 204.
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Expected Earnings model in the cost-of-service context would lead to illogical results 

because a company in such a context would receive a higher overall return when it 

features a higher equity ratio, despite this indicating a lower risk (and thereby indicating a 

lower required rate of return by investors) than a company featuring a lower equity 

ratio.

214 Even though companies with more depreciated assets are generally of lower risk 

and therefore would merit a lower return, the Expected Earnings model would instead 

provide higher returns to such companies.

215

B. Rehearing Requests

MISO TOs, Ameren, and Transource Energy seek rehearing of the Commission’s 

decision to exclude the Expected Earnings model in determining base ROEs.216 

Transource Energy argues that the alleged flaws in the Expected Earnings approach 

actually become strengths when combined with the other models.217

Transource Energy asserts that the Expected Earnings model is actually 

market-based in the sense that market participants use it for investment decisions and 

that the Commission’s definition of “market-based” is too narrow.218 Furthermore, 

Transource Energy argues that the fact that the Expected Earnings model does not fit into 

the Commission’s narrow definition of “market-based” highlights that it is needed to 

diversify the other models.219 On the other hand, MISO TOs contend that the Expected 

Earnings approach helps ensure a base ROE that meets the requirements of Hope

precisely because it is not market-based.220 

According to MISO TOs, the record demonstrates that the Expected Earnings 

approach provides a unique perspective that no other model addresses and thus provides 

214 Id. P 223.

215 Id. P 224.

216 Ameren Rehearing Request at 2, 4-6, 10-13, 23-25; MISO TOs Rehearing 

Request at 8, 13, 53-62; Transource Energy Rehearing Request at 3-4, 6, 8-10, 15-26.

217 Transource Energy Rehearing Request at 23.

218 Id. at 16.

219 Id.

220 MISO TOs Rehearing Request at 59-61.
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a check on the market-based cost of equity approaches.221 MISO TOs assert that, 

because regulators do not set the returns that investors earn in the capital markets, the 

Expected Earnings approach provides a direct guide to ensure that the allowed ROE is 

similar to what other utilities of comparable risk will earn on invested capital.222 In other 

words, MISO TOs explain, the Expected Earnings approach measures whether the 

allowed ROE is sufficient to assure confidence in the financial integrity of an enterprise 

so as to maintain its credit and attract capital.223 In addition, MISO TOs state that, 

because it is not market-based, the Expected Earnings approach avoids the complexities, 

controversies, and limitations of capital market methods.224 Transource Energy argues 

that the fact that Expected Earnings is not used independently of stock price is not 

disqualifying, because, under the four-model framework originally proposed, this 

approach actually works in concert with market-based methods like the included CAPM 

and DCF models.225 According to MISO TOs, it is precisely because the Expected 

Earnings method examines the books of a proxy company rather than relying on market 

data that the approach provides a unique value in assessing whether a 

Commission-determined ROE meets the Hope and Bluefield standards.226

MISO TOs, Transource Energy, and Exelon assert that the Commission’s finding 

that investors do not rely on the Expected Earnings analysis to estimate the ROE that a 

utility will earn in the future is contrary to the record in this proceeding and the record in 

the Commission’s Notice of Inquiry proceeding227 regarding its base ROE policy.

228 

Transource Energy argues that Opinion No. 569 did not identify changed circumstances 

regarding how investors use the Expected Earnings and Risk Premium models and does 

221 Id. at 59.

222 Id.

223 Id.

224 Id. at 60 (citing MISO TOs, Supplemental Reply Brief, Docket 

No. EL14-12-003, App. 2 at 65 (filed Apr. 10, 2019) (McKenzie Supplemental Reply 

Brief Affidavit)).

225 Transource Energy Rehearing Request at 24.

226 MISO TOs Rehearing Request at 62.

227 Inquiry Regarding the Commission’s Policy for Determining Return on Equity, 

166 FERC ¶ 61,207 (2019) (Base ROE NOI).

228 MISO TOs Rehearing Request at 54-58; Transource Energy Rehearing Request 

at 18, 20-21, 24.
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not find that investors no longer rely on them in evaluating investment decisions.229 

MISO TOs contend that testimony filed by multiple commenters in the Base ROE NOI 

proceeding, including MISO TOs, the New England TOs, the PJM TOs, and EEI, clearly 

demonstrates that investors do rely on the Expected Earnings analysis when making 

investment choices.230 Exelon notes that the Commission stated in the Briefing Order 

that investors use the Expected Earnings model, but then later in Opinion No. 569 stated

that there is insufficient evidence that investors rely on the Expected Earnings model. 

Exelon argues that the Expected Earnings model should be included in the ROE 

methodology even if only some investors rely on it.231

MISO TOs and Transource Energy also argue that the Commission cannot ignore 

evidence concerning the Expected Earnings model that it already found probative.232 

They contend that the Commission found the Expected Earnings approach to be reliable, 

corroborative evidence of the proper base ROE for electric utilities in Opinion Nos. 531, 

531-B, and 551, and cannot now simply ignore evidence pertinent to the question before 

it with no basis for the sudden change.233 Ameren contends that the Commission’s 

assertion that the exclusion of the Expected Earnings model in Opinion No. 569 is not 

inconsistent with its determination in Opinion No. 551 is circular because the question on 

whether to exclude the model was never asked in Opinion No. 551.234 Ameren explains 

that, in Opinion No. 551, the Commission relied on the Expected Earnings model to 

corroborate its finding and provides no explanation here for completely ignoring it. 

Ameren contends that this failure to at least consider the Expected Earnings model cannot 

be reconciled with the Commission’s prior finding.235 According to MISO TOs, the 

Expected Earnings analysis can inform whether the ROE produced by the Commission’s 

methodology is appropriate, and ignoring pertinent evidence rooted in controlling 

Supreme Court precedent is arbitrary and capricious and not the product of reasoned 

229 Transource Energy Rehearing Request at 21.

230 MISO TOs Rehearing Request at 54-58.

231 Exelon Rehearing Request, Docket No. EL14-12, at 12-13.

232 MISO TOs Rehearing Request at 61-62; Transource Energy Rehearing Request 

at 18, 20-21, 24.

233 MISO TOs Rehearing Request at 61.

234 Ameren Rehearing Request at 25.

235 Id.
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decision-making.236 Moreover, Ameren argues that this exclusion constitutes reversible 

error because the Commission never proposed the two-model approach in the Briefing 

Order or the Base ROE NOI, no party advocated for this approach in the instant docket, 

and the record does not support exclusion of the Expected Earnings model.237

MISO TOs and Transource Energy also assert that the Commission cannot deny 

the historical and regulatory acceptance of the Expected Earnings approach, as it was 

used in the Commission’s prior “br + sv” approach for determining public utility ROEs 

and is closely related to the comparable earnings approach that originated in Hope.

238 

Accordingly, they contend that the Commission can rely on the Expected Earnings model 

to determine whether a prospective base ROE meets the requirements of Hope, and to the 

extent a base ROE is inconsistent with the Expected Earnings analysis, significant 

explanation is needed as to how such a base ROE meets the requirements of Hope.

239 

MISO TOs assert that the Commission should employ the Expected Earnings approach in 

setting the MISO TOs’ base ROE or, failing that, should at least consider it as a check on 

the base ROE yielded by the Commission’s alternative approach.240

C. Commission Determination

We deny requests for rehearing of the Commission’s decision to exclude the 

Expected Earnings model from its base ROE analysis under section 206 of the FPA. As 

an initial matter, we note that the requests for rehearing largely repeat arguments parties 

previously made and which the Commission addressed in Opinion No. 569. Nothing in 

the rehearing requests persuades us to alter our decision here.

We are not persuaded by MISO TOs’, Transource Energy’s, and Exelon’s 

arguments that investors rely on the Expected Earnings analysis to project utilities’ 

earned ROE. While the record in this proceeding contains evidence that investors have 

access to data on earnings per book value, we continue to find that it lacks evidence that 

investors use such data to directly value equities, determine the cost of equity, or make 

investment decisions without consideration of the market price of the relevant equities. 

236 MISO TOs Rehearing Request at 62.

237 Ameren Rehearing Request at 23-24.

238 MISO TOs Rehearing Request at 60; Transource Energy Rehearing Request 

at 20-21, 24-25.

239 MISO TOs Rehearing Request at 60-61; Transource Energy Rehearing Request 

at 20-21, 24-25.

240 MISO TOs Rehearing Request at 62.
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As the Commission explained in Opinion No. 569,241 investors cannot use the Expected 

Earnings model to directly determine the return they would earn from purchasing a 

company’s stock, because the return estimated by that model is a return on the company’s 

book value, not a return on the current stock price, which is what the investor must pay in 

order to invest in the company. Therefore, the returns estimated by the Expected 

Earnings model are divorced from the returns required by investors, because investors 

cannot purchase a company’s stock at its book value (except in the very rare instance

where a utility’s market capitalization happens to exactly equal its book value). 

Similarly, we are not persuaded by MISO TOs’ and Transource Energy’s arguments that 

the Expected Earnings analysis is probative because the Commission, until Opinion 

No. 531, considered book value in the “br + sv” calculations. Our decision to exclude the 

Expected Earnings model from our base ROE analysis is not inconsistent with the 

Commission’s prior consideration of book value in this context because such information 

was used in conjunction with, rather than instead of, the market price of the stocks.

Moreover, because the current market values of utility stocks substantially exceed 

utilities’ book value, a utility’s expected earnings on its book value will inevitably exceed 

the return that investors require in order to purchase the utility’s higher-value stock, 

which means that the Expected Earnings model does not accurately measure the returns 

that investors require to invest in utilities.242

As explained in Opinion No. 569, the Commission has found that it is important to 

base the ROE on the returns currently required by investors, and the Expected Earnings 

model does not measure those returns. Specifically, since the 1980s, the Commission has 

rejected the use of returns on book value in determining the cost of equity and 

emphasized the importance of incorporating the market cost of equity when estimating 

ROEs because the market price is what investors must pay when making an investment 

and therefore is the basis on which investors measure the return on their investment.243 

As discussed in Opinion No. 569, this is also supported by a variety of academic 

literature indicating that the Expected Earnings model is not relied upon to directly 

estimate cost of equity.244

We are also not persuaded by MISO TOs’ arguments that the Expected Earnings 

model should be used because it provides a unique, non-market-based perspective, and 

thus increases model diversity. Simply because a model increases model diversity does 

241 Opinion No. 569, 169 FERC ¶ 61,129 at PP 201-202.

242 See id. P 211.

243 See id. PP 201 & n.426, 202, 216-18.

244 Id. P 218.
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not mean that it is necessarily appropriate to include, if the model is fatally flawed. This 

is the case because the returns on investment received depend on the market price that 

investors must pay to make their investment, which the accounting-based Expected 

Earnings model does not consider.

In response to MISO TOs’ argument that the Expected Earnings model should be 

used because it avoids the complexities, controversies, and limitations of market-based 

methods, we stand by the Commission’s explanation in Opinion No. 569245 that the 

Expected Earnings model is simpler because it does not take into account the vitally 

important market cost of investing in a utility’s equity. The market price that an investor 

must pay for an investment is a critical factor in determining a utility’s cost of equity, and 

a model that ignores that factor is not useful in estimating cost of equity. The Expected 

Earnings model’s relative simplicity is due to and invalidated by this deficiency.

Finally, we disagree with MISO TOs’ and Transource Energy’s arguments that the 

Commission cannot exclude the Expected Earnings model now because it already relied 

on the model as corroborative evidence in the underlying Opinion No. 551 in these 

proceedings. As the Commission explained in Opinion No. 569,246 the Commission is 

now deciding whether to use the Expected Earnings model as a direct input in its ROE 

estimates—not merely whether to use it as corroborative evidence—and more convincing 

evidence is required to justify using the model as a direct input. We continue to find that 

parties have not supplemented the record with this more convincing evidence. We 

further note that no parties have explained or refuted the Commission’s observation in 

Opinion No. 569 that the use of the Expected Earnings model in this context leads to 

illogical results of higher ROEs from companies with more equity in their capital 

structure or more depreciated assets.247 Furthermore, Opinion No. 531, whose logic and 

methodology the Commission adopted in Opinion No. 551, was vacated by the court, 

such that neither form binding precedent.

While we do not adopt the Expected Earnings model in our revised methodology 

here for the reasons discussed above, we do not necessarily foreclose its use in future 

proceedings if parties can demonstrate that the concerns discussed above have been 

addressed. 

245 Id. PP 203-204.

246 Id. P 226.

247 See id. P 223.
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VIII. Weighting of Models

A number of parties made general comments that the Commission erred in 

overweighting the DCF and CAPM models by excluding the Risk Premium and Expected 

Earnings models. Section III above addresses such arguments.

A. Opinion No. 569

In Opinion No. 569, the Commission chose to use the DCF and CAPM models to 

determine base ROE, with both approaches being given equal weight. The Commission 

argued that it was inappropriate to include the Expected Earnings and Risk Premium 

models, as discussed above. By excluding them, the Commission effectively gave those 

models a weight of zero in its analysis under prongs one and two of section 206 of the 

FPA.

248 

The Commission also described why it would create the zones of reasonableness 

for each model based on the proxy company results for those individual models, average 

the midpoints/medians and zones of reasonableness bounds for the used models, and then 

determine the midpoints and applicable quartiles based on the averaged zones of 

reasonableness.249 The Commission declined to adopt CAPs’ proposed alternative of 

averaging the results for multiple models for each proxy group company before 

determining the applicable midpoint/median and zone of reasonableness. Further, the 

Commission noted that there was no record evidence of the models being applied this 

way in other regulatory proceedings or that the assumptions and structure of the DCF and 

CAPM models contemplate the isolation of results for specific proxy group companies as 

the CAPs’ proposal would do.

B. Rehearing Requests

CAPs state that the Commission should not have equally weighted the results of 

the DCF and CAPM models in determining the composite zone of reasonableness. 

According to CAPs, the Commission disregarded the complainants’ arguments regarding 

the “superiority of the DCF model, including evidence of broad industry recognition of 

the DCF model as the most appropriate way to determine allowable rates of return that 

meet the standards set out in Hope and Bluefield.”250 CAPs claim that the Commission 

relied more heavily on the MISO TOs’ assertion that “investors base their decisions on 

factors more closely aligned with CAPM factors to disregard long-standing precedent 

248 Id. PP 424-427.

249 Id. PP 437-438.

250 CAPs Rehearing Request at 85.
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stating the superiority of the DCF model.” CAPs argue that the equal weighting of the 

DCF and CAPM models is not supported by the record evidence or Commission 

precedent indicating that the DCF model is superior to the CAPM. 

CAPs assert that the Commission did not explain its conclusion that equal 

weighting will reduce model risk associated with a given model more so than giving 

one model greater weight over the other. CAPs note that the DCF model has not become 

less reliable over the time that the Commission used it exclusively to determine cost of 

equity. Lastly, CAPs criticize the Commission for not considering Dr. Berry’s rebuttal of 

the Briefing Order’s basis for its new concerns regarding the DCF model’s risk. 

According to CAPs, disregarding parties’ arguments constitutes arbitrary and capricious 

decision making.251 CAPs also aver that the Commission did not address Dr. Berry’s 

testimony regarding the sequencing of model calculations.

Transource Energy argues that the Commission’s rationale does not support a 

50% weight for the DCF model. Previously with a four-model methodology, the DCF 

approach received a 25% weight. That approach led to a diverse methodology that 

minimized measurement errors. According to Transource Energy, assigning no weight 

to the Expected Earnings and Risk Premium models does not mean that the DCF model 

should be weighted equally with the CAPM.252

MISO TOs state that benchmark estimates of utilities’ cost of equity using the 

Risk Premium and Expected Earnings models substantially exceed the Commission’s 

composite midpoint ROE. In addition, MISO TOs state that anomalous capital market 

conditions undercut the validity of the DCF analysis where that model holds a 

50% weight in deriving the composite zone of reasonableness from which the 

Commission derived the new base ROE it adopted in Opinion No. 569.253 MISO TOs 

also note that the Commission previously agreed with Ms. Lapson’s conclusion that 

using the DCF model does not satisfy Hope and Bluefield. MISO TOs assert that the 

DCF model does not satisfy Hope and Bluefield and therefore question the validity of the 

new ROE methodology when assigning a 50% weight to the DCF model. According to 

MISO TOs, the “same evidence of prevailing state ROEs on which the Commission 

relied in Opinion No. 551 undercuts the 50% weighting of the very same DCF analysis in 

Opinion No. 569.”254 They argue that the Expected Earnings and Risk Premium models 

can be used to show that the DCF model has a downward bias on the resulting base ROE. 

251 Id. at 85-87.

252 Transource Energy Rehearing Request, Docket No. EL14-12, at 21-22.

253 MISO TOs Rehearing Request, Docket No. EL14-12, at 13.

254 Id. at 18-19.
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Furthermore, the Commission had previously noted that investors utilize the Expected 

Earnings and Risk Premium models.255

C. Commission Determination

We disagree with parties that assert that low reliability of the DCF model, the 

DCF model’s similarity to the CAPM in terms of inputs, and the drawbacks of those 

two models as reasons against equal weighting. We also disagree with other parties that

argue that the DCF should receive more weighting than other models given that it has 

been long-used by regulators. Parties arguing for less weighting do not suggest a specific 

alternative weighting scheme other than simply reducing the DCF’s weight to less than 

50% and overlook the distinctions between it and the other models. We disagree with 

contentions that, because the DCF gives results in these proceedings that are lower than 

those of the other models, that it should receive less weight than they do. The DCF 

model is clearly used by investors256 and has been subject to extensive regulatory review 

and refinement. We also disagree with parties arguing for more weighting of the DCF 

model, because, as discussed above, we find substantial value in the CAPM and Risk 

Premium models and the evidence indicates that none of the three models is conclusively 

superior to any other. As discussed in this order and in Opinion No. 569, each model has 

unique aspects, and advantages and disadvantages that make it preferable to the other 

model in some respects, but not other respects. 

We continue to find that the models used in our methodology should be afforded 

equal weighting to fully capture the model diversity that each brings. The evidence does 

not indicate that there is a clearly superior model for estimating cost of equity that should 

be given more weight than the others and we find that equally weighting the three models 

will reduce the model risk associated with any particular model more than giving 

one model greater weight than the other. Consequently, each model shall receive 

one-third weighting for both the first and second prongs of the section 206 analysis. The 

revised methodology ultimately addresses the concerns of certain commenters by 

reducing the weight attributed to the DCF model while expanding the diversity of the 

ROE methodology by including the Risk Premium model. We disagree with CAPs’ 

assertion that the Commission in Opinion No. 569 failed to address Dr. Berry’s concerns 

regarding model sequencing. The Commission provided a full and reasoned description 

of why it employed the sequencing order for ROE calculations that it had described in the 

Briefing Order.

255 Id. at 22.

256 See, e.g., Opinion No. 569, 169 FERC ¶ 61,129 at PP 171, 426.
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IX. Natural Break Analysis

A. Opinion No. 569

In Opinion No. 569, the Commission affirmed the use of a natural break analysis 

to both the high and low-end outlier screens but declined to set a specific threshold level 

or formula to use in the analysis. The Commission stated that any numerical outlier test 

will necessarily be somewhat arbitrary, and that the natural break analysis gives the 

Commission the flexibility to determine whether a given proxy group company is truly an 

outlier, or whether it contains useful information.257

B. Rehearing Requests

MISO TOs argue that, if the Commission retains the high-end outlier test and the 

natural break analysis, the high-end outlier threshold should be useable as evidence for 

retaining one or more cost-of-equity estimates that might otherwise be excluded because 

of a subjectively identified “natural break.”258

MISO TOs contend that the natural break analysis utilized by the Commission has 

no foundation and invites arbitrary application. MISO TOs contend that the analysis is 

especially erroneous when applied to the high-end outlier test.259 MISO TOs also argue 

that, if the Commission continues to apply a natural break standard to its low-end outlier 

test, it should not use this threshold to include companies that investors would ignore as 

unrepresentative of acceptable equity returns.260

C. Commission Determination

We deny MISO TOs’ request for rehearing on the natural break analysis. We note 

that the high and low-end outlier tests are not meant to be purely statistical tests and 

refute MISO TOs’ assertion that the natural break analysis is inherently flawed because it 

is subjective. Additionally, we clarify that the natural break analysis may be used as 

evidence for retaining one or more cost-of-equity estimates that might otherwise be 

excluded because of a high-end or low-end outlier test. Observations that are shown to 

be rational and not the result of error may still be included, even if they otherwise would 

fail one of the outlier tests. By the same logic, the natural break analysis can be used to 

257 Opinion No. 569, 169 FERC ¶ 61,129 at PP 187-188.

258 MISO TOs Rehearing Request at 76-77.

259 Id. at 80-82.

260 Id. at 83.
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argue for exclusion of cost-of-equity estimates that do not fail either outlier test but can 

be shown to be irrational, anomalous, or the result of human error.

Model inputs can be flawed, due to incorrect inputs or the result of poor 

judgement by analysts. Such errors can improperly influence the analysis, especially 

when they affect estimates at the high and low end of the proxy group. As the 

Commission noted in the Briefing Order, one analyst’s error involving the growth 

projections for Portland General Electric Company reduced the overall Reuters consensus 

projected short-term percentage growth in earnings from 10.96% to 7.8%.

261 This case 

illustrates the fallibility of model inputs and the importance of having a natural break 

analysis to enable the Commission to use its discretion with respect to high or low values.

X. High-End Outlier Test

A. Opinion No. 569

In Opinion No. 569, the Commission adopted the high-end outlier test proposed in 

the Briefing Order, which excludes from the proxy group any company whose cost of 

equity estimated under the model in question is more than 150% of the median result of 

all of the potential proxy group members in that model before any high or low-end outlier 

test is applied, subject to a natural break analysis. The Commission noted that financial 

metrics for individual utilities can fluctuate dramatically, potentially affecting ROEs that 

use midpoints as measures of central tendency and found that it was appropriate to 

eliminate members of the proxy group whose ROEs are unreasonably high.262

B. Rehearing Requests

MISO TOs argue that the Commission should not adopt any high-end outlier test. 

MISO TOs argue that the high-end outlier test artificially narrows the zone of 

reasonableness. MISO TOs further argue that if the Commission retains the high-end 

outlier test, it should be used only as a rebuttable presumption, and then applied only to 

the highest of the median values produced by the analyses used.263

MISO TOs further argue that, even if the Commission retains the high-end outlier 

test, it should not be applied to the two-step DCF analysis. MISO TOs argue that,

261 Briefing Order, 165 FERC ¶ 61,118 at P 19 n.95 (Coakley Briefing Order, 

165 FERC ¶ 61,030 at P 47).

262 Opinion No. 569, 169 FERC ¶ 61,129 at P 179.

263 MISO TOs Rehearing Request at 70-73.
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because the median of the two-step DCF may be unreliable or produce unjust and 

unreasonable results, its use in the high-end outlier test is similarly unreliable.264 

Transource Energy contends that there is no evidence that a logical high-end 

outlier test exists that would apply generically as the low-end outlier test does. 

Transource Energy argues that a generic exclusion based on distance from the median 

may reject potentially useful observations. Transource Energy contends that, if the 

Commission were to utilize a high-end outlier test, the Commission should treat the test 

as a high-end cap on the result and not a high-end exclusion of data points.265

Exelon contends that the high-end proxy group utilities that are excluded under the 

high-end outlier test represent actual data regarding utilities of a similar risk profile, and 

thus application of the test changes the range of studied ROEs from those that actual 

investors consider in the market.266

C. Commission Determination

We grant in part and deny in part the requests for rehearing on the high-end outlier 

test. While the high-end outlier test uses the median, it is not solely meant to serve as a 

statistical test to remove proxy group companies that are not representative of typical 

utilities. Rather, the high-end outlier test, when coupled with a natural break analysis, 

screens for observations that are irrationally or anomalously high.

As an initial matter, we note that some parties have characterized the high-end 

outlier test as stricter than it is. As noted above, the high-end outlier test is subject to 

a natural break analysis, meaning observations that are shown to be rational and not the 

result of error may still be included, even if they are over the threshold.

However, we find that it is appropriate to modify the high-end outlier test to treat 

any proxy company as high-end outlier if its cost of equity estimated under the model in 

question is more than 200% of the median—as opposed to the 150% of the median 

threshold applied in Opinion No. 569—result of all of the potential proxy group members 

in that model before any high or low-end outlier test is applied, subject to a “natural 

break” analysis. The high-end outlier test is the Commission’s best attempt to use an 

objective test to identify proxy group ROEs that are irrationally or anomalously high

because, for example, they are the result of atypical circumstances that are 

unrepresentative of the subject utility’s risk profile or otherwise likely to be in error. 

264 Id. at 74-76.

265 Transource Energy Rehearing Request at 28-29.

266 Exelon Rehearing Request at 13-14.
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We recognize such a test with a bright-line threshold could inappropriately exclude ROEs 

that are rational and not anomalous for the subject utility. In recognition of this risk, we 

find that increasing the threshold for the high-end outlier test to 200% of the median 

result of all of the potential proxy group members in the applicable model267 is 

appropriate because it will reduce the risk that such rational results are inappropriately 

excluded. However, as we note above, the continued application of the natural break 

analysis will still allow the exclusion of ROEs that are truly irrational or anomalously 

high, even if they fall under the threshold set by this high-end outlier test.

While we are modifying the high-end outlier test to increase its exclusion 

threshold, we find that it is still appropriate to maintain the test as an objective check to 

help identify observations that are irrationally or anomalously high. This is especially 

true because we will continue to use the midpoint as a baseline to determine region-wide 

ROEs for groups of utilities and potentially flawed high-end observations from the proxy 

group play a large role in an ROE analysis that uses the midpoint. While we note that the 

addition of the Risk Premium model to the analysis diminishes the impact of outliers, we 

do not find this to be enough to warrant removal of the high-end outlier test entirely. 

Thus, the high-end outlier test continues to apply, but with the modification described 

above.

XI. Low-End Outlier Test

A. Opinion No. 569

In Opinion No. 569, the Commission adjusted the low-end outlier test to eliminate 

from the proxy group ROE results that are less than the yields of generic corporate Baa 

bonds plus 20% of the CAPM risk premium. The Commission found that it was 

necessary to exclude ROEs whose yield was “essentially the same expected return” as 

debt in order to determine the low end of the zone of reasonableness. The Commission 

noted that the risk premium that investors demand changes over time and found that 

using 20% of the CAPM risk premium struck an appropriate balance of accounting for 

the additional risk of equities over bonds while not inappropriately excluding proxy 

group members whose ROE is distinguishable from debt.268

267 The high-end outlier test only applies to the DCF model and CAPM because 

they utilize results of the relevant analysis applied to a proxy group, while the Risk 

Premium model is derived from actual ROEs.

268 Opinion No. 569, 169 FERC ¶ 61,129 at PP 184-185.
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B. Rehearing Requests

RPGI argues that the Commission has not justified revising the low-end outlier 

test, and specifically has not supported including 20% of the CAPM risk premium.269

CAPs contend that using the Baa bond yield index is an inappropriate way to 

determine whether a ROE is an unreliable low-end outlier. CAPs further contend that 

this is inconsistent with Commission precedent, noting the Commission’s explanation in 

Opinion No. 489 that, when applying a low-end outlier test, “it is appropriate to consider 

the company’s own cost of debt, not the composite debt of the proxy group.”270 CAPs 

note that applying this to a company’s own cost of debt results in OGE Energy being 

added back into the proxy group for the Second Complaint.271

CAPs similarly argue that the Commission’s use of the risk premium should be 

rejected. However, CAPs contend that, if the Commission continues to utilize a risk 

premium, it should instead be 20% of the difference between the CAPM equity market 

return and the Moody’s Baa utility bond yield.272

MISO TOs argue that the Commission erred in adopting its low-end outlier test 

and should instead apply the low-end methodology described by Mr. McKenzie in order 

to account for the inverse relationship between equity risk premiums and bond yields.273

C. Commission Determination

We deny the requests for rehearing on the low-end outlier test. We are not 

persuaded by RPGI’s and MISO TOs’ assertions that the Commission erred in adopting 

its low-end outlier test based on 20% of the CAPM risk premium. Likewise, we disagree 

with CAPs that the low-end outlier test is inconsistent with prior Commission precedent. 

As the Commission noted in Opinion No. 569, the Commission has applied this test 

differently in the past and did not always examine a company’s own cost of debt.274 

269 RPGI Rehearing Request at 27-31.

270 CAPs Rehearing Request at 88-90.

271 Id. at 94.

272 Id. at 90-92.

273 MISO TOs Rehearing Request at 83-84.

274 Opinion No. 569, 169 FERC ¶ 61,129 at P 389 n.783 (citing Opinion No. 531, 

147 FERC ¶ 61,234 at P 123).
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The Commission also found that “using the specific bond yield for each 

company . . . renders [the calculations] (and the resulting ROE) less predictable, as the 

credit ratings for individual companies are likely more volatile than the generic corporate 

rate Baa credit rating.”275 Thus, we reiterate our finding here that applying the low-end 

outlier test to the Baa bond yield is appropriate. We also decline to adopt CAPs’

proposal to instead use 20% of the difference between the CAPM equity market return 

and the Moody’s Baa utility bond yield, and affirm our use of the United States 30 year 

treasury note in calculating the CAPM equity risk premium. There is no compelling 

evidence that, with respect to determining the risk premium, using Moody’s Baa utility

bond yields is superior to the treasury yields. Treasury yields are generally more stable 

than corporate bond yields, which here increases model stability. Furthermore, the 

low-end outlier test already incorporates the Moody’s Baa utility bond, to which it adds 

20% of the risk premium to determine the test. Using it twice would be unnecessarily 

duplicative. Additionally, we note that the risk premium is meant to reflect the

opportunity cost of investing in equities generally, and therefore, using an 

industry-specific measure to determine the low end of the risk premium’s range is 

inappropriate.

We also decline to adopt MISO TOs’ proposed methodology. Opinion No. 569’s 

proposed low-end outlier test methodology recognizes the dynamic nature of risk 

premiums without eliminating numerous proxy group members as the MISO TOs’ 

methodology might in certain conditions. In Mr. McKenzie’s example, use of his 

proposed test leads to the exclusion of six rather than three companies, the upper three 

of which feature ROEs very close to those of other companies.276 This indicates that 

MISO TOs’ proposed outlier test is excluding more than just outliers, systematically 

adding a significant upward bias to the DCF results.

XII. Consideration of State ROEs

A. Opinion No. 569

The Commission found that the ROE determination in these proceedings did not 

need to consider state-authorized ROEs. The Commission agreed with MISO TOs that 

there are material differences between state and Commission ROEs. As a result, the 

Commission stated that it would only consider state-authorized ROEs on a case-by-case 

275 Id.

276 Appendix 3 to McKenzie Affidavit in MISO TOs Initial Brief.
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basis to the extent that the state-authorized ROEs demonstrate that the results of the 

Commission’s CAPM and DCF analyses are substantially excessive or deficient.277

B. Requests for Rehearing

Ameren, MISO TOs, and Transource Energy all note that the Commission stated 

in Opinion No. 569 that its new ROE approach would consider state-authorized ROEs, 

but argue that, despite the express inclusion, the Commission failed to perform this 

check. These parties assert that the Commission has previously found that transmission 

ROEs generally should be higher relative to those of distribution-only and integrated 

electric utilities. These parties claim that the Commission disregarded record evidence 

of state-authorized ROEs above 9.88%, and argue that this evidence demonstrates that, 

relative to the risk to transmission, 9.88% is an insufficient level of return to attract 

capital under the Hope and Bluefield standards.

278

According to MISO TOs, the Commission’s findings that transmission is riskier 

than state-regulated retail utility operations and that the MISO TOs are at least as risky as 

integrated utilities require that the MISO TOs’ base ROE be somewhat higher than most, 

if not all, contemporaneous state-authorized ROEs. MISO TOs state that all state ROEs 

allowed during the Docket No. EL14-12 study period exceeded the DCF midpoint. 

Indeed, even the midpoint of all state-allowed ROEs, 9.95%, exceeded the base ROE of 

Opinion No. 569, and 31 out of 58 state-authorized ROEs for integrated utilities were 

between 10% and 10.4%.279 

MISO TOs argue that Emera Maine did not disturb the Commission’s finding in 

Opinion No. 531-B that the proper use of state commission ROEs is to compare the 

“significant number of state commission-authorized ROEs to the midpoint produced by 

the application of the Commission’s traditional methodology” and determine whether 

“their levels, relative to each other, were illogical in light of the record evidence 

concerning the comparative risks of state-level electric distribution and interstate electric 

transmission.” They contend that evidence of prevailing state ROEs during the study 

period indicates that a base ROE equal to or higher than 10.32% is justified.280 They 

state that other estimates of the MISO TOs’ cost of equity support the same inference, 

and thus support the Opinion No. 551 outcome. They note that: the Commission’s 

277 Opinion No. 569, 169 FERC ¶ 61,129 at P 363.

278 Ameren Rehearing Request at 8-10; MISO TOs Rehearing Request at 14-16; 

Transource Energy Rehearing Request at 10-14.

279 MISO TOs Rehearing Request at 33.

280 Id. at 33-34 (citing Opinion No. 531-B, 150 FERC ¶ 61,165 at P 88).
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application of the CAPM in Opinion No. 569 resulted in a midpoint of 10.45%; the 

Commission in Opinion No. 551 accepted a Risk Premium estimate of 10.36% and an 

Expected Earnings midpoint estimate of 11.99%; and the Briefing Order presented a 

restated Expected Earnings analysis with a midpoint of 11.41%, and repeated the Risk 

Premium estimate of 10.36%.281

C. Commission Determination

As an initial matter, the modifications made in this order to the ROE determination 

methodology result in higher ROEs in these proceedings, at least in part rendering moot 

concerns about the relative levels of state-authorized ROEs for integrated utility 

operations versus Commission-authorized transmission ROEs. Furthermore, the 

10.02% ROE resulting from this order exceeds the average ROEs in the MISO TOs’ 

analysis for both vertically-integrated utilities and for all utilities.282 Moreover, MISO 

TOs’ comparison of Commission ROEs in this proceeding with state ROEs over a 

two-year period, concluding in 2014, before the test period in this proceeding, is 

inappropriate. As illustrated by the fact that the DCF and CAPM midpoint ROEs in the

Second Complaint are lower than those in the First Complaint, capital market conditions 

can change over time, rendering past comparisons obsolete. The ROEs in this proceeding 

must reflect capital market conditions during the first half of 2015 for the First Complaint 

and the second half of 2015 for the Second Complaint, so comparisons to state ROEs 

during the preceding two years are of limited value. We also continue to find that 

state-authorized and Commission-authorized ROEs are conceptually distinct and do not 

necessarily need to be aligned. In Opinion No. 569, the Commission indicated that 

state-authorized ROEs would only be considered on a case-by-case basis and not as a 

necessary part of the Commission’s ROE methodology, and accordingly we disagree that 

we were required to consider state-authorized ROEs as part of the ROE determination in 

this proceeding. Although the Commission may consider a wide range of evidence in its 

ROE determinations, it is not legally required to base its jurisdictional transmission ROE

determinations on the ROEs determined by state utility commissions. Furthermore, that 

the Commission relied on state ROEs corroboratively in the vacated Opinion No. 531 and 

in Opinion No. 551 that was pending before the Commission on rehearing, does not 

create binding precedent that the Commission must justify departure from in its finding 

that it will not necessarily consider state ROEs when determining transmission ROEs. 

281 Id. at 34.

282 See MTO-20 at 1-2.
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XIII. Use of the Midpoint

A. Opinion No. 569

The Commission stated that it will continue to use the midpoint to determine the 

central tendency of the zone of reasonableness in cases involving an RTO-wide ROE, 

consistent with the policy set forth in the MISO Remand Order,

283 and that intervenors 

did not present a compelling reason as to why that policy should not be applied in this 

ROE proceeding.284 The Commission explained that MISO TOs are a diverse set of 

companies and the central value becomes an important part in determining RTO-wide 

ROE.285 The Commission also found that the high and low ends of the DCF and CAPM 

zones of reasonableness were representative of the highest and lowest risk profiles among 

the MISO TOs.286

B. Requests for Rehearing

CAPs contend that the Commission erred in using the midpoint, rather than the

median, as the measure of central tendency for the ROE under the second prong of the 

section 206 analysis. CAPs point out that the Commission has found that the median best 

represents the central tendency in a skewed distribution287 and is “less affected by 

extreme numbers than the midpoint.”288 CAPs find unpersuasive the Commission’s

finding in Opinion No. 569 that the companies that set the high and the low end of the 

zone of reasonableness in Opinion No. 569’s DCF and CAPM analyses have similar risk 

283 Midwest Indep. Transmission Sys. Operator, Inc., 106 FERC ¶ 61,302, 

at PP 9-10 (2004) (MISO Remand Order), aff’d, Pub. Serv. Comm’n of Ky. v. FERC, 

397 F.3d 1004 (D.C. Cir. 2005).

284 Opinion No. 569, 169 FERC ¶ 61,129 at P 409.

285 Id. PP 410-411.

286 Id. PP 412-413.

287 CAPs Rehearing Request at 83 (citing S. Cal. Edison Co., 131 FERC ¶ 61,020 

at PP 114-116, reh’g denied, 137 FERC ¶ 61,016 (2011) (SCE Rehearing), aff’d in 

relevant part sub nom. S. Cal. Edison Co. v. FERC, 717 F.3d 177 (D.C. Cir. 2013); 

Northwest Pipeline Corp., 99 FERC ¶ 61,305, at 62,276 (2002). See also 

Transcontinental Gas Pipe Line Corp., Opinion No. 414-A, 84 FERC at 61,427, aff’d 

Opinion No. 414-B, 85 FERC ¶ 61,323 (1998), rev. denied sub nom., N.C. Util. Comm’n 

v. FERC, 203 F.3d 53 (D.C. Cir. 2000)).

288 Id. (citing SCE Rehearing, 137 FERC ¶ 61,016 at P 19).
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profiles to the MISO TOs. CAPs contend that this explanation misses the point because, 

even if the risk profile of the proxy group companies setting the high and low ends of the 

DCF and CAPM zones of reasonableness are within that wide variation, the averaged 

DCF and CAPM midpoints do not correspond to the highest and lowest cost of capital 

among Respondent MISO TOs. Consequently, according to CAPs, using the highest and 

lowest ROEs in the DCF and CAPM zones to calculate the presumptively just and 

reasonable zones or to determine the replacement ROE does not result in emphasizing the 

full range of the individual MISO TOs’ costs of equity to serve a diverse group of TOs. 

CAPs state that the premise for use of the midpoint is counter-factual because 

there is no direct correlation between credit ratings and the utilities setting the upper and 

lower bounds of the composite zone of reasonableness and the highest and lowest credit 

ratings of the MISO TOs.289 CAPs state that the Commission dismissed this concern on 

the basis that such lack of correlation is not a problem because the credit ratings of the 

proxy companies that turn out to define the DCF-CAPM combined range are within the 

MISO TOs’ wide variation of credit ratings.

C. Commission Determination

We disagree with arguments on rehearing that the Commission erred in continuing 

to use the midpoint as the measure of central tendency when establishing an ROE for 

groups of utilities like the MISO TOs. Such arguments fail to provide a basis for 

reversing a court-affirmed finding that it is just and reasonable to use the midpoint as the 

measure of central tendency for groups of utilities.290 Additionally, the Commission 

described in great detail the general correspondence between the credit rating of proxy 

group companies and those at the high and low end of the zone of reasonableness, even if 

this examination was not specific to the MISO TOs.

291 The fact that the MISO TOs’

highest and lowest credit ratings do not fully correspond to the high and the low ends of 

the CAPM and DCF zone of reasonableness in this particular proceeding does not change 

the fundamental purpose of applying the midpoint to groups of utilities, which is

capturing a variety of risks that they feature. 

289 Id.

290 See Pub. Serv. Comm’n of Ky. v. FERC, 397 F.3d at 1004, 1010.

291 See Opinion No. 569, 169 FERC ¶ 61,129 at P 412.
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XIV. Ranges of Presumptively Just and Reasonable ROEs

A. Opinion No. 569

In Opinion No. 569, the Commission adopted the use of ranges of presumptively 

just and reasonable ROEs based on the risk profile of a utility or group of utilities to 

inform the Commission’s decision of whether an existing ROE has become unjust and 

unreasonable, as proposed in the Briefing Order.292 Specifically, the Commission found 

that, for average risk utilities, the presumptively just and reasonable range is the quartile 

of the overall composite zone of reasonableness centered on the central tendency of the 

overall zone of reasonableness; for below average risk utilities, that range is the quartile 

of the zone of reasonableness centered on the central tendency of the lower half of the 

zone of reasonableness; and for above average risk utilities, that range is the quartile of 

the zone of reasonableness centered on the central tendency of the upper half of the zone 

of reasonableness. These ranges of presumptively just and reasonable base ROEs located 

within the overall composite zone of reasonableness are illustrated below.

In constructing the ranges of presumptively just and reasonable base ROEs, the 

Commission noted its precedent that the midpoint of the overall zone of reasonableness is 

a good starting place for the placement of an ROE and found that the measure of central 

tendency for the entire zone of reasonableness should be the starting point for identifying 

the range of presumptively just and reasonable base ROEs for utilities with an average 

risk profile.293 The Commission then found that, similarly, the starting points for 

identifying the ranges of presumptively just and reasonable base ROEs for utilities with 

above or below average risk profiles should be the historic measures of central tendency 

292 See id. P 57.

293 Id. P 63 (citing Emera Maine, 854 F.3d at 27 (citing Tenn. Gas Pipeline Co. v. 

FERC, 926 F.2d 1206, 1213 (D.C. Cir. 1991)) (“We have noted that the midpoint is a 

good ‘starting place’ for the placement of the ROE.”)).
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of the upper and lower halves of the zone of reasonableness, respectively – their 

respective midpoints.

294 The Commission explained that it was logical for the end points 

of those ranges to not be closer to the starting points for the ranges of utilities with 

different risk profiles than they are to their own starting point. Applying this rationale, 

the Commission found that the range within the overall zone of reasonableness that best 

represents presumptively just and reasonable ROEs for average risk utilities is the 

quartile of the zone of reasonableness centered on the central tendency of the entire zone 

of reasonableness, while the ranges within the overall zone of reasonableness that best 

represent presumptively just and reasonable ROEs for above- and below- average utilities 

are the quartiles centered on the central tendencies of the upper and lower halves of the 

zone of reasonableness, respectively.295

The Commission explained that adopting the use of ranges of presumptively just 

and reasonable base ROEs was necessary to satisfy the requirements of the Emera Maine 

decision, which found that the Commission’s decision that “a single ROE analysis 

generating a new just and reasonable ROE necessarily proved that the Transmission 

Owners’ existing ROE was unjust and unreasonable” is contrary to the FPA.296 Such 

ranges were also necessary, the Commission reasoned, because, according to the Emera 

Maine decision, “the zone of reasonableness creates a broad range of potentially lawful 

ROEs rather than a single just and reasonable ROE,” and thus that a finding that a 

particular ROE is just and reasonable, “standing alone, ‘does not amount to a finding that 

every other rate of return’” is not just and reasonable.297 The Commission found that, in 

light of these findings, the Commission’s explanation of the particular circumstances that 

support an explicit finding that the existing ROE has become unjust and unreasonable 

must include a showing that the existing ROE is now outside some range of potentially 

just and reasonable ROEs within the zone of reasonableness for the public utility at issue, 

in light of our estimate of the current market cost of equity. Alternatively, the 

Commission found that it could find that it could determine that other evidence 

294 Id. (citing Emera Maine, 854 F.3d at 30 (citing Tenn. Gas Pipeline, 926 F.2d 

at 1213) (“[Where] the utility at issue was riskier than the proxy group . . . the midpoint 

of the upper half was ‘an obvious place to begin.’”); Potomac-Appalachian Transmission 

Highline, LLC, 158 FERC ¶ 61,050, at PP 270, 273 (2017) (setting ROE at the “measure 

of central tendency of the lower half of the zone of reasonableness . . . [g]iven [the 

utility’s] low level of risk as compared to the proxy group.”)).

295 Id.

296 Id. P 57 (citing Emera Maine, 854 F.3d at 26).

297 Id. (citing Emera Maine, 854 F.3d at 26 (quoting Papago Tribal Util. Auth. v. 

FERC, 723 F.2d 950, 857 (D.C. Cir. 1983))).
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convincingly demonstrates that the existing ROE is unjust and unreasonable despite it 

falling within that range.

298

The Commission also explained that the base ROEs that fall within the applicable 

range of presumptively just and reasonable base ROEs will be presumed to be just and 

reasonable, and those that fall outside of the applicable range will be presumed to be 

unjust and unreasonable.299 The Commission further found that those presumptions 

would only be rebuttable presumptions because the ultimate determination of whether an 

existing ROE is unjust and unreasonable still “depends on the particular circumstances of 

the case.”300 The Commission noted that other evidence regarding the particular 

circumstances of the case could rebut a presumption that applies, such as evidence 

regarding non-utility stock prices, investor expectations for non-utility stocks, various 

types of bond yields and their relation to stock prices, investor and other expert 

testimony, and testimony regarding the effects of rates on customers.301

B. Rehearing Requests

MISO TOs argue that, while the concept of a range of presumptively just and 

reasonable ROE values has merit, there are problems with the quartile approach used in 

Opinion No. 569. First, MISO TOs contend that the Commission never reconciles its 

concept of risk-associated sub-ranges with its long-standing rationale for using the 

midpoint to establish base ROEs for groups of utilities (i.e., to reflect such a group’s 

broad range of risks). They contend that, while the midpoint rationale dovetails with 

Emera Maine’s recognition that “the zone of reasonableness creates a broad range of 

potentially lawful ROEs,” the quartile approach of Opinion No. 569 does not. MISO 

TOs state that the Commission’s historical reference to the midpoint explicitly recognizes 

the need to reflect the full range of required returns for a proxy group determined to be 

representative of a group of utilities such as the MISO TOs. But they contend that the 

Commission’s attempt to further parse this composite zone uses an unexplained and 

arbitrary notion of relative risk based on arbitrary quartiles and is inconsistent with the 

Commission’s own rationale for referencing the midpoint. Moreover, they assert that, as 

applied in Opinion No. 569, the effort lacks any foundation in case-specific evidence.302

298 Id. PP 61-62.

299 Id. P 85.

300 Id. P 68 (citing Emera Maine, 854 F.3d at 23).

301 Id.

302 MISO TOs Rehearing Request at 29.
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In addition, MISO TOs contend that the Commission’s new approach is 

inconsistent with the logic it uses to select the proxy group. They state that the proxy 

group is assembled using criteria which limit the proxies to companies that are 

considered to present investment risks comparable to those of the utility or group of 

utilities whose rates are at issue. Nevertheless, they argue, the Commission’s quartile 

approach effectively truncates the zone of reasonableness by omitting from consideration 

the top one-eighth and the bottom one-eighth of the composite zone. They argue that the 

Commission’s reasoning departs without explanation from the principle that every value 

in the zone of reasonableness is potentially a lawful ROE.303

MISO TOs further argue that the Commission derives its quartiles from the 

composite range of DCF and CAPM results but overlooks that different proxy 

companies’ results are found at the low end, the middle, and the high end of each of the 

two analyses on which the Commission relies. Thus, MISO TOs assert, one or more 

proxies that fall within the “above average risk” quartile in the results of the DCF model 

appear in a different quartile of the CAPM results. MISO TOs argue that the 

Commission therefore cannot rationally distinguish “high risk” proxy companies from 

“low risk” proxies in its composite zone. They contend that the Commission has not 

provided an economic or financial rationale for the quartile approach.304 

With regard to the Second Complaint, MISO TOs contend that there likewise is no 

need for a new ROE methodology to justify dismissal of the Second Complaint. 

According to MISO TOs, the upper midpoint of the Commission’s IBES-based DCF 

analysis for the Second Complaint study period is only 9.83%, reflecting—just as in the 

First Complaint—anomalous capital market conditions. But they assert that alternative 

benchmark estimates and state ROE data demonstrate, as the Presiding Judge found, that 

the DCF outcome is unreliable. They argue that midpoint CAPM and Expected Earnings 

estimates (10.49% and 11.41%, respectively), as well as a Risk Premium estimate of 

10.36%, establish that the Second Complaint record does not support a finding that the 

10.32% base ROE determined in Opinion No. 551 was unjust and unreasonable for the 

Second Complaint study period.305 They state that state-authorized ROEs for lower-risk 

integrated and distribution utilities further corroborate that conclusion, citing witness 

Lapson’s national survey of state regulatory decisions in 2014-2015 that authorized base 

ROEs of 10% or more for retail utility operations in states within the MISO region.306

303 Id. at 29-30.

304 Id. at 30.

305 Id. at 35.

306 Id. at 35-37.
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MISO TOs state that, if the Commission continues to pursue Opinion No. 569’s 

approach to using ranges of presumptively just and reasonable ROEs based on a portion 

of the zone of reasonableness, two alternative approaches would remedy the principal 

shortcoming of the Commission’s quartile approach (i.e., its excision of the highest and 

lowest eighths of the composite zone). They state that this can be resolved either by 

dividing the entire zone of reasonableness into equal thirds, rather than quarters, or by 

using the upper and lower midpoints of the zone of reasonableness to segregate the 

three portions of the zone.307

Exelon argues that the Commission’s ranges of presumptively just and reasonable 

ROEs are too narrow. Exelon contends that the Commission does not explain why it 

makes sense to treat only 25% of the range of investor expectations that is developed by 

the financial models as presumptively just and reasonable. Exelon asserts that the 

Commission already identifies a screened peer group with comparable risk to the subject 

utility when it selects a proxy group, and that it is unreasonable to adjust again for that 

same risk in determining quartiles for ranges of presumptively just and reasonable 

ROEs.308 

Exelon also argues that there is no rationale for placing the top eighth and bottom 

eighth of the zone of reasonableness out of the ranges of presumptively just and 

reasonable ROEs. Exelon further contends that, while quartiles result in an even division, 

the Commission never justifies its use of quartiles.309 In addition, Exelon asserts that the 

Commission’s ranges of presumptively just and reasonable ROEs are so narrow that 

small proxy group changes, such as the exclusion of a proxy group company or a change 

in the performance of a particular proxy group company, could result in a utility’s ROE 

changing from presumptively just and reasonable to presumptively unjust and 

unreasonable. Exelon argues that this will create rate instability that will chill 

investment.310

Exelon also disagrees with the Commission’s conclusion in Opinion No. 569 that 

the use of ranges of presumptively just and reasonable ROEs does not change the burdens 

that apply in the context of section 206 complaints. Exelon contends that, under Opinion 

No. 569, an average risk utility whose base ROE is above the applicable range of 

presumptively just and reasonable ROEs bears the burden of overcoming a presumption 

that its ROE is unjust and unreasonable, which removes the burden on the complainant to 

307 Id. at 38.

308 Exelon Rehearing Request at 8-10.

309 Id. at 10-11.

310 Id. at 15-17.
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demonstrate that such an ROE is unjust and unreasonable. Exelon asserts that this 

departure from section 206 is especially unreasonable because the upper and lower 

eighths of the zone of reasonableness can never be presumptively just and reasonable.311

Transource Energy argues that the full zone of reasonableness represents the broad 

range of potentially reasonable ROEs, as the court stated in Emera Maine, and thus that 

full zone presents the best evidence of what is a potentially lawful ROE, not a subzone 

within the overall zone. Transource Energy contends that the full zone of reasonableness 

already accounts for risk and contains comparable and representative companies. 

Transource Energy asserts that the Commission does not provide evidence justifying that

there are identifiable distinctions in the risk profiles of firms that constitute the proxy 

group which fall neatly into quartiles. Transource Energy further argues that the 

Commission’s exclusion of the top and bottom eighths of the zone of reasonableness 

ignore otherwise valid ROE estimates in the ranges of presumptively just and reasonable 

ROEs.312

CAPs argue that Emera Maine did not require the Commission to adopt a new 

methodology, but only to better explain Opinion No. 531’s finding that the New England 

TOs’ existing 11.14% base ROE was unjust and unreasonable.313 If the Commission 

decides to adopt a new methodology, CAPs argue that the quartile approach is flawed. 

CAPs argue that the presumptively just and reasonable zones raise the customers’ burden 

of proof to challenge ROEs that may have become unjust and unreasonable. CAPs assert 

that the presumptively just and reasonable zones are contrary to the customer protection 

principles embodied in the FPA and introduces an unlawful asymmetry between rate 

increases sought by utilities under section 205 of the FPA and rate reductions sought by 

customers under section 206 of the FPA.

314

If the Commission keeps the presumptively just and reasonable zones, CAPs argue 

that the Commission should narrow these zones. They contend that the quartile approach 

results in unnecessarily broad presumptive zones. They reiterate their argument from 

their initial briefs that the Commission could narrow the presumptive immunity zones by, 

for example, establishing five risk groups:ver y-low risk; moderately low risk; average 

risk; moderately high risk; and very high risk. Under this approach, CAPs argue, the 

zones would be narrower, representing sextiles rather than quartiles of the composite 

311 Id. at 19-22.

312 Transource Energy Rehearing Request at 30-35.

313 CAPs Rehearing Request at 12-16.

314 Id. at 16.
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range.315 Regarding the Commission’s statement that the quartile approach using 

three risk groups strikes an appropriate balance between the interests of customers and 

utilities, CAPs argue that the very establishment of presumptively just and reasonable

zones already tilts the balance of interests in favor of shareholders.316

CAPs argue that the Commission did not explain why the “traditional” starting 

point for assessing risk is relevant or even preferable to a narrower and more precise 

definition of risk that would better protect customers. CAPs argue that it is possible to 

start the risk assessment at a point of central tendency within any sub-range of the zone 

of reasonableness. Furthermore, CAPs assert that the proximity of potentially lawful 

ROEs to the just and reasonable ROE does not render these ROEs presumably just and 

reasonable (i.e., ROEs within the zone of reasonableness that are close to the just and 

reasonable ROE may be a little less unjust and unreasonable, but remain unjust and 

unreasonable nonetheless). They argue that the courts have ruled that the just and 

reasonable standard does not permit “even a little unlawfulness.”317 

CAPs also argue that the notion of presuming the justness and reasonableness of 

ROEs close to the lawful ROE runs afoul of multiple rulings made by the court in Emera 

Maine: (1) it is arbitrary and capricious to assume that there are only three possible 

stopping points—lower midpoint, midpoint, and upper midpoint—on the continuum of 

“potentially just and reasonable” ROEs that lie within the range of adopted proxy results; 

(2) the fact that a rate falls within the zone of reasonableness does not establish that the 

rate is the just and reasonable rate for the utility at issue; and (3) whether a rate, even 

one within the zone of reasonableness, is unlawful depends on the particular 

circumstances of the case, and, therefore, requires that a numerical comparison of model 

results to an existing ROE be accompanied by a narrative explanation of what made a 

difference between the two unreasonable.318 CAPs argue that, if the proximity of an 

ROE to the just and reasonable ROE does not conclusively prove the justness and 

reasonableness of an ROE, then such proximity cannot be used to infer that all ROEs that 

are close to the just and reasonable ROE within a certain range “may” be just and 

reasonable.319 

315 Id. at 16-17.

316 Id. at 17.

317 Id. at 18 (citing Consumers Fed’n of Am. v. FPC, 515 F.2d 347, 358 n.64 

(D.C. Cir. 1975) (quoting FPC v. Texaco, 417 U.S. 380, 399 (1974))).

318 Id. at 18-19.

319 Id. at 19-20.
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RPGI asserts that, for average risk utilities, the midpoint of the zone of 

reasonableness is what the existing ROE must be compared to—not a range of 

presumptively just and reasonable ROEs—and any existing ROE that exceeds that 

midpoint should be presumed unjust and unreasonable. RPGI also contends that the use 

of ranges of presumptively just and reasonable ROEs contravenes the FPA’s consumer 

protection purpose because it can insulate an existing ROE from a section 206 challenge 

even if, for example, an existing ROE for an average-risk group of utilities exceeds the 

midpoint. In addition, RPGI argues that, while the Commission states that the ranges of 

presumptively just and reasonable ROEs create only a rebuttable presumption, it is 

difficult to imagine the circumstances under which the presumption could be rebutted. 

RPGI asks the Commission to grant rehearing to reject the use of ranges of presumptively 

just and reasonable ROEs.320

C. Commission Determination

We grant rehearing and hold that the ranges of presumptively just and reasonable 

base ROEs will be calculated by dividing the overall composite zone of reasonableness 

into three equal portions. We are persuaded by the requests for rehearing that contend 

that the Commission’s ranges of presumptively just and reasonable base ROEs should 

encompass the entire composite zone of reasonableness. The court in Emera Maine 

stated that “the zone of reasonableness creates a broad range of potentially lawful 

ROEs[,]”321 and we now find that excluding the bottom eighth and top eighth of the 

overall zone of reasonableness, as the Commission’s approach in Opinion No. 569 did, is 

inappropriate because it will ignore some “potentially lawful ROEs” when determining 

which ranges of ROEs should be considered presumptively just and reasonable. The 

ranges of presumptively just and reasonable base ROEs are intended to help inform the 

Commission’s analysis under section 206 by identifying what subset of the “potentially 

lawful ROEs” for given utilities represents the range of base ROEs that would likely be 

just and reasonable for utilities of that risk profile. We find that it would be inappropriate 

to identify a subset of “potentially lawful ROEs” for given utilities without considering 

all of those potentially lawful ROEs.

We are further persuaded by arguments that it is inappropriate to exclude the 

bottom eighth and top eighth of the overall composite zone of reasonableness because 

even those portions of the overall composite zone of reasonableness are results from 

proxy group companies that have been screened using criteria which limit the proxies to 

companies that are considered to present investment risks comparable to those of the 

utility or group of utilities whose rates are at issue. We find that, when we have already 

320 RPGI Rehearing Request at 9-16.

321 Emera Maine, 854 F.3d at 26.
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constructed a proxy group using limitations for comparable risk, it would be too 

restrictive to then construct ranges of presumptively just and reasonable base ROEs using 

only the results of some of those risk-screen proxy group companies. That initial proxy 

group screening process is intended to lead to the “broad range of potentially lawful 

ROEs” for a given utility or utilities, and we find that is more appropriate for the ranges 

of presumptively just and reasonable base ROEs to encompass the results from all of the 

proxy group companies that were identified in that process, rather than to exclude the 

results of the bottom eighth and top eighth of those results.

Exelon argues that the ranges of presumptively just and reasonable ROEs used in 

Opinion No. 569 are too narrow. MISO TOs make a similar argument, contending that 

the Commission’s ranges of presumptively just and reasonable ROEs are inappropriate 

because they overlook that one or more proxies that fall within a particular risk profile 

range for one of the models used by the Commission may fall within a different risk 

profile range for a different model. CAPs make an opposing argument, asserting that the 

Commission’s ranges are unnecessarily broad. We continue to find that using three risk 

groups strikes an appropriate balance between the interests of customers and utilities 

because they will be narrow enough to protect customers from unjust and unreasonable 

ROEs while also providing utilities and all market participants with an additional 

objective benchmark that the Commission will use to assess whether an ROE is likely 

unjust and unreasonable.322 With respect to MISO TOs’ argument that the ranges are 

inappropriate because the proxies that fall within a particular risk profile range for one of 

the models used by the Commission may fall within a different risk profile range for a 

different model, we find that this concern is addressed by averaging the results of the 

different models. We recognize that proxy group companies may fall within different 

risk profile ranges in different models, and this is why we average the results of those 

models. Indeed, this is a significant reason why we are considering different models and 

averaging their results—so that we can consider and give equal weight to the different 

results that are produced by these models, reflecting to a greater extent the models that 

investors consider.

Accordingly, we will continue to use three ranges of presumptively just and 

reasonable base ROEs and that they should be constructed by dividing the overall zone 

of reasonableness into three equal segments. This construction will include all of the 

“potentially lawful ROEs” in the zone of reasonableness in one of the ranges of 

presumptively just and reasonable base ROEs. 

The Commission explained that its approach to constructing the ranges of 

presumptively just and reasonable base ROEs in Opinion No. 569 was based on the logic 

that the end points of a range for a given risk profile should be closer to the traditional 

322 See id. P 84.
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starting point for analyzing the ROEs of utilities with that risk profile than they are to the 

traditional starting points for utilities with a different risk profile.323 Upon further 

consideration, given our decision to use three ranges of presumptively just and reasonable 

base ROEs that together encompass the overall zone of reasonableness, we find it 

appropriate to modify the traditional starting points for below-average and above-average 

risk utilities to be the midpoint of the lower and upper thirds, respectively. Applying 

these new starting points, as well as the traditional midpoint of the zone of 

reasonableness starting point for average risk utilities, will ensure that the end points for 

all three risk profile ranges will be closer to the starting point for analyzing ROEs of 

utilities with each respective risk profile than they are to the starting points for utilities 

with different risk profiles. Below is an illustration of the overall composite zone of 

reasonableness divided into three equal ranges of presumptively just and reasonable base 

ROEs.

Exelon asserts that the use of ranges of presumptively just and reasonable base 

ROEs removes the burden on the complainant to demonstrate that an existing base ROE 

is unjust and unreasonable when such a base ROE is above the applicable range of 

presumptively just and reasonable ROEs because the utility or utilities then bear the 

burden of overcoming a presumption that its ROE is unjust and unreasonable. CAPs 

make a similar argument in the opposite direction, contending that the presumptively just 

and reasonable zones raise the customers’ burden of proof to challenge ROEs that may 

have become unjust and unreasonable. We find these arguments unavailing. As the 

323 Opinion No. 569, 169 FERC ¶ 61,129 at P 63. Those traditional starting points 

were the midpoint of the zone of reasonableness for average risk utilities, the midpoint of 

the lower half of the zone for below-average risk utilities, and the midpoint of the upper 

half of the zone for above-average risk utilities.
Docket Nos. EL14-12-004 and EL15-45-013 - 81 -

Commission explained in Opinion No. 569,324 the change to our ROE methodology to 

utilize ranges of presumptively just and reasonable ROEs does not change the burdens 

that parties face under section 206. It is merely an objective benchmark that will be used 

in our overall analysis of base ROEs to help determine if an existing rate has been shown 

to be unjust and unreasonable under section 206. It remains the case, as it was before 

implementing this modification to our ROE methodology, that “[t]he proponent of a rate 

change under section 206 . . . bears ‘the burden of proving that the existing rate 

is unlawful.’”325 The use of ranges of presumptively just and reasonable ROEs does not 

change this burden. Those ranges will merely serve to inform our assessment of ROEs. 

The fact that our use of those ranges will involve employing a rebuttable presumption 

does not change the burdens that apply.

MISO TOs and CAPs also take issue with the use of presumptively just and 

reasonable base ROEs because they assert that Emera Maine did not require the 

Commission to adopt the use of such ranges. As the Commission explained in Opinion 

No. 569,326 the use of ranges of presumptively just and reasonable ROEs in our ROE 

methodology ensures that our determinations satisfy the requirements of the Emera 

Maine decision. The court in Emera Maine found that the Commission must “explain 

what circumstances” support its “actual finding as to the lawfulness” of an existing base 

ROE in a section 206 proceeding, and the use of ranges of presumptively just and 

reasonable base ROEs will allow us to do so in a structured manner. Using such ranges 

will produce a specific result from our risk profile determination—a rebuttable 

presumption—and then we will make an explicit finding as to whether the other evidence 

presented by the parties in the case has rebutted that presumption; therefore, this analysis 

will require us to “explain what circumstances” support our “actual finding as to the 

lawfulness” of an existing base ROE. Moreover, because risk profile is the particular 

circumstance most relevant to determining whether an existing ROE is unjust and 

unreasonable, using ranges of presumptively just and reasonable ROEs based on a 

utility’s risk profile will ensure that the risk profile determination has a clear and 

significant connection to our ultimate finding relating to lawfulness. Accordingly, we 

continue to find that that the use of ranges of presumptively just and reasonable ROEs in 

our ROE methodology will ensure that our determinations satisfy the requirements of the 

Emera Maine decision.

324 See id. P 79.

325 Emera Maine, 854 F.3d at 24 (emphasis in original) (quoting Ala. Power Co. v. 

FERC, 993 F.2d 1557, 1571 (D.C. Cir. 1993)).

326 See Opinion No. 569, 169 FERC ¶ 61,129 at PP 70-71.
Docket Nos. EL14-12-004 and EL15-45-013 - 82 -

CAPs and RPGI assert that the use of ranges of presumptively just and reasonable 

base ROEs is inappropriate because any base ROE that exceeds the applicable base ROE 

produced by the Commission’s analyses should be found unjust and unreasonable. We 

disagree. As the Commission stated in Opinion No. 569,327 the court in Emera Maine 

rejected this approach, finding that the Commission must do more than simply identify a 

single ROE from its own analysis and then determine if the existing ROE is unjust and 

unreasonable based on whether it exceeds that single ROE. Accordingly, we affirm the 

Commission’s finding that it should not continue to follow the approach that was 

reversed in Emera Maine of identifying a single cost of equity result and then finding that 

an existing ROE is unjust and unreasonable under prong one of section 206 if it exceeds

that cost of equity.

CAPs also reiterate their argument that the use of ranges of presumptively just and 

reasonable base ROEs creates an unlawful asymmetry between rate increases sought by 

utilities under section 205 and rate reductions sought by customers under section 206. 

We disagree and affirm the Commission’s finding that the use of presumptively just and 

reasonable ranges does not create any such unlawful asymmetry.328 As the Commission 

explained, the showing that is required under section 206 differs from the showing that is 

required under section 205. The D.C. Circuit explained that “[t]he purpose of section 206 

is ‘quite different’ from that of section 205,”329 “[s]ection 206’s procedures are ‘entirely 

different’ and ‘stricter’ than those of section 205,” and that, while “[a] utility filing a rate 

adjustment under section 205 must show that the adjustment is lawful . . . [t]he proponent 

of a rate change under section 206 [] bears ‘the burden of proving that the existing rate 

is unlawful.’”330 The Commission does not have the authority to change those standards 

and our modification of the Commission’s ROE methodology to use ranges of 

presumptively just and reasonable ROEs adheres to those standards; therefore, we reject 

CAPs’ argument on this point.

We also are not persuaded by CAPs’ argument that the use of ranges of 

presumptively just and reasonable base ROEs is inconsistent with other rulings made by 

the court in Emera Maine. Contrary to CAPs’ assertion, the use of such ranges does not 

assume that there are only three possible stopping points—lower midpoint, midpoint, and 

upper midpoint—on the continuum of “potentially just and reasonable” ROEs. In fact, it 

327 See id. P 73.

328 See id. P 74.

329 Emera Maine, 854 F.3d at 24 (quoting City of Winnfield, La. v. FERC, 

744 F.2d 871, 875 (D.C. Cir. 1984)).

330 Id. (emphasis in original) (quoting Ala. Power Co. v. FERC, 993 F.2d 1557, 

1571 (D.C. Cir. 1993)).
Docket Nos. EL14-12-004 and EL15-45-013 - 83 -

does the opposite—it recognizes that there may be more than one just and reasonable 

return and employs ranges of just and reasonable ROEs to help determine if a particular 

existing base ROE is just and reasonable in light of the overall composite zone of 

reasonableness and the risk profile of the utilities at issue. The use of presumptively just 

and reasonable ranges also does not find that if a rate falls within the zone of 

reasonableness, then it is just and reasonable, as CAPs suggest. As described above, the 

fact that a rate falls within the zone of reasonableness will not result in a finding that such 

a rate is just and reasonable. In fact, it is possible that a rate that falls within the overall 

zone, but outside of the applicable presumptively just and reasonable range, would be 

presumed unjust and unreasonable. Similarly, whether an existing ROE is unjust and 

unreasonable, even one that falls within the applicable range of presumptively just and 

reasonable ROEs, still “depends on the particular circumstances of the case.”331 

Accordingly, if an existing ROE falls within the applicable range of presumptively just 

and reasonable ROEs, the presumption that the ROE is just and reasonable is a rebuttable 

presumption. Therefore, other evidence regarding the particular circumstances of the 

case can demonstrate that an existing ROE is unjust and unreasonable even if it falls 

within the applicable range of presumptively just and reasonable ROEs, such as evidence 

regarding non-utility stock prices, investor expectations for non-utility stocks, various 

types of bond yields and their relation to stock prices, investor and other expert 

testimony, and testimony regarding the effects of rates on customers.

XV. Acting in these Proceedings as Opposed to in Base ROE NOI Proceeding

A. Rehearing Requests

Parties on rehearing argue that, because the Commission has sought public input 

on the Commission’s base ROE policy from all interested parties in the Base ROE NOI 

proceeding,

332 it would be inappropriate for the Commission to establish a new base ROE 

policy in these MISO ROE proceedings without considering the broader universe of 

comments and evidence submitted in response to the Base ROE NOI.

Specifically, Exelon states that the thousands of pages of comments from utilities, 

industry groups, and other interested parties provided the Commission with a wide range 

of perspectives and valuable data. Exelon, MISO TOs, and Ameren argue that 

promulgating a new ROE method in an individual proceeding ignores the evidence 

submitted in the Base ROE NOI docket.333 Moreover, Exelon, Transource Energy, and 

331 Id.

332 Base ROE NOI, 166 FERC ¶ 61,207.

333 Exelon Rehearing Request at 27; see also MISO TOs Rehearing Request 

at 56-57; Ameren Rehearing Request at 27.
Docket Nos. EL14-12-004 and EL15-45-013 - 84 -

Ameren explain that, in the Base ROE NOI proceeding, the Commission specifically 

sought comments regarding the ROE four-financial model approach and, therefore, those 

parties participating in the Base ROE NOI proceeding did not address the new ROE 

two-model method that was introduced in Opinion No. 569 or the potential issues with 

the ROE four-model financial model approach revealed in Opinion No. 569.334 Exelon 

and Ameren comment that establishing a new base ROE policy in these proceedings, as 

opposed to the Base ROE NOI proceeding, is inappropriate because the Commission’s 

actions here will not reflect the input and evidence that was provided in the Base ROE 

NOI proceeding by other stakeholders who are not parties to these proceedings.

335 

Exelon argues that the Commission should not rely on the fact that an outcome is 

reasonable as applied to this group of transmission owners, without analyzing the 

potential outcomes that will result from wider application of this method.336 Transource 

Energy recognizes that the Commission has some discretion to enact policies through 

adjudication. However, it contends that under this set of circumstances the 

Commission’s reliance on an adjudication and not the pending Base Roe NOI 

“amounts[s] to an abuse of discretion” that violates the Administrative Procedure Act.337

MISO TOs also assert that the Commission does not engage in reasoned 

decision-making when it disregards relevant evidence available to it, even if the evidence 

is in a different docket,338 and it would be arbitrary and capricious for the Commission to 

set an industry-wide, binding precedent while ignoring this evidence.339 Accordingly, 

MISO TOs argue that the Commission should take official notice in this proceeding of 

pertinent evidence introduced in the NOI docket.340 MISO TOs state that the 

Commission’s generic, industry-wide NOI on the methodology for determining base 

ROEs provides a more logical and reasonable forum for the Commission to develop, with 

334 Exelon Rehearing Request at 27-28; Transource Energy Rehearing Request 

at 36-37; Ameren Rehearing Request at 24.

335 Exelon Rehearing Request at 5, 12, 27; Ameren Rehearing Request at 24. 

336 Exelon Rehearing Request at 27.

337 Transource Energy Rehearing Request at 37 (quoting NLRB v. Bell Aerospace 

Co., 416 U.S. 267, 294 (1974)).

338 MISO TOs Rehearing Request at 55.

339 Id. at 58.

340 Id. at 55.
Docket Nos. EL14-12-004 and EL15-45-013 - 85 -

the benefit of the extensive stakeholder input it solicited, any changes to its ROE 

methodology that it may find to be appropriate.341 

Ameren argues that the fact that the Commission has left open the generic NOI 

docket, while at the same time making an industry-wide policy change in this adjudicated 

proceeding, constitutes arbitrary and capricious agency decision-making.342

Finally, Exelon asserts that the Commission should limit the application of any 

new method for assessing base ROEs adopted by Opinion No. 569 to these MISO cases 

and clarify that the Commission is not prejudging the application of any new method to 

other utilities.343

B. Commission Determination

We are not persuaded that it is inappropriate for the Commission to establish a 

new base ROE policy in these MISO complaint proceedings when it has also issued the 

Base ROE NOI to obtain input on this topic from interested parties. The Commission 

“has substantial discretion to establish rules of general application by case-specific 

adjudication and is not restricted to the use of a separate generic proceeding”344 to 

341 Id. at 37.

342 Ameren Rehearing Request at 24.

343 Exelon Rehearing Request at 28.

344 Opinion No. 569, 169 FERC ¶ 61,129 at P 449 (quoting Procedures for 

Disposition of Contested Audit, Order No. 675, 114 FERC ¶ 61,178, at P 32 (2006). See 

also NLRB v. Bell Aerospace Corp., 416 U.S. 267, 294 (1974) (“[A]djudicative cases 

may and do serve as vehicles for the formulation of agency policies.”); SEC v. Chenery 

Corp., 332 U.S. 194, 203 (1974) (“[T]he choice made between proceeding by general 

rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion 

of the administrative agency.”); Michigan-Wisconsin Pipeline Co. v. FPC, 520 F.2d 84, 

89 (D.C. Cir. 1975) (“[T]here is no question that the Commission may attach precedential 

and even controlling weight to principles developed in one proceeding and then apply 

them under appropriate circumstances in a stare decisis manner.”); Pac. Gas and Electric 

Co. v. FPC, 506 F.2d. 33, 38 (D.C. Cir. 1974) (“[A]gency may establish binding policy 

through rulemaking procedures . . . or through adjudications which constitute binding 

precedents.”); AEP Power Mktg., Inc., 108 FERC ¶ 61,026, at P 187 (2004) (“Our 

decision to establish new policy in the context of case-specific proceedings is clearly 

within our authority.”); Investigation of Terms and Conditions of Public Utility 

Market-Based Rate Authorizations, 103 FERC ¶ 61,349, at P 51 (2003) (“The 

Commission, moreover, is not limited to notice and comment rulemaking to develop 
Docket Nos. EL14-12-004 and EL15-45-013 - 86 -

establish such rules. The Commission similarly has explained that “[o]ur decision to 

establish new policy in the context of case-specific proceedings is clearly within our 

authority.”345 Thus, while the Commission issued the Base ROE NOI, this did not 

prohibit it from changing its base ROE policy in an adjudication nor require that changes 

in base ROE policy occur in that Base ROE NOI proceeding. Importantly, we note that 

the due process protections afforded to all parties to these proceedings are available to 

every party to Commission proceedings. Any party in other proceedings will be free to

argue, just as the parties to these proceedings were, that the base ROE methodology 

applied in any of these proceedings should be modified or applied differently because 

of the specific facts and circumstances of the proceeding involving that party.

XVI. Complaint-Specific Results: First Complaint

As discussed in this order, we are revising the methodology for determining 

whether an existing ROE is unjust and unreasonable and, if so, what is a just and 

reasonable ROE pursuant to section 206 of the FPA. Applying this methodology to 

the First Complaint proceeding, we continue to find that the rate to be reviewed in that 

proceeding— MISO TOs’ 12.38% ROE—is unjust and unreasonable. Having addressed 

the first prong of the Commission’s dual burden under section 206 and thus satisfied the 

“condition precedent”346 to exercising our authority to change a rate under section 206, 

we grant rehearing of Opinion No. 569 and find that a just and reasonable replacement 

ROE for MISO TOs in the First Complaint proceeding is 10.02% under the second 

prong of section 206.

Below we address the “specific findings”347 as to the “‘particular 

circumstances’”348 of the First Complaint proceeding that establish “‘a rational 

connection’”349 between the record evidence in that proceeding and our decisions under 

both prongs of section 206 herein to establish that we have “‘made a principled and 

policy. Agencies generally are permitted considerable discretion to choose whether to 

proceed by rulemaking or by adjudication.”)).

345 AEP Power Mktg., 107 FERC ¶ 61,018, at P 199 (2004).

346 Emera Maine, 854 F.3d at 25 (citing FPC v. Sierra Pac. Power, 350 U.S. 348,

353 (1956)).

347 Id. at 30.

348 Id. at 27 (citing FPC v. Nat. Gas Pipeline Co., 315 U.S. 575, 586 (1942)).

349 Id. at 28 (citing FERC v. Elec. Power Supply Ass’n, 136 S.Ct. 760, 782 (2016)).
Docket Nos. EL14-12-004 and EL15-45-013 - 87 -

reasoned decision supported by the evidentiary record.’”350 The Commission bases its 

decisions concerning just and reasonable ROEs for public utilities on the most recent 

information in the record regarding market cost of equity. Consequently, the starting 

point for determining whether MISO TOs’ existing ROE has become unjust and 

unreasonable must be a consideration of whether the current market cost of equity has 

changed since the MISO TOs’ existing ROE was established based on financial data for 

the six months ending February 2002, such that the existing base ROE is no longer just 

and reasonable. Accordingly, we begin by determining a composite zone of 

reasonableness using the most recent financial information in the record of the First 

Complaint proceeding. We continue to find that the appropriate study period including 

this most recent financial information is the first six months of 2015.351

A. DCF Analysis

In Opinion No. 569, the Commission affirmed Opinion No. 551’s approval of the 

Presiding Judge’s DCF analysis, with one exception. In Opinion No. 569, the 

Commission held that only the IBES short-term growth projection should be used for 

calculating the (1+.5g) adjustment to the dividend yield, instead of the composite growth 

rate including both short- and long-term growth rates that was used by the Presiding 

Judge. Here, we affirm the Commission’s holding on that issue and the Commission’s

use of the low-end outlier test applied in Opinion No. 569. Accordingly, our 

determinations on those issues do not result in any changes to the DCF analysis that was 

used in Opinion No. 569 for the First Complaint proceeding.

As discussed above, we grant rehearing of Opinion No. 569 to modify the 

high-end outlier test that was used there to now treat any proxy company as high-end 

outlier if its cost of equity estimated under the model in question is more than 200% of 

the median result of all of the potential proxy group members in that model before any 

high or low-end outlier test is applied, subject to a “natural break” analysis. The 

Commission explained in Opinion No. 569 that applying the version of the high-end 

outlier test that was used there did not result in the exclusion of any company from the 

DCF proxy group as a high-end outlier.352 The high-end outlier test as modified in this 

order also does not result in any exclusions. Accordingly, our determination on this issue 

also does not result in any changes to the DCF analysis that was used in Opinion No. 569. 

We also grant rehearing of Opinion No. 569 to find that the long-term growth rate should 

be given 20% weighting and the short-term growth rate 80% weighting in the two-step

350 Id. at 30 (citing S. Cal. Edison v. FERC, 717 F.3d at 181).

351 See Opinion No. 569, 169 FERC ¶ 61,129 at P 460; Opinion No. 551, 

156 FERC ¶ 61,234 P 19.

352 Opinion No. 569, 169 FERC ¶ 61,129 at P 512.
Docket Nos. EL14-12-004 and EL15-45-013 - 88 -

DCF model. Our DCF analysis in the First Complaint proceeding reflecting this finding

is shown in Appendix II to this order. Based on these determinations, we conclude that 

the DCF zone of reasonableness is 6.97% to 12.07%.

B. CAPM Analysis

In Opinion No. 569, the Commission affirmed Opinion No. 551’s approval of the 

Presiding Judge’s CAPM analysis in the First Complaint proceeding, with two exceptions 

related to the market risk premium. The Commission held that only the IBES short-term 

growth projection should be used in the one-step DCF analysis of the dividend paying 

members of the S&P 500, instead of the average of the IBES and Value Line growth 

projections approved by the Presiding Judge.353 In addition, the Commission held that 

companies with negative ROEs or ROEs above 20% should be excluded from that 

analysis.354

As discussed above in section IV.C.1, we grant rehearing of Opinion No. 569 to, 

in future proceedings, consider the use of Value Line short-term growth rate projections 

in the one-step DCF analysis of the dividend paying members of the S&P 500 that is 

conducted in the CAPM. However, we find that the record is insufficient to allow us to 

use only Value Line short-term growth rates in the CAPM in the First Complaint 

proceeding. In addition, we affirm the Commission’s application of the low-end outlier 

test and grant rehearing to modify the high-end outlier test, as described above. As the 

Commission explained in Opinion No. 569, the application of the low-end outlier test and 

the version of the high-end outlier that was used there did not result in the exclusion of 

any company from the CAPM proxy group.355 The low-end outlier test and the modified 

high-end outlier test adopted herein also do not result in the exclusion of any company 

from the CAPM proxy group. Accordingly, we will continue to use the CAPM analysis 

that was relied upon in Opinion No. 569 for the First Complaint proceeding.356 Based on 

these determinations, we conclude that the CAPM zone of reasonableness is 7.80% to 

13.09%.

353 Opinion No. 551, 156 FERC ¶ 61,234 at PP 169, 172.

354 Opinion No. 569, 169 FERC ¶ 61,129 at P 513.

355 See id. PP 514-515.

356 See id. P 513. The results of this CAPM analysis are reflected in page 6 of 

Attachment A to Trial Staff’s Initial Briefs. See Trial Staff Initial Br. (II), Attachment A 

to App. 2 at 6.
Docket Nos. EL14-12-004 and EL15-45-013 - 89 -

C. Risk Premium Analysis

As discussed above, we grant rehearing of Opinion No. 569 to find that the Risk 

Premium Model should be used in our ROE analysis under section 206 of the FPA. As 

described above, we adopt modifications to the Risk Premium analysis that was provided 

by MISO TOs in the record for the First Complaint proceeding. Appendix I to this order 

shows the results of the Risk Premium Model, as applied with modifications adopted 

herein.

This Risk Premium Model produces an ROE result of 10.10%.

357 As further 

discussed above, we will impute a zone of reasonableness from the ROE produced by the 

Risk Premium model for purposes of using the Risk Premium model in our analysis 

under the first prong of section 206. We do so by applying the average of the widths of 

the zones of reasonableness from the CAPM and DCF models to the ROE produced by 

the Risk Premium model, with that ROE serving as the measure of central tendency of 

the zone of reasonableness. In the First Complaint proceeding, the result of the Risk 

Premium Model is 10.10% and the average width of the zones of reasonableness 

produced by the CAPM and DCF models is 520 basis points. Applying this value to the 

Risk Premium result to impute a zone of reasonableness results in a Risk Premium zone 

of reasonableness of 7.50% to 12.70%.

358

D. Composite Zone of Reasonableness and Section 206 Findings

Averaging the top and bottom of the DCF, CAPM, and Risk Premium zones of 

reasonableness determined above based on financial data for the first six months of 2015 

produces a composite zone of reasonableness in the First Complaint proceeding of 7.42% 

to 12.62%. The midpoint of that zone of reasonableness is 10.02%.

Having determined the composite zone of reasonableness based on financial 

data for the first half of 2015, we now turn to considering whether the MISO TOs’ 

12.38% ROE, which was determined based on financial data for the six months ending 

February 2002, may be found unjust and unreasonable pursuant to the first prong of 

section 206. In this order, we affirm the Commission’s decision in Opinion No. 569 to 

use ranges of presumptively just and reasonable ROEs based on the risk profile of the 

MISO TOs to inform our decision whether their ROE has become unjust and 

unreasonable. However, as discussed above, we grant rehearing of Opinion No. 569 to 

find that those ranges should be calculated by dividing the overall composite zone of 

reasonableness into equal thirds.

357 See Appendix I.

358 Id.
Docket Nos. EL14-12-004 and EL15-45-013 - 90 -

We affirm the Commission’s determination in Opinion No. 569 that the MISO 

TOs should be treated as of average risk for purposes of determining the range of 

presumptively just and reasonable ROEs applicable to the MISO TOs.359 In light of this 

determination, we find that the range of presumptively reasonable ROEs for 

consideration in determining whether MISO TOs’ base ROE of 12.38% ROE in the First 

Complaint proceeding is unjust and unreasonable should be the middle third of the zone 

of reasonableness based on the revised construction of the presumptively just and 

reasonable zones adopted in this order. In the First Complaint proceeding, that range is 

from 9.15% to 10.89%.360

The MISO TOs’ 12.38% is 149 basis points above the range of presumptively just 

and reasonable ROEs for the MISO TOs. Accordingly, we find that it is presumptively 

unjust and unreasonable. It is thus clear that, in light of our estimate of the cost of 

capital, the MISO TOs’ 12.38% ROE is well outside any possible range of potentially 

just and reasonable ROEs for the MISO TOs. In order to rebut the presumption that the 

ROE is unjust and unreasonable, we would look at other evidence, such as state ROEs, 

ROEs of non-utility companies, ROEs produced by other methodologies, non-utility 

stock prices, investor expectations for non-utility stocks, various types of bond yields and 

their relation to stock prices, investor and other expert testimony, or testimony regarding 

the effects of rates on customers that would indicate that this is not the case. However, 

the record lacks such evidence sufficient to rebut the presumption. For example, the 

evidence in the record regarding state ROEs indicates that all state-authorized ROEs 

during the period April 1, 2013 through March 31, 2015 for integrated electric utilities 

providing generation, transmission, and distribution services ranged from 9.5% to 10.4%

and that 87.34% of state-authorized ROEs for both integrated electric utilities and 

distribution-only electric utilities during that period were within this range.361 The fact 

that MISO TOs’ 12.38% ROE is 198 basis points above this range further demonstrates 

that MISO TOs’ 12.38% ROE is unjust and unreasonable. In these circumstances, we 

find under the first prong of section 206 that the MISO TOs’ 12.38% ROE that is the 

subject of the First Complaint proceeding has become unjust and unreasonable.

Having found that the MISO TOs’ existing ROE is unjust and unreasonable, we 

turn to the establishment of a just and reasonable replacement ROE under the second 

prong of section 206. As discussed above, we have found that the midpoint of the 

composite zone of reasonable ROEs based on the most recent financial information in the 

record of the First Complaint proceeding is 10.02%. As discussed above, we find that the 

359 See id. PP 518-521.

360 See Appendix III.

361 See, e.g., Opinion No. 551, 156 FERC ¶ 61,234 at P 240.
Docket Nos. EL14-12-004 and EL15-45-013 - 91 -

MISO TOs are of average risk. Our policy is to set an RTO-wide ROE at the midpoint of 

the zone of reasonableness when the transmission owners receiving the RTO-wide ROE 

are of average risk. Accordingly, we find that the just and reasonable replacement ROE 

for the MISO TOs in the First Complaint proceeding is 10.02%. We therefore grant 

rehearing of Opinion No. 569 in part to require the MISO TOs to adopt a 10.02% ROE 

effective September 28, 2016, the date Opinion No. 551 required the MISO TOs to adopt 

a 10.32% ROE.

XVII. Complaint Specific Results: Second Complaint

A. Existing Rate for Purposes of Second Complaint and Overview

As discussed further below, we affirm the Commission’s finding in Opinion 

No. 569 that the 10.02% base ROE established in the First Complaint proceeding is the 

existing rate to be reviewed for purposes of the Second Complaint proceeding because 

that is the rate which we would have to find unjust and unreasonable under the first prong 

of section 206 of the FPA, before we could require a new ROE “to be thereafter 

observed” pursuant to the second prong of section 206. As the Commission explained in 

Opinion No. 569, any new just and reasonable rate that we require “to be thereafter 

observed” pursuant to section 206(a) will replace the currently effective rate, not some 

previously effective rate. Accordingly, in order to determine a new rate to be thereafter 

observed, we must examine what the currently effective rate is because that is the rate 

that will need to be replaced if it is unjust and unreasonable. As discussed in the 

preceding section, in the First Complaint proceeding, we require MISO TOs to reduce 

their ROE to 10.02% effective prospectively from September 28, 2016. Therefore, that is 

the MISO TOs’ currently effective ROE when we are deciding whether MISO TOs’ ROE 

is unjust and unreasonable and should be modified prospectively pursuant to section 206 

in the Second Complaint proceeding.

As discussed in this order, we are revising the methodology for determining 

whether an existing ROE is unjust and unreasonable and, if so, what is a just and 

reasonable ROE pursuant to section 206. Applying this methodology to the Second 

Complaint proceeding, we continue to find that the rate to be reviewed in that 

proceeding— 10.02% base ROE established in the First Complaint proceeding—has not 

been shown to be unjust and unreasonable. 

Below we address the “specific findings”362 as to the “‘particular 

circumstances’”363 of the Second Complaint proceeding that establish “‘a rational 

362 Emera Maine, 854 F.3d at 30.

363 Id. at 27 (citing FPC v. Nat. Gas Pipeline Co., 315 U.S. 575, 586 (1942)).
Docket Nos. EL14-12-004 and EL15-45-013 - 92 -

connection’”364 between the record evidence in that proceeding and our decisions under 

both prongs of section 206 herein to establish that we have “‘made a principled and 

reasoned decision supported by the evidentiary record.’”365 Because the Commission 

bases its decisions concerning just and reasonable ROEs for public utilities on the most 

recent information in the record regarding market cost of equity, the starting point for 

determining whether the MISO TOs’ existing ROE has become unjust and unreasonable 

must be a consideration of whether the current market cost of equity has changed such 

that the 10.02% base ROE established in the First Complaint proceeding is unjust and 

unreasonable. Accordingly, we begin by determining a composite zone of 

reasonableness using the most recent financial information in the record of the Second 

Complaint proceeding. We continue to find that the appropriate study period including 

this most recent financial information is July 1, 2015 through December 31, 2015.366

B. DCF Analysis

In Opinion No. 569, the Commission affirmed the Presiding Judge’s DCF analysis

in Initial Decision (II) with one exception. The Commission held that only the IBES 

short-term growth projection should be used for calculating the (1+.5g) adjustment to the 

dividend yield, instead of the composite growth rate including both short- and long-term 

growth rates that was used by the Presiding Judge. Here, we affirm the Commission’s 

holding on that issue and the Commission’s use of the low-end outlier test applied in 

Opinion No. 569. Accordingly, our determinations on those issues do not result in any 

changes to the DCF analysis that was used in Opinion No. 569 for the Second Complaint 

proceeding.

As discussed above, we grant rehearing of Opinion No. 569 to modify the 

high-end outlier test that was used there. The Commission explained in Opinion No. 569 

that applying the version of the high-end outlier test that was used there did not result in 

the exclusion of any company from the DCF proxy group as a high-end outlier.367 The 

high-end outlier test as modified in this order also does not result in any exclusions.

Accordingly, our determination on this issue also does not result in any changes to the 

DCF analysis that was used in Opinion No. 569. We also grant rehearing of Opinion 

No. 569 to find that the long-term growth rate should be given 20% weighting and the 

short-term growth rate 80% weighting in the two-step DCF model. Our DCF analysis in 

the Second Complaint proceeding reflecting this finding is shown in Appendix II to this 

364 Id. at 28 (citing FERC v. Elec. Power Supply Ass’n, 136 S.Ct. 760, 782 (2016)).

365 Id. at 30 (citing S. Cal. Edison v. FERC, 717 F.3d at 181).

366 See Opinion No. 569, 169 FERC ¶ 61,129 at P 524.

367 Id. P 554.
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order. Based on these determinations, we conclude that the DCF zone of reasonableness 

is 7.37% to 11.37%.

C. CAPM Analysis

In Opinion No. 569, the Commission affirmed the Presiding Judge’s CAPM 

analysis in the Second Complaint proceeding, with one exception related to the market 

risk premium. The Commission held that only the IBES short-term growth projection 

should be used in the one-step DCF analysis of the dividend paying members of the 

S&P 500, which was consistent with the Presiding Judge’s approach in Initial 

Decision (II).368 In addition, the Commission held that companies with negative ROEs 

or ROEs above 20% should be excluded from that analysis.369

As discussed above in section IV.C.1, we grant rehearing of Opinion No. 569 to, 

in future proceedings, consider the use of Value Line short-term growth rate projections 

in the one-step DCF analysis of the dividend paying members of the S&P 500 that is 

conducted in the CAPM. However, we find that the record is insufficient to allow us to 

use only Value Line short-term growth rates in the CAPM in the Second Complaint 

proceeding. In addition, we affirm the Commission’s application of the low-end outlier 

test and grant rehearing to modify the high-end outlier test as described above. As the 

Commission explained in Opinion No. 569, the application of the low-end outlier test and 

the version of the high-end outlier test that was used there did not result in the exclusion 

of any company from the CAPM proxy group.370 The low-end outlier test and modified 

high-end outlier test adopted herein also do not result in the exclusion of any company 

from the CAPM proxy group. Accordingly, we will continue to use the CAPM analysis 

that was relied upon in Opinion No. 569 for the Second Complaint proceeding.371 Based 

on these determinations, we conclude that the CAPM zone of reasonableness is 8.35% to 

12.63%.

D. Risk Premium Analysis

As discussed above, we grant rehearing of Opinion No. 569 to find that the Risk 

Premium Model should be used in our ROE analysis under section 206 of the FPA. As 

368 See Initial Decision (II), 155 FERC ¶ 63,030 at P 412.

369 Opinion No. 569, 169 FERC ¶ 61,129 at P 555.

370 See id. PP 556-557.

371 See id. P 513. The results of this CAPM analysis are reflected in page 6 of 

Attachment A to Trial Staff’s Initial Briefs. See Trial Staff Initial Br. (II), Attachment A 

to App. 2 at 6.
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described above, we are adopting modifications to the Risk Premium analysis that was 

provided by the MISO TOs in the record for the Second Complaint proceeding. 

Appendix I of this order shows the results of the Risk Premium Model, as applied with 

modifications adopted herein.

This Risk Premium analysis produces an ROE result of 10.29%.372 As further 

discussed above, we find that we will impute a zone of reasonableness from the ROE 

produced by the Risk Premium model for purposes of using the Risk Premium model in 

our analysis under the first prong of section 206. We do so by applying the average of 

the widths of the zones of reasonableness from the CAPM and DCF models to the ROE 

produced by the Risk Premium model, with that ROE serving as the measure of central 

tendency of the zone of reasonableness. In the Second Complaint proceeding, the result 

of the Risk Premium analysis is 10.29% and the average width of the zones of 

reasonableness produced by the CAPM and DCF models is 414 basis points. Applying 

this value to the Risk Premium result to impute a zone of reasonableness results in a Risk 

Premium zone of reasonableness of 8.22% to 12.36%.373

E. Composite Zone of Reasonableness and Section 206 Findings

Averaging the top and bottom of the DCF, CAPM, and Risk Premium zones of 

reasonableness determined above based on the most recent financial data in the record of 

the Second Complaint proceeding produces a composite zone of reasonableness in the 

Second Complaint proceeding of 7.98% to 12.12%. The midpoint of that zone of 

reasonableness is 10.05%.

The applicable range of presumptively just and reasonable ROEs for the MISO 

TOs in the Second Complaint proceeding is from 9.36% to 10.74%. As discussed above, 

the issue to be addressed in the Second Complaint is whether the ROE established in the 

First Complaint remains just and reasonable during the applicable test period as 

addressed by the evidence presented by the participants in the Second Complaint. The 

MISO TOs’ 10.02% ROE established upon resolution of the First Complaint proceeding 

falls within the range of presumptively just and reasonable ROEs that applies in the 

Second Complaint. We find that this presumption has not been rebutted by the evidence 

in the Second Complaint proceeding. We see no evidence in the record, such as state 

ROEs, ROEs of non-utility companies, and other methodologies that rebuts this 

presumption. Accordingly, we do not find that the MISO TOs’ ROE established in the 

First Complaint proceeding and in effect as of the date of this order is unjust and 

unreasonable under the first prong of section 206. For that reason, we do not establish a 

372 See Appendix I.

373 Id.
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new just and reasonable ROE in the Second Complaint proceeding to be in effect 

prospectively from the date of this order.

XVIII. Refund Issues

A. Opinion No. 569

In Opinion No. 569, the Commission granted rehearing of Opinion No. 551 in 

part, found that the challenged 12.38% base ROE in the First Complaint proceeding was 

unjust and unreasonable, and additionally found that a replacement base ROE of 9.88% 

was just and reasonable—instead of the 10.32% replacement ROE that was set in 

Opinion No. 551. The Commission made the 9.88% ROE effective as of September 28, 

2016, the date on which Opinion No. 551 was issued.374 The Commission ordered 

MISO and the MISO TOs to provide refunds, with interest calculated pursuant to 

18 C.F.R. § 35.19a, for the 15-month refund period for the First Complaint proceeding 

from November 12, 2013 through February 11, 2015 and for the period from 

September 28, 2016—the date on which Opinion No. 551 was issued—to the date of 

Opinion No. 569.375

The Commission then found that the 9.88% base ROE established in the First 

Complaint proceeding was the existing rate to be analyzed for purposes of the Second 

Complaint proceeding. In brief, the Commission reasoned that, for purposes of deciding 

whether a rate charged by a utility is unjust and unreasonable and determining a new just 

and reasonable rate “to be thereafter observed” pursuant to section 206(a) of the FPA, it 

must assess whether the public utility’s currently effective rate is unjust and 

unreasonable, not some earlier rate that may have been in effect when the complaint was 

filed but has now been superseded. The Commission explained that, in other words, in 

order to determine a new rate to be thereafter observed, it must examine the currently 

effective rate because that is the rate that will need to be replaced if it is unjust and 

unreasonable. The Commission then explained that, because the 9.88% base ROE 

established in the First Complaint proceeding is effective prospectively from 

September 28, 2016, that is the currently effective rate that the Commission would have 

to find unjust and unreasonable under the first prong of section 206, before we could 

require a new ROE “to be thereafter observed” pursuant to the second prong of 

section 206.376

374 See Opinion No. 569, 169 FERC ¶ 61,129 at P 20.

375 Id. at ordering para. (B).

376 Id. P 530.
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The Commission then concluded that the 9.88% ROE was just and reasonable 

based on the facts and circumstances of the Second Complaint and therefore dismissed 

the Second Complaint. The Commission then found that section 206 dictates that refunds 

may be ordered in a complaint proceeding only when the Commission grants prospective 

relief in that proceeding (i.e., the Commission sets a new just and reasonable rate which it 

“orders to be thereafter observed and in force.”).

377 The Commission concluded that it 

could not order refunds for the Second Complaint proceeding’s refund period because it 

was dismissing the complaint and not granting any prospective relief. The Commission 

found that ordering refunds in the Second Complaint proceeding despite the fact that it 

was granting no prospective relief would exceed the statutory authority in section 206 

because it would effectively extend the 15-month refund period for the First Complaint 

since the refunds would be based on the relief granted in the First Complaint and not any 

action taken in the Second Complaint.

B. First Complaint Proceeding Refunds

1. Rehearing Requests

MISO TOs argue that the Commission erred in directing refunds for the period 

from September 28, 2016, through the date of Opinion No. 569 based on the new ROE 

set in the First Complaint proceeding. MISO TOs contend that the effective date of the 

new base ROE resulting from resolution of the First Complaint proceeding should be 

November 21, 2019, the date on which Opinion No. 569 was issued. MISO TOs 

acknowledge that, in cases of legal error, the proper remedy is one that puts the parties in 

the position they would have been in had the error not been made, but they assert that this 

is not a case of legal error because Opinion No. 569’s adoption of a new ROE 

methodology goes beyond what is necessary to fix the problems identified by the Emera 

Maine court. MISO TOs contend that the court merely found that the Commission never 

explained how its ultimate placement of the base ROE was just and reasonable and that 

the Commission could correct this error by better tying the 10.32% base ROE set in 

Opinion No. 551 to the evidence in the record, rather than adopting a new base ROE 

methodology.378 MISO TOs maintain that, therefore, the Commission’s adoption of the 

9.88% ROE for the First Complaint proceeding in Opinion No. 569 does not remedy a 

legal error.379

MISO TOs further argue that this is also not a case where the Commission fixed 

an error on rehearing of Opinion No. 551. They contend that, while the Commission 

377 Id. P 568.

378 MISO TOs Rehearing Request at 84-85 (citing Emera Maine, 854 F.3d at 28).

379 Id.
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“grant[ed] rehearing of Opinion No. 551 in part to require the MISO TOs to adopt a 

9.88% ROE effective September 28, 2016, the date Opinion No. 551 required the MISO 

TOs to adopt a 10.32% ROE,”380 it is unclear as to which issue presented on rehearing 

the Commission actually granted. MISO TOs assert that none of the rehearing requests 

asked the Commission to adopt a new ROE methodology, and instead opposing parties 

requested rehearing on the grounds that the composition of the DCF proxy group was 

incorrect, and that Commission should consider only DCF results, ignore the anomalous 

capital market conditions that impacted the DCF model inputs, and ignore cost of equity 

evidence produced by alternative models.381

MISO TOs argue that, therefore, in establishing the new 9.88% base ROE upon 

resolution of the First Complaint proceeding, the Commission was acting on its own 

motion pursuant to its authority under section 313(a) of the FPA382 to modify Opinion 

No. 551. They contend that, as a result, the 9.88% base ROE that the Commission 

established upon resolution of the First Complaint proceeding can be effective only 

prospectively as of the date of the issuance of Opinion No. 569—November 21, 2019.383

MISO TOs argue that, if the Commission holds that it did fix a legal error through 

the adoption of the new methodology for determining a base ROE, the Commission 

should nonetheless use its discretion not to require the payment of interest on the refunds 

directed. MISO TOs note that “the Commission is not required to order that interest be 

paid on all refunds”384 and contend that the Commission should use its discretion not to 

include interest with the refunds for the period from September 28, 2016, going forward 

because the full status quo ante cannot be restored in this case. They assert that this is the 

case because the Commission has implicitly recognized that some non-public utility 

members of MISO do not have a refund obligation relating to complaints that were filed 

prior to 2017,385 and thus that non-public utility members of MISO may not have an 

obligation to make refunds for the First Complaint, which was filed in 2013. MISO TOs 

380 Id. at 85-86 (citing Opinion No. 569, 169 FERC ¶ 61,129 at PP 20, 523).

381 Id. at 86.

382 Id. (citing 16 U.S.C. § 825l(a) (2018)).

383 Id. at 86-87.

384 Id. at 87 (citing Trunkline Gas Co., 69 FERC ¶ 61,047, at 61,183 (1994) (citing 

Estate of French v. FERC, 603 F.2d 1158, at 1167–68 (5th Cir. 1979))).

385 Id. at 88-89 (citing Midcontinent Indep. Sys. Operator, Inc., 151 FERC 

¶ 61,050, at P 24 (2015) (only as of the effective date of their RTO adder are non-public 

utilities obligated to make refunds for Docket Nos. EL14-12 and EL15-45)).
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argue that, without all transmission-owning members of MISO contributing their share of 

refunds, it will be impossible to reinstitute the full status quo ante.386

Ameren similarly argues that the 9.88% base ROE that the Commission found to 

be a new just and reasonable base ROE in the First Complaint proceeding cannot be 

made effective as of the date of Opinion No. 551, and thus no refunds can be directed for 

the period from September 28, 2016 to November 21, 2019. Ameren contends that 

section 206 of the FPA only permits the Commission to make a new just and reasonable 

rate effective prospectively and that, therefore, the Commission acted beyond its 

authority in making the 9.88% base ROE established in Opinion No. 569 effective as of 

the date of Opinion No. 551.387

Ameren asserts that the D.C. Circuit’s decision in City of Anaheim v. FERC also 

prohibits the Commission from requiring refunds for the period from September 28, 2016 

to November 21, 2019, based on its finding in the First Complaint proceeding that 9.88% 

is a new just and reasonable base ROE. Ameren contends that, in that case the 

Commission granted a complaint, but stated that it would set a just and reasonable rate in 

the future, and the court found that the Commission could not make the rate that it set in 

the future effective retroactively. Ameren argues that there is no meaningful difference 

between postponing the fixing of a new rate as the Commission did in City of Anaheim

and modifying Opinion No. 551 and replacing the rate fixed there with another one 

calculated by a different method, as the Commission did in Opinion No. 569. Ameren 

contends that the act of fixing a new rate undersection 206 cannot be a three-year process 

because that would impermissibly expand the Commission’s refund authority.388

Ameren argues that the legal error doctrine does not give the Commission 

authority to direct refunds for the period from September 28, 2016, to November 21, 

2019, as a result of its decision in the First Complaint proceeding. Ameren asserts that, 

unlike the ISO New England Inc. v. Bangor Hydro-Electric Co.389 case that the 

Commission cites in Opinion No. 569, a court has not vacated any of the Commission 

decisions in these proceedings and therefore the legal error doctrine does not apply in 

these proceedings. Ameren acknowledges that the Commission is empowered to change 

386 Id. at 89.

387 Ameren Rehearing Request at 13-20.

388 Id. at 17-19.

389 161 FERC ¶ 61,031 (2017).
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its order on rehearing, but argues that, when doing so, it can only fix a new rate that is 

“thereafter observed.”390

Transource Energy argues that the Commission can only make the rate that it 

adopts for the First Complaint proceeding effective prospectively, and not effective as of 

the date of Opinion No. 551.391 Transource Energy asserts that, if the Commission 

believes it has the discretion to make the rate adopted upon resolution of the First 

Complaint proceeding effective as of the date of Opinion No. 551, it should find that the 

10.32% ROE ordered in Opinion No. 551 is just and reasonable. Transource Energy 

further contends that under the Commission’s methodology adopted in Opinion No. 569, 

there is no evidence showing that a 10.32% ROE is not just and reasonable. Transource

Energy notes that the 10.32% base ROE adopted in Opinion No. 551 falls within the 

quartile range of presumptively just and reasonable ROEs for the period at issue in 

Opinion No. 551, which is 9.29% to 10.47%. Transource Energy further contends that 

the Commission’s decision in Opinion No. 569 represents a change in policy and not a 

correction of a legal error. In addition, Transource Energy argues that the Commission 

should use its discretion to not order additional refunds for the First Complaint 

proceeding’s 15-month refund period because customers benefitted from investments 

during the refund period.392

2. Commission Determination

We deny the requests for rehearing of the Commission’s decision in Opinion 

No. 569 to order refunds for the period from September 28, 2016, to November 21, 2019,

based on its decision in the First Complaint proceeding. In Opinion No. 569, the 

Commission granted rehearing of the Commission’s decision in Opinion No. 551 that, in 

the First Complaint proceeding, a 10.32% base ROE was a just and reasonable new ROE 

under the second prong of section 206, instead finding that a 9.88% base ROE was a just 

and reasonable new ROE. Accordingly, the Commission’s decision in Opinion No. 569 

granted rehearing of the decision in Opinion No. 551 to make 10.32% the new base ROE 

effective prospectively from the date of Opinion No. 551. Consequently, the new ROE 

that the Commission set in Opinion No. 569 in granting rehearing, and which is modified 

in this order, is effective as of the date of the original decision which is being modified on 

rehearing (i.e., the date of Opinion No. 551). 

As the Commission has explained, “[R]ate changes required in section 206 

proceedings should take effect as of the date of the order setting rates, not the date of the 

390 Ameren Rehearing Request at 20-23.

391 Transource Energy Rehearing Request at 36-38.

392 Id.
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rehearing—regardless of whether and to what extent the rehearing order changes the rates 

originally allowed.”393 The Commission further explained that “[s]uch a policy is fair to 

both utilities and ratepayers since it allows finally determined just and reasonable rates to 

go into effect at the earliest possible date, thereby preventing unjust enrichment of 

one party for any period of time. It also eliminates any incentive parties would have to 

delay the effective date of new rates.”394 Accordingly, the Commission’s decision to 

grant rehearing of Opinion No. 551 to modify the rate established in that order for the 

First Complaint proceeding under section 206 takes effect as of the date of the order 

setting that rate (i.e., Opinion No. 551), not as of the date of Opinion No. 569 or this 

order. As discussed further below, because the changed rate set on rehearing of Opinion 

No. 551 is effective as of the date of that order, it is appropriate to direct refunds for the 

period from that date through the date of this order, which establishes the finally 

determined just and reasonable rate.

We disagree with MISO TOs’ argument that this is not a case where the 

Commission fixed an error on rehearing of Opinion No. 551, and with Ameren’s and 

Transource Energy’s arguments that the new replacement base ROE established in 

granting rehearing of Opinion No. 551 can only be effective prospectively from the date 

of Opinion No. 569. MISO TOs contend that, while the Commission granted rehearing 

of Opinion No. 551 in part, it is unclear as to which issue presented on rehearing the 

Commission granted because none of the rehearing requests asked the Commission to 

adopt a new ROE methodology.

395 MISO TOs, instead, contend that opposing parties 

requested rehearing on the grounds that the composition of the DCF proxy group was 

incorrect, and that Commission should consider only DCF results, ignore the anomalous 

capital market conditions that impacted the DCF model inputs, and ignore cost of equity 

evidence produced by alternative models.396 While it may be true that a party did not 

explicitly request that the Commission reach each and every exact decision that it made 

in Opinion No. 569, the Commission nonetheless acted within its discretion to reach its 

conclusions and these conclusions involved granting rehearing of the Commission’s 

decision in Opinion No. 551 to establish a 10.32% base ROE as the new ROE under the 

second prong of section 206 in the First Complaint proceeding.

In Opinion No. 551, the Commission relied on the DCF analysis and looked to 

the CAPM, Risk Premium, and Expected Earnings models as corroborative evidence to 

support its decision. On rehearing, certain parties argued, as MISO TOs note, that the 

393 Ariz. Pub. Serv. Co., 26 FERC ¶ 61,087, at 61,221 (1984).

394 Id.

395 MISO TOs Rehearing Request at 85-86.

396 Id. at 86.
Docket Nos. EL14-12-004 and EL15-45-013 - 101 -

Commission should have considered only DCF results and ignored those alternative 

models.397 In Opinion No. 569, as modified in this order, the Commission granted

rehearing to reach a logical middle ground that does not consider only DCF, as those 

parties requested, but does depart from Opinion No. 551 by considering only some of the 

other three models that the Commission initially considered in Opinion No. 551. 

Specifically, here we consider the CAPM and Risk Premium models in addition to the 

DCF model, but not the Expected Earnings model, which the Commission initially did 

consider in Opinion No. 551. In reaching its decision on rehearing of Opinion No. 551, 

the Commission is not limited to only reaching a conclusion that replicated every detail 

of a conclusion that a party had explicitly proposed.398 In relevant part, the Commission, 

upon a party’s application for rehearing, “shall have power to grant or deny rehearing or 

to abrogate or modify its order without further hearing.”399 Accordingly, the 

Commission may modify its order on rehearing as it has here, because there exists no 

such limitation as a requirement that the Commission may only modify its order if the 

exact modification is explicitly proposed by a party on rehearing. The Commission 

found merit in some of the arguments against considering all of the non-DCF models but 

was not persuaded to ignore all of the models. Accordingly, it reached a conclusion 

arising from compromise that considered some, but not all, of the alternative models that 

were considered in Opinion No. 551. As a result of partially granting rehearing on these 

issues, the Commission granted rehearing of its decision to establish 10.32% as a new 

replacement base ROE in the First Complaint proceeding. Accordingly, this is a case 

where the Commission granted rehearing to modify Opinion No. 551, and that modified 

conclusion is effective as of the date of Opinion No. 551.

While the Commission’s grant of rehearing of Opinion No. 551 is sufficient 

to justify the Commission’s ordering of refunds from the date of Opinion 

No. 551—September 28, 2016—through the date of this order, the Commission’s 

decision to order such refunds is further justified by the fact that it is correcting a legal 

error in granting rehearing to change the new just and reasonable ROE established for 

the First Complaint proceeding in Opinion No. 551. Although Ameren is correct that 

none of the Commission decisions in these proceedings have been vacated by a court, 

that does not mean that there was no legal error in the Commission’s decisions in these 

proceedings. In Emera Maine, the D.C. Circuit found that the Commission failed to 

satisfy its dual burden under section 206 of the FPA by finding that the result of a single 

ROE analysis was sufficient to demonstrate that an existing base ROE was unjust and 

unreasonable if it exceeded that result and that such result was a just and reasonable 

397 See id. at 86.

398 See 16 U.S.C. § 825l.

399 Id.
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replacement ROE. Opinion No. 551 and Initial Decision (II) in the Second Complaint 

proceeding both used the same reasoning that the D.C. Circuit found was insufficient to 

satisfy the Commission’s burden under section 206. Accordingly, while no court has 

vacated a specific decision in this case, the rationale on which Opinion No. 551 and 

Initial Decision (II) in the Second Complaint proceeding are based has been rejected by 

the D.C. Circuit as in violation of section 206. As a result, those Commission decisions 

are based on a legal error identified by the D.C. Circuit. The fact that the court did not 

explicitly identify that legal error in a case involving a decision in these proceedings does 

not mean that there is no error in Opinion No. 551 and Initial Decision (II). To find 

otherwise would allow the Commission to continue to make decisions that are based on 

reasoning that has been found to be unlawful and only require the Commission to correct 

those decisions when a court has repeated its previous conclusion in every individual 

applicable case. 

MISO TOs and Transource Energy also argue that the legal error doctrine does not 

apply here because the methodology adopted in Opinion No. 569 goes beyond what they 

contend is necessary to fix the problems identified by the Emera Maine court, and 

therefore represents a change in policy and not correction of a legal error. We disagree. 

The court in Emera Maine found that the Commission acted arbitrarily and outside of its 

statutory authority because its single ROE analysis failed to include an actual finding as 

to the lawfulness of the existing base ROE at issue. The court remanded the proceeding 

for the Commission to make that actual finding, but it did not specify exactly how the 

Commission needed to make that finding. In Opinion No. 569, as modified herein, the 

Commission concluded that the best way to make that finding in these proceedings in 

light of its statutory obligations was to revise its methodology for analyzing base ROEs 

under section 206 as explained herein. Accordingly, while MISO TOs and Transource 

Energy would prefer the Commission to arrive at this finding in a different way, that does 

not mean that the Commission’s action is a change in policy instead of a correction of a 

legal error.

We are also not persuaded by arguments that the Commission should exercise its 

discretion to not order interest on the refunds for the period from the date of Opinion 

No. 551 through the date of this order replacing the base ROE set in in Opinion No. 551. 

While MISO TOs are correct that the Commission is not required to order that interest be 

paid on all refunds, we find that there are no equitable reasons that would warrant not 

ordering interest on the refunds ordered from the date of Opinion No. 551 through the 

date of this order. The parties to the First Complaint proceeding had notice that the base 

ROE established to be prospective from the date of Opinion No. 551 was subject to 

rehearing and therefore could be modified such that the modified rate would result in 

refunds, with interest pursuant to the Commission’s authority under section 206. We are 

also not persuaded by MISO TOs’ argument that the Commission should exercise its 

discretion to not require interest on the refunds because the status quo ante cannot be 
Docket Nos. EL14-12-004 and EL15-45-013 - 103 -

fully restored since a separate Commission order “implicitly has recognized”400 that some 

non-public utility members of MISO do not have a refund obligation relating to 

complaints that were filed prior to 2017.401 As the precedent cited by MISO TOs

provides, the Commission is not restricted to only requiring interest on refunds when it 

can completely restore the status quo ante, but rather, whether the status quo ante can be 

fully restored is merely a consideration that “may . . . offset . . . at least in part”402 a full 

refund. MISO TOs also correctly recognize that “whether to order interest in crafting a 

remedy is a matter of Commission discretion.”403 MISO TOs have not persuaded us that 

the fact that some members of MISO may have different obligations with respect to the 

subject refunds is sufficient to use to our discretion to deny the complainants a full refund 

with interest. The payment of interest on refunds merely “ensures that the amounts to be 

refunded are, in fact, refunded through the addition of interest so that the recipient 

receives payment in inflation-adjusted dollars . . . to make the recipients whole,”404

consistent with the Commission’s “general policy of granting full refunds” for 

overcharges.’”405 While we may exercise our discretion to decline to make recipients 

whole through the payment of interest on refunds, MISO TOs’ argument on this point is 

not a sufficient reason to do so. On balance, we find that is more appropriate to ensure 

that the overcharged entities are made whole through the payment of interest on refunds 

than it is to decline to require interest because some members of MISO may have 

different obligations with respect to the subject refunds such that the refunds paid do not 

exactly reconstitute the status quo ante.

Transource Energy argues that the Commission should use its discretion to not 

order additional refunds for the First Complaint proceeding’s 15-month refund period 

because customers benefitted from investments during the refund period.406 We find that 

this argument is similarly unavailing. Transmission owners are constantly making new 

400 MISO TOs Rehearing Request at 89.

401 Id. at 88-89 (citing Midcontinent Indep. Sys. Operator, Inc., 151 FERC 

¶ 61,050 at P 24).

402 Panhandle E. Pipe Line Co., 69 FERC ¶ 61,048, at 61,189 (1994) (quoting 

Consumer Fed’n of America v. FPC, 515 F.2d 347, 359 (D.C. Cir. 1975)).

403 MISO TOs Rehearing Request at 87 (quoting Transcon. Gas Pipe Line Corp., 

71 FERC ¶ 61,108, at 61,361 (1995)).

404 La. Pub. Serv. Comm’n, 153 FERC ¶ 61,033, at P 14 (2015).

405 Consolidated Edison Co. of N.Y. v. FERC, 347 F.3d 964, 972 (D.C. Cir. 2003).

406 Transource Energy Rehearing Request at 38.
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investments and changing investments during proceedings that may result in refund 

obligations. Therefore, to find that the existence of these investments alone would 

absolve such transmission owners from ordering refunds resulting from a Commission 

decision would mean that transmission owners would only owe refunds in the rarest of 

circumstances. We find that this would be contrary to the purpose of the refund 

obligation in section 206.

Consequently, we deny rehearing on this issue and find that, by granting rehearing 

of the decision in Opinion No. 551 to establish a new just and reasonable base ROE, and 

by acting to correct a legal error, it is appropriate to direct refunds, with interest, for the 

period from the effective date of the just and reasonable base ROE that was set in

Opinion No. 551 which is being replaced in this order— September 28, 2016—through 

the date of this order, based on the new 10.02% base ROE established for the First 

Complaint proceeding in this order.

C. Second Complaint Proceeding Refunds

1. Rehearing Requests

CAPs argue that the Commission erred in not requiring refunds for the Second 

Complaint proceeding’s refund period. They contend that the First Complaint and 

Second Complaint each challenged the base ROE in effect as of the date of filing of each 

complaint and had separate refund periods.407 CAPs assert that, therefore, the mere fact 

that the two separate refund periods exceed 15 months does not mean that section 206 of 

the FPA is violated, “particularly in view of the fact that Commission orders set both 

refund periods, and the Commission itself acknowledged that the ROE in force when 

each complaint was filed was demonstrated to be unjust and unreasonable based on 

evidence of market conditions during the relevant study period.”408

CAPs further contend that the Commission’s interpretation of the existing rate to 

be analyzed in the Second Complaint proceeding creates a loophole that utilities could 

exploit to vitiate the consumer protection intended by section 206. In particular, CAPs

assert that a utility could make a tactical section 205 filing after a section 206 filing is 

signaled or underway to undermine section 206’s refund and prospective relief remedies. 

CAPs argue that, for example, if an initial decision identifies a new just and reasonable 

base ROE resulting from a section 206 complaint, the subject utility could make a 

section 205 filing before issuance of a Commission order on the initial decision that 

reduces its base ROE to a level well above the base ROE the initial decision determined 

was just and reasonable, but just within the top end of what the initial decision identifies 

407 CAPs Rehearing Request at 52-53.

408 Id. at 53.
Docket Nos. EL14-12-004 and EL15-45-013 - 105 -

as the zone of presumptively just and reasonable ROEs, such that the utility’s proposed 

base ROE in the section 205 filing would likely be accepted by the Commission. CAPs 

argue that, under the Commission’s rationale in Opinion No. 569, in such a case, the base 

ROE in the utility’s section 205 filing would become the currently effective base ROE 

that the Commission would examine for purposes of acting on the initial decision, 

meaning that this base ROE would likely not be found unjust and unreasonable in the 

Commission’s order on the initial decision because it falls within the zone of 

presumptively just and reasonable ROEs identified in the initial decision. CAPs contend 

that, in such a case, the utility would have successfully shielded itself both from refunds 

and from a prospective reduction down to the cost-based level found in the initial 

decision. CAPs argue that, because of this possibility, the Commission should reconsider 

its finding that the FPA requires section 206 relief to be denied if the rate in effect just 

before a final order applying section 206 is just and reasonable, or at least clarify how it 

would prevent such tactics from vitiating relief under section 206.409

CAPs further contend that, even if the Commission does not reverse its 

determination that the outcome of the Second Complaint was dependent on the outcome 

of the First Complaint, it still has and should exercise discretion to order refunds for the 

Second Complaint proceeding. CAPs assert that, because section 206 contains no 

deadline for the Commission to act on a complaint, where two complaints raising 

overlapping issues are pending before the Commission simultaneously, the order in 

which the Commission acts on the complaints is within the Commission’s discretion. 

CAPs argue that the Commission should have acted on the Second Complaint before 

acting on rehearing of Opinion No. 551 because this would have kept prospective rates, 

which can affect future conduct, aligned with the most recent and accurate evidence of 

the MISO TOs’ cost of equity. CAPs contend that, by acting in this sequence, MISO 

transmission customers would have been entitled to refunds for the Second Complaint 

proceeding’s refund period and the First Complaint proceeding’s refund period because 

the ROE set by an order in the Second Complaint could not be deemed to be the 

“existing” ROE for purposes of deciding the First Complaint. CAPs assert that, 

therefore, the Commission’s rationale for denying refunds in the Second Complaint 

proceeding effectively claims that the Commission’s procedural decisions can expand or 

contract the statutory rights of public utility customers.410

LPSC argues that Opinion No. 569 interprets section 206 to mean that the 

Commission must decide whether the rate that is “currently effective” at the time it issues 

its opinion is just and reasonable, as opposed to the rate that was in effect at the time the 

409 Id. at 53-54.

410 Id. at 56-59.
Docket Nos. EL14-12-004 and EL15-45-013 - 106 -

complaint was filed and contends that this interpretation violates the FPA.411 LPSC 

contends that section 206 provides that the Commission shall determine the just and 

reasonable rate, if the Commission determines that the rate “demanded, observed, 

charged, or collected by any public utility . . . is unjust, unreasonable, unduly 

discriminatory or preferential.”412 LPSC asserts that Opinion No. 569 is inconsistent 

with this plain language because it requires an analysis of whether a new rate that had 

never been charged or collected by the utility is just and reasonable. LPSC contends that 

the MISO TOs have never “demanded, observed, charged, or collected” the 9.88% ROE 

that was established in Opinion No. 569 from their customers, so the FPA could not have 

intended for that to be the rate analyzed by the Commission.413

LPSC argues that the Commission’s interpretation of the existing rate to be 

analyzed in the Second Complaint proceeding would prevent the Commission from ever 

granting refunds in a second ROE proceeding, even if the Commission found that the 

newly effective ROE that resulted from the first ROE proceeding had become unjust and 

unreasonable by the time the second complaint was filed. LPSC contends that this is the 

case because section 206 provides for refunds to “persons who have paid those rates” but 

no person would have paid the rate established in such a first complaint proceeding.414

LPSC also contends that the Commission’s interpretation on this point is 

inconsistent with the Commission’s precedent in Golden Spread Elec. Coop., Inc. v. 

Southwestern Pub. Serv. Co.415 LPSC asserts that, in that case, the Commission rejected 

a company’s argument that a 2013 ROE complaint should be dismissed because it served 

only to extend the refund effective period associated with a 2012 ROE complaint, and 

explained that, “In assessing the 2013 Complaint, the relevant comparison is between the 

current ROE and the ROE sought in the 2013 Complaint.”416

LPSC further argues that Opinion No. 569 is also arbitrary because its conclusions 

rely entirely on the order that the Commission decides the ROE proceedings, but there is 

no statute or regulation that requires the Commission to resolve section 206 proceedings 

411 LPSC Rehearing Request at 17-19.

412 Id. at 19 (citing 16 U.S.C. § 824e (2018)).

413 Id.

414 Id. at 19-20.

415 151 FERC ¶ 61,126 (2015).

416 LPSC Rehearing Request at 21 (citing Golden Spread Elec. Coop., Inc. v. 

Southwestern Pub. Serv. Co., 151 FERC ¶ 61,126 at P 24).
Docket Nos. EL14-12-004 and EL15-45-013 - 107 -

chronologically. LPSC contends that refunds could have been granted for the second 

complaint proceeding and a different ROE would have applied prospectively if Opinion 

No. 569 had resolved the second complaint proceeding first. LPSC asserts that Congress 

did not intend to give the Commission the power to decide the justness and 

reasonableness of rates and whether refunds should be granted based on the order that 

it chooses to decide complaints.417

In addition, LPSC argues that Opinion No. 569 is inconsistent with the 

Commission’s precedent that a second ROE complaint can be filed and a second refund 

effective period can be ordered, as long as the second complaint is based on new analyses 

and data. LPSC contends that, “Contrary to its precedent, Opinion No. 569 now finds 

that determining whether the ROE in a second ROE complaint proceeding is unjust and 

unreasonable by analyzing the ROE that was in effect when the complaint was filed 

would effectively extend the statutory fifteen-month refund effective period.”418 LPSC 

argues that, in Firstenergy Service Co. v. FERC, 758 F.3d 346 (D.C. Cir. 2014), the D.C. 

Circuit stated that “FERC is required to evaluate a 206 complaint as to existing rates 

specifically because they might have become unjust and unreasonable by intervening 

shifts in circumstances”419 and that the Commission should do the same here and rule that 

the rate in effect at the time the Second Complaint was filed should be analyzed to assess 

possible “intervening shifts in circumstances.”420

RPGI similarly argues that the Commission’s interpretation of section 206 to not 

permit refunds for the Second Complaint proceeding is unsupported. RPGI asserts that 

the Commission’s interpretation sets up a scenario in which the ROE in force on a second 

complaint’s date of filing becomes virtually irrelevant. RPGI contends that a 

complainant would know that, if it filed, the benchmark against which its case would be 

evaluated would not be the ROE in effect on the date the second complaint would be 

filed—which is known—but rather the ROE set by the first proceeding and where it falls 

in the second proceeding’s updated zone of reasonableness, neither of which is known at 

the second proceeding’s outset. RPGI asserts that, thus, after Opinion No. 569, filing a 

second complaint upon the expiration of a first complaint’s refund period represents such 

417 Id. at 21-23.

418 Id. at 24.

419 Id. at 27-28 (citing Firstenergy Service Co. v. FERC, 758 F.3d at 356).

420 Id.
Docket Nos. EL14-12-004 and EL15-45-013 - 108 -

a high risk of a “no-change” outcome as to effectively bar successive complaints, even if 

the data from the second proceeding supports an ROE lower than that set by the first.421

RPGI argues that, if the Commission’s concern is that successive complaints 

require it to make duplicative findings of one ROE’s unlawfulness, then it could 

consolidate proceedings. RPGI further contends that, if the Commission’s concern is the 

effect of successive refund periods on the MISO TOs, the appropriate course of action is 

seeking a statutory change, not adopting a strained statutory interpretation.422

2. Commission Determination

We deny rehearing on this issue. We continue to find, as the Commission did in 

Opinion No. 569, that, for purposes of deciding whether a rate charged by a public utility 

is unjust and unreasonable and determining a new just and reasonable rate “to be 

thereafter observed” pursuant to section 206(a) of the FPA, we must assess whether the 

public utility’s currently effective rate is unjust and unreasonable, not some earlier rate 

that may have been in effect when the complaint was filed but has now been superseded. 

As explained in Opinion No. 569, in the context of successive, or pancaked, complaints 

like those in these proceedings, if the Commission’s analysis in the successive complaint 

analyzed some earlier rate that may have been in effect when the complaint was filed but 

has since been superseded, it would permit the Commission to order refunds for a period 

beyond the 15-month statutory refund period based on a single decision in the preceding 

complaint decision. We find that this would allow the Commission to use a single 

decision as the predicate for issuing refunds beyond the refund period applicable to that 

decision, which would exceed the refund authority granted to the Commission in 

section 206.

CAPs argue that the First Complaint and Second Complaint each challenged the 

base ROE in effect as of the date of filing of each complaint and had separate refund 

periods, and the mere fact that the two separate refund periods exceed 15 months does 

not mean that section 206 is violated. CAPs misinterpret the Commission’s finding in 

Opinion No. 569. In Opinion No. 569, the Commission did not find that the mere fact 

that the First Complaint and Second Complaint proceedings had separate refund periods 

that combined exceed 15 months rendered the Commission unable to issue refunds in the 

Second Complaint proceeding. It would have been possible for the Commission to order 

refunds for the refund periods in both complaint proceedings if the base ROE resulting 

from resolution of the First Complaint proceeding was no longer just and reasonable 

based on the facts and circumstances of the Second Complaint proceeding. However,

complainants did not show that the existing rate reviewed in the Second Complaint 

421 RPGI Rehearing Request at 17-21.

422 Id. at 22-23.
Docket Nos. EL14-12-004 and EL15-45-013 - 109 -

proceeding was unjust and unreasonable under the facts and circumstances of that 

proceeding. 

Both complaints challenged the MISO TOs’ base ROE, and the Commission 

established a new just and reasonable base ROE in the First Complaint proceeding that 

was filed first chronologically. As discussed above, the Commission found that it was 

required to review that new base ROE as the existing rate for purposes of the Second 

Complaint and complainants did not show that this existing rate was unjust and 

unreasonable. The Commission then found that section 206 provides that refunds may be 

ordered in a complaint proceeding only when the Commission grants prospective relief in 

that proceeding because section 206 only permits refunds in proceedings where the 

Commission sets a new rate to be “thereafter observed and in force.”423 As a result, the 

Commission found that it did not have authority under section 206 to order refunds in the 

Second Complaint proceeding because it did not grant prospective relief by establishing a 

new base ROE in that proceeding. The Commission further explained that ordering 

refunds in the Second Complaint proceeding even though it did not grant prospective 

relief in that proceeding would in fact allow its determination in the First Complaint 

proceeding to serve as the predicate for two 15-month refund periods, which is beyond 

the Commission’s authority in section 206. Accordingly, the fact that the First Complaint 

and Second Complaint proceedings had separate refund periods that together exceeded 

15 months did not render the Commission unable to issue refunds in the Second 

Complaint proceeding. Rather, it was the fact that the Commission could not grant 

prospective relief in the Second Complaint proceeding because the complainants did not 

show that the rate that was reviewed in that Second Complaint proceeding was unjust and 

unreasonable. Had the complainants made that showing, the Commission could have 

ordered refunds in the Second Complaint proceeding, regardless of the fact that the 

refund periods in the First Complaint proceeding and Second Complaint proceeding add 

up to more than 15 months. However, that was not the case and consequently we find 

CAPs’ argument on this point unavailing.

CAPs argue that the Commission’s interpretation of the existing rate to be 

analyzed in the Second Complaint proceeding creates a loophole pursuant to which a 

utility could make a tactical section 205 filing after a section 206 filing is signaled or 

underway to undermine section 206’s refund and prospective relief remedies. CAPs 

assert that such a filing could, for example, propose to reduce the utility’s base ROE to a 

level well above the base ROE the initial decision determined was just and reasonable, 

but just within the top end of what the initial decision identifies as the zone of 

presumptively just and reasonable ROEs, such that the utility’s proposed base ROE in the 

section 205 filing would likely be accepted by the Commission and then become the 

currently effective base ROE that the Commission would examine for purposes of acting 

423 Opinion No. 569, 169 FERC ¶ 61,129 at P 568.
Docket Nos. EL14-12-004 and EL15-45-013 - 110 -

on the initial decision. This argument does not persuade us that our interpretation is 

inappropriate. As an initial matter, we note that the presumptively just and reasonable 

ranges applied in this order are limited to our analysis of complaints filed under 

section 206. There is no section 205 filing before us in this proceeding and we are not 

making any determinations regarding whether or how the presumptively just and 

reasonable ranges used in this order would apply in the context of a section 205 filing. 

Moreover, if a utility were to make such a tactical section 205 filing proposing a new 

base ROE while a section 206 proceeding challenging the utility’s base ROE is still 

pending a final Commission decision, then the Commission could consider such a 

section 205 filing in light of the pending section 206 proceeding. “The Commission has 

broad discretion to structure its proceedings so as to resolve a controversy in the way it 

best sees fit,”424 and, in addressing such a section 205 filing, the Commission could 

consider the common issues that would likely be raised by a section 205 filing to change 

the same base ROE that is being challenged in a pending section 206 proceeding. For 

example, in analogous circumstances, the Commission consolidated a rate filing pursuant 

to section 4 of the Natural Gas Act (NGA) with an ongoing complaint proceeding 

pursuant to section 5 of the NGA involving the same rates. There the Commission noted

that “KCC asserts that Southwest Gas’s instant section 4 rate filing is nothing more than 

an attempt to circumvent the ongoing section 5 complaint proceeding”425 and found that 

“the section 4 filing appears as an outgrowth of the section 5 complaint proceeding”426

for which consolidation would “provide the most efficient and effective forum to handle 

issues common to both proceedings.”427 Any section 205 filing like the type suggested 

by CAPs would be considered by the Commission in light of any other proceedings 

424 PJM Transmission Owners, 120 FERC ¶ 61,013, at P 12 (2007). See also 

Ameren Energy Generating Co., 108 FERC ¶ 61,081, at P 23 (2004) (“The courts have 

repeatedly recognized that the Commission has broad discretion in managing its 

proceedings.); Fla. Mun. Power Agency v. FERC, 315 F.3d 362, 366 (D.C. Cir. 2003)

(citing Telecomm. Resellers Assoc. v. FCC, 141 F.3d 1193, 1196 (D.C. Cir. 1998) (stating 

that administrative agencies enjoy broad discretion to manage their own dockets); FPC v.

Transcontinental Gas Pipe Line Corp., 423 U.S. 326, 333 (1976) (stating that agencies 

can determine how best proceed to develop the needed evidence); Richmond Power & 

Light v. FERC, 574 F.2d 610, 624 (D.C. Cir. 1978) (stating that agencies have wide 

leeway in controlling their calendars)).

425 Panhandle Complainants v. Sw. Gas Storage Co., 120 FERC ¶ 61,207, at P 19 

(2007).

426 Id. P 20.

427 Id. P 21.
Docket Nos. EL14-12-004 and EL15-45-013 - 111 -

involving common issues, including section 206 proceedings.

428 We do not believe that 

the Commission’s interpretation of the existing rate to be analyzed in the Second 

Complaint proceeding would somehow allow utilities to make section 205 filings that 

would dictate or otherwise limit the Commission’s ability to appropriately determine just 

and reasonable rates in section 206 proceedings.

LPSC argues that Opinion No. 569’s decision to not order refunds in the 

Second Complaint proceeding is inconsistent with section 206 because section 206 

requires the Commission to determine whether a rate “demanded, observed, charged, or 

collected by any public utility . . . is unjust, unreasonable, unduly discriminatory or 

preferential”429 but MISO TOs have never “demanded, observed, charged, or collected” 

the base ROE that was established in the First Complaint proceeding from their 

customers, but that is the rate that the Commission analyzed in making its determination 

in the Second Complaint proceeding. We find this argument unavailing. While at the 

time the Second Complaint was filed, the new just and reasonable rate established in the

First Complaint proceeding had not yet been demanded, observed, charged or collected, 

the Commission’s decision in the First Complaint proceeding made the new base ROE 

established in that proceeding the rate that was demanded, observed, charged and 

collected for the First Complaint proceeding’s refund period. Therefore, when the 

Commission analyzed the new just and reasonable rate established in the First Complaint 

proceeding in making its determination in the Second Complaint proceeding, that rate 

was the one demanded, observed, charged and collected for the First Complaint

proceeding’s refund period, which is consistent with the language of section 206. The 

fact that the Commission acted on the successive complaints in the First Complaint and 

Second Complaint proceedings in a single order instead of in two separate sequential 

ones does not render the new base ROE established in the First Complaint proceeding a 

fiction that is not actually applied by the MISO TOs. Rather, the Commission’s decision 

in the First Complaint proceeding made the rate established there the rate “demanded, 

observed, charged, or collected” for purposes of the First Complaint proceeding and the 

Commission then reviewed that rate as the existing rate in making its decision on the 

Second Complaint which followed the First Complaint. We are not persuaded that this 

analysis is inconsistent with section 206.

428 See, e.g., Mobil Oil Explor. & Prod. SE Inc. v. United Distrib. Cos., 

498 U.S. 211, 230 (1991) (“An agency enjoys broad discretion in determining how 

best to handle related, yet discrete, issues in terms of procedures.”); Nadar v. FCC, 

520 F.2d 182, 195 (D.C. Cir. 1975) (“[T]his court has upheld in the strongest terms 

the discretion of regulatory agencies to control the disposition of their caseload.”).

429 LPSC Rehearing Request at 19 (citing 16 U.S.C. § 824e).
Docket Nos. EL14-12-004 and EL15-45-013 - 112 -

CAPs and LPSC argue that the Commission is not required to act on the First 

Complaint proceeding first and should have acted on the Second Complaint proceeding 

first. They contend that there is no requirement that the Commission resolve section 206 

proceedings chronologically. As an initial matter, we note that, “The Commission has 

broad discretion to structure its proceedings so as to resolve a controversy in the way it 

best sees fit.”430 The Commission “is generally master of its own calendar and 

procedures.”431 In these proceedings, we find that it is appropriate to act on the First 

Complaint proceeding first and then the Second Complaint proceeding. The Commission 

permitted the Second Complaint because it was “was based on financial data from a 

different time period, and produced a different proxy group, than the DCF analysis set 

forth in the [First Complaint].”432 In that order, the Commission explained that it “has

allowed multiple complaints regarding the same ROE, where the subsequent complaints 

are based on ‘new, more current data.’”433 Accordingly, the premise for permitting the 

Second Complaint was that it was based on different, more current data, than the data in 

the First Complaint proceeding. We find that it is appropriate to address the First 

Complaint first because the Commission must first determine what the final data and 

results from the First Complaint are before determining whether the Second Complaint 

can be granted based on how the Second Complaint’s data have changed as compared to 

the data in the First Complaint. Moreover, we find that it would not be appropriate to 

follow the approach suggested by CAPs and LPSC because it could force the 

Commission to delay action on a preceding complaint that is likely closer to resolution 

until it has first acted on a successive complaint because that successive complaint is 

430 PJM Transmission Owners, 120 FERC ¶ 61,013 at P 12.

431 Stowers Oil and Gas Co., 27 FERC ¶ 61,001 (1984); see also Ameren Energy 

Generating Co., 108 FERC ¶ 61,081 at P 23 (“The courts have repeatedly recognized that 

the Commission has broad discretion in managing its proceedings.); Fla. Mun. Power 

Agency v. FERC, 315 F.3d 362, 366 (D.C. Cir. 2003) (citing Telecomm. Resellers Assoc. 

v. FCC, 141 F.3d 1193, 1196 (D.C. Cir. 1998) (stating that administrative agencies enjoy 

broad discretion to manage their own dockets); FPC v. Transcontinental Gas Pipe Line 

Corp., 423 U.S. 326, 333 (1976) (stating that agencies can determine how best proceed to 

develop the needed evidence); Richmond Power & Light v. FERC, 574 F.2d 610, 624 

(D.C. Cir. 1978) (stating that agencies have wide leeway in controlling their calendars)).

432 MISO II Rehearing Order, 156 FERC ¶ 61,061 at P 34.

433 Id. P 33 (quoting Consumer Advocate Div. of the Pub. Serv. Of West Virginia v. 

Allegheny Generating Co., 67 FERC ¶ 61,288, order on reh’g, 68 FERC ¶ 61,207, 

at 61,998 (1994)).
Docket Nos. EL14-12-004 and EL15-45-013 - 113 -

“aligned with the most recent and accurate evidence.”434 This could further delay 

Commission action on section 206 complaint proceedings that are often already very 

protracted. In addition, CAPs’ and LPSC’s approach would not always benefit ratepayers 

over utilities. For example, it is possible that, in resolving a successive complaint first, 

ratepayers would be subject a higher rate during such a complaint’s refund period than 

they would have been subject to if the preceding complaint resulted in a prospectively 

effective rate that overlapped with the successive complaint’s refund period which was 

lower than the rate resulting from the successive complaint. Accordingly, we find that it 

is appropriate to address the complaints in these proceedings in chronological order by 

deciding the First Complaint before deciding the Second Complaint. 

RPGI argues that, if the Commission’s concern in deciding to not order refunds in 

the Second Complaint proceeding was that it would be required to make duplicative 

findings of one ROE’s unlawfulness, then it could consolidate the First Complaint and 

Second Complaint proceedings. We find this argument unavailing. The Commission has 

explained that “[i]n general, the Commission consolidates matters only if . . . 

consolidation will ultimately result in greater administrative efficiency.”435 However, 

these proceedings have progressed through hearing, initial decision and, in the case of the 

First Complaint proceeding, Commission decision, separately with separate records. At 

this point there would be no greater administrative efficiency in consolidating these 

two proceedings because they are already close to final resolution. Moreover, RPGI does 

not explain how consolidation would eliminate the need to identify the existing rate to be 

analyzed in the Second Complaint proceeding and then determine whether refunds could 

be issued based on the Commission’s analysis of that rate under section 206. Thus, RPGI 

has not explained how consolidation would change the analysis underlying our decision 

to not order refunds in the Second Complaint proceeding.

RPGI also contends that, if the Commission’s concern in making its decision in 

Second Complaint proceeding is the effect of successive refund periods on the MISO 

TOs, the appropriate course of action is seeking a statutory change, not adopting a 

strained statutory interpretation. However, here we must determine how to act in these

section 206 complaint proceedings and in order to do so we must determine how to 

interpret and apply section 206 to these proceedings. The issue before us is not whether 

it would be appropriate or preferable to seek a statutory change. We must apply the 

statute as it exists to these proceedings. The fact that RPGI would prefer that the 

Commission adopt a different interpretation does not mean that the Commission had the 

option of not applying section 206 as it exists to these proceedings. For the reasons 

discussed in this order, we find that the application of section 206 to the Second 

434 See CAPs Rehearing Request at 59.

435 See, e.g., Startrans IO, LLC, 122 FERC ¶ 61,253, at P 25 (2008).
Docket Nos. EL14-12-004 and EL15-45-013 - 114 -

Complaint proceeding requires us to dismiss the complaint and not order refunds in that 

proceeding. Accordingly, we find that RPGI’s argument on this point does not persuade 

us to grant rehearing of our decision to not order refunds in the Second Complaint 

proceeding.

XIX. Conclusion

For the reasons discussed above, we grant in part and deny in part the requests 

for rehearing of Opinion No. 569. In particular, we require the MISO TOs to adopt a 

10.02% base ROE effective September 28, 2016, the date Opinion No. 551 initially 

required the MISO TOs to adopt a 10.32% ROE. As discussed above, we therefore 

require the MISO TOs to provide refunds based on that 10.02% base ROE, with interest,

for the First Complaint proceeding’s 15-month refund period from November 12, 2013 

through February 11, 2015, and for the period from September 28, 2016 to the date of 

this order. Further, as discussed above we are denying rehearing of the Commission’s 

dismissal of the Second Complaint in Opinion No. 569 and its finding that no refunds 

will be ordered in the Second Complaint proceeding. 

The Commission orders:

(A) Rehearing of Opinion No. 569 is granted in part and denied in part, as 

discussed in the body of this order.

(B) MISO TOs’ base ROE is set at 10.02% with a total or maximum ROE 

including incentives not to exceed 12.62%, effective as of September 28, 2016, as 

discussed in the body of this order.

(C) MISO and MISO TOs are directed to provide refunds, with interest 

calculated pursuant to 18 C.F.R. § 35.19a (2019), by December 23, 2020, for the 

15-month refund period for the First Complaint from November 12, 2013 through 

February 11, 2015 and for the period from September 28, 2016 to the date of this order, 

as discussed in the body of this order.
Docket Nos. EL14-12-004 and EL15-45-013 - 115 -

(D) MISO and MISO TOs are directed to file a refund report a

detailing the principal amounts plus interest paid to each of their customers by 

December 23, 2020.

By the Commission. Commissioner Glick is concurring in part and dissenting in part 

 in a separate statement attached.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.
Docket Nos. EL14-12-004 and EL15-45-013 - 116 -

Appendix I: Risk Premium Results

Risk Premium Model Results

Current Equity Risk Premium MISO I MISO II

Average Yield Over Study Period 6.10% 6.02%

Baa Utility Bond Yield 4.65% 5.41%

Change in Bond Yield -1.45% -0.61%

Risk Premium/Interest Rate Relationship -0.7006 -0.6866

Adjustment to Average Risk 1.02% 0.42%

Average Risk Premium over Study Period 4.43% 4.46%

Adjusted Risk Premium 5.45% 4.88%

Implied Cost of Equity

Baa Utility Bond Yield 4.65% 5.41%

Adjusted Equity Risk Premium 5.45% 4.88%

Risk Premium Cost of Equity 10.10% 10.29%
Docket Nos. EL14-12-004 and EL15-45-013 - 117 -

Risk Premium Model Inputs

Docket 

Number

Utility Type Date Base ROE Baa 

Bond 

Yield

Implied 

Risk 

Premium

ER05-

515

BG&E Settlement -

Uncontested

Feb-06 10.80 6.07 4.73

ER05-

515

BG&E Settlement -

Uncontested

Feb-06 11.30 6.07 5.23

ER05-

925

Westar Settlement -

Uncontested

Jun-06 10.80 6.36 4.44

ER07-

284

SDG&E Settlement -

Uncontested

Feb-07 11.35 6.14 5.21

ER06-

787

Idaho Pwr Settlement -

Uncontested

May-07 10.70 6.15 4.55

ER06-

1320

Wisconsin Elec. Pwr Settlement -

Uncontested

May-07 11.00 6.15 4.85

ER07-

583

Commonwealth 

Edison

Settlement -

Uncontested

Sep-07 11.00 6.41 4.59

ER06-

1549

Duquesne Settlement -

Uncontested

Sep-07 10.90 6.41 4.49

ER08-92 VEPCO Order Oct-07 10.90 6.43 4.47

ER08-

374

Atlantic Path Order Nov-07 10.65 6.44 4.21

ER08-

413

Startrans IO Order Nov-07 10.65 6.44 4.21

ER08-

396

Westar Declaratory 

order.

Nov-07 10.80 6.44 4.36

ER08-

686

Pepco Holdings Order Jan-08 11.30 6.41 4.89

ER07-

562

Allegheny Settlement Feb-08 11.20 6.42 4.78
Docket Nos. EL14-12-004 and EL15-45-013 - 118 -

ER07-

1142

Ariz. Pub. Service Settlement -

uncontested

Apr-08 10.75 6.54 4.21

ER08-

1207

VEPCO Order May-08 10.90 6.62 4.28

ER08-

1402

Duqesne Order Jun-08 10.90 6.69 4.21

ER08-

1423

Pepco Holdings Order Jun-08 10.80 6.69 4.11

ER08-

1584

Black Hlls Settlement -

Uncontested

Jun-08 10.80 6.69 4.11

ER09-

35/36

Tallgrass / Prairie 

Wind

Commission 

Order

Jul-08 10.80 6.80 4.00

ER09-

249

Public Service Elec. 

& Gas

Accepted by 

FERC

Aug-08 11.18 6.86 4.32

ER09-

548

ITC Great Plains Settlement -

Uncontested

Sep-08 10.66 6.94 3.72

ER09-75 Pioneer Order Sep-08 10.54 6.94 3.60

ER09-

187

SoCal Edison Order on Paper 

Hearing

Sep-08 10.04 6.94 3.10

ER08-

375

SoCal Edison Order on Paper 

Hearing

Nov-08 10.55 7.60 2.95

ER09-

745

Baltimore Gas & 

Elec.

Accepted by 

FERC

Dec-08 11.30 7.80 3.50

ER07-

1069

AEP - SPP Zone Settlement -

Uncontested

Jan-09 10.70 7.95 2.75

ER09-

681

Green Power 

Express

Commission 

Order

Jan-09 10.78 7.95 2.83

ER08-

281

Oklahoma Gas & 

Elec. 

Settlement -

Uncontested

Apr-09 10.60 8.13 2.47

ER08-

1457

PPL Elec. Utilities 

Corp.

Settlement -

Uncontested

Apr-09 11.00 8.13 2.87
Docket Nos. EL14-12-004 and EL15-45-013 - 119 -

ER08-

1457

PPL Elec. Utilities 

Corp.

Settlement -

Uncontested

Apr-09 11.14 8.13 3.01

ER08-

1588

Kentucky Utilities 

Co.

Settlement -

Uncontested

Apr-09 11.00 8.13 2.87

ER08-

552

Niagara Mohawk Settlement -

Uncontested

Jul-09 11.00 7.62 3.38

ER09-

628

National Grid 

Generation LLC

Settlement -

Uncontested

Aug-09 10.75 7.39 3.36

ER08-

313

Southwestern Public 

Service Co. 

Settlement -

Uncontested

Aug-09 10.77 7.39 3.38

ER10-

160

SoCal Edison Order on Paper 

Hearing

Sep-09 10.33 7.08 3.25

ER08-

1329

AEP - PJM Zone Settlement -

Uncontested

Mar-10 10.99 6.20 4.79

ER10-

230

Kansas City Power 

& Light Co.

Settlement -

Uncontested

Aug-10 10.60 6.05 4.56

ER10-

355

AEP Transcos - PJM Settlement -

Contested

Aug-10 10.99 6.05 4.95

ER10-

355

AEP Transcos - SPP Settlement -

Contested

Aug-10 10.70 6.05 4.66

ER11-

1952

SoCal Edison Order Sep-10 10.30 5.93 4.37

EL11-13 Atlantic Grid 

Operations

Declaratory 

Order

Oct-10 10.09 5.84 4.26

ER11-

2895

Duke Energy 

Carolinas

Settlement -

Initial Filing

Oct-10 10.20 5.84 4.37

ER11-

2377

Northern Pass Tx Order Nov-10 10.40 5.79 4.62

ER12-

2300

PSCo Order Nov-10 10.25 5.79 4.47
Docket Nos. EL14-12-004 and EL15-45-013 - 120 -

ER10-

1377

Northern States 

Power Co. (MN)

Settlement -

Uncontested

Mar-11 10.40 5.94 4.46

ER10-

992

Northern States 

Power Co.

Settlement -

Uncontested

Apr-11 10.20 6.00 4.20

ER10-

516

South Carolina 

Electric and Gas

Settlement -

Uncontested

Apr-11 10.55 6.00 4.55

ER11-

4069

RITELine Order May-11 9.93 5.98 3.95

ER12-

296

PSEG Order Aug-11 11.18 5.71 5.47

ER08-

386

PATH Settlement -

uncontested

Sep-11 10.40 5.57 4.83

ER11-

2560

Entergy Arkansas, 

Inc.

Settlement -

Uncontested

Dec-11 10.20 5.21 4.99

ER11-

2853

PSCo Settlement -

Uncontested

Mar-12 10.10 5.08 5.03

ER11-

2853

PSCo Settlement -

Uncontested

Mar-12 10.40 5.08 5.33

ER12-

1378

Cleco Settlement -

Uncontested

Nov-12 10.50 4.74 5.77

ER12-

2554

Transource Missouri Settlement -

Uncontested

Jan-13 9.80 4.65 5.16

ER12-

778

Puget Sound Energy Settlement -

Uncontested

Jan-13 9.80 4.65 5.16

ER12-

778

Puget Sound Energy Settlement -

Uncontested

Jan-13 10.30 4.65 5.66

ER11-

3643

PacifiCorp Inc. Settlement -

Uncontested

Feb-13 9.80 4.62 5.18

ER12-

1650

Maine Public 

Service Co.

Settlement -

Uncontested

Feb-13 9.75 4.62 5.13
Docket Nos. EL14-12-004 and EL15-45-013 - 121 -

ER11-

3697

SoCal Edison Settlement -

Uncontested

Jul-13 9.30 4.82 4.49

ER13-

941

San Diego Gas and 

Electric

Settlement -

Uncontested

Jan-14 9.55 5.22 4.33

ER12-

1589

PSCo Settlement Aug-14 9.72 4.76 4.96

ER12-91 Duke Energy Ohio Settlement -

Uncontested

Sep-14 10.88 4.73 6.15

EL12-

101

Niagara Mohawk Settlement -

Uncontested

Jan-15 9.80 4.66 5.14

ER13-

685

Public Service 

Company New 

Mexico

Settlement -

Uncontested

Feb-15 10.00 4.62 5.38

ER14-

1661

MidAmerican 

Central California

Settlement -

Uncontested

Mar-15 9.80 4.58 5.22

ER15-

303

American 

Transmission 

Systems, Inc.

Settlement -

Uncontested

May-15 9.88 4.58 5.30

ER15-

303

American 

Transmission 

Systems, Inc.

Settlement -

Uncontested

May-15 10.56 4.58 5.98

EL14-93 Westar Energy Settlement -

Uncontested

May-15 9.80 4.58 5.22

EL12-39 Duke Energy 

Florida

Settlement -

Uncontested

Jun-15 10.00 4.65 5.35

ER14-

192

SPS Settlement -

Uncontested

Jul-15 10.00 4.79 5.21

ER13-

2428

Kentucky Utilities Settlement -

Uncontested

Jul-15 10.25 4.79 5.46

ER14-

2751

XEST Settlement -

Uncontested

Sep-15 10.20 5.07 5.13
Docket Nos. EL14-12-004 and EL15-45-013 - 122 -

ER15-

572

New York Transco 

LLC

Settlement -

Uncontested

Oct-15 9.50 5.23 4.27

ER15-

2237

Kanstar 

Transmission LLC

Settlement -

Uncontested

Dec-15 9.80 5.41 4.39

ER15-

2114

Transource West 

Virginia

Settlement -

Uncontested

Dec-15 10.00 5.41 4.59

*Highlighted cases only included in MISO II
Docket Nos. EL14-12-004 and EL15-45-013 - 123 -

Cases removed from the Risk Premium Model

As noted above, the Commission refined the Risk Premium Model by, among other 

things, removing some cases from the analysis. A full list of those cases, along with the 

reason for their removal, is below:

Cases removed because the utility was merely adopting an existing ROE, such as the 

MISO ROE, without consideration of whether that ROE would be determined to be just 

and reasonable under fresh analysis:

• EL08-77, Central Maine Power Co.

• ER08-1548, Northeast Utilities Service Co.

• ER09-14, NSTAR Elec. Co.

• ER07-694, New England Power Co.

• EL10-80, Ameren

• ER12-1593, DATC Midwest Holdings

• ER12-2681, ITC Holdings

Cases removed because the ROE was clearly not under consideration:

• ER08-10, Pepco Holdings, Inc.

• ER11-3352, PJM and Public Service Enterprise Group

Cases removed for being duplicative:

• EL13-86, Public Service Co. of Colorado

Cases removed because the ROE was set for a definite future date, and the Commission 

could not have evaluated a risk premium for a future date:

• ER08-1457, PPL Elec. Utilities Corp.436

Cases removed because the test period predates 2006:

• EL05-19, Golden Spread Electric Cooperative, Inc.

• ER05-154, Bangor Hydro Electric Company

436 Only the 11.18% was removed from consideration. The other two resulting 

ROEs, because they were not solely applied to a future period, are still included in the 

analysis.
Docket Nos. EL14-12-004 and EL15-45-013 - 124 -

Appendix II: DCF Results

MISO I DCF Results

Unadjusted 

Dividend 

Yield

ShortTermLongTerm

Dividend 

Yield 

Adjustment

Adjusted 

Dividend 

Yield

DCF 

Results

Line Company Yahoo! 

Finance GDP Composite Growth One-Step

1 Consolidated 

Edison, Inc. 4.14% 2.38% 4.39% 2.78% 101.19% 4.19% 6.97%

2

Public Service 

Enterprise 

Group

3.74% 2.95% 4.39% 3.24% 101.48% 3.80% 7.03%

3 PPL 

Corporation 4.39% 2.23% 4.39% 2.66% 101.12% 4.44% 7.10%

4 CenterPoint 

Energy, Inc. 4.69% 1.91% 4.39% 2.41% 100.96% 4.73% 7.14%

5 IDACORP Inc. 3.04% 4.00% 4.39% 4.08% 102.00% 3.10% 7.18%

6 OGE Energy 

Corp. 3.09% 4.00% 4.39% 4.08% 102.00% 3.15% 7.23%

7 Westar Energy 

Inc. 3.74% 3.40% 4.39% 3.60% 101.70% 3.80% 7.40%

8

Portland 

General 

Electric Co.

3.11% 4.70% 4.39% 4.64% 102.35% 3.18% 7.82%

9 DTE Energy 

Co. 3.38% 4.51% 4.39% 4.49% 102.26% 3.46% 7.94%

10 PG&E Corp. 3.39% 4.71% 4.39% 4.65% 102.36% 3.47% 8.12%

11 The Southern 

Co. 4.62% 3.32% 4.39% 3.53% 101.66% 4.70% 8.23%

12 SCANA Corp. 3.91% 4.30% 4.39% 4.32% 102.15% 3.99% 8.31%

13 Xcel Energy 

Inc. 3.68% 4.69% 4.39% 4.63% 102.35% 3.77% 8.40%

14 NorthWestern 

Corp. 3.60% 5.00% 4.39% 4.88% 102.50% 3.69% 8.57%

15 Duke Energy 

Corp. 4.05% 4.49% 4.39% 4.47% 102.25% 4.14% 8.61%

16

American 

Electric Power 

Co. Inc.

3.68% 5.08% 4.39% 4.94% 102.54% 3.77% 8.72%

17 Vectren Corp. 3.46% 5.50% 4.39% 5.28% 102.75% 3.56% 8.83%

18 Alliant Energy 

Corp. 3.50% 5.45% 4.39% 5.24% 102.73% 3.60% 8.83%
Docket Nos. EL14-12-004 and EL15-45-013 - 125 -

19 Avista Corp. 3.93% 5.00% 4.39% 4.88% 102.50% 4.03% 8.91%

20 NextEra 

Energy, Inc. 2.94% 6.27% 4.39% 5.89% 103.14% 3.03% 8.93%

21 Pinnacle West 

Capital Corp. 3.74% 5.30% 4.39% 5.12% 102.65% 3.84% 8.96%

22 Empire District 

Electric Co. 4.12% 5.00% 4.39% 4.88% 102.50% 4.22% 9.10%

23 Dominion 

Resources, Inc. 3.58% 5.89% 4.39% 5.59% 102.95% 3.69% 9.28%

24

Eversource 

Energy 

(Northeast 

Utilities)

3.27% 6.60% 4.39% 6.16% 103.30% 3.38% 9.54%

25 Ameren Corp. 3.91% 5.85% 4.39% 5.56% 102.93% 4.02% 9.58%

26 El Paso 

Electric Co. 3.01% 7.00% 4.39% 6.48% 103.50% 3.12% 9.59%

27 ALLETE Inc. 3.85% 6.00% 4.39% 5.68% 103.00% 3.97% 9.64%

28 CMS Energy 

Corp. 3.35% 6.73% 4.39% 6.26% 103.37% 3.46% 9.72%

29 Great Plains 

Energy, Inc. 3.65% 6.37% 4.39% 5.97% 103.19% 3.77% 9.74%

30 Otter Tail 

Corp. 4.06% 6.00% 4.39% 5.68% 103.00% 4.18% 9.86%

31 Black Hills 

Corp. 3.28% 7.00% 4.39% 6.48% 103.50% 3.39% 9.87%

32 Sempra Energy 2.59% 7.93% 4.39% 7.22% 103.97% 2.69% 9.91%

33 Exelon 3.64% 6.81% 4.39% 6.33% 103.41% 3.76% 10.09%

34 PNM 

Resources 2.85% 8.56% 4.39% 7.73% 104.28% 2.97% 10.70%

35 UIL Holdings 3.59% 7.79% 4.39% 7.11% 103.90% 3.73% 10.84%

36 TECO Energy 4.61% 7.68% 4.39% 7.02% 103.84% 4.79% 11.81%

37 ITC Holdings 

Corp. 1.76% 11.66% 4.39% 10.21% 105.83% 1.86% 12.07%

38 Unitil Corp. Merger

39 MGE Energy Merger

40 Edison 

International 2.66% 0.37% 4.39% 1.17% 100.19% 2.66% 4.38%

41 FirstEnergy 

Corp. 3.97% -0.64% 4.39% 0.37% 99.68% 3.96% 5.01%

42 Entergy Corp. 4.21% -0.48% 4.39% 0.49% 99.76% 4.20% 5.36%

Moodys Baa Utility Bonds 4.65%

Low With Outlier Test 6.97%

High 12.07%
Docket Nos. EL14-12-004 and EL15-45-013 - 126 -

Midpoint 9.52%

Low-End Outlier Test 6.47%

High-End Outlier Test 17.67%

Mean 8.93%
Docket Nos. EL14-12-004 and EL15-45-013 - 127 -

MISO II DCF Results

ShortTermLongTerm

Dividend 

Yield 

Adjustment

Line Company

Unadjusted 

Dividend 

Yield

Yahoo! 

Finance GDP Composite One-Step

Adjusted 

Dividend 

Yield

DCF 

Results

1 Consol. Edison, Inc. 4.08% 2.95% 4.35% 3.23% 101.48% 4.14% 7.37%

2 Westar Energy Inc. 3.70% 3.50% 4.35% 3.67% 101.75% 3.76% 7.43%

3

Portland General 

Electric Co. 3.33% 4.11% 4.35% 4.16% 102.06% 3.40% 7.56%

4 Vectren Corp. 3.10% 5.00% 4.35% 4.87% 102.50% 3.18% 8.05%

5

Amer. Elec. Power 

Co., Inc. 3.84% 4.47% 4.35% 4.45% 102.24% 3.93% 8.37%

6 Xcel Energy, Inc. 3.68% 4.68% 4.35% 4.61% 102.34% 3.77% 8.38%

7 SCANA Corp. 3.90% 4.45% 4.35% 4.43% 102.23% 3.99% 8.42%

8 PPL Corp. 4.67% 3.74% 4.35% 3.86% 101.87% 4.76% 8.62%

9 Great Plains Energy 3.83% 4.80% 4.35% 4.71% 102.40% 3.92% 8.63%

10 DTE Energy Co. 3.75% 5.00% 4.35% 4.87% 102.50% 3.84% 8.71%

11

Pinnacle West Capital 

Corp. 3.92% 4.95% 4.35% 4.83% 102.48% 4.02% 8.85%

12 Avista Corp. 3.98% 5.00% 4.35% 4.87% 102.50% 4.08% 8.95%

13

Dominion Resources, 

Inc. 3.72% 5.49% 4.35% 5.26% 102.75% 3.82% 9.08%

14 PG&E Corp. 3.50% 5.80% 4.35% 5.51% 102.90% 3.60% 9.11%

15 Alliant Energy 3.72% 5.55% 4.35% 5.31% 102.78% 3.82% 9.13%

16 ALLETE, Inc. 4.16% 5.00% 4.35% 4.87% 102.50% 4.26% 9.13%

17 Eversource Energy 3.39% 6.57% 4.35% 6.13% 103.29% 3.50% 9.63%

18 CMS Energy Corp. 3.36% 6.72% 4.35% 6.25% 103.36% 3.47% 9.72%

19 Ameren Corporation 3.96% 6.00% 4.35% 5.67% 103.00% 4.08% 9.75%

20 El Paso Elec. Co. 3.20% 7.00% 4.35% 6.47% 103.50% 3.31% 9.78%

21 Otter Tail Corp. 4.05% 6.00% 4.35% 5.67% 103.00% 4.17% 9.84%

22 NorthWestern Corp. 3.61% 6.81% 4.35% 6.32% 103.41% 3.73% 10.05%

23

WEC Energy Group, 

Inc. 3.58% 7.55% 4.35% 6.91% 103.78% 3.72% 10.63%

24 Sempra Energy 2.84% 9.35% 4.35% 8.35% 104.68% 2.97% 11.32%

25 PNM Resources, Inc. 2.92% 9.30% 4.35% 8.31% 104.65% 3.06% 11.37%

27 IDACORP, Inc. 3.03% 4.00% 4.35% 4.07% 102.00% 3.09% 7.16%

26

CenterPoint Energy, 

Inc. 5.47% 0.40% 4.35% 1.19% 100.20% 5.48% 6.67%

28 OGE Energy Corp. 3.81% 2.17% 4.35% 2.61% 101.09% 3.85% 6.46%

29

Public Service 

Enterprise Group 3.85% 1.38% 4.35% 1.97% 100.69% 3.88% 6.28%
Docket Nos. EL14-12-004 and EL15-45-013 - 128 -

30 FirstEnergy Corp. 4.51% -0.92% 4.35% 0.13% 99.54% 4.49% 5.38%

31 Edison International 2.85% -0.51% 4.35% 0.46% 99.75% 2.84% 3.92%

32 Black Hills Corp. Merger

33 Cleco Corp. Merger

34 Duke Enegy Corp. Merger

35 Empire District Merger

36 Exelon Corp. Merger

37 Hawaii Elec. Ind. Inc. Merger

38 ITC Holdings Merger

39 NextEra Energy Inc. Merger

40 Pepco Holdings Inc. Merger

41 Souther Co. Merger

42 TECO Energy Inc. Merger

43 UIL Energy Merger

Moodys Baa Utility Bonds 5.41%

Low With Outlier Test 7.37%

High 11.37%

Midpoint 9.37%

High-End Outlier Test 17.43%

Low-End Outlier Test 7.18%
Docket Nos. EL14-12-004 and EL15-45-013 - 129 -

Appendix III: Overall Results

MISO I Zone of 

Reasonableness Lower Third Middle Third Upper Third

Lower Upper Lower Upper Lower Upper Lower Upper

DCF (1) 6.97% 12.07% 6.97% 8.67% 8.67% 10.37% 10.37% 12.07%

CAPM (2) 7.80% 13.09% 7.80% 9.56% 9.56% 11.33% 11.33% 13.09%

Risk Premium 

(3) 7.50% 12.70% 7.50% 9.23% 9.23% 10.97% 10.97% 12.70%

Average 7.42% 12.62% 7.42% 9.16% 9.16% 10.89% 10.89% 12.62%

Midpoint 10.02%

Average Width of DCF and CAPM Zones of Reasonableness: 5.195

Risk Premium ROE: 10.10%

Risk Premium Imputed Zone of Reasonableness: 7.50% to 12.70%

MISO II Zone of 

Reasonableness Lower Third Middle Third Upper Third

Lower Upper Lower Upper Lower Upper Lower Upper

DCF (4) 7.37% 11.37% 7.37% 8.70% 8.70% 10.04% 10.04% 11.37%

CAPM (5) 8.35% 12.63% 8.35% 9.78% 9.78% 11.20% 11.20% 12.63%

Risk Premium 

(6) 8.22% 12.36% 8.22% 9.60% 9.60% 10.98% 10.98% 12.36%

Average 7.98% 12.12% 7.98% 9.36% 9.36% 10.74% 10.74% 12.12%

Midpoint 10.05%

Average Width of DCF and CAPM Zones of Reasonableness: 4.14

Risk Premium ROE: 10.29%

Risk Premium Imputed Zone of Reasonableness: 8.23% to 12.37%

(1) See Appendix II

(2) See Trial Staff Initial Br. (I), Attachment A to App. 2 at 6.

(3) See Appendix I

(4) See Appendix II

(5) See Trial Staff Initial Br. (II), Attachment A to App. 2 at 6.

(6) See Appendix I
UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Association of Businesses Advocating Tariff Equity 

Coalition of MISO Transmission Customers

Illinois Industrial Energy Consumers 

Indiana Industrial Energy Consumers, Inc.

Minnesota Large Industrial Group

Wisconsin Industrial Energy Group

 v.

Midcontinent Independent System Operator, Inc. 

ALLETE, Inc.

Ameren Illinois Company 

Ameren Missouri

Ameren Transmission Company of Illinois

American Transmission Company LLC

Cleco Power LLC

Duke Energy Business Services, LLC

Entergy Arkansas, Inc.

Entergy Gulf States Louisiana, LLC

Entergy Louisiana, LLC

Entergy Mississippi, Inc.

Entergy New Orleans, Inc.

Entergy Texas, Inc.

Indianapolis Power & Light Company

International Transmission Company

ITC Midwest LLC

Michigan Electric Transmission Company, LLC 

MidAmerican Energy Company

Montana-Dakota Utilities Co.

Northern Indiana Public Service Company

Northern States Power Company-Minnesota

Northern States Power Company-Wisconsin

Otter Tail Power Company

Southern Indiana Gas & Electric Company

Docket No. EL14-12-004
Docket Nos. EL14-12-004 and EL15-45-001 - 2 -

Arkansas Electric Cooperative Corporation

Mississippi Delta Energy Agency

Clarksdale Public Utilities Commission

Public Service Commission of Yazoo City

Hoosier Energy Rural Electric Cooperative, Inc.

 v.

ALLETE, Inc. 

Ameren Illinois Company 

Ameren Missouri

Ameren Transmission Company of Illinois

American Transmission Company LLC

Cleco Power LLC

Duke Energy Business Services, LLC

Entergy Arkansas, Inc.

Entergy Gulf States Louisiana, LLC

Entergy Louisiana, LLC

Entergy Mississippi, Inc.

Entergy New Orleans, Inc.

Entergy Texas, Inc.

Indianapolis Power & Light Company

International Transmission Company

ITC Midwest LLC

Michigan Electric Transmission Company, LLC 

MidAmerican Energy Company

Montana-Dakota Utilities Co.

Northern Indiana Public Service Company

Northern States Power Company-Minnesota

Northern States Power Company-Wisconsin

Otter Tail Power Company

Southern Indiana Gas & Electric Company

Docket No. EL15-45-001

(Issued May 21, 2020)

GLICK, Commissioner, concurring in part and dissenting in part: 

Today’s order is yet another twist in the Commission’s decade-long effort to adapt 

its methodology for setting public utilities’ return on equity (ROE) to the low-interest rate 

conditions that have prevailed since the late 2000s. In that time, the Commission has 

proposed multiple different ways of dealing with the fact that its long-standing ROE 

methodology produces cost-of-equity estimates well below the ROEs it generally 

permitted public utilities to collect in the years before the Great Recession. The 
Docket Nos. EL14-12-004 and EL15-45-001 - 3 -

Commission’s most recent attempt to address this issue, Opinion No. 569,1 was far from 

perfect. Nevertheless, I supported it because it represented a reasonable compromise that 

I hoped would bring some much-needed certainty and predictability to the Commission’s 

approach to setting public utilities’ ROEs. 

So much for that. Today, we are once again changing course and revamping our 

ROE methodology. And, in so doing, we are sacrificing whatever certainty Opinion No. 

569 might have provided. 

In addition, I am particularly troubled that the Commission is portraying its 

change of heart as a dispassionate assessment of various technical questions—the 

comparative merits of one financial model, the right source of data for another, or the 

appropriate application of various assumptions. It is hard for me to believe that anyone 

buys that this latest twist is a genuine reassessment of those technical minutiae or that 

those details are what led Chairman Chatterjee to express his eagerness to consider 

rehearing requests at the December 2019 Open Meeting, before those requests were even 

filed. Instead, it appears that the Commission again has chosen a path directed by the 

results, in this case the perceived need to award a higher ROE, rather than the law and the 

facts. 

In fairness, it may be that the methodology established in Opinion No. 569 would 

yield ROEs that are too low. And it may also be that the ROE established in this 

proceeding—10.02 percent—is a just and reasonable number. But, even so, the 

Commission must be transparent about the factors driving its decisionmaking process. If 

we think the ROEs set by the Commission’s methodology are too low—or, for that 

matter, too high—we ought to say so and explain our reasoning, rather than pretending to 

be concerned only with the technical details of our models, data, and assumptions. 

Accordingly, I dissent in part because I do not believe that today’s order adequately 

justifies several of the changes it adopts, even if the end result is an appropriate number.

Finally, today’s order affirms the one aspect of Opinion No. 569 that merited a 

grant of rehearing. Opinion No. 569 declined to order refunds for a period in which 

everyone agrees customers paid an unjust and unreasonable rate. I continue to believe 

that decision was an abdication of our responsibility to protect consumers. As a result, I 

also dissent from the portion of today’s order that affirms that decision.

* * *

1 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., Opinion No. 569, 169 FERC ¶ 61,129 (2019).
Docket Nos. EL14-12-004 and EL15-45-001 - 4 -

I. The Commission Must Stop the Endless Fiddling with Its ROE Methodology

Between 2011 and 2015, various entities representing customers’ interests filed a 

series of complaints under section 206 of the Federal Power Act2 (FPA) arguing that the 

base ROE available to transmission owners in ISO New England, Inc. and the

Midcontinent Independent System Operator (MISO) was unjust and unreasonable. In 

Opinion No. 531, the Commission addressed the first of those complaints, with its most 

significant findings being that “anomalous capital market conditions” required the 

Commission to consider a variety of financial models and that those models supported an 

elevated ROE.3

 The Commission subsequently applied that approach to a similar 

complaint involving the MISO Transmission Owners.4

 Shortly thereafter, however, the 

D.C. Circuit vacated Opinion No. 531, sending it back to the Commission and the 

Commission back to the drawing board.5

 Following that remand, the Commission 

proposed to expressly rely on the four financial models considered in Opinion No. 531.6

 

A year later, in Opinion No. 569, we narrowed it to two models, while making a number 

of changes to how we implemented those models.7

 Today, we’re back up to three 

models, with another round of tweaks to those models.8

 

With the exception of the Commission’s finding of anomalous market conditions, 

which at least hinted at its real concern, the Commission’s various orders in this saga 

have suggested that each new iteration of its ROE methodology is a largely technical 

affair that turns on the Commission’s evaluation of discrete issues with the various 

2 16 U.S.C. ¶ 824e (2018).

3 Coakley Mass. Attorney Gen. v. Bangor Hydro-Elec. Co., Opinion No. 531, 147 

FERC ¶ 61,234, at PP 41, 152 (2014).

4 Ass’n of Businesses Advocating Tariff Equity v. Midcontinent Indep. Sys. 

Operator, Inc., Opinion No. 551, 156 FERC ¶ 61,234 (2016).

5 Emera Maine v. FERC, 854 F.3d 9 (2017).

6 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 165 FERC ¶ 61,118 (2018) (Briefing Order).

7 Opinion No. 569, 169 FERC ¶ 61,129.

8 Although the complaints against the RTO-wide ROEs in MISO and ISO New 

England garnered the most attention, the last ten years have also seen a host of other 

complaints against individual transmission owner’s ROEs, which have also been affected 

by the Commission’s back-and-forth over these complaints. 
Docket Nos. EL14-12-004 and EL15-45-001 - 5 -

financial models. In so doing, the Commission has added new models,9 removed some of 

those models,10 tweaked some of those models,11 introduced new inputs,12 modified 

existing inputs,13 introduced new screens,14 modified existing screens,15 and even altered 

how the Commission places the ROE within the zone of reasonableness.16 But, with each 

9 See, e.g., Opinion No. 551, 156 FERC ¶ 61,234 at P 9 (relying on four alternative 

models to place the ROE within the zone of reasonableness). 

10 See, e.g., Opinion No. 569, 169 FERC ¶ 61,129 at PP 200, 340 (declining to rely 

on the Expected Earnings or Risk Premium methodologies). Indeed, at this point, the 

Commission has considered, but not relied on the risk premium model, Opinion No. 551, 

156 FERC ¶ 61,234 at P 191, proposed relying on the risk premium model, Briefing 

Order, 165 FERC ¶ 61,118 at PP 18-19, declined to rely on the risk premium model, 

Opinion No. 569, 169 FERC ¶ 61,129 at P 340, and, with today’s order, now elected to 

rely on the rely risk premium model, Ass’n of Bus. Advocating Tariff Equity v. 

Midcontinent Indep. Sys. Operator, Inc., Opinion No. 569, 171 FERC ¶ 61,154, at P 104 

(2020). 

11 See, e.g., Opinion No. 569-A, 171 FERC ¶ 61,154 at P 107 (modifying the risk 

premium model to produce a zone of reasonableness rather than a single point estimate).

12 Compare Opinion No. 569, 169 FERC ¶ 61,129 at P 274 (rejecting the use of 

Value Line short-term growth rates in the Capital Asset Pricing Model (CAPM)) with 

Opinion No. 569-A, 171 FERC ¶ 61,154 at P 78 (“clarify[ing]” that the Commission will 

consider Value Line short-term growth rates in the CAPM).

13 See, e.g., Opinion No. 569-A, 171 FERC ¶ 61,154 at P 57 (reducing the 

weighting of the long-term growth rate in the two-step Discounted Cash Flow model 

(DCF) from one-third to one-fifth). 

14 Briefing Order, 165 FERC ¶ 61,118 at P 54 (proposing a high-end outlier screen 

that would apply to “any proxy company whose cost of equity estimated with a given 

model is more than 150 percent of the median result of all of the potential proxy group 

members in that model”); Opinion No. 569, 169 FERC ¶ 61,129 at P 375 (adopting the 

proposed high-end outlier screen). 

15 See, e.g., Opinion No. 569-A, 171 FERC ¶ 61,154 at P 154 (increasing the 

threshold for the high-end outlier test from 150 percent of the median of the zone of 

reasonableness to 200 percent of the median of the zone of reasonableness). 

16 See, e.g., id. P 193 (changing the start points for setting ROEs for above- and 

below-average ROEs); Opinion No. 551, 156 FERC ¶ 61,234 at P 275 (setting the MISOwide ROE at the midpoint of the upper half of the zone of reasonableness). 
Docket Nos. EL14-12-004 and EL15-45-001 - 6 -

new twist, it becomes harder to buy that the Commission is genuinely reassessing the 

mechanics of each model rather than disagreeing with the ROE numbers those models 

produce.17

Today’s order is the culmination of all that. Not long after completing a year-long 

process to re-evaluate our approach to setting ROEs following the D.C. Circuit’s decision 

in Emera Maine, the Commission is now once again charting a major change of course. 

In so doing, the Commission is again portraying its change of heart as a technical matter 

based on its reassessment of a handful of discrete issues rather than what it is: A 

determination that the old number was too low and now we need a higher one. 

To be fair, I am sympathetic to the impulse to consider subjective factors. The 

Commission’s approach to setting a just and reasonable ROE will often implicate broader 

policy considerations, equity, and other factors that cannot be captured in, for example, a 

discussion of dividend yields or the appropriate sources of growth rate calculations. But 

while ROE policy will always be as much art as science, that is no excuse to pretend that 

art is science. 

If broader considerations, including policy goals, are preventing the Commission 

from settling on or consistently applying an ROE methodology, then we must 

acknowledge those goals and give the interested entities the chance to weigh in on them 

just as they do for the intricacies of dividend yields, growth rates, and the like. All 

approaches to setting ROEs have their shortcomings, but the worst result by far is to 

continually fiddle with those approaches, undermining the certainty and predictability 

that help transmission owners make long-term investments. If the Commission is going 

to purport to rely entirely on financial models to evaluate and set ROEs, it has to take 

those models at face value without second-guessing them when it does not like the 

results. 

In addition, today’s order illustrates the problems with disguising subjective policy 

considerations as technical determinations. In a number of instances, the Commission is 

reversing determinations made in Opinion No. 569 using rationales that are far less 

convincing than those that supported the opposite outcome in Opinion No. 569. Shifting 

17 It is also worth noting that, today, the Commission is adding even more 

complexity to its approach to setting ROE methodologies by also issuing a policy 

statement regarding oil and natural gas pipelines that largely follows the approach 

outlined in Opinion No. 569 rather than this order. In particular, that policy statement 

does not use the risk premium model, adjust the weighting of long- and short-term 

growth rates for the two-step DCF model, or adopt a particular high-end outlier screen. 

See Policy Statement on Determining Return on Equity for Natural Gas and Oil 

Pipelines, 171 FERC ¶ 61,155 at PP 2, 87 (2020). The Commission, it seems, just cannot 

settle on an analytically consistent approach to this important issue. 
Docket Nos. EL14-12-004 and EL15-45-001 - 7 -

from such strong arguments to such suspect ones underscores the extent to which 

subjective factors seem to be operating in the background while also opening the 

Commission up to considerable risk on judicial review, creating even more of the 

uncertainty we ought to be trying to minimize.

Take the example of the risk premium model. Although Opinion No. 569 declined 

to utilize the risk premium model based on a long list of shortcomings, today’s order 

reverses course, adding it to the DCF and CAPM on which the Commission previously 

relied. The record before us does not support that choice.

As an initial matter, and as explained in Opinion No. 569, the risk premium model 

does essentially the same thing as the CAPM by attempting to calculate the “premium 

that investors require over the risk-free rate of return.”18 Opinion No. 569 rightly pointed 

out that nothing in the record supports having two thirds of the Commission’s ROE 

methodology composed of such analytically redundant approaches.19 Today’s order 

tersely responds to that concern by asserting that the two models are “sufficiently 

distinct” since they use different inputs.20 But that ignores the point in Opinion No. 569 

that the problem with relying on both models is that they replicate the same basic 

methodology, irrespective of their inputs.21 

Opinion No. 569 also explained how the risk premium model is, in most respects, 

just an inferior version of the CAPM in so far as it does not consider market-based costof-equity estimates22 and introduces significant circularity concerns by relying on past 

18 Opinion No. 569, 169 FERC ¶ 61,129 at P 341.

19 Id. 

20 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 105.

21 Opinion No. 569, 169 FERC ¶ 61,129 at P 341 (“We find that using the Risk 

Premium model in conjunction with the CAPM model would confer too much weight 

towards risk premium methodologies. The Commission has long used and, over time, 

refined the DCF model and we find that it would be inappropriate for variations of the 

risk premium model to receive twice its weight.”). 

22 Id. P 342 (“[T]he Risk Premium model is likely to provide a less accurate 

current cost of equity estimate than the DCF model or CAPM because it relies on 

previous ROE determinations, whose resulting ROE may not necessarily be directly 

determined by a market-based method, whereas the DCF and CAPM methods apply a 

market-based method to primary data.”). In addition, as the Commission noted, many of 

the ROEs included in the risk premium analyses in the record were never determined to 

be just and reasonable. For example, many of the ROEs were set through uncontested 

settlements, which involve compromise across a host of issues of which ROE is just one. 
Docket Nos. EL14-12-004 and EL15-45-001 - 8 -

judgments, which may not reflect the appropriate risk premium under current 

conditions.23 The Commission responds to those circularity concerns by contending that 

they are “mitigate[d]” by the fact that the Commission will average the results of the risk 

premium with the DCF and the CAPM, which do not present the same concerns.24 But 

observing that the Commission will also use models without significant circularity 

concerns is not a reasoned response to the argument that you should not use circular 

models in the first place. 

In addition, the Commission convincingly explained in Opinion No. 569 how “the 

record contains insufficient evidence to conclude that investors rely on risk premium 

analyses utilizing historic Commission ROE determinations or settlement approvals to 

determine the cost of capital and make investment decisions.”25 The Commission noted 

that, while allowed ROEs are certainly important to investors’ decisionmaking, that does 

not suggest that investors’ perform anything remotely close to the analysis contemplated 

by the risk premium model—i.e., a backward looking comparison between riskless assets 

and allowed ROEs—when making their investment decisions.26 Today’s order now takes 

the opposite position, observing only that investors in regulated utilities expect to earn a 

return above a risk-free asset (which is obviously true) and that “investors . . . observe 

regulatory ROEs and how changes in authorized ROE levels could affect utility earnings” 

(which is equally obvious).27 It should go without saying that investors pay attention to 

ROEs earned by public utilities and expect them to be higher than debt backed by the 

U.S. government. But neither of those self-evident statements provides any reason—

much less substantial evidence—to believe that investors perform a risk premium 

analysis comparing past differences between risk free assets and Commission-allowed 

ROEs when evaluating whether to invest in Commission-regulated public utilities. 

And, finally, the risk premium model does not at all fit with the Commission’s 

new approach for evaluating whether an existing ROE is just and reasonable. Opinion 

No. 569 established a framework for evaluating whether an existing ROE is just and 

The Commission frequently approves uncontested without directly passing on whether 

the individual terms are just and reasonable. See id.

23 See id. P 343 (explaining that the circularity concerns with the risk premium 

model are “particularly direct and acute”).

24 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 106.

25 Opinion No. 569, 169 FERC ¶ 61,129 at P 345.

26 Id. 

27 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 112. 
Docket Nos. EL14-12-004 and EL15-45-001 - 9 -

reasonable based on ranges of presumptively just and reasonable results derived from the 

financial models used by the Commission.28 Unlike every other financial model used, or 

even considered by the Commission in Opinion No. 569,29 the risk premium model 

produces a single point estimate of the just and reasonable ROE, not a zone of 

reasonableness.30 

Recognizing this “serious concern,” but nevertheless determined to fit a square 

peg into a round hole, today’s order resolves to “impute” the average width of the zone of 

reasonableness created by the DCF and CAPM methodologies to the risk premium 

model.31 For example, if the DCF and CAPM produce an average zone of 200 basis 

points, it seems that the Commission will just assume that the risk premium model does 

too. Today’s order, however, does not point to any evidence suggesting that such 

imputation is appropriate or that any investors or financial experts have sanctioned the 

Commission’s method. Presumably that is because the record lacks any evidence 

supporting such an odd repurposing of the risk premium model.32 After all, the 

Commission’s approach to using the risk premium in evaluating whether an existing ROE 

is just and reasonable is the equivalent of making someone a “custom” suit based on their 

siblings’ measurements: Maybe it will fit, but there is no reason to believe that it will 

and, in any case, it misses the point of the exercise. 

In addition, today’s order adopts a series of equally unreasoned modifications to 

Opinion No. 569’s framework for conducting the first step of the section 206 inquiry. As 

noted, Opinion No. 569 established a practice of dividing the zone of reasonableness into 

ranges of presumptively just and reasonable ROEs within the broader zone of 

reasonableness.33 In particular, the Commission created risk-adjusted “quartiles” of the 

28 Opinion No. 569, 169 FERC ¶ 61,129 at P 57.

29 The Commission also considered, but rejected, relying upon an expected 

earnings model as well. Id. P 200. 

30 Id. P 351.

31 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 107.

32 That become especially clear when compared with the Commission’s thorough 

and well-reasoned rejection of the risk premium on this basis, among others, in Opinion 

No. 569. Compare id P 107 with Opinion No. 569, 169 FERC ¶ 61,129 at P 351.

33 That change responded to the D.C. Circuit’s holding that the FPA contemplates 

“a ‘broad’ range of potentially just and reasonable ROEs, ‘not an exact dollar figure.’” 

Emera Maine v. FERC, 854 F.3d 9, 23 (D.C. Cir. 2017) (quoting Panhandle E. Pipe Line 

Co. v. FERC, 777 F.2d 739, 746 (D.C. Cir. 1985)).
Docket Nos. EL14-12-004 and EL15-45-001 - 10 -

zone of reasonableness centered on the three points that the Commission uses as the 

starting point for setting ROEs for utilities of different risk profiles34—the midpoint of 

the entire zone of reasonableness for average-risk utilities, the midpoint of the lower half 

of the zone of reasonableness for below-average risk utilities, and the midpoint of the 

upper half of the zone of reasonableness for above-average risk utilities.35 

The Commission justified the end points of each quartile by explaining that 

“[l]ogic dictates that the end points of those ranges should not be closer to the starting 

points for the ranges of utilities with different risk profiles than they are to their own 

starting point.”36 In other words, it would not make sense to presume that an existing 

ROE is just and reasonable if it was closer to the starting point used to set the ROE for a 

utility of a different risk profile than the starting point for a utility of the same risk 

profile. The Commission’s quartile-based approach made sense given the emphasis that 

the Commission has historically placed on relative risk profiles when placing ROEs 

within the zone of reasonableness37 and it ensured that the ranges of presumptively just 

and reasonable results were not just arbitrary sub-sections of the zone of reasonableness. 

Today’s order abandons that well-reasoned approach and arbitrarily divides the 

entire zone of reasonableness into thirds, with each third providing a presumptively just 

and reasonable range of ROEs for certain utilities. The Commission appears to suggest38

that this maneuver is necessary to comply with the D.C. Circuit’s statement in Emera 

Maine that “the zone of reasonableness creates a broad range of potentially lawful 

34 Opinion No. 569, 169 FERC ¶ 61,129 at P 57.

35 Id. The midpoint is the measure of central tendency that the Commission uses 

when setting the ROE for a diverse range of utilities. Id. PP 398, 409. By contrast, the 

Commission uses the median as the measure of central tendency when setting the ROE 

for a single utility. Id. P 398.

36 Id. P 63. 

37 See Opinion No. 569, 169 FERC ¶ 61,129 at P 62 (“We also find that the 

circumstance most relevant to determining that range is the utility’s risk profile.”); see 

also FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944) (“[T]he return to the equity 

owner should be commensurate with returns on investments in other enterprises having 

corresponding risks.”); Petal Gas Storage, L.L.C. v. FERC, 496 F.3d 695, 6-99700 (D.C. 

Cir. 2007) (explaining the emphasis that the Commission and courts have placed on the 

role of risk in setting ROEs).

38 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 190.
Docket Nos. EL14-12-004 and EL15-45-001 - 11 -

ROEs.”39 But Emera Maine requires nothing of the sort. Read in context, the quoted 

language stands only for the proposition that the Commission cannot prove that an 

existing rate is unjust and unreasonable simply by showing that its ROE methodology 

would produce a different number using current data.40 The court certainly did not 

suggest that every point within the zone of reasonableness must be presumptively just and 

reasonable for some utility, which is how today’s order appears to understand that 

language. In any case, the quartile-based approach in Opinion No. 569 easily complied 

with even the Commission’s reading of the language in Emera Maine. Because the 

ranges only represented presumptive findings, a public utility could still argue that an 

ROE outside those ranges was nevertheless just and reasonable based on other 

considerations,41 making every ROE within the zone of reasonableness at least 

“potentially” just and reasonable.

And that’s just the start of it. Recognizing that the decision to divide the zone of 

reasonableness into thirds obliterates the rationale for the ranges outlined in Opinion No. 

569,42 the Commission announces, without any explanation, that it will change the 

starting points it uses when setting the ROE for below- and above-average risk utilities to 

the midpoint of the lower third of the zone of reasonableness and the midpoint of the 

upper third of the zone of reasonableness, respectively.43 Now the tail is truly wagging 

the dog. In Opinion No. 569, the Commission justified the ranges of presumptively just 

and reasonable ROEs based on the Commission’s longstanding approach to handling 

companies’ relative risk profiles, namely the use of the upper and lower midpoints for 

utilities of above- and below-average risk, respectively.44 In today’s order, the 

Commission uproots that longstanding approach, selecting entirely new starting points 

for placing ROEs within the zone of reasonableness in order to support its new ranges of 

39 Emera Maine, 854 F.3d at 26 (emphasis added).

40 Id. (“But, as we have explained, the zone of reasonableness creates a broad 

range of potentially lawful ROEs rather than a single just and reasonable ROE, meaning 

that FERC’s finding that 10.57 percent was a just and reasonable ROE, standing alone, 

did not amount to a finding that every other rate of return was not.” (internal quotation 

marks omitted)).

41 Opinion No. 569, 169 FERC ¶ 61,129 at PP 60-64, 68 (discussing how the 

Commission would apply the new framework, including what other factors it would 

consider).

42 See supra P 20 & note 37. 

43 Opinion No. 569-A, 171 FERC ¶ 61,154 at 194.

44 Opinion No. 569, 169 FERC ¶ 61,129 at PP 62-64.
Docket Nos. EL14-12-004 and EL15-45-001 - 12 -

presumptively just and reasonable results. That gets it entirely backwards; the ranges of 

presumptively just and reasonable results should reflect how we set ROEs, not the other 

way around. In any case, at no point in today’s order does the Commission explain why 

the new starting points themselves are an appropriate place to begin the process of 

placing the ROE for an above- or below-average risk utility within the zone of 

reasonableness.45 

Suffice it to say, the Commission has not justified its change of course with 

respect to either the risk premium model or its approach to step one of the section 206 

inquiry. Nevertheless, while I believe that Opinion No. 569 was a superior approach to 

setting ROEs, I also recognize that the roughly 10 percent ROE established in today’s 

order may well be a just and reasonable end result.46 In addition, for the reasons 

explained above, I firmly believe that the Commission must finally bring some certainty 

and predictability to how its sets transmission owner ROEs. 

II. The Commission Should Order Refunds for Unjust and Unreasonable Rates 

Paid by Consumers 

I continue to disagree with the Commission’s refusal to order refunds for the 

fifteen-month refund period established pursuant to the Second Complaint.47 Throughout 

that period, customers within MISO paid an unjust and unreasonable ROE. Nevertheless, 

the Commission refuses to order refunds on the specious basis that the FPA requires it to 

act as if the 10.02 percent ROE set in today’s order was in effect throughout that fifteenmonth period. In reality, however, customers actually paid a 12.38 percent ROE—a 

difference worth tens of millions of dollars—and nothing in the law requires us to pretend 

otherwise. 

The facts relevant to the issue of refunds are straightforward. On November 12, 

2013, multiple parties filed a complaint (First Complaint) alleging that the MISO 

Transmission Owners’ 12.38 percent ROE was unjust and unreasonable.48 The 

45 That failure is particularly glaring because the new starting points will be closer 

to either the top or bottom of the zone of reasonableness than the midpoint. Nothing in 

today’s order—or the record before us—explains why those starting points should be 

biased towards the most extreme costs of equity in the zone of reasonableness. 

46 Cf. Hope, 320 U.S. 591, 602 (1944) (“Under the statutory standard of ‘just and 

reasonable’ it is the result reached not the method employed which is controlling.”).

47 See Opinion No. 569, 169 FERC ¶ 61,129 (Glick, Comm’r, dissenting in part). 

48 Id. P 3. The authorized base ROE for the ATCLLC zone was 12.20 percent, but 

I will follow the underlying order’s practice of referring to the MISO-wide ROE as 12.38. 
Docket Nos. EL14-12-004 and EL15-45-001 - 13 -

Commission set the matter for hearing and established a refund effective date of 

November 12, 2013 (the date the First Complaint was filed),49 meaning that the 15-month 

refund period for the First Complaint lasted until February 12, 2015.50 On February 12, 

2015, a different set of parties filed another complaint (Second Complaint) against the 

MISO Transmission Owners’ ROE. The Commission again set the matter for hearing 

and established a refund effective date of February 12, 2015,51 meaning that the 15-

month refund period for the Second Complaint lasted until May 12, 2016. Both 

proceedings were fully litigated and produced initial decisions by Administrative Law 

Judges.52 And, in both cases, the Commission did not get around to issuing orders on the 

initial decisions until well after both refund periods expired, meaning that customers paid 

rates reflecting a 12.38 percent ROE throughout both refund periods.53 

In today’s order, the Commission affirms its conclusion in Opinion No. 569 that 

the 12.38 percent ROE was unjust and unreasonable and it establishes a new just and 

reasonable ROE of 10.02 percent. That is sufficient to order refunds for the refund 

Id. P 3 & n.11. 

49 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 149 FERC ¶ 61,049, at P 188 (2014), order on reh’g, 156 FERC ¶ 61,060 (2016).

50 As discussed further below, pursuant to the Regulatory Fairness Act, Pub. L. 

No. 100-473, § 2, 102 Stat 2299 (1988) (codified at 16 U.S.C. § 824e(b)), as part of any 

proceeding under section 206 of the FPA, the Commission shall establish a refund 

effective date and, at the conclusion of that proceeding, it may order refunds for the 

difference between an unjust and unreasonable rate in effect during the period up to 15 

months following the refund effective date and the new just and reasonable rate fixed by 

the Commission. 

51 Ark. Elec. Coop. Corp. v. ALLETE, Inc., 151 FERC ¶ 61,219, at P 1 (2015), 

order on reh’g, 156 FERC ¶ 61,061 (2016) (Second Complaint Rehearing Order).

52 Ass’n of Bus. Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, 

Inc., 153 FERC ¶ 63,027 (2015); Ark. Elec. Coop. Corp. v. ALLETE, Inc., 155 FERC 

¶ 63,030 (2016).

53 The Commission originally issued an order on the First Complaint in September 

2016. See Ass’n of Businesses Advocating Tariff Equity v. Midcontinent Indep. Sys. 

Operator, Inc., Opinion No. 551, 156 FERC ¶ 61,234, at P 9 (2016). But, shortly 

thereafter, the D.C. Circuit issued its opinion in Emera Maine, 854 F.3d 9, which vacated 

the precedent on which Opinion No. 551 relied. Following briefing on remand, the 

Commission issued Opinion No. 569, which elicited the rehearing requests addressed in 

today’s order. 
Docket Nos. EL14-12-004 and EL15-45-001 - 14 -

periods established pursuant to both the First and Second Complaints. To see why, let’s 

start with the text of section 206(b), which provides that 

At the conclusion of any proceeding under this section [i.e., section 206], 

the Commission may order refunds of any amounts paid, for the period 

subsequent to the refund effective date through a date fifteen months 

after such refund effective date, in excess of those which would have 

been paid under the just and reasonable rate, charge, classification, rule, 

regulation, practice, or contract which the Commission orders to be 

thereafter observed and in force.54

All that text requires is that the Commission find that customers paid an unjust and 

unreasonable rate during the refund period and that the Commission have set a just and 

reasonable replacement rate, so that it can calculate refunds equal to the difference 

between those two rates. Both conditions are satisfied here: Customers paid 12.38 

percent through the Second Complaint refund period and the Commission has determined 

that they should have paid 10.02 percent. That is sufficient to order refunds pursuant to 

section 206(b). 

Contrary to the suggestion in today’s order,55 the text of section 206(b) does not 

limit the Commission’s refund authority to only those individual proceedings in which it 

sets a new rate. Instead, it provides the Commission with the authority to order refunds 

“[a]t the conclusion of any proceeding under this section”—i.e., section 206.”56 

Congress surely understood that not every section 206 proceeding would be resolved 

against the public utility and, had it so desired, it could have conditioned the 

Commission’s refund authority accordingly. But by pairing the word “conclusion”—

which would seem to contemplate proceedings in which the public utility prevailed as 

well as those in which it did not—with the phrase “any proceeding”—which is equally 

unlimited—Congress rejected such a narrow interpretation of the Commission’s refund 

authority. Instead, as noted, the plain text of section 206 indicates that the Commission’s 

refund authority turns on the presence of a difference between the unjust and 

unreasonable rate that customers paid during the refund period and the just and 

reasonable rate that they should have paid, not whether the Commission set a new rate in 

every complaint it resolves. 

Recognizing that Congress did not explicitly limit the Commission’s refund 

authority, the Commission responds that it did so implicitly when it inserted the phrase 

54 16 U.S.C. § 824e(b) (emphasis added).

55 Opinion No. 569-A, 171 FERC ¶ 61,154 at PP 260-262. 

56 16 U.S.C. § 824e(b) (emphasis added).
Docket Nos. EL14-12-004 and EL15-45-001 - 15 -

“thereafter observed and in force” in section 206(b).57 The idea, as I understand it, is that 

“thereafter observed and in force” is supposed to reflect Congress’ understanding that the 

Commission would be setting a new rate in each complaint prior to ordering any 

refunds.58 Thus, the argument appears to go, the Commission cannot order refunds 

unless it sets a new rate in the complaint corresponding to each individual refund period. 

As an initial matter, that would be a remarkably convoluted way of limiting the 

Commission’s refund authority under section 206. It envisions that, instead of limiting 

the Commission’s refund authority in the statutory text that establishes the proceedings in 

which the Commission can order refunds, Congress elected to do so through an opaque 

reference in the discussion of how the Commission should calculate any refunds that it 

may order. That is a bizarre—and overly complicated—way to read an otherwise 

straightforward statute.59 

In any case, the “thereafter observed and in force” language is better read as a 

reference to the identical language in section 206(a).60 Under that reading, all that 

“thereafter observed and in force” does is clarify that the ceiling on the Commission’s 

refund authority under section 206(b) is the difference between the rate in effect during 

the refund period and the just and reasonable rate that the Commission established 

pursuant to subsection 206(a).61 In other words, that language specifies how the 

Commission should calculate any refunds it orders, not when it may order refunds. As 

noted, my reading makes far more sense given the fact that the “thereafter observed and 

in force” language appears in the portion of 206(b) that defines how the Commission 

should calculate refunds, not when it should order them. I see no reason to abandon that 

57 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 262.

58 Id. 

59 Cf. City of Anaheim v. FERC, 558 F.3d 521, 525 (D.C. Cir. 2009) (“declin[ing] 

FERC’s invitation to mangle the statute”).

60 See 16 U.S.C. § 824e(a) (requiring the Commission to establish a new just and 

reasonable rate to be “thereafter observed and in force” whenever it finds that an existing 

rate is unjust and unreasonable or unduly discriminatory or preferential).

61 That interpretation makes even more sense when you consider that section 

206(b) was added more than 50 years after section 206(a), which was part of the original 

FPA, and so it would have been necessary to clarify how the amendment worked in 

conjunction with the pre-existing language. 
Docket Nos. EL14-12-004 and EL15-45-001 - 16 -

straightforward reading of the statute, which protects customers from paying unjust and 

unreasonable rates, in favor of a convoluted one that does not.62 

The Commission’s next argument is even more of a head scratcher. The Louisiana 

Public Service Commission argues that it is irrational to use the ROE set in Opinion No. 

569 as the baseline for evaluating whether to order refunds for the Second Complaint 

refund period because that ROE was never “demanded, observed, charged, or collected,” 

as section 206 requires. The Commission responds with what might charitably be called 

a regulatory fiction. It argues that Opinion No. 569 made the new just and reasonable 

ROE set in the First Complaint proceeding effective as of the beginning of the First 

Complaint refund period, which, the Commission argues, means that we must pretend 

that that lower ROE was in effect throughout the refund period for the Second Complaint 

as well. The Commission seems to be suggesting that it must pretend that the 10.02 ROE 

established today was “demanded, observed, charged, or collected” during the second 

refund period.63 

But that interpretation is both demonstrably false and squarely foreclosed by 

section 206. First and foremost, the ROE that the MISO Transmission Owners collected

during the refund period for the Second Complaint was 12.38 percent, no ifs, ands, or 

buts. In addition, the FPA flatly prohibited the MISO Transmission Owners from 

collecting any other ROE during that period. As noted, section 206 is forward looking in 

that it gives the Commission the ability to set a new just and reasonable rate as of the date 

on which the Commission makes the findings required by section 206.64 The only 

exception to that rule is for the refund period, during which time the Commission is 

62 Cf., e.g., California ex rel. Lockyer v. FERC, 383 F.3d 1006, 1017 (9th Cir. 

2004) (rejecting “an interpretation [that] comports neither with the statutory text nor with 

the Act’s ‘primary purpose’ of protecting consumers”); City of Chicago, Ill. v. FPC, 458 

F.2d 731, 751 (D.C. Cir. 1971) (“[T]he primary purpose of the Natural Gas Act is to 

protect consumers.” (citing, inter alia, City of Detroit v. FPC, 230 F.2d 810, 815 (D.C. 

Cir. 1955)); S. Rep. 100-491, 5-6 (1988) (“The Committee intends the Commission to 

exercise its refund authority under section 206 in a manner that furthers the long-term 

objective of achieving the lowest cost for consumers consistent with the maintenance of 

safe and reliable service.”).

63 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 264.

64 See, e.g., Louisiana Pub. Serv. Comm’n v. FERC, 772 F.3d 1297, 1299 (D.C. 

Cir. 2014) (explaining that section 206 provides for prospective relief only with the 

exception of the refund period).
Docket Nos. EL14-12-004 and EL15-45-001 - 17 -

permitted to act as if the new rate were in effect when ordering refunds.65 The refund 

period for the Second Complaint, however, fell after the conclusion of the refund period 

for the First Complaint and before the date on which the Commission issued Opinion No. 

569. Suffice it to say, it is arbitrary and capricious for the Commission to assume that it 

did that which it is legally prohibited from doing.

The Commission’s next argument is that ordering refunds for the Second 

Complaint would represent an end-run around the 15-month limitation on refunds 

enshrined in section 206(b).66 That argument appears to have both a legal dimension and 

a policy dimension. Beginning with the former, the Commission seems to be taking the 

position that ordering refunds in the Second Complaint period would effectively extend 

the refund period established for the First Complaint. But the Commission has repeatedly 

held that the FPA permits such successive or “pancaked” complaints, which are “‘entirely 

new proceeding[s]’” and not “‘duplicative proceeding[s] intended solely to expand the 

amount of refund protection beyond 15 months,’”67 provided that they raise new facts or 

arguments,68 which the Commission held that the Second Complaint did.69 Accordingly, 

rather than extending the refund period for the First Complaint, ordering refunds pursuant 

to the Second Complaint would simply reflect the fact that the MISO Transmission 

Owners collected an unjust and unreasonable ROE during a period when all parties were 

on notice that the Commission might order refunds of such excessive rates.70 

From the perspective of public policy, I recognize that permitting pancaked 

complaints with multiple refund periods may be sub-optimal. After all, pancaked 

complaints can create significant uncertainty in an area where certainty is especially 

65 Id.

66 Opinion No. 569-A, 171 FERC ¶ 61,154 at P 259.

67 Second Complaint Rehearing Order, 156 FERC ¶ 61,061 at P 33 (quoting 

Southern Co. Servs. Inc., 83 FERC ¶ 61,079, 61,386 (1998)).

68 Id. P 33 (“[T]he Commission has allowed multiple complaints regarding the 

same ROE, where the subsequent complaints are based on new, more current data, 

explaining that this is particularly critical given that what is at issue is return on equity, 

which, in contrast to other cost of service issues can be particularly volatile. (internal 

alterations and quotation marks omitted)).

69 Id. P 34. 

70 Cf. La. Pub. Serv. Comm’n v. FERC, 482 F.3d 510, 520 (D.C. Cir. 2007) (noting 

that the filing of a section 206 put all parties on notice of the possibility that the 

Commission would order refunds).
Docket Nos. EL14-12-004 and EL15-45-001 - 18 -

important as transmission owners decide whether and how to invest in transmission 

infrastructure. But the desirability of pancaked complaints is something for Congress to 

consider, not a reason for us to twist the text of the FPA. So long as the FPA and the 

Commission’s precedents permit pancaked complaints, then the Commission should not 

let its antipathy toward such complaints prevent customers from receiving the refunds to 

which they are entitled. 

For these reasons, I respectfully concur in part and dissent in part.

________________________

Richard Glick

Commissioner