Document ID: FERC-2019-0357-0001
Agency: ferc
Document Type: Notice
Title: Inquiry Regarding the Commission's Policy for Determining Return on Equity
Posted Date: 2019-03-28T04:00Z

[Federal Register Volume 84, Number 60 (Thursday, March 28, 2019)]
[Notices]
[Pages 11769-11777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05893]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL19-4-000]

Inquiry Regarding the Commission's Policy for Determining Return 
on Equity

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of inquiry.

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SUMMARY: Following the decision of the U.S. Court of Appeals for the 
District of Columbia Circuit in Emera Maine v. Federal Energy 
Regulatory Commission, the Commission seeks information and stakeholder 
views to help the Commission explore whether, and if so how, it should 
modify its policies concerning the determination of the return on 
equity (ROE) to be used in designing jurisdictional rates charged by 
public utilities. The Commission also seeks comment on whether any 
changes to its policies concerning public utility ROEs should be 
applied to interstate natural gas and oil pipelines.

DATES: Initial Comments are due June 26, 2019, and Reply Comments are 
due July 26, 2019.

ADDRESSES: Comments, identified by docket number, may be filed in the 
following ways:
     Electronic Filing through http://www.ferc.gov. Documents 
created electronically using word processing software should be filed 
in native applications or print-to-PDF format and not in a scanned 
format.
     Mail/Hand Delivery: Those unable to file electronically 
may mail or hand-deliver comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE, 
Washington, DC 20426.
     Instructions: For detailed instructions on submitting 
comments, see the Comment Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT: 
Jeremy Hessler (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-8655, 
jeremy.hessler@ferc.gov.
Adam Pollock (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-8458, adam.pollock@ferc.gov.
Scott Everngam (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6614, scott.everngam@ferc.gov.
Tony Dobbins (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6630, tony.dobbins@ferc.gov.

SUPPLEMENTARY INFORMATION: 
    1. In this Notice of Inquiry (NOI), the Commission seeks 
information and stakeholder views regarding whether, and if so how, it 
should modify its policies concerning the determination of the return 
on equity (ROE) to be used in designing jurisdictional rates charged by 
public utilities. The Commission also seeks comment on whether any 
changes to its policies concerning public utility ROEs should be 
applied to interstate natural gas and oil pipelines.
    2. This NOI follows the decision of the U.S. Court of Appeals for 
the District of Columbia Circuit (D.C. Circuit) in Emera Maine v. 
FERC,\1\ reversing and vacating Opinion No. 531.\2\ In that decision, 
the court held, among other things, that the Commission had failed to 
justify its decision under section 206 of the Federal Power Act (FPA) 
\3\ to set the ROE of the New England Transmission Owners \4\ at the 
midpoint of the upper half of the zone of reasonableness produced by 
the two-step Discounted Cash Flow (DCF) analysis. While the court did 
not expressly question the Commission's

[[Page 11770]]

finding that anomalous capital market conditions justified an ROE above 
the midpoint of the DCF zone of reasonableness, the court concluded 
that the Commission failed to point to record evidence supporting the 
conclusion that its solution to the anomalous capital market 
conditions--setting the base ROE at the upper midpoint rather than the 
midpoint--was just and reasonable.\5\
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    \1\ 854 F.3d 9 (DC Cir. 2017) (Emera Maine).
    \2\ Coakley, Mass. Attorney Gen. v. Bangor Hydro-Elec. Co., 
Opinion No. 531, 147 FERC ] 61,234, order on paper hearing, 149 FERC 
] 61,032 (2014), order on reh'g, 150 FERC ] 61,165 (2015).
    \3\ 16 U.S.C. 824e.
    \4\ The New England Transmission Owners include Bangor Hydro-
Elec. Co.; Cent. Me. Power Co.; New England Power Co. d/b/a Nat'l 
Grid; N.H. Transmission LLC d/b/a NextEra; NSTAR Elect. & Gas Corp.; 
Ne. Utilities Serv. Co.; United Illuminating Co.; Unitil Energy 
Systems, Inc. and Fitchburg Gas & Elec. Light Co.; and Vt. Transco, 
LLC. Opinion No. 531, 147 FERC ] 61,234 at P 1 n.3.
    \5\ Emera Maine, 854 F.3d at 28-29.
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    3. The Commission recognizes the potentially significant and 
widespread effect of our ROE policies upon public utilities. The 
importance of ROE policy for public utilities extends beyond the 
particular interests of the parties to the Emera Maine proceeding. 
Accordingly, this NOI seeks further information as the Commission re-
evaluates our ROE policies following the Emera Maine decision. Initial 
Comments are due June 26, 2019, and Reply Comments are due July 26, 
2019.

I. Background

A. The DCF Model

    4. The Supreme Court has held that ``the return to the equity owner 
should be commensurate with the return on investments in other 
enterprises having corresponding risks. That return, moreover, should 
be sufficient to assure confidence in the financial integrity of the 
enterprise, so as to maintain its credit and to attract capital.'' \6\ 
Since the 1980s, the Commission has used the DCF model to develop a 
range of returns earned on investments in companies with corresponding 
risks for purposes of determining the ROE for regulated entities.
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    \6\ Fed. Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 605 
(1944) (Hope); see also Bluefield Waterworks & Improvement Co. v. 
Pub. Serv. Comm'n, 262 U.S. 679, 692-693 (1923) (Bluefield); 
Duquesne Light Co. v. Barasch, 488 U.S. 299, 314 (1989).
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    5. The DCF model was originally developed in the 1950s as a method 
for investors to estimate the value of securities, including common 
stocks. It is based on the premise that ``a stock's price is equal to 
the present value of the infinite stream of expected dividends 
discounted at a market rate commensurate with the stock's risk.'' \7\ 
With simplifying assumptions, the DCF model results in the investor 
using the following formula to determine share price:
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    \7\ Canadian Ass'n of Petroleum Producers v. FERC, 254 F.3d 289, 
293 (DC Cir. 2001); see also Composition of Proxy Groups for 
Determining Gas and Oil Pipeline Return on Equity, 123 FERC ] 
61,048, at P 58 (2008) (Proxy Group Policy Statement).

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    P = D/(k-g),

where P is the price of the stock at the relevant time, D is the 
current dividend, k is the discount rate (or investors' required 
return), and g is the expected growth rate in dividends.
    6. For ratemaking purposes, the Commission rearranges the DCF 
formula to solve for k, the discount rate, so that:

    k = D/P + g.

    Under the resulting DCF formula, the investor's required return is 
estimated to equal current dividend yield (dividends divided by share 
price) plus the projected future growth rate of dividends. The term 
``k'' represents the investor's required return for investing in the 
firm (i.e., the cost of equity).\8\ The Commission's practice has been 
to set a regulated firm's rate of return, or ``r'' to equal ``k'' the 
investor's required return for investing in the firm.
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    \8\ See Opinion No. 531, 147 FERC ] 61,234 at P 15.
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    7. During the decades that the Commission has used the DCF model, 
the Commission periodically has made changes in its implementation of 
the model with respect to the industries that it regulates. In Opinion 
No. 531, the Commission used the same two-step, constant-growth DCF 
model in public utility cases as it had used in natural gas and oil 
pipeline cases for the last 20 years.\9\ For the dividend yield 
component of that model, the Commission derives a single, average 
dividend yield based on the indicated dividend and the average of the 
monthly high and low stock prices over a six-month period.\10\ The 
Commission then uses a two-step method to estimate a single constant 
growth rate in dividends.\11\
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    \9\ Id. P 8.
    \10\ See, e.g., Portland Natural Gas Transmission Sys., Opinion 
No. 510, 134 FERC ] 61,129, at PP 232-34 (2011).
    \11\ Opinion No. 531, 147 FERC ] 61,234 at P 17.
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    8. In order to project short-term growth in dividends, the 
Commission uses security analysts' three-year to five-year earnings 
forecasts, as published by the Institutional Brokers Estimate System 
(IBES). The Commission has held that earnings forecasts made by 
investment analysts are the best available estimates of short-term 
dividend growth based on a finding that they are relied on by investors 
when making their investment decisions.\12\
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    \12\ See, e.g., Transcon. Gas Pipe Line Corp., Opinion No. 414-
B, 85 FERC ] 61,323, at 62,269 & n.34 (1998) (citing an article 
entitled ``Using Analysts' Growth Forecasts to Estimate Shareholders 
Required Rates of Return'' in Financial Management, Spring 1986, 
pages 58-67); Proxy Group Policy Statement, 123 FERC ] 61,048 at PP 
73-77.
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    9. The use of a long-term growth estimate for dividends originated 
in the Commission's 1994 decision in Ozark Gas Transmission System.\13\ 
In that decision, the Commission explained:
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    \13\ 68 FERC ] 61,032 (1994) (Ozark).

    In the constant growth DCF model used by both parties in this 
proceeding, dividends are expected to grow indefinitely at the rate 
of (g). The indefinite future used by the DCF model is 50 years or 
more . . . . While we concede that it is more difficult to project 
growth for many years from the present time, we conclude that a 
projection limited to five years, with no evidence of what is 
anticipated beyond that point, is not consistent with the DCF model 
and cannot be relied on in a DCF analysis.\14\
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    \14\ Id. at 61,105. The Commission chose 50 years to represent 
the indefinite future because the present value of a one-dollar 
dividend received 50 years in the future and discounted at 12 
percent is less than one cent. Id. at n.32.

    In Opinion No. 396-B, issued in 1997, the Commission held that the 
long-term growth in the United States economy as a whole, as measured 
by gross domestic product (GDP), is the most reasonable projection of 
long-term growth rates for interstate natural gas pipelines.\15\ The 
Commission stated, ``[i]t is reasonable to expect that, over the long-
run, a regulated firm will grow at the rate of the average firm in the 
economy, because regulation will generally prevent the firm from being 
extremely profitable during good periods, but also protects it somewhat 
during bad periods.'' \16\ The D.C. Circuit affirmed the Commission's 
decision to use GDP to estimate long-term growth in dividends.\17\
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    \15\ Opinion No. 396-B, 79 FERC at 62,382-83, reh'g denied, 
Opinion No. 396-C, 81 FERC ] 61,036 (1997).
    \16\ Id.
    \17\ Williston Basin Interstate Pipeline Co., v. FERC, 165 F.3d 
54, 64 (D.C. Cir. 1999), finding that ``[t]he testimony adduced at 
the hearing demonstrated that major investment houses used an 
economy-wide approach to project long-term growth, that such an 
approach was supported by practical economic considerations, and 
that existing industry-specific approaches imperfectly reflected 
investor expectations and made unfounded economic assumptions.'' 
Nonetheless, finding the record evidence inadequate to support the 
Commission's use of certain GDP data, the court remanded the case 
for further proceedings on this issue. Subsequently, the Commission 
has used an average of three GDP growth projections.
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    10. When the Commission first required use of a long-term growth 
estimate, the Commission averaged the short-term IBES growth estimate 
with the long-term GDP growth estimate in determining the overall 
constant dividend growth rate.\18\ However, in 1998, in Opinion No. 
414-A, the Commission changed the weighting scheme in order to give 
two-thirds weight to short-term forecasts and one-

[[Page 11771]]

third weight to long-term forecasts. The Commission explained,
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    \18\ Opinion No. 396-B, 79 FERC at 62,383, reh'g denied, Opinion 
No. 396-C, 81 FERC ] 61,036.

    While determining the cost of equity nevertheless requires that 
a long-term evaluation be taken into account, long-term projections 
are inherently more difficult to make, and thus less reliable, than 
short-term projections. Over a longer period, there is a greater 
likelihood for unanticipated developments to occur affecting the 
projection. Given the greater reliability of the short-term 
projection, we believe it is appropriate to give it greater weight. 
However, continuing to give some effect to the long-term growth 
projection, will aid in normalizing any distortions that might be 
reflected in short-term data limited to a narrow segment of the 
economy.\19\
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    \19\ Opinion No. 414-A, 84 FERC at 61,423-24.

    The D.C. Circuit affirmed this two-thirds/one-third weighting for 
determining the overall dividend growth estimate.\20\
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    \20\ Canadian Ass'n of Petroleum Producers v. FERC, 254 F.3d at 
297. Since Opinion No. 414-A, the Commission has made no changes in 
its two-step DCF methodology used for natural gas and oil pipelines, 
except to require that, if a master limited partnership (MLP) is 
included in the proxy group, its long-term growth rate should be 
one-half the GDP growth estimate. Proxy Group Policy Statement, 123 
FERC ] 61,048 at P 106. The Commission explained that MLPs have less 
growth potential than corporations, because they generally 
distribute to partners an amount in excess of their reported 
earnings. Id. P 12.
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    11. Prior to Opinion No. 531, the Commission determined public 
utility ROEs using a one-step, constant-growth DCF model, which 
considered only short-term growth projections for a public utility.\21\ 
In 2000, the Commission decided not to adopt the two-step DCF 
methodology for public utilities, primarily because they were only just 
beginning the process of restructuring. Under those circumstances, the 
Commission determined that investors would be unlikely to place much 
weight on long-term forecasts because the uncertainties regarding the 
future were so great.\22\ However, in Opinion No. 531, the Commission 
found that investor uncertainty due to the type of changes anticipated 
in 2000 had diminished. Accordingly, the Commission concluded that the 
time had come to apply the same DCF methodology in public utility cases 
as it utilizes in natural gas and oil pipeline cases.\23\ Most 
importantly, the Commission found that including a long-term estimate 
of dividend growth in the constant growth DCF model would bring the 
public utility ROE approach into full alignment with the underlying 
theory of the DCF model.\24\ As it found with respect to natural gas 
and oil pipelines, the Commission found that it is reasonable to 
project that public utilities, which transmit electricity to supply 
energy to the national economy, will have long-term growth consistent 
with the growth of the economy as a whole.\25\ The Commission also 
found that the use of a long-term growth projection will aid in 
normalizing any distortions that might be reflected in short-term data 
limited to a narrow segment of the economy. Finally, using the same 
long-term growth projection for all public utilities produces a 
narrower zone of reasonableness, consistent with the fact different 
firms in a regulated industry would not ordinarily be expected to have 
widely varying levels of profitability.
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    \21\ See Opinion No. 531, 147 FERC ] 61,234 at PP 24-31 
(describing the one-step method).
    \22\ Opinion No. 445, 92 FERC at 61,261-62.
    \23\ Opinion No. 531, 147 FERC ] 61,234 at PP 35-36.
    \24\ Incorporating a long-term growth estimate in the DCF 
methodology is consistent with the underlying theory of the constant 
growth DCF model because
    from the standpoint of the DCF model that extends into 
perpetuity, analysts' horizons are too short, typically five years. 
It is often unrealistic for such growth to continue in perpetuity. A 
transition must occur between the first stage of growth forecast by 
analysts for the first five years and the company's long-term 
sustainable growth rate. . . . It is useful to remember that 
eventually all company growth rates, especially utility services 
growth rates, converge to a level consistent with the growth rate of 
the aggregate economy.
    Roger A. Morin, New Regulatory Finance 308 (Public Utilities 
Reports, Inc. 2006) (Morin).
    \25\ See Opinion No. 531, 147 FERC ] 61,234 at P 40.
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    12. No party in the Opinion No. 531 proceeding objected to the 
Commission's adoption of the two-step DCF model for public utilities, 
and the Commission also applied that model, without objection, in 
Opinion No. 551, addressing a complaint that the MISO Transmission 
Owners' ROE is unjust and unreasonable.\26\
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    \26\ Ass'n of Businesses Advocating Tariff Equity v. 
Midcontinent Indep. Sys. Operator, Inc., 156 FERC ] 61,234 (2016).
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B. Other Financial Models

    13. Although the Commission has used the DCF model to determine 
ROEs for public utilities and natural gas and oil pipelines since the 
1980s, investors use other financial models in addition to the DCF 
model to evaluate investments. In a number of recent proceedings, 
discussed further below, the Commission has considered certain other 
financial models when determining the just and reasonable ROE for 
public utilities. These other financial models include the Capital 
Asset Pricing Model (CAPM), Expected Earnings Model, and Risk Premium 
method, which are described below.
1. The CAPM Model
    14. Investors use CAPM analysis as a measure of the cost of equity 
relative to risk.\27\ The CAPM methodology is based on the theory that 
the market-required rate of return for a security is equal to the risk-
free rate plus a risk premium associated with the specific security. 
Specifically, the CAPM methodology estimates the cost of equity by 
taking the ``risk-free rate'' and adding to it the ``market-risk 
premium'' multiplied by ``beta.'' \28\ The risk-free rate is 
represented by a proxy, typically the yield on 30-year U.S. Treasury 
bonds.\29\ Betas, which are published by several commercial sources, 
measure a specific stock's risk relative to the market. The market risk 
premium is calculated by subtracting the risk-free rate from the 
expected return. The expected return can be estimated either using a 
backward-looking approach, a forward-looking approach, or a survey of 
academics and investment professionals.\30\ A CAPM analysis is 
backward-looking if the expected return is determined based on 
historical, realized returns.\31\ A CAPM analysis is forward-looking if 
the expected return is based on a DCF analysis of a large segment of 
the market.\32\ Thus, in a forward-looking CAPM analysis, the market 
Risk Premium is calculated by subtracting the risk-free rate from the 
result produced by the DCF analysis.\33\
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    \27\ Morin at 146-147.
    \28\ Id. at 150.
    \29\ Id. at 151.
    \30\ Id. at 155-162.
    \31\ Id. at 155-156.
    \32\ Id. at 159-160.
    \33\ Id. at 150, 155.
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2. Expected Earnings
    15. A comparable earnings analysis is a method of calculating the 
earnings an investor expects to receive on the book value of a 
particular stock. The analysis can be either backward looking using the 
company's historical earnings on book value, as reflected on the 
company's accounting statements, or forward-looking using estimates of 
earnings on book value, as reflected in analysts' earnings forecasts 
for the company.\34\ The forward-looking approach is often referred to 
as an ``Expected Earnings'' analysis. The returns on book equity that 
investors expect to receive from a group of companies with risks 
comparable to those of a particular utility are relevant to determining 
that utility's cost of equity, because those returns on book equity 
help investors determine the

[[Page 11772]]

opportunity cost of investing in that particular utility instead of 
other companies of comparable risk.\35\
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    \34\ See Opinion No. 531-B, 150 FERC ] 61,165 at P 125.
    \35\ Id. P 128.
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3. Risk Premium
    16. The Risk Premium methodology, in which interest rates are a 
direct input, is ``based 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.'' \36\ As 
the Commission found in Opinion No. 531, investors' required risk 
premiums expand with low interest rates and shrink at higher interest 
rates. The link between interest rates and risk premiums provides a 
helpful indicator of how the interest rate environment affects 
investors' required rates of return.
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    \36\ Opinion No. 531, 147 FERC ] 61,234 at P 147 (citing Morin 
at 108).
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    17. Multiple approaches have been advanced to determine the equity 
risk premium for a utility.\37\ For example, a risk premium can be 
developed directly by conducting a Risk Premium analysis for the 
company at issue, or indirectly by conducting a Risk Premium analysis 
for the market as a whole and then adjusting that result to reflect the 
risk of the company at issue.\38\ Another approach for the utility 
context is to ``examin[e] the risk premiums implied in the returns on 
equity allowed by regulatory commissions for utilities over some past 
period relative to the contemporaneous level of the long-term U.S. 
Treasury bond yield.'' \39\
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    \37\ See generally Morin at 107-130.
    \38\ Id. at 110.
    \39\ Id. at 123.
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C. Opinion Nos. 531 and 551 and Anomalous Market Conditions

    18. Since the financial crisis of 2008-2009, the Commission has 
grappled with whether the DCF model continues to produce ROEs for 
public utilities consistent with the Hope and Bluefield capital 
attraction standards.\40\ In both Opinion Nos. 531 and 551, the 
Commission concluded that the capital market conditions prevailing 
after the financial crisis--in particular, the low yields on bonds, 
including U.S. Treasury bonds--rendered the Commission less confident 
that a mechanical application of the midpoint of the DCF-produced zone 
of reasonableness would provide a risk-appropriate ROE, as required by 
Hope and Bluefield. The Commission therefore considered a series of 
alternative valuation methodologies (i.e., CAPM analysis, Expected 
Earnings analysis, and Risk Premium analysis), as well as the ROEs 
allowed by state public utility commissions, ``to gain insight into the 
potential impacts of these unusual capital market conditions on the 
appropriateness of using [the midpoint of the DCF zone of 
reasonableness].'' \41\ The Commission concluded that the comparisons 
to the other valuation methodologies supported setting the New England 
Transmission Owners' ROE above the midpoint of the DCF zone of 
reasonableness. After determining that the just and reasonable base ROE 
should be above the midpoint, the Commission stated that it has 
traditionally used measures of central tendency to determine an 
appropriate return in ROE cases. Moreover, in cases involving placement 
of the base ROE above the central tendency of the zone of 
reasonableness, the Commission has used the central tendency of the top 
half of the zone.\42\ Accordingly, in both Opinion Nos. 531 and 551, 
the Commission set the ROE at the midpoint of the upper half of the 
zone of reasonableness (upper midpoint).\43\ In Opinion No. 531, the 
upper midpoint of the 7.03 percent to 11.74 percent zone of 
reasonableness was 10.57 percent.\44\ In Opinion No. 551, the upper 
midpoint of the 7.23 percent to 11.35 percent zone of reasonableness 
was 10.32 percent.\45\
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    \40\ Hope, 320 U.S. 591; Bluefield, 262 U.S. 679.
    \41\ Opinion No. 531, 147 FERC ] 61,234 at P 145.
    \42\ Id. PP 151-152; Opinion No. 551, 156 FERC ] 61,234 at PP 
275-276.
    \43\ The Commission sets the ROE for a group of utilities at the 
midpoint or upper midpoint of the zone of reasonableness, but the 
ROE for a single entity at the median or upper median. See S. 
California Edison Co. v. FERC, 717 F.3d 177, 181-182 (D.C. Cir. 
2013).
    \44\ Opinion No. 531, 147 FERC ] 61,234 at P 142.
    \45\ Opinion No. 551, 156 FERC ] 61,234 at P 67.
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D. The Emera Maine Decision

    19. Various parties sought review of Opinion No. 531 in the D.C. 
Circuit. The New England Transmission Owners argued that the Commission 
failed to demonstrate that their existing 11.14 base ROE was unjust and 
unreasonable. The customer representatives argued that the Commission 
had failed to show that the new 10.57 base ROE was just and reasonable. 
In Emera Maine, the D.C. Circuit agreed with both the New England 
Transmission Owners and customer representatives and vacated and 
remanded Opinion No. 531 et seq.
    20. As an initial matter, the court rejected the New England 
Transmission Owners' argument that an ROE within the DCF-produced zone 
of reasonableness could not be deemed unjust and unreasonable. The 
court explained that the zone of reasonableness established by the DCF 
is not ``coextensive'' with the ``statutory'' zone of reasonableness 
envisioned by the FPA.\46\ Accordingly, the court concluded that the 
fact that the New England Transmission Owners' 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.\47\
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    \46\ Emera Maine, 854 F.3d at 22-23.
    \47\ Id. at 23.
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    21. Nevertheless, the court agreed with the New England 
Transmission Owners that the Commission had not adequately shown that 
their existing ROE was unjust and unreasonable. The court 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 circumstances of the case.'' \48\ Thus, the 
fact that the New England Transmission Owners' existing ROE did not 
equal the just and reasonable ROE that the Commission would have set 
using the current DCF analysis inputs did not necessarily indicate that 
the New England Transmission Owners' existing ROE fell outside the 
statutory zone of reasonableness.\49\ As such, the D.C. Circuit 
concluded that Opinion No. 531 ``failed to include an actual finding as 
to the lawfulness of [the New England] Transmission Owners' existing 
base ROE'' and that its conclusion that their existing ROE was unjust 
and unreasonable was itself arbitrary and capricious.\50\
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    \48\ Id. at 23, 26.
    \49\ 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.'').
    \50\ Id.
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    22. The court also agreed with the customer representatives that 
the Commission failed to adequately demonstrate that the new base ROE 
it established was just and reasonable. The Court did not express 
concerns regarding the Commission's decision to ``abandon its 
traditional use of the midpoint of the zone of reasonableness in 
setting [the New England] Transmission Owners' base ROE'' based on the 
anomalous capital market conditions and its resulting evaluation of 
alternative methodologies for

[[Page 11773]]

calculating the cost of equity.\51\ The court stated that ``the 
alternative benchmarks and additional record evidence may have shown 
that some upward adjustment was warranted.'' \52\
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    \51\ Id. at 27; see also id. at 30 (``[W]hile the evidence in 
this case may have supported an upward adjustment from the midpoint 
of the zone of reasonableness, FERC failed to provide any reasoned 
basis for selecting 10.57 percent as the new base ROE.'').
    \52\ Id. at 30 (quotation marks omitted).
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    23. Nevertheless, the court concluded that the Commission failed to 
point to evidence in the record supporting the conclusion that its 
solution to the anomalous capital market conditions--i.e., setting the 
base ROE at the upper midpoint rather than at the midpoint--was just 
and reasonable. The court explained that the Commission expressly did 
not rely on the alternative methodologies to support its determination 
that a 10.57 percent base ROE was just and reasonable. The court also 
observed that the Commission's explanation that it had previously set 
the just and reasonable base ROE at a measure of central tendency for 
the upper part of the DCF-produced zone of reasonableness was inapt 
because, in those cases, the Commission had first determined that those 
utilities were not of average risk, whereas the Commission found that 
the New England Transmission Owners were of average risk. The court 
therefore remanded the proceeding so that the Commission could further 
explain why the base ROE it selected is just and reasonable.

E. Post-Emera Maine Proceedings

    24. Following the decision in Emera Maine, the Commission issued 
two orders proposing a methodology for addressing the issues that were 
remanded to the Commission in Emera Maine and establishing a paper 
hearing on whether and how this methodology should apply to the four 
complaint proceedings concerning both the New England and MISO 
transmission owners' ROE.\53\ In those orders, 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 makes it more likely 
that the Commission's decision will accurately reflect how investors 
make their investment decisions.\54\
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    \53\ See Martha Coakley v. Bangor Hydro-Elec. Co., 165 FERC ] 
61,030 (2018) (Coakley Briefing Order); Ass'n of Businesses 
Advocating Tariff Equity v. Midcontinent Indep. Sys. Operator, Inc., 
165 FERC ] 61,118 (2018) (MISO Briefing Order).
    \54\ Coakley Briefing Order, 165 FERC ] 61,030 at P 34; MISO 
Briefing Order, 165 FERC ] 61,118 at P 36.
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    25. Specifically, the Commission proposed to rely on three 
financial models that produce zones of reasonableness--the DCF model, 
CAPM model, 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. The Commission explained that the Risk Premium 
model produces a single numerical point rather than a range; therefore, 
it cannot be used with the other three financial models in establishing 
a composite zone of reasonableness.\55\ The Commission proposed a 
framework for using that composite zone of reasonableness in evaluating 
whether an existing base ROE remains just and reasonable.\56\
---------------------------------------------------------------------------

    \55\ Coakley Briefing Order, 165 FERC ] 61,030 at P 36; MISO 
Briefing Order, 165 FERC ] 61,118 at P 38.
    \56\ Coakley Briefing Order, 165 FERC ] 61,030 at P 36; MISO 
Briefing Order, 165 FERC ] 61,118 at P 38.
---------------------------------------------------------------------------

    26. 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 relying on four financial 
models--the DCF model, CAPM model, Expected Earnings model, and Risk 
Premium model--to produce four separate base ROE estimates that would 
then be averaged to produce a specific just and reasonable base ROE.
    27. The Commission established a paper hearing in the Coakley and 
MISO complaint proceedings \57\ and directed the participants in those 
proceedings to submit briefs regarding this proposed new approach and 
how to apply it to those proceedings.\58\
---------------------------------------------------------------------------

    \57\ Coakley Briefing Order, 165 FERC ] 61,030 at P 31; MISO 
Briefing Order, 165 FERC ] 61,118 at P 20.
    \58\ Coakley Briefing Order, 165 FERC ] 61,030 at P 31; MISO 
Briefing Order, 165 FERC ] 61,118 at P 20; see also Arkansas Pub. 
Serv. Comm'n, 165 FERC ] 61,119 (2018).
---------------------------------------------------------------------------

II. Request for Comments

    28. As part of ensuring that the Commission continues to meet our 
statutory obligations, the Commission, on occasion, engages in public 
inquiry to gauge whether there is a need to add to, modify, or 
eliminate certain policies or regulatory requirements. In this 
proceeding, the Commission seeks comments on potential modifications to 
our approach to determining a just and reasonable ROE. Although the 
Commission requested briefing on some of the issues below in the 
Coakley and MISO Briefing Orders, this proceeding will provide all 
interested stakeholders with the opportunity to comment on the 
Commission's ROE policy in light of the decision in Emera Maine.
    29. The Commission seeks comments on eight general topics as part 
of this inquiry: (A) The role of the Commission's base ROE in 
investment decision-making and what objectives should guide the 
Commission's approach; (B) whether uniform application of our base ROE 
policy across the electric, interstate natural gas pipeline and oil 
pipeline industries is appropriate and advisable; (C) performance of 
the DCF model, (D) proxy groups; (E) financial model choice; (F) 
mismatch between market-based ROE determinations and book-value rate 
base; (G) how the Commission determines whether an existing ROE is 
unjust and unreasonable under the first prong of the FPA section 206; 
and (H) model mechanics and implementation.
    30. In the following sections, we outline these eight topics and 
enumerate questions that commenters may consider in addressing each 
topic. Commenters need not address every topic or answer every question 
enumerated below.

A. Role and Objectives of the Commission's Base ROE Policy

    31. The Commission seeks comment on the role of base ROE in 
investment decision-making and what objectives should guide the 
Commission's approach to our base ROE policy apart from the basic Hope/
Bluefield standard.
    A1. To what extent would the ROE methodology described in the 
Coakley and MISO Briefing Orders impact the predictability of ROE 
determinations and the costs for market participants of making or 
intervening in such proceedings?
    A2. How would using the ROE methodology described in the Coakley 
and MISO Briefing Orders affect an investor's ability to forecast the 
ROE the Commission would establish in a litigated proceeding and the 
ability of participants to propose, contest, and settle base ROEs as 
compared to using only the DCF methodology?
    A3. Currently, public utilities in different Independent System 
Operators (ISOs) or RTOs may receive different ROEs, despite all using 
national proxy groups, due primarily to differences in when FPA section 
205 or 206 proceedings were initiated. Are such variations justified, 
and, if not, should

[[Page 11774]]

the Commission consider applying the same ROE to all utilities in RTOs/
ISOs based on the most recent proceeding?
    A4. Should the ROE reflect the cost of capital at the time of the 
investment or be subject to adjustment to reflect the contemporary ROE 
required by investors?
    A4.a. Should the Commission consider a ``vintage approach,'' with 
ROE fixed for the life of the asset at the time that each asset was 
completed?
    A4.b. Would such a ``vintage approach'' need to be coupled with an 
annual national default ROE for investments made in that year, so as to 
minimize the need for numerous annual litigated ROE proceedings for 
each public utility that made an investment during that year? What 
procedure should be used to determine such a default ROE?

B. ROEs for Different Commission-Regulated Industries

    32. The Commission seeks comment on whether to apply a single ROE 
policy across electric, interstate natural gas and oil pipeline 
industries.
    B1. In Opinion No. 531, the Commission found that the same DCF 
methodology should be used to determine an ROE for all its regulated 
industries, including public utilities, as well as gas and oil 
pipelines. If the Commission departs from our sole use of a two-step 
DCF methodology for public utilities, should the new method or methods 
also be used to determine natural gas and oil pipeline ROEs?
    B2. The Risk Premium methodology approved in Opinion Nos. 531 and 
551 relied to a large extent on ROEs set forth in numerous settlements 
involving public utility formula rates approved by the Commission over 
the preceding 15 or 20 years. Natural gas and oil pipelines have stated 
rates and settlements of their rate cases are typically ``black box'' 
settlements that do not specify an agreed-upon ROE. How could the Risk 
Premium methodology be implemented in natural gas or oil pipeline rate 
cases where there is no history of ROE settlements from which to 
develop a risk premium study of the type used in Opinion Nos. 531 and 
551?
    B3. Given the tendency of the Expected Earnings methodology to 
produce more high-end outliers than the other methodologies, would 
there be a sufficient number of natural gas and oil pipeline proxy 
members to implement the Expected Earnings methodology for gas and oil 
pipelines?
    B4. What, if any, differences between public utilities on the one 
hand and natural gas and oil pipelines on the other would justify using 
different methodologies to determine their ROEs? \59\
---------------------------------------------------------------------------

    \59\ See Trailblazer Pipeline Co. LLC, 166 FERC ] 61,141, at P 
48 (2019) (setting for hearing the issue of whether it would be 
appropriate to apply alternatives to the DCF for natural gas 
pipelines and whether appropriate data that would support those 
alternatives are available).
---------------------------------------------------------------------------

C. Performance of the DCF Model

    33. The Commission seeks comment on the robustness of the DCF model 
over time and under differing investment conditions.
    C1. The DCF model assumes stock prices are equal to the present 
value of projected future cash flows. Is there evidence of situations 
when these assumptions are inaccurate?
    C2. Have current and projected proxy company earnings over the last 
10 to 20 years increased in a manner that would justify any increases 
in their stock prices over the same period, consistent with DCF model 
assumptions?
    C3. How does the DCF methodology perform over a wide range of 
interest rate conditions?
    C3.a. What specific assumptions of the DCF model, if any, do not 
work well in low or high interest rate environments?
    C3.b. Is there evidence that the volatility of price-to-earnings 
ratios over the last 10 to 20 years, assumed to be constant in the DCF 
methodology, has been driven by the wide swings in interest rates over 
this period? If so, would the constant P/E assumption impact the award 
of reasonable ROEs?

D. Proxy Groups

    34. The Commission seeks comment on the appropriate guidelines for 
proxy group composition, elimination of outliers, and placement of base 
ROE within a zone of reasonableness.
    D1. Should proxy groups for electric utilities, as well as natural 
gas and oil pipelines, consist only of companies with corresponding 
regulated businesses?
    D1.a. For companies with a combination of regulated and unregulated 
businesses, should a company be required to derive a certain percentage 
of its revenues from the applicable regulated business in order for 
that company to be included in the proxy group that is used to 
determine an ROE for a company in that regulated business?
    D1.b. Are the corresponding proxy groups sufficiently large given 
the continued consolidation in the industries?
    D2. Should risk be considered both in the proxy group selection and 
in the placement within the zone of reasonableness?
    D2.a. Should the Commission's approach to proxy group selection 
change depending on which financial models it considers when 
determining the just and reasonable ROE and, if so, how?
    D3. Should the Commission consider non-energy companies when 
selecting proxy groups?
    D3.a. What non-energy industries or securities have comparable risk 
to public utilities and natural gas and oil pipelines, if any?
    D3.b. Do certain non-energy industries or securities feature fewer 
outliers?
    D4. What, if any, are appropriate high- and low-end outlier tests?
    D4.a. The Commission currently excludes from the proxy group 
companies whose ROE fails to exceed the average 10-year bond yield by 
approximately 100 basis points. Should the low-end outlier test 
continue to be based on a fixed value relative to the costs of debt or 
(a) should it be based on its value relative to the median (i.e., less 
than 50 percent of the median); or (b) still reflect the cost of debt 
but vary based on interest rates?
    D4.b. How, if at all, should the Commission's approach to outliers 
vary among different financial models?
    D5. How, if at all, does the Commission's use of credit ratings in 
ROE determinations incentivize public utilities to behave in certain 
ways, such as issuing more debt, and does this affect public utilities' 
credit ratings?
    D6. What would be the impact of the Commission modifying the credit 
rating screen to include all investment-grade utilities in the proxy 
group?
    D7. To what extent do credit ratings correspond to the ROE required 
by investors?
    D8. The Commission excludes from the proxy group companies with 
merger activity during the six-month study period that is significant 
enough to distort study inputs. Should the Commission continue using 
our existing merger screen?
    D8.a. If so, should the Commission revise its standards for what 
conduct constitutes merger and acquisition activity?
    D9. What circumstances or factors, if any, warrant an adjustment 
from the midpoint/median to other points within the zone of 
reasonableness (e.g., lower or upper midpoint/median)?
    D10. The Commission currently uses midpoints to determine the 
central tendency of the zone of reasonableness when determining RTO-
wide ROEs.

[[Page 11775]]

Should the Commission adopt a policy of using medians for this purpose?
    D10.a. Would the use of multiple ROE methodologies, as proposed in 
the Coakley Briefing Order, undercut the Commission's current rationale 
for using the midpoint in RTO-wide base ROE?
    D10.b. Should the size of the proxy group be considered in this 
decision?
    D11. Can the Commission continue to construct proxy groups of 
sufficient size for natural gas and oil pipeline companies using the 
DCF methodology, or in general for the alternative methodologies, 
particularly considering the increased amount of merger and acquisition 
activity involving master limited partnerships (MLPs) and the multiple 
recent conversions of MLPs to C-corporations?

E. Financial Model Choice

    35. In addition to the DCF model, the Commission seeks comment on 
other financial models that investors use to evaluate utility equities, 
the strengths and weaknesses of each of those models, and whether the 
Commission should weigh certain financial models over other models 
based on their respective characteristics.
    E1. What models do investors use to evaluate utility equities?
    E2. What role do current capital market conditions play in the 
choice of model used by investors to evaluate utility equities?
    E2.a. If capital market conditions factor into the choice of model, 
how do investors determine and evaluate those conditions?
    E3. Are any models thought to be superior or inferior to others? If 
so, why?
    E4. How are alternative models redundant or complementary with each 
other and/or the DCF model?
    E5. To what extent do alternative models avoid any deficiencies of 
the DCF model and/or operate better in diverse capital market 
conditions?
    E6. To the extent that investors use multiple models, should the 
Commission combine them in its analysis or use the ``best'' one that 
would apply in all market conditions?
    E7. If the Commission were to consider multiple models, how should 
it weigh them?
    E8. To what extent is it reasonable for the Commission to use a 
simplified version of a model that does not reflect all the variables 
that investors consider?
    E8.a. Is the use of a simplified model justified for ease of 
administration and predictability of result?
    E9. How, if at all, should the Commission consider state ROEs?
    E9.a. How and why do state ROEs vary by state?
    E9.b. How are certain state ROEs more or less comparable to 
Commission ROEs?
    E10. If the Commission considers state ROEs, how should it compare 
FERC-jurisdictional transmission ROEs with state ROEs that apply to 
utilities that are (a) distribution and transmission companies; or (b) 
distribution, generation, and transmission companies?
    E11. To what extent, if any, should the Commission exercise 
judgment in using financial models to set ROEs under various capital 
market conditions?

F. Mismatch Between Market-Based ROE Determinations and Book-Value Rate 
Base

    36. The DCF and CAPM models determine a percentage ROE based on 
market prices of the proxy companies. That percentage ROE is then 
applied to the book value of the rate base to calculate the monetary 
ROE included in a utility's cost of service. For the last three 
decades, the market-to-book ratios of the companies that the Commission 
uses in proxy groups have generally been substantially in excess of 
one. The Commission seeks comment on the mismatch between market-based 
ROE determinations and book-value rate base and whether this mismatch 
is a problem, and how the Commission should address this issue.
    F1. Does the mismatch between market-based ROE determinations and a 
book value rate base support current market values? Is this mismatch a 
problem?
    F2. Why have most or all utility market-to-book ratios consistently 
exceeded one?
    F3. How should the ROE level be set relative to the cost of equity?
    F4. Should the Commission revise our use of these models to account 
for the mismatch between market-based ROE determinations and book-value 
rate base? If so, how? For example, should the Commission adjust the 
dividend yield used in the DCF model to represent a yield on book value 
rather than a yield on stock price?
    F5. Should the Commission consider adjusting ROEs to account for 
market-to-book ratios above or below one? Would doing so introduce 
circularity into Commission ROEs by setting the ROE at whatever level 
of earnings the market expected, rather than making an independent 
assessment of the appropriate ROE? \60\
---------------------------------------------------------------------------

    \60\ See Orange & Rockland Utilities, Inc., 44 FERC ] 61,253, at 
61,952 (1998).
---------------------------------------------------------------------------

G. First Prong of ROE Determination

    37. In the Coakley and MISO Briefing Orders, the Commission 
proposed that, in order to find an existing ROE unjust and unreasonable 
under the first prong of FPA section 206, the 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. For average 
risk utilities, the range of presumptively just and reasonable ROEs 
would be the quartile of the zone of reasonableness centered on the 
central tendency of the overall zone of reasonableness. For below or 
above average risk utilities, that range would be the quartile of the 
zone of reasonableness centered on the central tendency of the lower or 
upper half of the zone of reasonableness, respectively. The Commission 
seeks comment on how the Commission determines whether an existing ROE 
is unjust and unreasonable under the first prong of FPA section 206 and 
whether the quartile approach that the Commission proposed in the 
Coakley and MISO Briefing Orders is reasonable.
    G1. How should the Commission determine if existing ROEs are just 
and reasonable?
    G2. Is the quartile approach that the Commission proposed in the 
Coakley and MISO Briefing Orders appropriate? If not, how should the 
Commission revise this methodology?
    G3. When a successive complaint is filed while the current ROE is 
being adjudicated (i.e., a pancake complaint), should the subsequent 
complainant be required to make a prima facie showing of sufficient 
change in market conditions to meet the Coakley and MISO Briefing 
Order's proposed determination of whether an existing ROE remains just 
and reasonable? If so, what type of information or showing should the 
complainant provide to demonstrate that market conditions have changed, 
and what standard should the Commission apply when assessing whether to 
deny the subsequent complaint without setting it for hearing?
    G4. In single utility rate cases, the Commission determines the 
central tendency of the zone of reasonableness based on the median of 
the proxy group ROEs. Is the approach outlined in the Coakley and MISO 
briefing orders appropriate in single utility rate cases given that the 
proxy company ROEs tend to cluster near the center of the

[[Page 11776]]

zone of reasonableness, making the middle quartile relatively narrow?
    G4.a. Would it be reasonable to determine the central tendencies of 
the upper and lower halves of the zone of reasonableness for single 
utilities based on a midpoint analysis, so as to produce approximately 
equal ranges of presumptively just and reasonable ROEs for below 
average, average, and above average risk utilities?

H. Model Mechanics and Implementation

    38. The Commission seeks comment on the mechanics and 
implementation of the DCF, CAPM, Expected Earnings, and Risk Premium 
models. Specifically, the Commission seeks comment on general issues 
that affect multiple models, such as the underlying data that the 
models rely on, and also seeks comment on the mechanics specific to 
each of the four respective models.
1. General Issues/Issues That Affect Multiple Models
    H.1.1. Are IBES data a good proxy for ``investor consensus?''
    H.1.1.a. If not, are there better alternatives, such as Bloomberg, 
Zacks, S&P Capital, Morningstar, and Value Line?
    H.1.1.b. Should the Commission combine data from multiple sources?
    H1.1.c. What weight, if any, should be given to an estimate if the 
number and identity of analysts contributing to the estimate is not 
available?
    H.1.2. To what extent does model risk affect all ROE methodologies?
    H.1.3. The DCF model incorporates data at the parent/holding 
company level (e.g., stock price). The Commission adjudicates cases at 
the operating company level, for which there is no public data like 
stock prices, growth rates, and betas. What impact does this disparity 
have on the results of the DCF and other models?
    H.1.4. Should the Commission continue to rely on the efficient 
market hypothesis, which underlies the DCF and CAPM models? Why or why 
not?
    H.1.4.a. If yes, should the Commission continue to employ outlier 
screens, M&A screens, etc., for the DCF and CAPM models since these 
models need to incorporate all relevant information?
    H.1.5. Should growth rates be based on Value Line, IBES, or 
alternative estimates?
    H.1.6. Should the same growth rate sources be used across models, 
if more than one model is used to determine the ROE?
2. Model-Specific Questions
a. DCF
    H.2.a.1. Should the Commission continue to use a dividend DCF model 
or should the Commission use a different DCF model, for example, one 
based on free cash flow?
    H.2.a.2. Could terminal stock value be used in place of long-term 
growth projections? If so, how should terminal stock value be 
determined?
    H.2.a.3. Do investment analysts project earnings/dividends growth 
beyond five years, and if not, why not, and is GDP an appropriate proxy 
for long-term growth?
    H.2.a.4. How should the Commission weight short-term and long-term 
earnings/dividend growth projections?
    H.2.a.5. The Commission uses a constant growth DCF model. Should 
the Commission consider using a multi-stage DCF model? If so, how would 
the Commission determine the length of each stage of a proxy company's 
growth?
    H.2.a.6. Are six months of average high/low historical monthly 
stock prices an appropriate measure for the current stock price ``P''?
b. CAPM
    H.2.b.1. If the market risk premium is determined by applying the 
DCF methodology to a representative market index, should a long-term 
growth rate be used, as in the Commission's two-step DCF methodology?
    H.2.b.2. Beta is a measure of a security's risk relative to the 
broader market, such as the S&P 500, not of its absolute risk. Do 
CAPM's assumptions break down if both utility stocks and the broader 
market become riskier over time on an absolute basis, but the relative 
increase in risk in utility stocks rises more slowly?
    H.2.b.3. What are appropriate data sources for the beta value?
    H.2.b.4. Should the Commission employ more sophisticated versions 
of the CAPM model that consider more variables instead of only beta, 
such as the Fama-French Model? \61\
---------------------------------------------------------------------------

    \61\ The Fama and French Model is an asset pricing model that 
takes into consideration that value and small-cap stocks outperform 
markets on a regular basis. The model initially considered two 
factors in addition to the CAPM model: The size risk and value risk 
factors to the market risk factor in CAPM. Later in 2015, two 
additional factors were added: Profitability and investment. See 
generally Eugene F. Fama, et al. ``Common risk factors in the 
returns on stocks and bonds,'' Journal of Financial Economics 
(1993); Eugene F. Fama, et al. ``A Five-Factor Asset Pricing 
Model,'' Journal of Financial Economics (2015).
---------------------------------------------------------------------------

c. Expected Earnings
    H.2.c.1. Should the use of utilities in the proxy group for the 
Expected Earnings model be predicated on the Expected Earnings analysis 
being forward-looking?
    H.2.c.2. What, if any, concerns regarding circularity are there 
with using the Expected Earnings analysis to determine the base ROE, as 
opposed to using the analysis for corroborative purposes?
    H.2.c.2.i. If there are circularity concerns, are there ways to 
mitigate these concerns for the Expected Earnings analysis? If these 
concerns exist, are these concerns more significant than those 
surrounding the DCF methodology, which effectively separates Expected 
Earnings and ROE into its dividend yield and growth rate subcomponents?
d. Risk Premium
    H.2.d.1. Should the analysis be historical or forward-looking?
    H.2.d.2. Is a Risk Premium analysis compatible with a finding of 
anomalous capital market conditions? Why or why not?
    H.2.d.3. Unlike the financial models discussed above, the Risk 
Premium analysis produces a single ROE rather than a zone of 
reasonableness. Does this characteristic require the Commission to use 
the Risk Premium model differently than the other models?
    H.2.d.3.i. Is there a method by which the Risk Premium ROE could be 
adjusted upward for an above average utility or downward for a below 
average risk utility? If not, is it reasonable to consider the results 
of a Risk Premium analysis when determining the ROE of an above or 
below average risk utility?
    H.2.d.3.ii. Is it appropriate to use a Risk Premium analysis when 
conducting the first prong of the section 206 evaluation?

III. Comment Procedures

    39. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice, including any related 
matters or alternative proposals that commenters may wish to discuss. 
Comments are due June 26, 2019, and Reply Comments are due July 26, 
2019. Comments must refer to Docket No. PL19-4-000, and must include 
the commenter's name, the organization they represent, if applicable, 
and their address.
    40. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard

[[Page 11777]]

word-processing formats. Documents created electronically using word-
processing software should be filed in native applications or print-to-
PDF format and not in a scanned format. Commenters filing 
electronically do not need to make a paper filing.
    41. Commenters that are not able to file comments electronically 
must send an original of their comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE, 
Washington, DC 20426.
    42. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

IV. Document Availability

    43. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5:00 p.m. eastern time) at 888 First Street NE, Room 2A, 
Washington, DC 20426.
    44. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    45. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

    By direction of the Commission.

    Issued: March 21, 2019.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2019-05893 Filed 3-27-19; 8:45 am]
BILLING CODE 6717-01-P