Opinion ID: 398885
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion of Yankee Investment From Rate Base

Text: 98 In response to NEP's insistence that its investment in the Yankees be included in the rate base, FERC explained that the return on that investment is separately determined in proceedings relating to the Yankees. The Commission stated: 99 After reconsideration, we still find the answer to the first question is that the NEP Yankee investment should be excluded from NEP's capital structure. This is so because the NEP Yankee investment is already reflected as common equity in the capital structures of the Yankee plants. Thus, it would clearly be inequitable for NEP, through the Yankee companies, to earn a return on that NEP investment in the Yankee rate proceedings and then for NEP to earn a return on the same investment in the NEP proceedings. 4 In other words, unless the Yankee investment is excluded from NEP's capital structure, the same investment would be taken into account again for ratemaking purposes. To avoid this dual impact, the Commission has consistently excluded the Yankee investments from the capital structures of the sponsoring companies. 100 As above indicated, FERC's initial determination to exclude NEP's Yankee investment entirely from common equity was remanded by this court. New England Power Co. v. FERC, supra. In its slip opinion at 5, this court noted a meagre, if indeed not non-existent evidentiary foundation for FERC's determination, noting further that NEP bears the burden of proving the constituent elements of its capital structure. 101 In Opinion 49-A, FERC reviewed the policy considerations supporting its determination to exclude Yankee investments and its consequences, that is, NEP will recover the cost of capital invested in its own facilities via the rate base, and will recover the cost of capital invested in the Yankees via its share of those companies' profits. FERC also noted that NEP had failed to make a persuasive showing in support of its burden of proof on including the Yankee investments. FERC thus articulated a rational basis for its determination, and NEP has not demonstrated that its capital structure necessitates the judicial substitution of a determination contrary to that of FERC. 102 As above indicated, resolution of conflicting economic issues is precisely within the expertise of FERC. It determined that NEP's rate of return on equity should be based on cost of capital invested in its own facilities commensurate with the attendant risks, noting that the risk and allowed rate of return differ on NEP's different investments. 23 That determination, which forms the basis for the exclusion of the Yankee investment, is neither devoid of reason nor lacking support in the record. City of Cleveland v. FPC, 174 U.S.App.D.C. 1, 525 F.2d 845 (1976). Accordingly, we affirm FERC's exclusion of the Yankee investment from common equity. 103