Commissioner Allison Clements Statement
July 15, 2021
Docket No. ER18-1639-000
Item E-2


I dissent from today’s order because I believe the Commission’s current return on equity (ROE) policy applies a flawed methodology that does not adequately protect consumers and does not yield just and reasonable rates.  I explained my concerns with our current policy in a recent dissent,[1] so I will not repeat them all here.  This proceeding and the parties’ briefs do, however, highlight again the significant flaws inherent in the Commission’s use of the Risk Premium model.[2]

Few Commission policies impact consumers as much as our policy for setting ROEs.  While today’s order addresses the ROE portion of cost-based compensation to keep the Mystic units online for two additional years, our ROE policy extends to all cost-based rates within our jurisdiction, including transmission rates.  In the coming years, our nation’s electric grid will require tremendous investment in transmission—an increasingly urgent need in the face of frequent extreme weather, drought and fire risk across the country.  Smart transmission investment not only enhances reliability and resilience, but it unlocks low-cost power supply, allows more efficient use of existing infrastructure, and minimizes the cost of meeting changing customer demand and public policies.  This investment can ultimately be a net win for consumers.  But the value proposition for consumers is in no small part dependent on this Commission’s rigorous scrutiny of the rates charged for transmission service, of which ROE is a central component.

Given this context, I believe the Commission must revisit its existing ROE policy.  I appreciate that this policy has been unsettled for years, a state that increases investment uncertainty and extends litigation.  To be sure, I share the goal of a stable ROE policy that will speed rate proceedings and allow for timely ROE updates as market conditions change.  But we should not double down on the desire for near-term stability to the detriment of consumer protection, and I worry our current ROE policy does just that.

For these reasons, I respectfully dissent.


[1] Entergy Arkansas, Inc., Opinion No. 575, 175 FERC ¶ 61,136 (2021) (Clements, Comm’r, dissenting).

[2] See, e.g., Massachusetts AG Initial Brief at 11-12 (pointing to the Commission’s multiple prior determinations that the Risk Premium model is insufficiently reliable to use for setting ROEs); Connecticut Parties Initial Brief at 20; Massachusetts AG Reply Brief at 5 n.21, 15 (arguing that the Risk Premium model’s reliance on historical ROEs creates analytical circularity); Massachusetts AG Initial Brief at 10; Massachusetts AG Reply Brief at 16; Connecticut Parties Initial Brief at 21-22 (arguing that the Risk Premium model, as applied per Opinion No. 569-A, inappropriately relies on past settlement ROEs on which a record may not have been developed, on which the Commission did not make an explicit just and reasonable finding, and which may not reflect the actual market cost of equity due to settlement dynamics or a failure to analyze contemporaneous market conditions).

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