45 F.4th 248
D.C. Cir.2022Background
- FERC must ensure interstate transmission rates are "just and reasonable" and reviews changes under §205 and complaints under §206; refunds are limited to a 15-month period after a refund-effective date.
- MISO administers a multi-state transmission system; the contested rate component was the return-on-equity (Return) paid to transmission owners.
- Two successive Section 206 complaints (filed Nov. 12, 2013 and Feb. 12, 2015) challenged MISO’s Return; FERC set an initial refund-effective date tied to the first complaint.
- After this Court vacated FERC’s New England methodology in Emera Maine, FERC reconsidered and adopted a new multi-model methodology (various iterations using DCF, CAPM, expected-earnings, and a risk-premium model) and repeatedly revised the Return (10.32%, then 9.88%, then 10.02%).
- Petitioners (customers and transmission owners) challenged FERC’s methodologies and procedural choices; the D.C. Circuit held FERC’s reintroduction of the risk-premium model was arbitrary and capricious, vacated the rate orders, and remanded.
Issues
| Issue | Plaintiffs' Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Change in DCF short-/long-term growth weighting (from 2/3–1/3 to 4/5–1/5) | Customers: change improperly downplays long-term growth and is unreasonable | FERC: short- and long-term projections have converged; more weight on reliable short-term forecasts is justified | Court: upheld the change as a reasonable technical weighting decision |
| 2) CAPM inputs: (a) use of only 5-year growth projections for S&P 500 expected return | Customers: FERC should average short- and long-term projections | FERC: short-term projections better reflect investor expectations for the S&P 500; support in financial literature | Court: accepted FERC’s explanation; not arbitrary |
| 2b) CAPM inputs: adjusted betas with size-premium derived from unadjusted betas | Customers: mismatch renders size-premium use irrational | FERC: imperfect correspondence acknowledged but preferable to omitting size adjustment; technical choice supported by record | Court: deferential to FERC’s technical choice; upheld |
| 2c) CAPM inputs: using NYSE-based adjusted betas with S&P-based expected return | Customers: mixing indices is improper | FERC: lacks full NYSE/S&P adjusted-beta data; used best available data | Court: upheld as reasonable given record limitations |
| 3) Creation and use of presumptively just-and-reasonable ranges at step one; using the new Return from first complaint to resolve second complaint | Customers: ranges unlawfully raise plaintiffs’ burden and using the newly set Return made the presumption irrebuttable and unfair | FERC: ranges help determine whether an existing rate is unjust; statute requires evaluating the current rate at decision time; successive complaints cannot re-open refund limits | Court: upheld the presumption framework and use of the currently effective Return (10.02%) to resolve the second complaint; not an unlawful burden or denial of opportunity to rebut |
| 4) Setting new Return at midpoint vs. median of zone of reasonableness | Customers: median better reflects proxy distributions | FERC: longstanding practice uses midpoint for diverse proxy groups and uniform application across MISO | Court: rejected median argument; precedent allows midpoint for diverse, across-the-board proxy groups |
| 5) Reintroduction of the risk-premium model after rejecting it on rehearing | Customers: FERC initially found the risk-premium model fatally defective; reintroducing it lacked reasoned explanation and presented circularity and redundancy problems | FERC: model diversity adds robustness; averaging mitigates circularity and redundancy concerns | Court: reversed — FERC failed to give a reasoned explanation for reversing course on the risk-premium model; this was arbitrary and capricious and required vacatur |
Key Cases Cited
- Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017) (vacated FERC’s New England methodology; required explanation why an existing rate is unjust and unreasonable)
- Southern California Edison Co. v. FERC, 717 F.3d 177 (D.C. Cir. 2013) (discussing midpoint selection within a zone of reasonableness)
- Public Service Comm’n of Kentucky v. FERC, 397 F.3d 1004 (D.C. Cir. 2005) (upholding midpoint use for a diverse proxy group in MISO context)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009) (agency must provide reasoned explanation when changing course)
- FERC v. Electric Power Supply Ass’n, 577 U.S. 260 (2016) (court gives deference to agency ratemaking)
- Prometheus Radio Project v. FCC, 141 S. Ct. 1150 (2021) (review limited to the evidence in the record; defer to agency technical choices)
- Atlantic City Elec. Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002) (background on open access and ISO formation)