Advertisement

July 28, 2014

D.C. Circuit Affirms Federal Energy Regulatory Committee Returns on Equity Policy But Reverses For Failure to Apply Administrative Procedure Act Official Notice Rule

The D.C. Circuit’s remand today of a FERC transmission incentive rate of return order relating to Southern California Edison Company (“SoCal Edison”) is less interesting for its affirmance of the Commission’s rate of return methodology, than it is for its remand based on FERC’s misuse of the official notice provisions of the Administrative Procedure Act (“APA”).

The case, SoCal Edison v. FERC, U.S. Court of Appeals for the D.C. Circuit, No. 11-1471, May 10, 2013, essentially affirmed FERC’s determination to change its yardstick on measuring required returns on equity (“ROE”) for inclusion in incentive rate formulae for transmission projects. For a number of years FERC had determined ROEs for electric companies by applying its discounted cash flow (“DCF”) methodology to a proxy group of comparable publicly-traded companies and using the midpoint of the range of that group. In the orders under review, however, FERC instead applied its DCF methodology by using the median rather than the midpoint of the range. The court held that outcome to be acceptable as reasoned decision-making because the Commission had concluded in its order that the median of the range was mathematically preferable as a better “measurement of the central tendency” of the calculation. In so holding, the court rejected SoCal Edison’s protestations that the Commission had not demonstrated that SoCal Edison’s proposed use of a midpoint ROE produced a rate that was not just and reasonable under Section 205 of the Federal Power Act.

Nonetheless, the case was remanded to the Commission because the court found that FERC had failed to follow the requirements of Section 556(e) of the APA relating to an agency taking official notice of evidence not appearing in the record. Section 556(e) permits an agency to take official notice of a publicly-known fact generally not subject to dispute so long as the party against whom it would be used is given a reasonable opportunity to either contradict it or temper its use in the context of the particular case. With respect to SoCal Edison, the court noted that, after the record had closed, the Commission had taken official notice of the average ten-year U.S. Treasury bond yields for the period, March 1, 2008 to December 31, 2008, using that information to reduce the allowed ROE. Thereafter, SoCal Edison had submitted an affidavit of an expert who noted that during the free-fall of the U.S. economy during that period, the normal relationship between treasury yields and the private cost of capital had been disrupted, undercutting the proxy relationship between the two values. FERC refused to consider the affidavit on the grounds that the record had closed. The court held that refusal to be error, contrary to the requirements of Section 556(e) of the APA, and remanded the case to the Commission.

© 2014 Bracewell & Giuliani LLP

About the Author

David R. Poe, Litigation Attorney, Bracewell Giuliani Law Firm
Partner

David Poe’s practice focuses on providing administrative, regulatory and litigation advice to clients in infrastructure service industries, particularly electric utilities (including hydroelectric and nuclear generation), telecommunications and cable TV companies. He has been involved in federal and state legal issues specific to these industries.

202-828-5830

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on www.NatLawReview.com are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is www.NatLawReview.com  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.