Advancing FERC’s Methodology for Determining Allowed ROEs for Electric Transmission Companies

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The purpose of this paper is to respond to the important questions raised by the Federal Energy Regulatory Commission (“FERC” or the “Commission”) pertaining to the cost of capital for regulated public utilities and the methodology used by FERC to determine the base return on equity (“ROE”) for these companies. Concentric Energy Advisors Inc. (“Concentric”) prepared this paper at the request of the Edison Electric Institute (“EEI”). The recommendations provided address the substantive methodological issues raised in the prior proceedings and Notice of Inquiry (“NOI”) on these matters and will improve both the reliability and predictability of the results for all concerned parties. Reliable and predictable ROEs mitigate regulatory risk and reduce uncertainty, which are important considerations for investors and necessary to attract investment in critical infrastructure. These changes are both necessary and achievable with tools readily available to FERC and interested parties.

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