SOUTHERN CALIFORNIA EDISON CO. V. FEDERAL ENERGY REGULATORY COMMISSION
717 F.3d 177 (D.C. Cir. 2013)
NATURE OF THE CASE: Southern (P) challenged the use of the median by Federal (D) to
determine the return on equity (ROE) as contrary to Federal Power Act 205(e), updating of
the ROE without considering proffered evidence as contrary to 5 U.S.C.S. 556(e), and the
use of the median and updating of the return on equity (ROE) for the locked-in period as
arbitrary and capricious.
FACTS: D approved incentive rate treatment for P's construction of three transmission
projects. P filed revisions to its transmission tariff, pursuant to FPA 205, to implement
the Incentives Order and propose a base ROE of 11.5% for the three transmission projects,
which were estimated to have capital expenditures of approximately $2.5 billion. D accepted
the tariff revisions subject to conditions. D ordered a paper hearing to allow all parties
to 'present evidence to rebut the proposed ROE determination.' P responded that the
midpoint, not the median, was consistent with a long line of D precedent for determining the
ROE for electric utilities and was appropriate for its base ROE, as well as that D hints of
a change of policy without explanation were arbitrary and capricious. D was not persuaded by
P's arguments. D determined the appropriate proxy group, found that the zone of
reasonableness was between 7.80% and 16.19%, and set SoCal Edison's base ROE at the median
of that zone, 10.55%. D rejected P's midpoint-based ROE upon concluding that for a single
electric utility of average risk 'the best measure of central tendency is the median,' and
stating that it was 'not persuaded that our established procedures for determining a ROE for
a utility of average risk are not just and reasonable for setting P's ROE.' The Commission
denied rehearing. P's challenge to D's use of the median, instead of the midpoint, to
measure the base ROE of a single electric utility of average risk includes a statutory
argument that effectively devolves into an argument that D's use of the median was arbitrary
and capricious. P contends that, in updating its ROE, D erred by taking official notice of
the change in U.S. Treasury bond yields as a proxy for its private cost of capital during
the locked-in period without affording it an opportunity to show to the contrary.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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