USA Law and Practice Contributed by: David P. Flynn, Lindsey E. Haubenreich, Thomas F. Puchner and Dennis W. Elsenbeck, Phillips Lytle LLP
by an OATT, which sets forth non-discriminatory rates for transmission and ancillary services. Wholesale rates are set according to Sections 205 and 206 of the FPA. A rate case can be initiated by a utility filing for a rate change, by complaint from another person or entity, or by FERC’s own initiative. Upon hearing, FERC will determine whether the utility’s proposed rate is just and reasonable or will make appropriate modifications to the rate as necessary (16 USC Section 824e). Transmission providers must publish service rates and available capacity, as well as rules and standards related to their transmission services, on the Open Access Same-Time Information System (OASIS). FERC has authority to review and ensure that rates and terms of transmis - sion service are just and reasonable and are not unduly discriminatory or preferential. Establishing Rates Through Formulas FERC’s policy is to permit utilities to establish rates through formulas. FERC will generally approve of or formulate new rates that are based on the utility’s cost of service, to balance the interests of the utility and its customers. Under this approach, the aggregate costs – such as a reasonable return on investment – for providing each class of service are determined, and prices are set to recover those costs. FERC generally uses the formula E + d + T + (V − D)R, derived from a 12-month test period, to determine cost of service. In this formula: • E = operating expense – utilities are generally entitled to recover prudently incurred operat- ing expenses that relate to the provision of wholesale service; • d = depreciation expense – depreciation means the loss in service value not restored
by current maintenance that is incurred in the course of service; • T = taxes – certain tax expenses associated with cost of service revenues; • V = gross value of property – facility cost plus working capital; • D = accrued depreciation – depreciation of assets; and • R = overall rate of return – sufficient to allow the utility to maintain financial integrity, attract additional capital and earn a return compara- ble to similarly situated companies. In May 2020, FERC issued Opinion No 569-A, which accepts the use of an alternative model – the “risk premium model” – for determining whether a rate of return on equity is just and reasonable under Section 206 of the FPA. Rehearing the Case If any party to a FERC hearing is aggrieved by or does not agree with the result of FERC’s order on the hearing, that party may request that FERC rehear the case. If FERC does not act on the request for a rehearing within 30 days, the request is deemed denied. After FERC issues an order upon rehearing, the parties to the hearing have the right to petition the United States Court of Appeals for review of the order – typically the United States Court of Appeals for the District of Columbia Circuit or the jurisdiction in which the utility has its princi- pal place of business. FERC has authority to take in and resolve com- plaints by assigning the case to alternative dis- pute resolution, issuing an order on the merits based on the pleadings, or establishing a hear- ing before an administrative law judge.
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