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- Title
ABANDON ALL HOPE? FERC'S EVOLVING STANDARDS FOR IDENTIFYING COMPARABLE FIRMS AND ESTIMATING THE RATE OF RETURN.
- Authors
Lesser, Jonathan A.; Nicholson, Emma
- Abstract
The "comparative risk" standard established by Hope Natural Gas is a basic tenet of estimating regulated rates of return. Hope remains the sine qua non for determining whether regulated rates of return set by the Federal Energy Regulatory Commission (FERC) and by state utility regulators are just and reasonable. In the last few years, however, the FERC's approach to setting regulated rates of return has evolved, and this evolution has raised new methodological and legal issues. This article examines how the FERC's approach to setting the rate of return for regulated electric companies and natural gas pipelines has changed over time, most recently including the changes arising out of its Atlantic Path 15, Williston Basin, and Kern River decisions. In this article, we evaluate approaches to determining comparable risk and the limitations of those approaches. We discuss controversies that have arisen in setting the rate of return within what regulators typically refer to as the "zone of reasonableness," and we explore how those controversies are embedded in the overarching meaning of "comparable risk." We also introduce a statistically robust approach that can avoid the more arbitrary aspects of establishing proxy groups. We conclude with recommendations as to how the FERC and other state and federal regulators can lessen these ongoing controversies while ensuring that allowed rates of return are truly "just and reasonable."
- Subjects
UNITED States; RATE of return; INDUSTRIAL policy; HOPE Natural Gas Co.; UNITED States. Federal Energy Regulatory Commission; FINANCIAL risk; ENERGY industries
- Publication
Energy Law Journal, 2009, Vol 30, Issue 1, p105
- ISSN
0270-9163
- Publication type
Article