Southern California Edison Co. v. Federal Energy Regulatory Commission

717 F.3d 177 (D.C. Cir. 2013)


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 an 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.