FERC revisits ROe for Mystic generating station in new england

​On November 18, 2021, in Docket No. ER18-1639, FERC issued an order on rehearing, lowering the ROE for Mystic from that determined its order (9.33%) to 9.19%.  Mystic Generating Station in New England is operating under a cost-of-service contract as ISO-NE has determined that the facility is needed for reliability while the owner of the facility requested permission to cease operations.  FERC made this change for the following reasons:
 

1. Natural break analysis in DCF – FERC agreed that Otter Tail, which was 147 basis points higher than the next DCF result, should be removed from the DCF results.  FERC explained that the natural break analysis gives them the flexibility to determine whether a given proxy company is an outlier, or whether it presents useful information considering the particular array of ROEs being presented.  FERC also reiterated that its application of the natural break analysis will be dependent on the facts specific to each case.  The exclusion of Otter Tail results in a median DCF result of 7.70% and the average of the medians of the DCF, CAPM and Risk Premium of 9.19%.
2. FERC had excluded Avangrid from the proxy group as it is a controlled company (more than 50% of stock owned by one entity – Iberdrola).   FERC excludes controlled companies as the distortionary effect on stock prices for controlled companies exists for as long as the controlled status endures.  FERC concluded that Avangrid features a dramatically different ownership structure than any other proxy group company as well as Mystic, rendering it in appropriate proxy group member.   
3. FERC reaffirmed that Dominion should be excluded from the proxy group due to M&A price distortion (Dominion acquired SCANA Corp).