Risk Holds Sway

Deck: 

Interest rates not always controlling for return on equity. 

Fortnightly Magazine - November 2014
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(November 2014) Last year in this column we highlighted several cases in which regulators had weighed in on whether to view low interest rates as a cyclic trend already anticipated by rate-making policy, or as an outright anomaly - a discontinuous event that warrants a special response. (See "Anomaly or New Normal?" Nov. 2013.)

Today, however, as the economy stays on its slow path toward recovery, the question may be receding in importance.

Consider the high-profile case handed down in June by the Federal Energy Regulatory Commission (FERC) concerning the base-level return on equity (ROE) for network electric transmission service provided in ISO New England. (Dkt. No. EL11-66-001, Opin. No. 531, June 19, 2014, 147 FERC ¶ 61,234.)

That case, brought by Massachusetts Attorney General Martha Coakley, had sought to bring rate relief to New England consumers by trimming back the then-applicable base level ROE of 11.4%. Among other arguments, the Coakley complaint had asked the commission to ignore assertions that the current interest rate climate was somehow anomalous and need not be a serious factor in judging a utility's ability to attract capital.

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