On May 21, 2020, the Federal Energy Regulatory Commission (“Commission”) issued a Policy Statement on Determining Return on Equity for Natural Gas and Oil Pipelines in Docket No. PL19-4-000, that revises its policy for analyzing the return on equity (“ROE”) for interstate natural gas and oil pipelines based on the methodology established for analyzing electric utility ROEs in Opinion Nos. 569 and 569-A, with certain exceptions to account for the “statutory, operational, organizational and competitive differences among the industries.” Specifically, the Commission stated that it will: (i) determine just and reasonable natural gas and oil pipeline ROEs by averaging the results of the Discounted Cash Flow (“DCF”) model and the Capital Asset Pricing Model (“CAPM”) analyses, giving equal weight to both models; (ii) retain the existing two-thirds/one-third weighting for the short-term and long-term growth projections in the DCF model; (iii) exclude the Risk Premium model as modified in Opinion No. 569-A; (iv) consider using Value Line data as the source of the short-term growth projection in the CAPM; (v) consider proposals to include Canadian companies in pipeline proxy groups while continuing to address outliers in pipeline proxy groups on a case-by-case basis, refraining from applying specific outlier tests; and (vi) encourage, or perhaps require, oil pipelines to file updated FERC Form No. 6, page 700 data for 2019 to reflect the revised ROE policy established in the Policy Statement. Importantly, parties are not permitted to seek rehearing of the Policy Statement because it is only a statement issued to provide guidance and regulatory certainty.
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