Florida Mun. Power Agency v. F.E.R.C.

Decision Date21 January 2003
Docket NumberNo. 01-1381.,01-1381.
Citation315 F.3d 362
PartiesFLORIDA MUNICIPAL POWER AGENCY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Florida Power & Light Company, Intervenor
CourtU.S. Court of Appeals — District of Columbia Circuit

Robert A. Jablon argued the cause for petitioner. With him on the briefs was Daniel I. Davidson.

Judith A. Albert, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Cynthia A. Marlette, General Counsel, and Dennis Lane, Solicitor.

Clifford (Mike) Naeve was on the brief for intervenor.

Before: SENTELLE, HENDERSON and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Granted access to Florida Power & Light's electricity transmission lines for the purpose of establishing network transmission service, Petitioner Florida Municipal Power Agency challenges three decisions of the Federal Energy Regulatory Commission rejecting its request for pricing credits. Finding the Commission's decisions supported by substantial evidence and neither arbitrary nor capricious, we deny the petition.

I.

After determining that utilities were discriminatorily denying power suppliers access to electricity transmission lines, the Federal Energy Regulatory Commission issued Order No. 888 requiring public utilities that own, control, or operate transmission facilities to file open access tariffs under which they agree to provide nondiscriminatory access to their transmission networks in addition to the point-to-point service they had been offering. Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, F.E.R.C. Stats. & Regs. ¶ 31,036, 61 Fed.Reg. 21540, 21541, 1996 WL 363765 (1996), clarified, 76 F.E.R.C. ¶ 61,009 and 76 F.E.R.C. ¶ 61,347, 1996 WL 799257 (1996), modified, Order No. 888-A, F.E.R.C. Stats. & Regs. ¶ 31,048, 62 Fed. Reg. 12,274 (1997), order on reh'g, Order No. 888-B, 81 F.E.R.C. ¶ 61,248, 1997 WL 833250, 62 Fed. Reg. 64,688 (1997), order on reh'g, Order No. 888-C, 82 F.E.R.C. ¶ 61,046, 1998 WL 18148 (1998), aff'd Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.Cir.2000) (per curiam) ("TAPS"), aff'd, New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). In point-to-point transmission service, utilities pay for energy transmission from designated points of receipt to designated points of delivery. TAPS, 225 F.3d at 725 n. 12. As Order No. 888 explains, however, "[n]etwork service allows more flexibility by allowing a transmission customer to use the entire transmission network to provide generation service for specified resources and specified loads without having to pay multiple charges for each resource-load pairing." Order No. 888, 61 Fed. Reg. at 21,547 n.65. Thus, unlike point-to-point service, network service permits a utility using another utility's transmission lines "to fully integrate load [(the total demand for service on a utility system)] and resources on an instantaneous basis in a manner similar to the transmission owner's integration of its own load and resources." Id. at 21,547.

Three additional features of Order No. 888 are relevant to this case. First, the order requires load ratio pricing for network transmission service, a form of transmission that "provides the customer with the same full system ability for transmitting power as the transmission owner." TAPS, 225 F.3d at 725. "Under load ratio pricing, the costs of the transmission system are allocated on the basis of the ratio of the network customer's load to the transmission provider's entire load on its transmission system." Respondent's Br. at 7.

The second relevant principle from Order No. 888 responded to arguments made by utility customers (like Petitioner Florida Municipal Power Agency (FMPA)) that because some customers sell power in a way that does not bear on network resources — known as behind-the-meter generation — load ratio pricing's use of total load for determining a customer's rate might require payment for unneeded network transmission. TAPS, 225 F.3d at 725-26. These transmission customers thought they should therefore receive pricing credits for all behind-the-meter facilities. Id. FERC agreed in part. Although holding that customers were entitled to pricing credits for facilities "integrated" into the transmission network, the Commission cautioned that "[t]he fact that a transmission customer's facilities may be interconnected with a transmission provider's system does not prove that the two systems comprise an integrated whole such that the transmission provider is able to provide transmission service to itself or other transmission customers over those facilities — a key requirement of integration." Order No. 888, 61 Fed.Reg. at 21,630 (emphasis in original). "[F]or a customer to be eligible for a credit," FERC explained, "its facilities must not only be integrated with the transmission provider's system, but must also provide additional benefits to the transmission grid in terms of capability and reliability, and be relied upon for the coordinated operation of the grid." Order No. 888-A, 62 Fed. Reg. at 12,330. In other words, FERC would determine credits on a case-by-case basis.

Third, Order No. 888 adopts the principle of "comparability," meaning that the same integration standard that applies to transmission customers for the purpose of determining eligibility for pricing credits also applies to transmission providers for rate determination purposes. Order No. 888, 61 Fed.Reg. at 21,630 n.452. Thus, if a transmission provider includes a facility in its rate base, then its transmission customers may receive rate credits for any similarly situated facilities.

Running parallel to the development of Order No. 888, and in many respects providing a basis for it, this case began in 1993 when FMPA, a nonprofit public agency that provides point-to-point electric power supply to its twenty-nine member cities that sell retail electricity to the public, developed a plan for offering network transmission service. FMPA requested the right to purchase transmission service from Intervenor Florida Power & Light, owner of the state's largest transmission system. When Florida Power rejected that request, FMPA filed a complaint with FERC. Granting FMPA's request for network transmission service, FERC ordered the parties to agree on rates, conditions, and terms of service within sixty days. Fla. Mun. Power Agency v. Fla. Power & Light Co., 65 F.E.R.C. ¶ 61,125, 1993 WL 594575 (1993), reh'g dismissed, 65 F.E.R.C. ¶ 61,372, 1993 WL 531359 (1993).

When FMPA and Florida Power failed to reach an agreement, FERC issued a final order addressing cost-of-service issues. Fla. Mun. Power Agency v. Fla. Power & Light Co., 67 F.E.R.C. ¶ 61,167, 1994 WL 182802 (1994) ("FMPA I"). Foreshadowing Order No. 888, FERC adopted Florida Power's load ratio pricing proposal, but agreed that in certain circumstances FMPA might be entitled to pricing credits for facilities that are "integrated" into Florida Power's network. The Commission explained:

If FMPA has transmission facilities that will operate as part of the integrated transmission system, a credit would be reasonable. Indeed, this is in line with Florida Power's position that it is redefining the native load served by the Florida Power transmission system to include all of FMPA's resources and loads. If FMPA owns grid facilities that are now used to integrate the same resources and loads, those facilities are part of the integrated transmission system, and Florida Power must include an appropriate credit for any such grid facilities when it submits its compliance filing in this case.

Id. at 61,482 n. 76.

In 1996, acting on several requests for rehearing, FERC rejected FMPA's argument that Florida Power had improperly refused to grant FMPA pricing credits, holding that none of FMPA's facilities was integrated into Florida Power's network. Fla. Mun. Power Agency v. Fla. Power & Light, 74 F.E.R.C. ¶ 61,006, 1996 WL 12316 (1996) ("FMPA II"). At the same time, FERC recognized the comparability principle that later found its way into Order No. 888: "Just as FMPA cannot obtain credit for facilities not used by Florida Power to provide service, so Florida Power cannot charge FMPA for facilities not used to provide transmission service." Id. at 61,010 n. 48.

In FMPA II, FERC rejected FMPA's request to supplement the record to include evidence relating to a facility FMPA operates in Lake Worth, Florida, as well as evidence relating to the "Rate Case." Id. at 61,007. The latter refers to a separately docketed FERC proceeding that began in 1993 when Florida Power filed a proposed tariff adjustment that would have affected the prices it charged transmission users, including FMPA. Fla. Power & Light Co., 64 F.E.R.C. ¶ 61,361, 1993 WL 376862 (1993). Although Florida Power and FMPA reached a settlement, that settlement did not resolve FMPA's claim that Florida Power's rate base should be adjusted to exclude facilities that are not "integrated" with the rest of Florida Power's transmission system. Fla. Power & Light Co., 92 F.E.R.C. ¶ 61,241, 2000 WL 1342510 (2000). This issue, referred to as a "reserved issue," remains pending before the Commission. Respondent's Br. at 10. In FMPA II, therefore, FERC denied FMPA's request that "if the Commission rejects the proposed credits for FMPA facilities, Florida Power be directed to exclude from its transmission rates the cost of transmission facilities that FMPA believes are not part of the integrated grid...." FMPA II, 74 F.E.R.C. at 61,010 n. 48. "This issue," the Commission explained, "is among the rate issues being litigated...

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