Entergy Services, Inc. v. F.E.R.C., 01-1487.

• Decision Date: 18 February 2003
• Docket Number: No. 01-1487.,01-1487.
• Citation: 319 F.3d 536
• Parties: ENTERGY SERVICES, INC. Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Tenaska, Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

319 F.3d 536

ENTERGY SERVICES, INC. Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Tenaska, Inc., et al., Intervenors.

No. 01-1487.

United States Court of Appeals, District of Columbia Circuit.

Argued January 21, 2003.

Decided February 18, 2003.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

J. Wayne Anderson argued the cause for petitioner. With him on the briefs was Floyd L. Norton IV.

Andrew W. Tunnell was on the brief for amicus curiae Southern Company Services, Inc. in support of petitioner.

Laura J. Vallance, 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.

Ashley C. Parrish argued the cause for intervenors Tenaska, Inc. and Washington Parish Energy Center, LLC. With her on the brief were Neil L. Levy, Larry F. Eisenstat and M. Eric Eversole.

Before: GINSBURG, Chief Judge, and ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Entergy Services, Inc. petitions for review of two orders of the Federal Energy Regulatory Commission resolving whether some or all transmission customers should pay for a class of network upgrades to an electric utility's transmission grid whose purpose is to protect those generators and equipment in the vicinity of a new interconnecting generator against fault currents. The Commission found that two of Entergy's Interconnection and Operating Agreements calling for "direct assignment" of costs to the new interconnecting generators of systems upgrades to remedy short-circuit and stability problems were inconsistent with Commission policy and accepted the proposed Agreements subject to revision of the credit provisions. Entergy Servs., Inc., 95 F.E.R.C. ¶ 61,437, at 62,610-11, 2001 WL 726734 (2001) ("Initial Order"). Because the Pro Forma Interconnection and Operating Agreement ("Pro Forma IA") in Entergy's Open Access Transmission Tariff ("tariff") also contained a direct assignment provision for this class of network upgrades, the Commission ordered Entergy to revise it. Id. at 62,611. In denying rehearing, the Commission rejected Entergy's arguments that the policy reflected in the Initial Order was inconsistent with Commission precedent, inappropriately upsets the balance of costs and responsibilities for interconnection upgrades, and improperly directed revision of a previously approved tariff not at issue. The Commission reiterated that its policy has been that all transmission customers must share the costs of network upgrades because "the integrated transmission grid is a cohesive network," and the upgrades "benefit all users, not just the newly-interconnecting generator." Entergy Servs., Inc., 96 F.E.R.C. ¶ 61,311, at 62,202, 2001 WL 1076594 (2001) ("Rehearing Order") (emphasis in original).

In challenging the Commission's orders, Entergy, joined by amicus Southern Company Services, Inc., renews its contention that the Initial Order conflicts with Commission precedent that required direct assignment of costs to a new generator of short-circuit and stability network upgrades necessitated by its interconnection to the transmission grid, and contends that in changing its policy the Commission failed to provide a reasoned explanation, a hearing or commencement of a rulemaking proceeding. Entergy disputes the Commission's conclusion that new generator interconnections benefit all users on the transmission grid, maintaining that, contrary to the Commission's cost-causation pricing methodologies, the Initial Order shifts generation interconnection costs from the interconnecting party to other transmission customers and captive ratepayers who do not benefit from the interconnection. Entergy further contends that the Commission improperly ordered revision of two bilaterally executed contracts without any hearing or investigation to determine that they and Entergy's Pro Forma IA in its tariff were contrary to the public interest.

We hold first, that although Entergy's challenge regarding the GenPower Keo, LLC Interconnection and Operating Agreement is moot, the appeal is not moot because the Commission required Entergy to alter its Pro Forma IA in its tariff. We hold second, that the Commission did not act in an arbitrary and capricious manner by clarifying its policy regarding credits for short-circuit and stability network upgrades and provided a reasoned explanation for its change in policy. We hold third, that there is sufficient support for the Commission's conclusion that its pricing policy provides a systemwide benefit for all users of Entergy's grid, and, therefore, Entergy's Pro Forma IA in its tariff was unjust and unreasonable, and that the Commission did not otherwise violate the Federal Power Act ("FPA"), 16 U.S.C. § 824e (2000). Accordingly, we deny the petition for review.

I.

Consistent with the Commission's decision in Tennessee Power Co., 90 F.E.R.C. ¶ 61,238, 2000 WL 280787 (2000), that interconnection is an element of transmission service and must be offered under the terms of Order No. 888's pro forma tariff, Entergy submitted a Pro Forma IA and proposed procedures and requirements for adding generation to Entergy's transmission system. The Commission, by Order of May 18, 2000, accepted Entergy's proposals for filing, subject to various modifications. See Entergy Servs., Inc., 91 F.E.R.C. ¶ 61,149, at 61,556, 2000 WL 641223 (2000) ("May 18 Order"). The Commission ordered that Entergy include, in a compliance filing, its Pro Forma IA and interconnection procedures in its tariff, and a complete explanation of the crediting procedures for "Optional System Upgrades," defined as increases to Entergy's transmission capability. Id. at 61,559-60. As proposed and accepted for filing, then, Entergy's Pro Forma IA provided credits against future transmission charges only for "Optional" network upgrades, while directly assigning to the new interconnecting generator the costs for "Required" network upgrades, defined as upgrades "necessary for safe and reliable interconnection of a new generator, regardless of whether there is output from the generator," id. at 61,560, and included short-circuit and stability upgrades. See Initial Order, 95 F.E.R.C. at 62,611.

The petition, as filed, involves the Interconnection and Operating Agreements ("IAs") that Entergy executed with two electric power generators — Washington Parish Energy Center, LLC, and GenPower Keo, LLC. In accord with the May 18 Order and the Pro Forma IA, the IAs required these generators to bear the costs of the short-circuit and stability upgrades necessary to prevent their interconnection to Entergy's grid from undermining the integrity of the grid. The Commission accepted the IAs subject to revision, in light of the Commission's May 17, 2001 clarification in Consumers Energy Co., 95 F.E.R.C. ¶ 61,233, 2001 WL 541098 (2001), to allow the generators to receive transmission credits for the costs of these network upgrades once the generators were connected to the transmission system; the Commission also ordered that the Pro Forma IA in the tariff approved in the May 18 Order be similarly revised. Initial Order, 95 F.E.R.C. at 62,611. On rehearing, the Commission rejected Entergy's arguments, including its argument that the Commission's order was inconsistent with its precedent, explaining that allowing transmission credits for these types of network upgrades is consistent with long-standing Commission policy and that language in earlier Commission orders suggesting to the contrary was inadvertent. Rehearing Order, 96 F.E.R.C. at 62,201-02.

II.

As a threshold matter, the Commission contends that the court lacks jurisdiction to consider Entergy's challenge regarding the GenPower IA because it is moot. In response to Entergy's request, the Commission states in its brief that it approved termination of the GenPower IA effective May 16, 2002. Entergy does not dispute this assertion. Under the circumstances, then, this portion of Entergy's appeal is moot. See Arizonans for Official English v. Arizona, 520 U.S. 43, 68 n. 22, 117 S.Ct. 1055, 1069 n. 22, 137 L.Ed.2d 170 (1997); Pub. Util. Comm'n of California v. FERC, 236 F.3d 708, 713-16 (D.C.Cir. 2001); Northwest Pipeline Corp. v. FERC, 863 F.2d 73, 76 (D.C.Cir.1988).

Entergy correctly states, however, that the appeal itself is not moot. Entergy does not challenge in its Reply Brief the assertion by intervenors Tenaska, Inc. and Washington Parish Energy Center, LLC that because the Washington Parish IA does not require any network upgrades and Entergy has not awarded any, there are "serious questions whether the hardship that Entergy has allegedly suffered has `the concrete quality and immediacy necessary to invoke judicial review.'" Intervenors' Br. at 28 (quoting Tennessee Gas Pipeline Co. v. FERC, 736 F.2d 747, 748 (D.C.Cir.1984)). However, the Initial Order directed Entergy to revise its Pro Forma IA in its tariff to be consistent with Consumers Energy, 95 F.E.R.C. ¶ 61,233. Thus, the court has jurisdiction to consider Entergy's challenge to the Pro Forma IA, which provides standardized procedures and agreements when generators seek to interconnect on Entergy's transmission system. Entergy states that it has filed approximately sixteen IAs providing, consistent with its revised Pro Forma IA, credits for "Required" network upgrades and has withheld execution of these agreements pending this appeal. See Reply Br. at 23. Thus, as Entergy points out, it is aggrieved by the Initial Order and is suffering ongoing harm that can be redressed by a favorable judicial decision. See Spencer v. Kemna, 523 U.S. 1, 17, 118 S.Ct. 978, 988, 140 L.Ed.2d 43 (1998); Iron Arrow Honor Soc'y v. Heckler, 464 U.S. 67, 70, 104 S.Ct. 373, 374-75, 78 L.Ed.2d 58 (1983); United States v. Weston, 194 F.3d 145, 148 (D.C.Cir.1999).

III.

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