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

• Decision Date: 14 June 2005
• Docket Number: No. 04-1116.,04-1116.
• Citation: 411 F.3d 287
• Parties: FLORIDA MUNICIPAL POWER AGENCY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Florida Power & Light Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

411 F.3d 287

FLORIDA MUNICIPAL POWER AGENCY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Florida Power & Light Company, Intervenor.

No. 04-1116.

United States Court of Appeals, District of Columbia Circuit.

Argued March 22, 2005.

Decided June 14, 2005.

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

Robert A. Jablon argued the cause for petitioner. With him on the briefs were Daniel I. Davidson and Peter J. Hopkins.

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 M. Naeve, Glen S. Bernstein, and Kathryn K. Baran were on the brief for intervenor.

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

HARRY T. EDWARDS, Circuit Judge.

Florida Municipal Power Agency ("FMPA"), a public agency that sells electric power supply for its member cities, petitions this court for review of two Federal Energy Regulatory Commission ("FERC" or "Commission") decisions in which the Commission declined to consider whether a network service provider can charge a network customer full load ratio prices where it is physically impossible for that provider to service the customer's full load. The case presents the latest chapter in an ongoing dispute between petitioner FMPA and intervenor Florida Power and Light Company ("Florida Power") over the cost that Florida Power may allocate to FMPA for network transmission service. In the orders under review, the Commission declined to consider the load ratio pricing issue on the ground that it had already addressed FMPA's argument in a final rule that sets out the general parameters for network transmission service.

Counsel for FERC has conceded to the court that the final rule upon which the Commission relied does not address the specific issue of physical impossibility as it relates to load ratio pricing. Moreover, it is clear that the final rule left open the possibility of exceptions to the general load ratio pricing scheme. FERC's refusal to consider whether physical incapacity provides a proper basis for an exception to full load ratio pricing is therefore arbitrary and capricious. Accordingly, we grant the petition for review and remand the case to FERC for further consideration consistent with this opinion.

I. BACKGROUND

A. Regulatory Framework

In order to facilitate competition in wholesale bulk power and bring more efficient power to consumers, FERC issued Order No. 888, requiring public utilities that own, control, or operate transmission systems to have on file open access tariffs that offer, inter alia, network transmission service. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, 61 Fed.Reg. 21,540, 21,541 (May 10, 1996) ("Order No. 888" or "Final Rule"), on reh'g, 62 Fed.Reg. 12,274 (Mar. 14, 1997) ("Order No. 888-A"), on reh'g, 62 Fed.Reg. 64,688 (Dec. 9, 1997), on reh'g, 82 F.E.R.C. ¶ 61,046 (Jan. 20, 1998), aff'd Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.Cir.2000) (per curiam) ("TAPS"), aff'd sub nom. New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). "Network service allows more flexibility" than point-to-point service, another form of service offered under the pro forma tariff, "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. Network service permits a utility company using another utility's transmission system "to fully integrate load [i.e., the aggregate demand for service on the system at any given time,] 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. We recognized in TAPS that "network service, as the Commission defined it, means that network customers can call upon the transmission provider to supply not just some, but all of their load at any given moment, when for instance they experience blackouts or brownouts." TAPS, 225 F.3d at 726.

Order No. 888 endorsed the "load ratio allocation method of pricing" for network service. This method allocates the costs of network transmission based on the ratio of each customer's load to the entire load on the system. See Order No. 888, 61 Fed.Reg. at 21,599; Fla. Mun. Power Agency v. FERC, 315 F.3d 362, 363 (D.C.Cir.2003), cert. denied, 540 U.S. 946, 124 S.Ct. 386, 157 L.Ed.2d 276 (2003). The Commission "recognize[d]," however, "that alternative allocation proposals may have merit and welcome[d] their submittal." Order No. 888, 61 Fed.Reg. at 21,599. The Order made it clear that such applications would "be evaluated on a case-by-case basis and decided on their merits." Id.

Order No. 888-A, which addressed petitions for clarification and rehearing relating to the Final Rule, considered the concerns of some transmission customers, including FMPA, that "network customers should not be charged a network rate to use their own transmission (or distribution) system to serve loads that are located beyond the transmission owner's system," a phenomenon known as load and generation "behind-the-meter." Order No. 888-A, 62 Fed.Reg. at 12,322. FERC's analysis drew at length from the "Complaint Case," in which FMPA sought to have the Commission direct Florida Power to provide network transmission service to FMPA and its members. After granting FMPA's request for the service, FERC largely adopted Florida Power's proposed cost-allocation method, under which the costs of Florida Power's transmission system would be shared based on the "relative native loads that receive network service," see Fla. Mun. Power Agency, 67 F.E.R.C. ¶ 61,167, at 61,477-78, 61,481 (May 11, 1994) ("FMPA I"), reh'g granted in part, 74 F.E.R.C. ¶ 61,006 (Jan. 5, 1996) ("FMPA II"), reh'g denied, 96 F.E.R.C. ¶ 61,130 (July 26, 2001), aff'd on other grounds, 315 F.3d 362, the load ratio pricing method subsequently adopted in Order No. 888 and clarified in Order No. 888-A. Order No. 888-A echoed and amplified FMPA I and FMPA II, explaining that a customer may exclude "the entirety of a discrete load" from its network load (and obtain point-to-point service as necessary for that load), but it cannot exclude merely part of that discrete load, even if that part is served by behind-the-meter generation. Order No. 888-A, 62 Fed.Reg. at 12,323.

B. Prior Proceedings in the Present Case

In 1993, Florida Power filed an "extensive and comprehensive rate filing designed to overhaul [Florida Power's] existing tariff structure." Fla. Power & Light Co., 64 F.E.R.C. ¶ 61,361, at 63,480 (Sept. 24, 1993). This rate filing marked the beginning of the "Rate Case," a FERC proceeding that is docketed separately from the Complaint Case. Numerous parties, including FMPA (as a member of "Florida Cities") intervened in the Rate Case. The Commission accepted and suspended Florida Power's rate filing and set most issues for hearing before an Administrative Law Judge ("ALJ"), who subsequently issued a lengthy initial decision on December 13, 1995. See Fla. Power & Light Co., 73 F.E.R.C. ¶ 63,018 (Dec. 13, 1995).

On April 17, 2000, Florida Power filed a settlement agreement that proposed to resolve issues pertaining to its cost-of-service, with the exception of three "FMPA Reserved Issues." The settlement was approved in Florida Power & Light Co., 92 F.E.R.C. ¶ 61,241 (Sept. 18, 2000). One of the reserved issues was "treatment of behind-the-meter generation and associated load." Fla. Power & Light Co., Settlement Agreement at 6, reprinted in Joint Appendix ("J.A.") 55, 57. On June 30, 2003, FMPA filed a motion requesting that FERC direct it and Florida Power to file further pleadings on the reserved issues.

The challenged portions of the decisions under review relate to the Commission's disposition of the behind-the-meter generation and associated load reserved issue. The Commission declined to consider the issue on the ground that FMPA had raised its present concerns in the Order Nos. 888 and 888-A proceedings and the issue of load ratio pricing for network service had been resolved by FERC in those orders. See Fla. Power & Light Co., 105 F.E.R.C. ¶ 61,287, at 62,409-10 (Dec. 16, 2003).

FMPA "accept[ed] that network transmission pricing allocations... should be based upon ... customers' full load," but sought rehearing on "a very discrete aspect" of the load ratio pricing issue — i.e.,"whether FMPA should be charged by [Florida Power] for network transmission integration service to serve load where [Florida Power] cannot provide the service because of physical transmission limitations." FMPA Req. for Reh'g at 4, reprinted in J.A. 262, 265 (emphasis omitted). FMPA's principal argument was that it cannot be charged for service that Florida Power cannot provide because of physical transmission limitations. FMPA contended that such charges would be inconsistent with the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) (2000), and the Federal Power Act, 16 U.S.C. §§ 824d-824e (2000). To highlight its concerns FMPA cited its member city, Key West, which sits approximately 120 miles from Florida Power's interconnection point. The intervening transmission system that connects Key West to Florida Power does not have the physical capacity to serve Key West's full peak load. According to FMPA, it is therefore physically impossible for Florida Power to provide network service for the entirety of that load. See Req. for Reh'g at 5-7, J.A. 266-68.

The Commission denied the request for rehearing, stating:

We disagree with FMPA's premise that the transmission pricing guidance...