Indiana Util. Regulatory Comm'n v. Fed. Energy Regulatory Comm'n

• Decision Date: 17 January 2012
• Docket Number: No. 10–1313.,10–1313.
• Citation: 668 F.3d 735
• Parties: INDIANA UTILITY REGULATORY COMMISSION, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentAmerican Public Power Association, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

668 F.3d 735

INDIANA UTILITY REGULATORY COMMISSION, Petitioner

v.FEDERAL ENERGY REGULATORY COMMISSION, RespondentAmerican Public Power Association, et al., Intervenors.

No. 10–1313.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 13, 2011.Decided Jan. 17, 2012.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.Eric A. Eisen argued the cause and filed the briefs for petitioner.

Steven J. Ross and Steven T. Nourse were on the brief for intervenor American Electric Power Service Corporation in support of petitioner. Randolph L. Elliott entered an appearance.

Samuel Soopper, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Robert H. Solomon, Solicitor.Barry S. Spector and Paul M. Flynn were on the brief for intervenor PJM Interconnection, L.L.C. in support of respondent. Robert A. Weishaar Jr. entered an appearance.Before: GINSBURG,^* HENDERSON, and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

The Indiana Utility Regulatory Commission petitions for review of an order of the Federal Energy Regulatory Commission approving the tariff of PJM Interconnection, L.L.C. We dismiss the petition insofar as it challenges the order on grounds the IURC did not raise with sufficient specificity in its request for rehearing by the Commission, 16 U.S.C. § 825 l(b). In all other respects, we deny the petition because the IURC has not shown the Commission acted unreasonably.

I. Background

Advancements in metering technology now enable retail customers to reduce their usage of electricity in response to short-term fluctuations in demand and price. This so-called “demand response” in effect returns energy to the market when it is most needed, thereby reducing the volatility of electricity prices and minimizing the likelihood of a shortage.^** In recognition of these benefits the Congress in 2005 declared it is “the policy of the United States that time-based pricing and other forms of demand response ... shall be encouraged ... and unnecessary barriers to demand response participation in energy, capacity and ancillary service markets shall be eliminated.” 16 U.S.C. § 2642 note.

The Federal Energy Regulatory Commission has implemented this policy in part through its Order 719, which requires operators of wholesale electricity markets to allow trading in retail as well as wholesale demand response. See Wholesale Competition in Regions with Organized Electric Markets, 73 Fed.Reg. 64,100–01 (Oct. 28, 2008) (codified as amended at 18 C.F.R. § 35.28). Specifically, the Commission required the operators to grant access to third-party “aggregators of retail customers” (ARCs), except where “the laws or regulations of the relevant electric retail regulatory authority do not permit the customers aggregated [by the ARC] to participate,” Order 719, ¶ 155. ^*** The Commission said it included this exception in order to be clear that its “intent was not to interfere with the operation of successful [retail] demand response programs, [to] place an undue burden on state and local retail regulatory entities, or to raise new concerns regarding federal and state jurisdiction.” Id.; see also 16 U.S.C. § 824(b) (preserving states' jurisdiction to regulate “facilities used in local distribution”). The Commission further stated it would not “require a [state regulator] to make any showing or take any action in compliance with [Order 719],” nor place the operator of a wholesale market “in the position of interpreting the laws or regulations” of any state. Order 719, ¶¶ 155, 158(g) n. 212. Other than exempting the state regulator and the operators of wholesale markets from the obligation to verify retail customers' eligibility to sell demand response, the Commission did not specify how or by whom that task was to be performed.

The petition for review now before us arises from a dispute between the Indiana Utility Regulatory Commission (IURC) and PJM Interconnection, L.L.C., which, subject to the Commission's oversight, operates the market for wholesale electricity in the District of Columbia and all or parts of 13 states, including Indiana. See 101 FERC P 61,345 (2002) (authorizing PJM to serve as a regional transmission organization); Illinois Commerce Comm'n v. FERC, 576 F.3d 470, 473 (7th Cir.2009) (explaining role of such organizations in general and of PJM in particular). See generally Promoting Wholesale Competition Through Open Access Non–Discriminatory Transmission Services by Public Utilities, Order No. 888, 61 Fed.Reg. 21540 (1996) (creating regional electricity markets organized under open-access tariffs). Over 500 market buyers, sellers and traders of electricity participate in PJM's market. FERC, Electric Power Markets: PJM, http:// www. ferc. gov/ market- oversight/ mkt- electric/ pjm. asp (last visited Dec. 26, 2011).

In 2009, PJM filed with the Commission a revised tariff implementing the changes required of it by Order 719. Section 1.5A.1 of the revised tariff permits a member of PJM to act as an ARC on behalf of “multiple individual end-use customer[s]” for the purpose of selling demand response “unless the [state regulator] prohibit[s] their participation.” Section 1.5A.3 provides that after it has accepted an ARC's application, PJM will “notify the appropriate electric distribution company or Load Serving Entity” for each customer the ARC represents, and that company, typically a retail utility, will have ten business days to object on the ground the customer is not eligible under state law to sell its demand response. If the retail utility fails to raise a timely challenge, or if it fails to produce sufficient documentary evidence the customer is ineligible to sell its demand response, then PJM will “assume” state law does not prohibit the customer's participation. The tariff thus requires the retail utility to determine whether a customer is eligible and, if it is not, then to compile documentary evidence substantiating its objection.

In response to the revision of PJM's tariff, the IURC issued an order enjoining retail customers in Indiana from selling demand response in the wholesale market without the IURC's prior approval. See Order on Requests for Interim Relief, IURC Cause No. 43566 (Feb. 25, 2009). The IURC reasoned the injunction was necessary because retail customers in Indiana obtain electricity through a traditionally regulated monopoly utility, Indiana Michigan Power (I & M), and allowing retail customers to aggregate demand response for sale through PJM “would at least partially bypass” the IURC's oversight of the retail market. Id. Noting the complexity of the “relationship of demand response with integrated resource planning and other aspects of state ratemaking,” the IURC required that “the status quo be maintained” pending its further investigation. Id.

The IURC then filed with the Commission a Notice of Intervention and Protest regarding PJM's tariff and attached a copy of its own order. The IURC alleged the Commission would “step over the line drawn by the Federal Power Act” between federal and state jurisdiction if it approved the new provisions, which “directly interfere with the regulatory authority of the IURC.” The IURC also challenged the requirement that a retail utility “object and prove” a particular customer of an ARC is ineligible to participate in the ARC's offer to sell demand response. PJM answered the protest, defending its tariff as “just and reasonable” and consistent with Order 719.

The Commission conditionally accepted PJM's proposed tariff revisions. 128 FERC P 61,238 (2009). The Commission held PJM's tariff did not encroach upon the IURC's jurisdiction but it nonetheless required PJM to make certain revisions to recognize that some states may require a retail customer to obtain regulatory approval before allowing an ARC to sell its demand response in the wholesale market. The Commission also accepted the provision imposing upon the retail utility the burden to “object and prove” a particular customer is ineligible to sell demand response because Order 719 had afforded PJM “substantial flexibility to develop procedures with respect to this issue.”

After the Commission had denied its petition for clarification and rehearing, the IURC petitioned this court for review. Because the Commission contends certain of the IURC's arguments are not properly before us, we first address the matter of our jurisdiction, mindful of the strict limitation imposed by Section 313 of the Federal Power Act, 16 U.S.C. § 825 l .

II. Jurisdiction

The IURC's primary argument is that the revisions to PJM's tariff, if approved, would “encroach on Indiana state jurisdictional authority,” in violation of Section 201 of the Federal Power Act, 16 U.S.C. § 824. First, by “presuming” every customer is eligible to sell demand response, the tariff allegedly “creat[es] an irreconcilable conflict with an Indiana Commission order that requires precisely the opposite”; second, by “burdening” Indiana's monopoly utility (I & M) with the task of objecting to the participation of each individual customer, the tariff “impermissibly cross[es] the state-federal jurisdictional line.” The Commission responds that the IURC did not preserve these arguments for our review because the IURC did not raise them with specificity in its request for rehearing. We agree.

Section 313 of the Federal Power Act limits our review to objections that were “urged before the Commission in [an] application for rehearing [,] unless there is reasonable ground for [the petitioner's] failure so to do.” 16 U.S.C. § 825 l(b). Additionally, because an application for rehearing must “set forth specifically the ground or grounds upon which such application is based,” 16 U.S.C. § 825 l(a), our jurisdiction is limited by the extent to which a petitioner objected “with specificity,” ...