Fort Pierce Utilities Authority of City of Fort Pierce v. F.E.R.C.

Citation730 F.2d 778
Decision Date16 March 1984
Docket NumberNo. 83-1286,83-1286
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
PartiesFORT PIERCE UTILITIES AUTHORITY OF the CITY OF FORT PIERCE, Lake Worth Utilities Authority, and the Cities of Homestead and Starke, Florida, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Sebring Utilities Commission, et al., Florida Power Corporation, Florida Power & Light Company, Intervenors.

Robert A. Jablon, Washington, D.C., with whom Marc R. Poirier and Joseph L. Van Eaton, Washington, D.C., were on brief, for petitioners.

Joel Cockrell, Atty., F.E.R.C., Washington, D.C., for respondent. Stephen R. Melton, Acting General Counsel, Jerome M. Feit, Sol., and Thomas E. Hirsch, III, Atty., F.E.R.C., Washington, D.C., were on brief, for respondent. Barbara J. Weller, Atty., F.E.R.C., Washington, D.C., also entered an appearance for respondent.

Robert T. Hall, III, Washington, D.C., with whom Richard M. Merriman and Floyd L. Norton, IV, Washington, D.C., were on brief, for intervenor, Florida Power and Light Company.

George F. Bruder, Washington, D.C., was on brief for intervenor, Florida Power Corporation. James E. Hickey, Jr., Washington, D.C., also entered an appearance for Florida Power Corporation.

Robert A. Jablon, Washington, D.C., entered an appearance for intervenors, Sebring Utilities Commission, et al.

Before TAMM and WALD, Circuit Judges, and MacKINNON, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge WALD.

Opinion concurring in part and dissenting in part filed by Senior Circuit Judge MacKINNON.

WALD, Circuit Judge:

In this case, several Florida municipal electric utilities 1 ("Florida Cities") seek direct review of an order of the Federal Energy Regulatory Commission ("FERC" or "the Commission") establishing transmission rates for Florida Power & Light Co. ("FP & L"). Florida Power & Light Co., 21 FERC p 61,070 (1982), rehearing denied, 22 FERC p 61,012 (1983). 2 The municipal customers claim that these rates are excessive and discriminatory in violation of the Federal Power Act, 16 U.S.C. Sec. 824d, on two independent grounds: First, they claim that FERC's failure to order FP & L to file joint rates with another large investor-owned utility, Florida Power Corporation ("FPC"), results in unwarranted double transmission rates for wheeling transactions that cross through the transmission systems of both FP & L and FPC. Second, the municipalities claim that FERC improperly allowed FP & L to include in its short-term transmission rates "capacity costs"--i.e., costs associated with the construction

and maintenance of transmission facilities with sufficient capacity to serve the utility's customers at peak power loads. For the reasons stated below we uphold the Commission's refusal to order joint transmission rates, but we remand for further consideration its decision to permit the inclusion of capacity costs in the rate base for all classes of transmission service at issue.

I. BACKGROUND

FP & L, the largest electric utility in Florida, sells power and transmission services to retail and wholesale customers. Its retail service area, over which its transmission lines extend, covers virtually the entire Atlantic coast area from the Georgia border to Miami and the Gulf coast from Sarasota southward. FP & L, together with FPC, serve practically the entire Florida peninsula; the Tampa area is served by another investor-owned utility, Tampa Electric. Within the service areas of the two largest privately-owned utilities lie numerous small municipal and cooperatively-owned electric utilities, including Florida Cities, which serve their own customers.

The transmission system of each utility is directly connected with that of one or more adjoining utilities, and thus indirectly connected with every other utility in peninsular Florida, enabling FP & L, FPC, Florida Cities and others to create a regional market for the exchange of excess generating capacity. Under a set of "interchange agreements," each utility can buy electricity generated by any other utility for periods ranging from one hour to three years to supplement power during generator emergencies, equipment maintenance or any time when the buyer's incremental generation costs are, for whatever reason, higher than the seller's. 3 These interchange agreements improve the reliability and efficiency of the entire peninsular electric system, and permit each utility to maintain less excess capacity than it would otherwise need to serve its customers' maximum needs. 4

When one utility buys power under an interchange agreement from a utility with which its transmission lines are directly connected, it pays no transmission charge. 5 However, when a utility buys from another with which it is not directly connected, it must obtain transmission or "wheeling" services and pay for those services. In practice this affects primarily the small utilities such as Florida Cities because the transmission systems of FP & L and FPC are each directly connected with the other, with Tampa Electric, and with numerous municipal customers; they seldom have the need to purchase power from utilities with which they are not directly connected.

FP & L filed with FERC a set of transmission service agreements (TSAs) setting out the terms under which it would offer wheeling service to a utility purchasing power under an interchange agreement from another utility, delivery of which required the use of FP & L's transmission network. 6 Florida Cities protested, arguing Cities argued in addition that at least as to transmission rates for emergency service for periods no longer than 72 hours (TA service) and "energy exchanges" for periods of one hour (TC service), the applicable rates should not include "capacity" or "demand-related" costs. They argued that because the transmitting utility could simply decline to enter into TSAs of such short duration whenever it did not anticipate having enough excess transmitting capacity, transmission under TA and TC service agreements did not require the planning, construction and maintenance of any additional capacity and should not be assigned any of the associated capacity costs. FERC rejected both arguments and, with minor modifications, approved FP & L's rates as just and reasonable, as required by the Federal Power Act. Cities appeal from both the refusal to impose joint rates and the inclusion of capacity costs.

                that FP & L's rates, together with corresponding rates filed by FPC, would result in excessive and discriminatory combined charges for transactions that required wheeling by both FP & L and FPC.  Cities argued that these transactions should be viewed as a single transmission on the combined FP & L/FPC network performed in part by each utility, and for which each should receive part of a single "joint rate."    In support of this proposal, Cities presented evidence of a high degree of coordination and integration among peninsular Florida utilities, and especially between FP & L and FPC
                
II. JOINT RATES

In Richmond Power & Light v. FERC, 574 F.2d 610 (D.C.Cir.1978), we upheld FERC's rejection of a municipal electric utility's proposal of joint rates--or "through rates"--for wheeling transactions crossing two or more electrical systems. We held that "the Commission's failure to establish through rates can be deemed arbitrary only if the individual rates were unjustly or unreasonably high and, as well, the utilities had a duty to wheel." Id. at 619. Florida Cities do not claim that these conditions are met here. Unlike Richmond Power, they do not contend that FP & L and FPC are obligated to wheel. 7 Moreover, they contend that even if the individual rates accurately reflected a proper application of accepted costing methodology, 8 joint rates would be required. Cities argue that this case falls outside the scope of the test set out in Richmond Power because of one significant factual difference: Cities contend that FP & L and FPC have so fully integrated their transmission systems that they in fact function as a single unified network. In order to evaluate the significance of this claim, we must understand Cities' proposal in more depth.

A. The Problem: "Double Rates"

Florida Cities illustrates their argument for joint transmission rates with the case of New Smyrna Beach, Florida. 9 New Under the pricing system approved here by FERC, a utility determines its transmission costs per unit of electricity by dividing the total annual costs of constructing and maintaining its entire transmission network by the load, or the amount of power on the network, at certain peak periods. 10 This "rolled-in" method of calculating transmission costs, which Cities do not quarrel with, is based on the recognition that a unit of electricity does not actually travel like a railroad shipment from the point at which it enters the system to the point to which it is delivered. A transmission network functions more like a reservoir: a given amount of power enters the system at one point and a like amount is delivered at another point. The costs associated with this pair of operations do not vary with the distance between the point of entry and the point of delivery, but are based on the costs for the entire transmission network. 11 The resulting transmission rate is thus called a "postage stamp" rate.

Smyrna, which is located on the east side of the state in FP & L's service area, owns four megawatts of power from the Crystal River Unit 3 nuclear plant (CR-3) constructed by FPC and located in its service area across the state. New Smyrna thus requires wheeling by both FPC and FP & L.

In the case of New Smyrna, FPC and FP & L each charges a "postage stamp" rate for the use of its transmission network. 12 In other words, the two networks are treated like two adjoining...

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