W. Deptford Energy, LLC v. Fed. Energy Regulatory Comm'n

• Decision Date: 26 August 2014
• Docket Number: No. 12–1340.,12–1340.
• Citation: 766 F.3d 10
• Parties: WEST DEPTFORD ENERGY, LLC, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent FPL Energy Marcus Hook, L.P. and PJM Interconnection, L.L.C., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

766 F.3d 10

WEST DEPTFORD ENERGY, LLC, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentFPL Energy Marcus Hook, L.P. and PJM Interconnection, L.L.C., Intervenors.

No. 12–1340.

United States Court of Appeals, District of Columbia Circuit.

Argued March 6, 2014.

Decided Aug. 26, 2014.

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

Ashley C. Parrish argued the cause for petitioner. With him on the briefs were Karen F. Grohman, Neil L. Levy, and Stephanie S. Lim.

Holly E. Cafer, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were David L. Morenoff, Acting General Counsel, Robert H. Solomon, Solicitor, and Beth G. Pacella, Senior Attorney.

Paul M. Flynn argued the cause for intervenors. With him on the brief were Barry S. Spector, Jennifer H. Tribulski, and Stephen L. Huntoon.

Before: GARLAND, Chief Judge, and SRINIVASAN and MILLETT, Circuit Judges.

Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge:

The Federal Power Act requires regulated utilities to file with the Federal Energy Regulatory Commission, as a matter of open and accessible public record, any rates and charges they intend to impose for sales of electrical energy that are subject to the Commission's jurisdiction. See16 U.S.C. § 824d(c). As a consequence, utilities are forbidden to charge any rate other than the one on file with the Commission, a prohibition that has become known as the “filed rate doctrine.” See NSTAR Elec. & Gas Corp. v. FERC, 481 F.3d 794, 800 (D.C.Cir.2007); see also Arkansas La. Gas Co. v. Hall, 453 U.S. 571, 577, 101 S.Ct. 2925, 69 L.Ed.2d 856 (1981) (describing filed rate doctrine under the Natural Gas Act). That requirement of transparent, public filing of rates ensures evenhandedness, fairness, stability, and predictability in the prices charged for electrical energy.

The question in this case is, when a utility filed more than one rate with the Commission during the time it was negotiating an agreement with a prospective customer, which of the two filed rates governs: the rate at the time negotiations commenced or the rate at the time the agreement was completed? West Deptford argues that, as a matter of practice, the Commission has used the rate on file at the time the agreement was finalized. The Commission is of the view that it can pick and choose which rate applies on a case-by-case basis. See PJM Interconnection, L.L.C., 136 FERC ¶ 61,195 (2011) (“Order”); PJM Interconnection, L.L.C., 139 FERC ¶ 61,184 (2012) (“Rehearing Order”). We vacate the Commission's orders in part and remand because the Commission has provided no reasoned explanation for how its decision comports with statutory direction, prior agency practice, or the purposes of the filed rate doctrine.

IStatutory and Regulatory Framework

The Federal Power Act, 16 U.S.C. §§ 791a et seq., charges the Commission with regulating “the transmission of electric energy” and “the sale of electric energy at wholesale” in interstate commerce, id. § 824(b)(1). In exercising that authority, the Commission must ensure that “[a]ll rates and charges” for the “transmission or sale of electric energy subject to” its jurisdiction are “just and reasonable,” and that no public utility's rates are unduly discriminatory or preferential. Id. § 824d(a) & (b); see NRG Power Marketing, LLC v. Maine Public Utils. Comm'n, 558 U.S. 165, 167, 130 S.Ct. 693, 175 L.Ed.2d 642 (2010).

To that end, the Act requires every public utility to “file with the Commission” and “keep open in convenient form and place for public inspection schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission.” 16 U.S.C. § 824d(c). That obligation applies whether the rates and charges are set “unilaterally by tariff” or agreed upon in individual contracts between sellers and buyers. NRG Power Marketing, 558 U.S. at 171, 130 S.Ct. 693. When a public utility seeks to change its filed rate, it must “fil[e] with the Commission * * * new schedules stating plainly the change or changes * * * and the time when the change or changes will go into effect.” 16 U.S.C. § 824d(d).

The Federal Power Act's express mandate of openness, transparency, and consistency in rates prevents discrimination, promotes fair and equal access to the utilities' services, ensures the stability and predictability of rates, and reinforces the Commission's jurisdictional authority. See Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 130–131, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990); Consolidated Edison Co. of New York v. FERC, 347 F.3d 964, 969 (D.C.Cir.2003); Consolidated Edison Co. of New York v. FERC, 958 F.2d 429, 432 (D.C.Cir.1992) (R.B. Ginsburg, J.).

To foster competition in the wholesale energy market, the Commission drastically overhauled the regulatory scheme for public utilities in 1996. As part of that effort, the Commission ordered regulated utilities to separate financially their wholesale power-generation and power-transmission services. See Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996); see also New York v. FERC, 535 U.S. 1, 11, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) (describing Order No. 888). Accordingly, public utilities must now file tariffs with the Commission establishing separate rates for wholesale power generation service, transmission service, and any ancillary service. New York, 535 U.S. at 11, 122 S.Ct. 1012. In addition, they must “take transmission of [their] own wholesale sales and purchases under a single general tariff applicable equally to [themselves] and to others.” Id.

Problems soon arose, however, because every time a new generator of electricity asked to use a transmission network owned by another—to interconnect the two entities—disputes between the generator and the owner of the transmission grid would arise, delaying completion of the interconnection process. See Order No. 2003, FERC Stats. & Regs. ¶ 31,146 P. 11 (2003). The Commission waded into those disputes case by case, delaying entry into the market by new generators and providing an unfair competitive advantage to utilities owning both transmission and generation facilities. Id. at PP. 10–11.

To address those issues, the Commission, in 2003, issued Order No. 2003, FERC Stats. & Regs. ¶ 31,146 at PP. 11–12. That order replaced the Commission's case-by-case approach with a standardized process. The Order requires all regulated utilities that “own, control, or operate” transmission facilities to include standardized interconnection procedures and a form interconnection agreement in their filed tariffs. Id. at P. 2. By mandating that “standard set of procedures,” the Commission “minimize[d] opportunities for undue discrimination and expedit[ed] the development of new generation, while protecting reliability and ensuring that rates are just and reasonable.” Id. at P. 11.

Factual Background

1. PJM Interconnection, L.L.C., is a regional transmission organization, an independent entity that operates transmission facilities in thirteen states and the District of Columbia. See FPL Energy Marcus Hook, L.P. v. FERC, 430 F.3d 441, 442–443 (D.C.Cir.2005). Under PJM's Open Access Transmission Tariff, the interconnection process begins when a generator of electricity submits an interconnection request to PJM. PJM Tariff § 36.1.01, J.A. 747–748. Each request is placed into a “first-come, first-served queue.” Marcus Hook, 430 F.3d at 443; seePJM Tariff § 201, J.A. 752.

The submission of an interconnection request triggers an often lengthy review by the utility and holds the requestor's place in the interconnection queue until it concludes. During this process, PJM conducts “a series of studies to determine the impact of a generator interconnection request on the PJM transmission system,” including “the need for upgrades or additions to those transmission facilities,” PJM Br. 6, and an estimate of the requestor's cost responsibility for any needed upgrades, see Marcus Hook, 430 F.3d at 443. Those studies do “not set a rate for interconnection service,” however; they merely provide “a non-binding estimate of costs.” Dominion Res. Servs., Inc. v. PJM Interconnection, L.L.C., 123 FERC ¶ 61,025 P. 52 (2008). Customers are thus free to “terminate or withdraw their interconnection requests” at any time. Marcus Hook, 430 F.3d at 443. Once PJM finishes the studies, it provides the requestor with a proposed interconnection service agreement that “specifies the customer's actual cost responsibility,” including the cost of any upgrades needed to PJM's transmission network to sustain the increased demand. Id.

While a new service request might be what prompts a network upgrade, the “integrated transmission grid is a cohesive network,” Entergy Servs., Inc., 96 FERC ¶ 61,311, 62,202 (2001), and thus completed upgrades, whether they increase network capacity or simply improve stability, generally “benefit all transmission customers.” Order No. 2003, FERC Stats. & Regs. ¶ 31,146 at P. 21. For that reason, those generators who have to pay for upgrades under the PJM Tariff receive “incremental auction revenue rights” that give the generator the right to revenue from future sales of transmission services associated with the new or upgraded facility. SeePJM Tariff § 231.1, J.A. 764; see also PJM Interconnection, L.L.C., 126 FERC ¶ 61,280 P. 3 (2009) (describing the function of auction revenue rights). That auction revenue, in turn, partially compensates the generator for the financial burden it bore in improving the transmission network for all users. See Order No. 2003, FERC Stats. & Regs. ¶ 31,146 at P. 694.

2. In 1998, three generators submitted interconnection requests to PJM for the following projects: the Mantua Creek Project, the Liberty Electric Project, and the Marcus Hook Project. Rehearing Order at P. 3; Marcus Hook, 430 F.3d at 444. PJM determined that the projects' combined...