Esi Energy, LLC v. Fed. Energy Regulatory Comm'n

• Decision Date: 08 June 2018
• Docket Number: No. 16-1342,16-1342
• Citation: 892 F.3d 321
• Parties: ESI ENERGY, LLC, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent PJM Interconnection, L.L.C. and West Deptford Energy, LLC, Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

892 F.3d 321

ESI ENERGY, LLC, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentPJM Interconnection, L.L.C. and West Deptford Energy, LLC, Intervenors

No. 16-1342

United States Court of Appeals, District of Columbia Circuit.

Argued January 8, 2018

Decided June 8, 2018

Larry F. Eisenstat argued the cause and filed the briefs for petitioner.

Nicholas M. Gladd, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were David L. Morenoff, General Counsel, and Robert H. Solomon, Solicitor.

Ashley C. Parrish argued the cause for intervenor for respondent West Deptford Energy, LLC. With him on the brief were Justin A. Torres, Neil L. Levy, and Stephanie S. Lim.

Before: Millett and Wilkins, Circuit Judges, and Edwards, Senior Circuit Judge.

Wilkins, Circuit Judge

For a second time, we consider the ramifications of a utility filing more than one rate with the Federal Energy Regulatory Commission ("FERC" or the "Commission") during the time in which the utility negotiates an agreement with a prospective customer. See W. Deptford Energy, LLC v. FERC , 766 F.3d 10 (D.C. Cir. 2014). Specifically, we are asked to determine which rate governs: the rate in effect at the time negotiations commenced or the rate in effect at the time the agreement was completed. We are also asked to consider whether, if the rate on file at the time the agreement was completed governs, FERC reasonably interpreted the new rate.

Upon review, we uphold FERC's determination that the governing rate is the rate in effect at the time the agreement was completed. Because we find that FERC properly considered the Court's findings on remand, adequately explained its decision, and properly considered the evidence, FERC did not act arbitrarily and capriciously in interpreting the new rate. We therefore deny the Petition for Review.

I.

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 Mktg., LLC v. Maine Pub. 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 Mktg. , 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 Indus., U.S., Inc. v. Primary Steel, Inc. , 497 U.S. 116, 130-31, 110 S.Ct. 2759, 111 L.Ed.2d 94 (1990) ; Consol. Edison Co. of N.Y. v. FERC , 347 F.3d 964, 969 (D.C. Cir. 2003) ; Consol. Edison Co. of N.Y. v. FERC , 958 F.2d 429, 432 (D.C. Cir. 1992).

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 Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities , Order No. 888, 61 Fed. Reg. 21,540 (Apr. 24, 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 Standardization of Generator Interconnection Agreements and Procedures , Order No. 2003, 104 FERC ¶ 61,103 at 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, 104 FERC 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.

II.

A.

PJM Interconnection, LLC ("PJM"), 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, 442-43 (D.C. Cir. 2005). Under PJM's Open Access Transmission Tariff ("PJM Tariff"), the interconnection process begins when a generator of electricity submits an interconnection request to PJM. W. Deptford , 766 F.3d at 13. Each request is placed into a "first-come, first-served queue." Marcus Hook , 430 F.3d at 443 ; see PJM Tariff § 201.

The submission of an interconnection request triggers a 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, W. Deptford , 766 F.3d at 14, 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, LLC , 123 FERC ¶ 61,025 at 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 completes 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 generally "benefit all transmission customers," Order No. 2003, 104 FERC 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. See W. Deptford , 766 F.3d at 14 ; see also PJM Interconnection, LLC , 126 FERC ¶ 61,280, ¶ 62,589 (2009) (describing the function of auction-revenue rights). That auction revenue, in turn, partially compensates the generator for the financial burden of improving the transmission network for all users. See Order No. 2003, 104 FERC at P. 694.

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. Order Denying Rehearing, PJM Interconnection, LLC , 139 FERC ¶ 61,184 at P. 3 (2012) (" 2012 Order"); Marcus Hook , 430 F.3d at 444. PJM determined that the projects' combined load would "push [its] system beyond the breaking point," and thus advised a $13 million upgrade (the "Upgrade" or "Network Upgrade 28") to a transmission circuit. Marcus Hook , 430 F.3d at 444. Because that Upgrade was unnecessary at the time the first project, Mantua Creek, entered the queue, Mantua Creek was not assigned any cost responsibility for the Upgrade. Id. Marcus Hook and Liberty Electric bore it all, with 90% of the Upgrade's cost assigned to Marcus Hook. See id. ; see also 2012 Order at P. 3. Both generators moved forward with the project, with Marcus Hook agreeing to pay "over $10 million of the upgrade's total cost." Marcus Hook , 430 F.3d at 444.

As the Upgrade neared completion, Mantua Creek unexpectedly cancelled its project and withdrew from the queue. See 2012 Order at P. 3. That decrease in the demand for power...