Pub. Serv. Elec. & Gas Co. v. Fed. Energy Regulatory Comm'n

• Decision Date: 02 March 2021
• Docket Number: C/w 20-1039,No. 19-1091,19-1091
• Citation: 989 F.3d 10
• Parties: PUBLIC SERVICE ELECTRIC AND GAS COMPANY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent New Jersey Board of Public Utilities, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

989 F.3d 10

PUBLIC SERVICE ELECTRIC AND GAS COMPANY, Petitioner

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent

New Jersey Board of Public Utilities, et al., Intervenors

No. 19-1091

C/w 20-1039

United States Court of Appeals, District of Columbia Circuit.

Argued January 15, 2021

Decided March 2, 2021

John Longstreth, Washington, DC, argued the cause for petitioners. With him on the briefs were Cara J. Lewis, Donald A. Kaplan, Washington, DC, Kimberly B. Frank, Washington, DC, and Steven Nadel. William M. Keyser III entered an appearance.

Gurbir S. Grewal, Attorney General, Office of the Attorney General for the State of New Jersey, Paul Youchak, Deputy Attorney General, and Stefanie A. Brand, Director, New Jersey Division of Rate Counsel, were on the brief for intervenor New Jersey Board of Public Utilities and New Jersey Division of Rate Counsel in support of petitioners. Alex Moreau, Attorney, Office of the Attorney General, Newark, NJ, for the State of New Jersey, Stephen C. Pearson, and Scott H. Strauss, Washington, DC, entered appearances.

Elizabeth E. Rylander, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were David L. Morenoff, Acting General Counsel, Washington, DC, and Robert H. Solomon, Solicitor, Roseland, NJ.

Robert A. Weishaar, Jr., Frederick, MD, Kenneth R. Stark, Harrisburg, PA, Thomas L. Rudebusch, Washington, DC, Bhaveeta K. Mody, Timothy G. McCormick, Richmond, VA, William F. Fields, Joseph G. Cleaver, Owings Mills, MD, Michael R. Engleman, Regina A. Iorii, Miles H. Mitchell, Washington, DC, Adrienne E. Clair, and Rebecca L. Shelton were on the brief for intervenor Public Service Commission for the State of Delaware, et al. in support of respondent. Kayla Grant entered an appearance.

Before: Srinivasan, Chief Judge, Rogers, Circuit Judge, and Edwards, Senior Circuit Judge.

Rogers, Circuit Judge:

Public Service Electric and Gas Company and PPL Electric Utilities Corporation petition for review of three orders of the Federal Energy Regulatory Commission concerning cost sharing for certain upgrades to the Mid–Atlantic electricity transmission grid. In 2016, the Commission approved as just and reasonable cost allocations filed by PJM Interconnection, L.L.C. ("PJM"), the Mid–Atlantic's regional transmission organization, for a project to improve the reliability of three nuclear power plants in New Jersey. In so doing, the Commission denied a complaint lodged by Delaware and Maryland alleging a large imbalance between the costs imposed on the Delmarva transmission zone and the benefits that zone would accrue from the project. On rehearing in 2018, however, the Commission reversed course, concluding that, upon reexamination of the evidence, application of PJM's cost–allocation method to the project violated cost–causation principles and was therefore unjust and unreasonable in violation of section 206 of the Federal Power Act, 16 U.S.C. § 824e. The Commission's replacement cost–allocation method shifted primary cost responsibility for the project from the Delmarva zone to utilities in New Jersey.

Petitioners, PJM transmission owners, and intervenors New Jersey Board of Public Utilities and New Jersey Division of Rate Counsel ("New Jersey Agencies") contest the rationality of the Commission's volte–face. They contend the Commission departed from precedent without adequate explanation, made findings that are unsupported by substantial evidence, and failed to respond meaningfully to objections raised during the proceedings. For its part, the Commission, with support from a coalition of Delaware and Maryland stakeholders, maintains that it engaged in reasoned decisionmaking. We conclude the Commission reasonably decided to adopt a different cost–allocation method for the type of project at issue here and adequately explained its departure from the cost allocations it had approved in 2016. Accordingly, we deny the petitions for review.

I.

The Federal Power Act requires that the Commission ensure the rates charged by public utilities to provide electricity are "just and reasonable." 16 U.S.C. § 824d(a). Pursuant to section 206 of the Federal Power Act, the Commission may investigate — on its own initiative or based on a third–party complaint — whether an existing rate is "unjust, unreasonable, unduly discriminatory or preferential." Id. § 824e(a). The proponent of the rate change bears the burden of proof, and, if the Commission determines that the rate is unlawful, it must establish a just and reasonable replacement rate. Id. § 824e(a), (b). Section 206 therefore "mandates a two–step procedure" whereby the Commission must "make an explicit finding that the existing rate is unlawful before setting a new rate." Emera Me. v. FERC , 854 F.3d 9, 24 (D.C. Cir. 2017). Thus, "[w]ithout a showing that the existing rate is unlawful," the Commission "has no authority to impose a new rate." Id. at 25.

The Commission has long viewed the just–and–reasonable requirement to "incorporate a ‘cost–causation principle.’ " Old Dominion Elec. Coop. v. FERC , 898 F.3d 1254, 1255 (D.C. Cir. 2018). That "principle requires costs ‘to be allocated to those who cause the costs to be incurred and reap the resulting benefits.’ " S.C. Pub. Serv. Auth. v. FERC , 762 F.3d 41, 87 (D.C. Cir. 2014) (quoting Nat'l Ass'n of Regul. Util. Comm'rs v. FERC , 475 F.3d 1277, 1285 (D.C. Cir. 2007) ). So, although the Commission need not "allocate costs with exacting precision," the costs assessed against a party must bear some resemblance "to the burdens imposed or benefits drawn by that party."

Midwest ISO Transmission Owners v. FERC , 373 F.3d 1361, 1368–69 (D.C. Cir. 2004). In practice, this means "the Commission generally may not single out a party for the full cost of a project, or even most of it, when the benefits of the project are diffuse." BNP Paribas Energy Trading GP v. FERC , 743 F.3d 264, 268 (D.C. Cir. 2014).

Consistent with the cost–causation principle, the Commission issued "Order No. 1000" in 2011 to foster the efficient development of the transmission grid. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities , F.E.R.C. Stats. & Regs. ¶ 31,323, 76 Fed. Reg. 49,842 (Aug. 11, 2011), petitions for review denied , S.C. Pub. Serv. Auth. , 762 F.3d 41. Among other things, Order No. 1000 requires utilities to participate in regional transmission planning and to include in their tariffs a formula "for allocating the costs of new transmission facilities selected in the regional transmission plan." Id. at P 558, 76 Fed. Reg. at 49,929. To comply with Order No. 1000, a utility's cost–allocation method must satisfy six criteria, the first of which embodies the cost–causation principle by requiring that costs be "allocated in a way that is roughly commensurate with benefits." Id. at P 622, 76 Fed. Reg. at 49,937.

A.

PJM is an independent entity that coordinates the transmission of wholesale electricity in the Mid–Atlantic region. In accordance with Order No. 1000, Schedule 12 of PJM's Open Access Transmission Tariff outlines its cost–sharing requirements, which the Commission accepted in 2013. PJM Interconnection, L.L.C. , 142 F.E.R.C. ¶ 61,214 at PP 411–12 (Mar. 22, 2013), order on reh'g & compliance , 147 F.E.R.C. ¶ 61,128 (May 15, 2014). As relevant here, PJM uses a combination of two methods to assign the costs of high–voltage transmission facilities built to improve grid reliability. Id. at P 412. Half of the cost is allocated under the "postage–stamp method," which assigns costs pro rata based on the level of customer demand within each zone. Id. The other half is apportioned using the "Solution–Based DFAX method." Id. Relying on "power flow analysis," that method assigns costs according to the relative use of the new facility as measured by the amount of power flowing over the new facility to each transmission zone. Id. at P 416. Solution–based DFAX replaced PJM's "violation–based DFAX" method, which assigned costs retrospectively to the zones that contributed to the reliability violation. In approving the new method, the Commission touted the advantages of assigning costs prospectively to the zones that will benefit from the project, noting that the violation–based DFAX method "does not account for multiple constraints in multiple areas, and cannot account for changes in usage and flow direction over time." Id. at P 427.

Located on the New Jersey side of the Delaware River, Artificial Island is home to three nuclear power plants owned by a subsidiary of petitioner Public Service Electric and Gas Company. These generating units have long been plagued by operational issues stemming from an insufficient number of transmission lines connecting Artificial Island to the grid. Generation is constrained when one of the lines is out of service, and various components of the transmission system require careful management to prevent the power plants from becoming unstable and losing synchronism with the grid. Such losses of synchronism are referred to as "stability" problems.

B.

In July 2013, PJM solicited proposals to improve the reliability of Artificial Island.

See PJM, Artificial Island Project Recommendation White Paper 1 (July 29, 2015). After two years of study, PJM selected the "Artificial Island Project," which primarily entails the construction of a high–voltage line under the Delaware River to connect the power plants to a new substation in Delaware. Letter from Terry Boston, PJM, to PJM Members Committee (July 29, 2015); PJM 2015 White Paper 35–37. Under PJM's hybrid cost–allocation method, nearly 90 percent of the Artificial Island Project's $275.4 million cost was assigned to the Delmarva transmission zone. PJM 2015 White Paper 38.

On August 28, 2015, PJM filed with the Commission proposed cost allocations for the Artificial Island Project. PJM, Tariff Filing (Aug. 28, 2015). The same day, the Delaware and Maryland Public Service Commissions...