Coal. of MISO Transmission Customers v. Fed. Energy Regulatory Comm'n

• Decision Date: 19 August 2022
• Docket Number: 20-1421
• Citation: 45 F.4th 1004
• Parties: COALITION OF MISO TRANSMISSION CUSTOMERS, et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Ameren Services Company, as agent for Union Electric Company d/b/a Ameren Missouri, Ameren Illinois Company d/b/a Ameren Illinois, and Ameren Transmission Company of Illinois, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

45 F.4th 1004

COALITION OF MISO TRANSMISSION CUSTOMERS, et al., Petitioners

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent

Ameren Services Company, as agent for Union Electric Company d/b/a Ameren Missouri, Ameren Illinois Company d/b/a Ameren Illinois, and Ameren Transmission Company of Illinois, et al., Intervenors

No. 20-1421

United States Court of Appeals, District of Columbia Circuit.

Argued February 7, 2022

Decided August 19, 2022

Michael R. Engleman argued the cause for petitioners. With him on the briefs were Robert A. Weishaar, Jr., Kenneth R. Stark, Robert C. Fallon, and Christina Switzer.

Matthew J. Glover, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the briefs were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Susanna Y. Chu, Attorney.

Christopher D. Supino argued the cause for nongovernmental intervenors in support of respondent. With him on the joint brief were Ilia Levitine, Wendy N. Reed, and Matthew J. Binette.

William D. Booth, Roxane E. Maywalt, Paul L. Zimmering, and Noel J. Darce were on the brief for state governmental intervenors in support of respondent.

Before: Rogers, Millett, and Pillard, Circuit Judges.

Opinion dissenting in part and concurring in part filed by Circuit Judge Rogers.

Millett, Circuit Judge:

LS Power Midcontinent, LLC ("LS Power") is a transmission developer seeking to build projects on the electrical grid overseen by the Midcontinent Independent System Operator, Inc. ("MISO"). LS Power and two organizations representing electricity consumers (collectively, "Petitioners") challenge MISO's method of allocating costs for a category of transmission construction projects called Baseline Reliability Projects. Under MISO's approach, 100% of a project's costs are allocated to the zone in which the project is physically located, regardless of whether other zones also would benefit from the project. Importantly, this cost-allocation decision means that Baseline Reliability Projects are not subject to competitive bidding. Instead, MISO assigns construction of the project to the transmission developer owning the portion of the grid where the project sits. Those incumbent transmission developers prefer this approach because they can make a profit on the construction project. See MISO Transmission Owners v. FERC , 819 F.3d 329, 333 (7th Cir. 2016).

The Federal Energy Regulatory Commission originally approved this cost-allocation regime in 2013, and, in 2016, the United States Court of Appeals for the Seventh Circuit rejected a challenge to the Commission's decision. MISO Transmission Owners , 819 F.3d at 335–336.

Petitioners argue that new evidence acquired over the intervening years shows that MISO's cost-allocation method for Baseline Reliability Projects is unjust and unreasonable and impermissibly favors incumbent transmission owners over would-be competitors. The Commission contends that Petitioners lack standing to challenge its orders and, in any event, Petitioners’ new evidence fails to undermine the Commission's previous conclusions.

As a threshold matter, we hold that LS Power has standing to challenge the Commission's decision because it has shown that it is "ready, willing and able" to compete for Baseline Reliability Projects if allowed, yet the existing cost-allocation regime categorically deprives LS Power of the opportunity to do so. LSP Transmission Holdings II, LLC v. FERC (LSP 2022 II ), No. 20-1465, 45 F.4th 979, 989 (D.C. Cir. Aug. 19, 2022) (citation omitted).

On the merits, though, we agree with the Commission that Petitioners’ new evidence—which was limited to a relatively small number of Baseline Reliability Projects—did not necessitate a categorical finding that location-based cost allocation is unjust and unreasonable for all Baseline Reliability Projects. Petitioners’ remaining objections regarding MISO's compliance with other regional cost-sharing requirements and the Commission's obligation to respond to arguments on rehearing are likewise unavailing. As a result, we deny the petition for review.

I

A

The Federal Power Act requires the Commission to ensure that "[a]ll rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy" in interstate commerce are "just and reasonable[.]" 16 U.S.C. § 824d(a). Under Section 206 of the Act, the Commission may investigate—either on its own initiative or in response to a third-party complaint—whether a rate contained in a transmission operator's existing tariff remains just and reasonable. Id. § 824e(a); see Public Serv. Elec. & Gas Co. v. FERC , 989 F.3d 10, 13 (D.C. Cir. 2021). The proponent of the rate change bears the burden of showing that the existing rate is unjust or unreasonable. 16 U.S.C. § 824e(b). If the proponent does so, then the existing rate is unlawful, and the Commission "must establish a just and reasonable replacement rate." Public Serv. Elec. & Gas Co. , 989 F.3d at 13 (citing 16 U.S.C. § 824e(a) ).

The Commission and the courts "have added flesh to [the] bare statutory bones" of the just-and-reasonable requirement by "establishing what has become known in Commission parlance as the ‘cost-causation’ principle." K N Energy, Inc. v. FERC , 968 F.2d 1295, 1300 (D.C. Cir. 1992) ; see Old Dominion Elec. Coop. v. FERC , 898 F.3d 1254, 1255–1256 (D.C. Cir. 2018). The cost-causation principle requires that "[t]he cost of transmission facilities * * * be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits." South Carolina Pub. Serv. Auth. v. FERC , 762 F.3d 41, 53 (D.C. Cir. 2014) (per curiam) (citation omitted). Said more simply, "the burden on ratepayers of paying for a project should be matched with its benefit to them." LSP 2022 II , No. 20-1465, 45 F.4th at 984 (formatting modified and citation omitted); see Midwest ISO Transmission Owners v. FERC , 373 F.3d 1361, 1368 (D.C. Cir. 2004) (Roberts, J.) (explaining that compliance with the cost-causation principle is determined by "comparing the costs assessed against a party to the burdens imposed or benefits drawn by that party").

B

In 2011, in anticipation of a "[s]ignificant expansion of the transmission grid[,]" South Carolina Pub. Serv. Auth. , 762 F.3d at 51 (citation omitted), the Commission issued Order No. 1000, which required every grid operator to establish a "regional transmission plan" to identify "what new facilities would best meet regional needs for electricity[,]" Old Dominion , 898 F.3d at 1256 ; see Transmission Planning & Cost Allocation by Transmission Owning & Operating Public Utilities, 76 Fed. Reg. 49,842 (Aug. 11, 2011) ("Order No. 1000").

Under Order No. 1000, a grid operator must specify up front the cost-allocation methods it will use for facilities included in its regional plan, and those methods must adhere to the cost-causation principle. Order No. 1000, 76 Fed. Reg. at 49,929 ¶ 558, 49,932 ¶ 586 ; see South Carolina Pub. Serv. Auth. , 762 F.3d at 53, 83. Transmission providers are permitted to select different cost-allocation methods for different types of transmission facilities, such as those designed to address reliability concerns, to relieve congestion on the grid, or to achieve public policy goals. Order No. 1000, 76 Fed. Reg. at 49,944–49,945 ¶ 685. But Order No. 1000 makes clear that providers cannot fully close off any one type of transmission facility from regional cost-allocation. Id. at 49,945 ¶ 690. For example, some facilities designed to ensure grid reliability can have their costs allocated locally as long as the costs of other reliability projects are allocated regionally. See MISO Transmission Owners , 819 F.3d at 335.

Order No. 1000 also addressed rights of first refusal, which incumbent developers that already own parts of the grid often included in tariffs and agreements to ensure they would have the "first crack at constructing" transmission projects within their retail distribution territories, and thereby keep competitors at bay. MISO Transmission Owners , 819 F.3d at 331 ; see South Carolina Pub. Serv. Auth. , 762 F.3d at 72. Concerned about the anti-competitive effect of such provisions, the Commission directed transmission owners to remove from their tariffs and agreements any provision creating a federal right of first refusal over the construction of a new facility included in a regional transmission plan. Order No. 1000, 76 Fed. Reg. at 49,895–49,896 ¶ 313. But incumbent transmission owners are permitted to retain federal rights of first refusal over nonregional, purely "local transmission facilities[,]" which (1) are located wholly within the incumbent's service territory, and (2) have their costs allocated entirely to the zone in which they are located. South Carolina Pub. Serv. Auth. , 762 F.3d at 73 (formatting modified) (quoting Order No. 1000, 76 Fed. Reg. at 49,854 ¶ 63, 49,886 ¶ 258 ).¹

MISO is the entity that operates, but does not own, the electrical transmission facilities in fifteen primarily midwestern states and one Canadian province. See Ameren Servs. Co. v. FERC , 880 F.3d 571, 572 n.1 (D.C. Cir. 2018). MISO divides its territorial footprint into 24 "pricing zones[,]" with each zone roughly corresponding to the transmission facilities owned by a particular electric utility. Illinois Com. Comm'n v. FERC , 721 F.3d 764, 773 (7th Cir. 2013) ; Dynegy Midwest Generation, Inc. v. FERC , 633 F.3d 1122, 1125 (D.C. Cir. 2011). In its annual MISO Transmission Expansion Plan, MISO lists the new transmission facilities that it has approved and anticipates adding to the grid in the upcoming year.

MISO organizes its transmission facilities into different categories, each with its own purposes, requirements, and cost-allocation methods. The Baseline Reliability Projects category, which is at issue here, encompasses "projects...