Dte Energy Co. v. F.E.R.C.

Citation394 F.3d 954
Decision Date14 January 2005
Docket NumberNo. 04-1020.,04-1020.
PartiesDTE ENERGY COMPANY and Detroit Edison Company, Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Dearborn Industrial Generation, LLC and International Transmission Company, Intervenors
CourtU.S. Court of Appeals — District of Columbia Circuit

Michael C. Griffen argued the cause for petitioners. With him on the briefs was John D. McGrane.

Beth G. Pacella, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. On the brief were Cynthia A. Marlette, General Counsel, Dennis Lane, Solicitor, and Lona T. Perry, Attorney.

Before: GINSBURG, Chief Judge, and ROGERS and ROBERTS, Circuit Judges.

ROGERS, Circuit Judges.

The DTE Energy Company and the Detroit Edison Company ("Detroit Edison") petition for review of three orders of the Federal Energy Regulatory Commission ruling that certain distribution and interconnection facilities are transmission facilities subject to the Commission's exclusive jurisdiction. DTE's petition is not properly before the court because it failed to seek rehearing or petition for review of its aggrieving order. See 16 U.S.C. § 825l (b). Detroit Edison's petition for review of two orders is properly before the court, and it contends the Commission acted arbitrarily and capriciously because the facilities at issue are "dual-use" local distribution/transmission facilities and should therefore be subject to the shared jurisdiction of the Commission and the State of Michigan. Ordinarily, this would occasion our review of the Commission's application of its seven-factor jurisdictional test adopted in Order No. 888,1 which the Commission asserts it applied here. However, because Detroit Edison failed to argue in its petition for rehearing that the Commission misapplied the seven-factor test, the court lacks jurisdiction to consider it now. Instead, Detroit Edison raised on rehearing, as it does on appeal, a substantial evidence challenge to the Commission's factual findings and a collateral attack on the Commission's single-jurisdictional approach. Accordingly, we deny the petition because the Commission's findings in support of its jurisdictional conclusion are supported by substantial evidence in the record and its collateral attack is precluded.

I.
A.

Section 201 of the Federal Power Act ("FPA"), 16 U.S.C. § 824(b)(1), empowers the Commission to regulate both wholesale sales of electric energy in interstate commerce and interstate electric energy transmissions, by vesting it with "jurisdiction over all facilities for such transmission or sale of electric energy." It also reserves regulatory authority to the states over bundled retail transactions, including the intrastate sale and distribution of electricity through local distribution facilities. Id. In Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.Cir.2000) ("TAPS"), the court affirmed Order No. 888 in relevant part, deferring to the Commission's interpretation of Section 201 of the FPA to accommodate new industry practices and conditions. Id. at 694-95. In Order No. 888, the Commission adopted a seven-factor jurisdictional test to identify unbundled retail-wheeling facilities primarily engaged in local distribution; the Commission claimed exclusive jurisdiction over all other facilities.2 Id. at 691. Thereafter in New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002), the Supreme Court affirmed. By rejecting New York's contention that the dividing line between regulatory authority of the states and the Commission falls between wholesale and retail markets, id. at 17, 122 S.Ct. at 1022-23, the Court implicitly approved the Commission's single-jurisdictional approach over multi-use unbundled retail-wheeling facilities, see id. at 22-23, 122 S.Ct. at 1025-26.

Accordingly, the Commission has applied Order No. 888's seven-factor test to determine jurisdictional authority over utilities providing unbundled retail services.3 See TAPS, 225 F.3d at 691. When the Commission recently ignored the seven-factor test to resolve such jurisdictional questions, the court rejected, as contrary to the statute and precedent, the Commission's attempt to expand its jurisdiction to set rates for all services occurring over facilities used for both retail and wholesale distribution, expressing concern that "the orders under review totally ignore Order No. 888's carefully formulated seven-factor test for distinguishing between local distribution facilities and `FERC-jurisdictional facilities.'" Detroit Edison Co. v. FERC, 334 F.3d 48, 54 (D.C.Cir.2003) ("Detroit Edison").

B.

The instant appeal arises in the context of the Commission's efforts to establish a regional transmission organization ("RTO") to integrate the Midwest wholesale electricity market. In response to rising energy costs in the Midwest, the Commission facilitated the development of a Midwest RTO and the integration of for-profit transmission companies to operate under the RTO umbrella. See generally Pub. Util. Dist. No. 1 v. FERC, 272 F.3d 607 (D.C.Cir.2001). After evaluating competing proposals, the Commission determined that Midwest Independent Transmission System Operator, Inc. ("Midwest ISO") should serve as the foundation for the Midwest RTO.

Detroit Edison and International Transmission ("IT") were both wholly owned subsidiaries of DTE Energy. Detroit Edison operates as DTE Energy's public utility, engaged in the generation, transmission, and distribution of energy in Michigan. DTE Energy Co., 2000 WL 869720, 91 F.E.R.C. ¶ 61,317, 62,909 (2000). DTE Energy created IT with the purpose of acquiring ownership of Detroit Edison's transmission assets as a first effort to divest its transmission business to an entity qualified to join the Midwest RTO. See id. Thus, on May 4, 2000, DTE, Detroit Edison, and IT sought and received the Commission's authorization to transfer Detroit Edison's transmission facilities with voltage ratings of 120 kV and above to IT. Id. Following the January 1, 2001 transfer, IT's transmission facilities, interconnected with those of Michigan Electric Transmission Company, together comprised substantially all of the Michigan Transmission grid. Int'l Transmission Co., 2001 WL 34078698, 97 F.E.R.C. ¶ 61,328, 62,534 (2001).

Pursuant to the Commission's approval of Midwest ISO as the regional RTO, IT applied for and received by Order of December 20, 2001, the Commission's authorization to transfer to Midwest ISO functional control over IT's jurisdictional transmission facilities. When IT thereafter submitted an updated list of jurisdictional facilities to be transferred to Midwest ISO, CMS Marketing, Services and Trading Company ("CMS") protested, arguing that the list should include Detroit Edison's facilities interconnecting Dearborn Industrial Generation, LLC ("DIG") with IT — specifically, the 230 kV Navarre-DIG line ("Navarre line"), the 230 kV Baxter-DIG line ("Baxter line"), and the Baxter substation (collectively, "DIG facilities") — because these are the facilities by which DIG sells electric energy to wholesale purchasers, and therefore are Commission jurisdictional transmission facilities. Int'l Transmission Co., 2002 WL 32035424, 99 F.E.R.C. ¶ 61,211, 61,888 (2002) ("May 22, 2002 Order").

By Order of May 22, 2002, the Commission found that the Navarre and Baxter lines appear to perform a jurisdictional transmission function because they are part of the interconnection facility connecting DIG to the transmission grid, and sought additional information from IT to inform the Commission's jurisdictional decision. Id. at 61,889. The Commission found the Baxter substation should be included in an updated list of IT's transmission facilities as it had already been included in the FERC Docket No. EC00-86 list of facilities that Detroit Edison was transferring to IT, incorporated into the December 20, 2001 Order. Id.

Detroit Edison moved to intervene and responded on July 16, 2002, conceding that the DIG facilities are, in part, interconnection facilities used in wholesale sales from the DIG Plant, but contending they nevertheless were part of Detroit Edison's local distribution system. Noting that the Baxter and Navarre lines had been developed and historically used to provide retail distribution service to electric loads located in or near the Rouge Industrial Complex in Dearborn pursuant to retail tariffs and contracts, Detroit Edison maintained the facilities were "dual-use" and should be subject to the shared jurisdiction of Michigan and the Commission. Concerned that classifying the facilities as transmission rather than local distribution facilities would cause it to incur stranded costs, Detroit Edison offered alternatively to transfer limited operational control over the DIG facilities to Midwest ISO to the extent necessary to effectuate wholesale sales. CMS again protested, arguing the Navarre line serves as the primary point of interconnection between DIG and IT from DIG's inception, and the Baxter line had been reconfigured to serve as a secondary point of interconnection with IT; it appended an analysis of power flows on the two lines.

Then, on October 4, 2002, Detroit Edison submitted an executed Agency Agreement between it and Midwest ISO that sought to transfer limited functional control over the DIG facilities to enable Midwest ISO to ensure the DIG generator receives non-discriminatory service when using the facilities for wholesale sales. In responding to a deficiency letter from Commission staff, Detroit Edison explained that retail-load customers must obtain retail-delivery service over the Detroit Edison facilities under the state Retail Access Service Tariff ("RAST"), and that ceding complete operational control to Midwest ISO would render Detroit Edison unable to recover its costs under the RAST,...

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