Dynegy Midwest Generation Inc. v. Fed. Energy Regulatory Comm'n

• Decision Date: 11 February 2011
• Docket Number: Nos. 09–1306,09–1308.,s. 09–1306
• Citation: 633 F.3d 1122
• Parties: DYNEGY MIDWEST GENERATION, INC., Petitionerv.FEDERAL ENERGY REGULATORY COMMISSION, RespondentFirstEnergy Solutions Corp., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

633 F.3d 1122

394 U.S.App.D.C. 225

DYNEGY MIDWEST GENERATION, INC., Petitioner

v.FEDERAL ENERGY REGULATORY COMMISSION, RespondentFirstEnergy Solutions Corp., et al., Intervenors.

Nos. 09–1306

09–1308.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 3, 2010.Decided Feb. 11, 2011.

On Petitions for Review of Orders of the Federal Energy Regulatory Commission.James K. Mitchell and Ashley C. Parrish argued the cause for petitioners. With them on the briefs was Neil L. Levy. A. Karen Hill and Michael J. Rustum entered appearances.Lona T. Perry, Senior Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Thomas R. Sheets, General Counsel, and Robert H. Solomon, Solicitor.Jeffrey G. DiSciullo, Wendy N. Reed, and David S. Berman were on the brief for intervenors Midwest ISO Transmission Owners in support of respondent.Before: SENTELLE, Chief Judge, BROWN, Circuit Judge, and WILLIAMS, Senior Circuit Judge.Opinion for the court filed by Senior Circuit Judge WILLIAMS.WILLIAMS, Senior Circuit Judge:

The petitioners own and operate power generation facilities that are part of the Midwest Independent System Operator (“ISO”), a regional transmission organization. The generators supply two kinds of power: (1) “real power” of the sort we are all familiar with and use for running motors, lighting lamps, etc.; and (2) “reactive power,” a support service used to maintain adequate voltages to transmit real power, and to prevent damage such as overheating of generators and motors. See FERC Staff Report, AD05–1–000, Principles for Efficient and Reliable Reactive Power Supply and Consumption 17–20 (2005), available at http:// www. ferc. gov/ eventcalendar/ files/ 20050310144430– 02– 04– 05– reactive– power. pdf. Inadequacies in reactive power can cause voltage collapse and blackouts. Id. at 20. Real power is sold to regular customers; reactive power is sold to the Midwest ISO and the cost passed on to transmission owners and operators. Midwest ISO Open Access Transmission and Energy Markets Tariff, Schedule 2, III. A & C.

Before the orders in dispute here, generators within the Midwest ISO were compensated for all reactive power with cost-based rates, pursuant to Schedule 2 of the ISO's tariff. In the challenged orders, FERC accepted a tariff amendment under which any transmission owner could elect an alternative rule of compensation, Schedule 2–A. Under that schedule, the transmission owner would provide no compensation for reactive power produced within a specified range (the so-called “deadband” ¹ ). (Transmission owners electing Schedule 2–A would continue to pay for reactive power outside the deadband, though on a basis somewhat different from that of Schedule 2.) A transmission owner's election between the two schedules would govern its compensation of all generators in its zone (and, in case of a multi-zone transmission owner, all its zones), affiliated and unaffiliated generators alike.

The petitioners challenge the orders. Their primary contention is that allowance of the Schedule 2–A option was unduly discriminatory, as it would cause generators in different zones to be compensated differently, entirely at the untrammeled choice of each zone's transmission owners, even though Midwest ISO generators compete with each other across zonal borders. Second, they contend that transmission owners were not authorized to file the new tariff under § 205 of the Federal Power Act (“FPA”), 16 U.S.C. § 824d. We grant the petitions for review on the first objection but reject the second.

* * *

Historically, vertically integrated utilities could recover the costs for providing both real and reactive power through a single rate charged to customers. In 1996, FERC required utilities to functionally unbundle their generation and transmission functions and to provide access to their transmission grid to customers on a non-discriminatory basis. See Promoting Wholesale Competition Through Open–Access Non–Discriminatory Transmission Services by Public Utilities, Order No. 888, 61 Fed.Reg. 21,540 (May 10, 1996). The Commission ordered public utilities to offer ancillary services necessary for a reliable system (including reactive power supply), required transmission customers to purchase those services, id. at 21,580–82, and ordered that the rates paid to generators for reactive power be cost-based, id. at 21,590.

In two orders issued in 2003 and 2004, the Commission created the opportunity for transmission owners to select among alternative bases of compensation. First it found that, as a general matter, a generator should not be compensated for providing reactive power within a specified range, the deadband, “since it is only meeting its obligation [to do so].” See Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, 68 Fed.Reg. 49,846 at 49,891 (P 546) (Aug. 19, 2003) (“Order No. 2003”). But the Commission allowed ISOs and Regional Transmission Organizations to deviate from this principle. Id. at 49,891 (P 548). On rehearing it made clear that if a transmission owner continued to pay its own or affiliated generators for reactive power service, the principle of “comparability” would require it to pay unaffiliated generators similarly. See Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003–A, 69 Fed.Reg. 15,932 at 15,964 (P 416) (Mar. 26, 2004) (“Order No. 2003–A”).

The Midwest ISO is a regional transmission organization to which many of the public utilities in the Midwest transferred operational control over their transmission facilities. Midwest Independent Transmission System Operator, Inc., 97 FERC ¶ 61,326 (2001). It has designated certain transmission pricing zones within its footprint which generally correspond to the boundaries of the transmission facilities of each participating transmission owner. Midwest ISO Transmission Owners, 122 FERC ¶ 61,305, P 1 & n. 4 (2008) (“Initial Order”). Transmission rates in different transmission zones may vary, but for a sale to any purchaser throughout the Midwest ISO, the transmission rate will be simply the price for the purchaser's zone. Id.; Midwest ISO, 84 FERC ¶ 61,231 at 62,166 (1998) (explaining that the single rate is “based on the costs of the local service area where the point of delivery is located”).

In October 2007, certain transmission owners in the Midwest ISO proposed a change in the ISO's tariff that in effect exercised the option they believed had been created by Orders Nos. 2003 and 2003–A. Each transmission owner (or all transmission owners in a zone in the case of such multiple owners) could choose between Schedule 2 (cost-based compensation for all reactive power) and Schedule 2–A (no compensation for reactive power in the deadband, and somewhat different compensation for reactive power outside). Initial Order , P 1. FERC rejected a claim—raised only secondarily before us—that even if transmission owners in each zone compensated all the generators in their zone, affiliated and unaffiliated, on a comparable basis, granting transmission owners the right to choose would violate the comparability requirement developed in Orders Nos. 2003 and 2003–A. Midwest ISO Transmission Owners, 129 FERC ¶ 61,041, P 78 (2009) ( “Rehearing Order”). It paid virtually no attention to petitioners' independent argument that its order allowed undue discrimination in violation of § 205(b) of the FPA, see, e.g., Request for Rehearing of Exelon Corporation at 5–12, treating it as merely a claim that some generators might be economically disadvantaged. See Rehearing Order , PP 91–97.

The petitioners object that comparability and absence of undue discrimination are not synonymous, and urge us to declare FERC's orders to be in violation of § 205(b)'s antidiscrimination provision, as well as arbitrary and capricious and unsupported by substantial evidence. 5 U.S.C. § 706(2)(A), (E). They also argue that the filing of the tariff was (quite apart from FERC's acceptance of it) without legal foundation.

* * *

Undue discrimination. Before reaching the merits of the petitioners' discrimination claim, we must consider FERC's objection that the petitioners' challenge to Schedule 2–A was an impermissible collateral attack on the rule of comparability for reactive power tariffs as developed in Orders Nos. 2003 and 2003–A—essentially an assertion that this court lacks jurisdiction to hear the discrimination claim. FPA § 313(b), 16 U.S.C. § 825 l(b) (giving this court jurisdiction only if an aggrieved party files a petition with the court within 60 days of the issuance of the order). FERC contends that petitioners failed to file a timely challenge to Orders Nos. 2003 and 2003–A, which it now views as establishing the proposition that where “comparability” as defined in those orders is present, there can be no undue discrimination.

Under § 313(b) the 60–day clock starts running only when “the agency has decided a question in a manner that reasonably puts aggrieved parties on notice of the rule's content.” Southern Company Services, Inc. v. FERC, 416 F.3d 39, 44–45 (D.C.Cir.2005) (citing RCA Global Communications, Inc. v. FCC, 758 F.2d 722, 730 (D.C.Cir.1985)). A petition is a “collateral attack only if a reasonable firm in [petitioners'] position would have perceived a very substantial risk that the [order] meant what the Commission now says it meant.” Id. at 45 (internal quotations omitted).

Those criteria are not satisfied here. In its Rehearing Order, FERC acknowledged that,

prior to this case, the Commission has never evaluated a proposed tariff provision that allows all generators within a particular zone in an RTO—affiliated and unaffiliated—to collect reactive power compensation on one basis, while all generators in a different zone in the same RTO collect reactive power compensation on a different basis.

Rehearing Order , P 71.

Moreover, if ...