Entergy Services, Inc. v. F.E.R.C.

• Decision Date: 30 July 2004
• Docket Number: No. 03-1027.,03-1027.
• Citation: 375 F.3d 1204
• Parties: ENTERGY SERVICES, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Aquila Merchant Services, Inc. and Louisiana Public Service Commission, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

375 F.3d 1204

ENTERGY SERVICES, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Aquila Merchant Services, Inc. and Louisiana Public Service Commission, Intervenors.

No. 03-1027.

United States Court of Appeals, District of Columbia Circuit.

Argued March 15, 2004.

Decided July 30, 2004.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

John S. Moot argued the cause for petitioner. With him on the briefs was William S. Scherman.

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 David H. Coffman, Attorney.

Before: SENTELLE, ROGERS and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Entergy Services, Inc. ("Entergy" or "petitioner"), an electricity utility system owning and operating both transmission facilities and generation resources, petitions for review of a Federal Energy Regulatory Commission ("FERC" or "the Commission") order finding that Entergy had unreasonably discriminated against competitors by keeping transmission capacity off the market in violation of FERC Order No. 888. Entergy contends that the order is arbitrary and capricious. For the reasons more fully set forth below, we deny the petition and uphold FERC's order.

I. Background

1. Regulatory Background

The Federal Power Act ("FPA" or "Act") grants FERC jurisdiction over the sale or resale and the transmission of electric energy in interstate commerce. See generally FPA §§ 201(b), 205 and 206, 16 U.S.C. §§ 824(b), 824d and 824e. In 1996, FERC acted upon evidence of pervasive discrimination in the transmission of electric power by completing a massive regulatory revision, culminating in Order No. 888. Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996), 61 Fed.Reg. 21,540 ("Order No. 888"), on reh'g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048, 62 Fed.Reg. 64,688 (1997), on reh'g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), on reh'g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff'd, Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.Cir.2000) ("TAPS"), aff'd sub nom., New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). Specifically, FERC concluded that public utilities that owned, controlled, or operated facilities for transmitting electric energy in interstate commerce ("transmission providers") were using their control over such facilities to favor their own sales to the detriment of competing sellers and consumers. Id. ¶¶ 31,682, 31,919-26; Order No. 888-A at 30,210. Invoking its authority under FPA §§ 205 and 206, FERC imposed three requirements relevant to the present petition to remedy that discrimination. First, the Commission required transmission providers to make available open access transmission, i.e., to offer transmission services to all eligible parties on a nondiscriminatory basis. Order No. 888, ¶ 31,635. See 18 C.F.R. § 35.28(c)(1). Second, the Commission required providers to unbundle their wholesale services, i.e., to offer separate sales, transmission, and "ancillary" services. See New York v. FERC, 535 U.S. 1 at 11, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). Third, the order required providers to take transmission service to serve their own wholesale customers (wholesale "load") and unbundled retail load on the same terms offered other transmission customers. See 18 C.F.R. § 35.28(c)(2).

The Commission implemented the new regulatory scheme, in part, by promulgating a pro forma Open Access Transmission Tariff ("OATT") that includes the minimum terms and conditions under which transmission providers may offer service. See Order No. 888-A at 30,503-43 (containing the final OATT); 18 C.F.R. § 35.28(c)(1) (requiring all transmission providers to have on file a tariff equivalent to the OATT "or such other open access tariff as may be approved by the Commission consistent with Order No. 888"). Previously, transmission providers had provided two main services: "unbundled" transmission, in which they delivered electric power purchased by a transmission customer from a specified origination point to a specified destination at a specified transmission rate; and "bundled" sales, in which they delivered and sold electric power to the customer at a single rate that encompassed both the transmission and power costs. The OATT replaces the first of these services with "point-to-point" service, and partially replaces the second with "network integration service."

The point-to-point transmission service, addressed in Part II of the OATT, is transmission service from a specified point of receipt to a specified point of delivery. See Order No. 888-A, ¶ 30,510 § 1.35. Point-to-point service can be "firm," not subject to a prior claim, or "non-firm," subject to interruption. Id. ¶ 30,509 § 1.27. "Network integration transmission service," addressed in Part III of the OATT, is a flexible service, which allows the transmission provider to service a network customer's load by using multiple receipt and delivery points. All network transmission service is firm. A "network customer" is an entity receiving network integration transmission service. Id. ¶ 30,509 § 1.20.

A transmission provider that uses transmission facilities to serve its own wholesale and/or unbundled retail load must take transmission service for such loads under its OATT. 18 C.F.R. § 35.28(c)(2). However, transmission providers need not take transmission service under the OATT to serve their bundled retail load. See Order No. 888-A ¶ 30,217 (to the extent that "the transmission of purchased power to the bundled retail customers ... takes place over [the] transmission provider's facilities," the OATT does not have to be used for "such transmission") (footnote omitted).

Order No. 888 requires that "network service customers receive service comparable to the services" provided to the provider's historical customers. The Preamble to Part III of the OATT requires that a transmission provider offer its network transmission service in a manner that allows the "network customer" to serve its "network load" in a manner "comparable to that in which the Transmission Provider utilizes its Transmission System to serve its Native Load Customers." Order No. 888-A ¶ 30,529-30. See also id. ¶ 30,536 § 33.2 (providing that during periods of transmission constraints, the transmission provider may not "redispatch" power in a manner that unduly discriminates between its "use of the Transmission System on behalf of its Native load Customers and any Network Customer's use of the Transmission System to serve its designated Network Load").

Order No. 888 expressed the concern that "a transmission customer" might have an incentive to "reserve certain capacity simply to prevent everyone else from using it[.]" Order No. 888 at 31,693. The Commission addressed this concern in two ways. First, it required a network transmission customer, as a prerequisite to obtaining network transmission service, to designate those "network resources" that would generate the power to be transmitted over the reserved capacity. Order No. 888-A at 30,531-32 § 29.2(v). Second, this concern was addressed by allowing the customer to designate only generation that it owned or had signed a contract to purchase. Id. ¶ 30,533 § 30.7. This "designation requirement" helped assure that the "transmission customer" and the "transmission provider" would have "an incentive not to oversubscribe" to capacity requirements, because the costs of these "excessive margin requirements [would] be prohibitive." Order No. 888 ¶ 31,754.

FERC's concerns regarding the tying up of capacity led it to examine transmission providers' reservation of capacity to serve bundled retail load. While deciding not to require transmission providers to take transmission service for their bundled retail sales under the OATT, the Commission recognized that the providers' reservation of capacity for such service would have a direct impact on the capacity available to other customers taking firm transmission service under the OATT. Order No. 888 at 31,745.

To assure that transmission providers did not reserve more capacity than was needed to serve bundled retail load, FERC allowed transmission providers to reserve only such capacity as was needed to serve existing native load demand, or that would be needed to serve reasonably forecasted native load growth. Order No. 888 at 31,745. In addition, transmission providers had to make the latter capacity available to other shippers until it was actually needed to meet native load requirements. Id.

Specifically, OATT § 28.2 requires that transmission providers seeking to reserve capacity to serve their native load customers designate network resources. The provision states:

The Transmission Provider, on behalf of its Native Load Customers, shall be required to designate resources and loads in the same manner as any Network Customer under Part III of this Tariff.

Id. ¶ 30,530 § 28.2.

2. Administrative Proceedings

Entergy is an integrated energy company engaged primarily in electric power production, retail distribution operations, energy marketing and trading, and gas transportation. Entergy owns and operates power plants with about 30,000 megawatts ("MW") of electric generating capacity, delivering electricity to 2.6 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. On March 30, 1998, one of Entergy's wholesale customers — Aquila Power Corporation ("Aquila") — filed a complaint, amended on June 23, 1998, against Entergy, charging that Entergy had reserved 2,000 MW of firm capacity at separate interconnections with four different...