Firstenergy Serv. Co. v. Fed. Energy Regulatory Comm'n

• Citation: 758 F.3d 346
• Decision Date: 18 July 2014
• Docket Number: No. 12–1461.,12–1461.
• Parties: FIRSTENERGY SERVICE COMPANY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Duke Energy Kentucky, Incorporated, et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

758 F.3d 346

FIRSTENERGY SERVICE COMPANY, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.Duke Energy Kentucky, Incorporated, et al., Intervenors.

No. 12–1461.

United States Court of Appeals, District of Columbia Circuit.

Argued Dec. 11, 2013.

Decided July 18, 2014.

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

John Lee Shepherd, Jr. argued the cause for petitioner. With him on the briefs were John N. Estes III, William Rainey Barksdale, and John Anthony James Barkmeyer.

Holly E. Cafer, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were David L. Morenoff, Acting General Counsel, and Robert H. Solomon, Solicitor.

Before: GRIFFITH and SRINIVASAN, Circuit Judges, and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge SENTELLE.

SENTELLE, Senior Circuit Judge:

Petitioner FirstEnergy Service Company is a diversified energy company acting on behalf of its affiliates American Transmission Systems, Inc. (“ATSI”) and a collection of ATSI Utilities. Like many electric utility companies, FirstEnergy is a voluntary member of a Regional Transmission Organization (“RTO”). In June 2011, FirstEnergy transferred from one RTO to another. In doing so, it incurred costs related to transmission projects both from the organization it left, MISO, and from the one it entered, PJM. FirstEnergy filed a complaint with the Federal Energy Regulatory Commission (“FERC” or “the Commission”), contending that the imposition of costs from both RTOs on ATSI was unjust and unreasonable. The Commission disagreed and dismissed the complaint. FirstEnergy now petitions this court for review of FERC's orders. For the reasons set forth below, we conclude that the Commission did not commit reversible error in its determination and therefore affirm the orders under review.

BACKGROUND

Statutory and Regulatory Overview

Two related but distinct sections of the Federal Power Act (“FPA”) govern FERC's adjudication of just and reasonable rates: section 205, codified at 16 U.S.C. § 824(d), and section 206, codified at 16 U.S.C. § 824(e). Section 205 confers upon FERC the duty to ensure that wholesale energy rates and services are just and reasonable. 16 U.S.C. § 824d(a). No public utility under FERC's jurisdiction may “make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage” in establishing rates. Id. § 824d(b). Section 205 requires regulated utilities to file with the Commission tariffs outlining their rates for FERC's approval. Id. § 824d(c). Section 206 empowers FERC to make a determination on existing rates and to modify them if they are found to be “unjust, unreasonable, unduly discriminatory or preferential.” Id.§ 824e(a). An investigation under section 206 may arise upon complaint or on FERC's own initiative. Id.

In its Order No.2000 rulemaking, Regional Transmission Orgs., Order No.2000, FERC Stats. & Regs. ¶ 31,089 (1999), order on reh'g, Order No.2000–A, FERC Stats. & Regs. ¶ 31,092 (2000), appeals dismissed sub nom. Pub. Util. Dist. No. 1 v. FERC, 272 F.3d 607 (D.C.Cir.2001) (per curiam), the Commission created RTOs, which operate the transmission grid to provide access for all “at rates established in a single, unbundled, grid-wide tariff.” NRG Power Mktg., LLC v. Me. Pub. Utils. Comm'n, 558 U.S. 165, 169 n. 1, 130 S.Ct. 693, 175 L.Ed.2d 642 (2010). Generally, these are voluntary associations of transmission facilities that administer energy markets and file tariffs for a group of utilities under section 205. Two such RTOs are the Midwest Independent System Operator, Inc. (“MISO”) and PJM Interconnection, L.L.C. (“PJM”).

MISO and PJM

This case involves FirstEnergy's relationship to both MISO and PJM. For years, FirstEnergy's operations were split between the two RTOs, requiring FirstEnergy to operate under two sets of rules. In August of 2009, FirstEnergy filed a “Realignment Request” seeking FERC's “approval to realign FirstEnergy's operations within a single RTO: PJM.” Realignment Request at 2. The Realignment Request asserted that “[m]oving ATSI into the RTO with which it has stronger electrical ties should reduce congestion and increase efficiency across both RTOs.” Id. at 3. In June 2011, FirstEnergy transferred from MISO to PJM. Rehearing Order ¶ 4.

In administering their respective markets, RTOs socialize the cost of new transmission projects among RTO members. MISO and PJM allocate such transmission project costs differently. Generally, MISO allocates costs among members at the time specific projects are approved. See Pub. Serv. Comm'n of Wisconsin v. FERC, 545 F.3d 1058, 1060–61 (D.C.Cir.2008) (describing and approving MISO's Tariff Attachment FF, titled “Transmission Expansion Planning Protocol”). “[A] Party that withdraws from [MISO] shall remain responsible for all financial obligations incurred pursuant to this Attachment FF while a Member of [MISO]....” Realignment Request at 39 (citing MISO Tariff, Attach. FF § III.A.2.i).

PJM, in contrast, reallocates transmission project costs on a yearly basis pursuant to Schedule 12 of its tariff. The tariff allocates these costs to each transmission owner based on its share of PJM's total load, and recalculates the allocations on an annual basis. See Realignment Order ¶ 98.

A key feature of PJM's [regional transmission expansion] process, and of cost allocation based upon it, is to annually restudy and consider modifications to the portfolio of projects in the plan as the needs of the region change. Unlike the one-time allocation of costs of lower voltage projects, providing for an annual reallocation of the costs of high voltage facilities pro rata based on load-ratio share will help ensure that, over time, the costs of these projects are allocated to those who are likely to benefit.

PJM Interconnection, L.L.C., 138 FERC ¶ 61,230 P 62 (2012), on reh'g,142 FERC ¶ 61,216 (2013), vacated on other grounds, Ill. Commerce Comm'n v. FERC, 756 F.3d 556, 2014 WL 2873936 (7th Cir. June 25, 2014). PJM does not allocate regional transmission costs to withdrawing transmission owners. See Duquesne Light Co., 122 FERC ¶ 61,039, reh'g denied, 124 FERC ¶ 61,219 P 164 (2008) (“[A] departing transmission owner leaving PJM would, pursuant to [Schedule 12], no longerbe subject to these charges; it would not have a zonal annual peak load [with which to calculate its costs] as it would no longer be a zone in PJM.”).

Due to these differing methodologies, a transmission owner that withdraws from MISO is still responsible for its share of transmission costs allocated prior to its withdrawal. Conversely, a utility that withdraws from PJM is no longer responsible for costs in ensuing yearly allocations; any costs going forward are redistributed among PJM members at that time, regardless of when the projects were approved. Because FirstEnergy withdrew from MISO and joined PJM, it is responsible for both its prior MISO costs and its share of the yearly reallocation for so-called legacy projects in PJM approved before it joined. Realignment Request at 35.

Proceedings Before the Commission

In effecting its transfer from MISO to PJM, FirstEnergy submitted filings under both section 205 and section 206. Through these submissions, it sought to secure termination of ATSI's participation in MISO and to garner approval of its integration into PJM.

On August 17, 2009, FirstEnergy (on behalf of ATSI) submitted its Realignment Request under FPA section 205. FirstEnergy requested approval of its withdrawal from MISO and permission to transfer into PJM under the terms set forth in an ATSI–PJM Integration Agreement. Realignment Request at 18, 27–35 & Ex. 1. ATSI reported that, under the Integration Agreement, the ATSI Utilities would “continue to pay for qualifying [MISO] regional facilities planned and approved before June 1, 2011,” but would “not pay for PJM legacy ... projects that were approved by the PJM Board prior to ATSI's entry into PJM.” Id. at 35. The ATSI Utilities would, “of course, pay for qualifying [PJM] projects planned and approved by the PJM Board after their June 1, 2011 date when their load is integrated into PJM.” Id. PJM itself “support[ed] FirstEnergy's implementation plan for integrating ATSI into the PJM region” and “believe[d] that FirstEnergy has met the applicable requirements of exiting [MISO] and joining PJM.” PJM Comments on Realignment at 2. PJM went on to note that nothing in the language of Schedule 12 contemplates cost allocation when a new member joins PJM. Id. at 11–12 (Schedule 12 was “not designed with the scenario in mind of an altogether new Transmission Zone joining PJM.”).

Additionally, FirstEnergy sought specific findings from the Commission as to two matters: (1) a waiver of certain PJM auction procedures with which it would be unable to comply due to timing, Realignment Request at 11–12; see also Realignment Order ¶ 59; and (2) an exemption from PJM reallocation costs for projects approved prior to ATSI's integration (“legacy projects”), Realignment Request at 35.

On October 19, 2009, FirstEnergy submitted a section 206 filing (“Complaint”) to the Commission. In the Complaint, ATSI through FirstEnergy alleged that if FERC denied its legacy projects exemption request, Schedule 12 of the PJM tariff would be unjust and unreasonable as applied to ATSI. Complaint at 2–3 (noting that the parallel 206 filing was made in response to arguments by “several parties in [the Realignment Proceeding] ... that the ATSI Utilities had no right to seek this relief absent the filing of a section 206 complaint”).

FERC issued two orders responsive to petitioner's filings. Order Addressing RTO Realignment Request and Complaint, 129 FERC ¶ 61,249 (December 17, 2009) (“Realignment Order”); Order Addressing Remaining Requests for Rehearing and Clarification, 140 FERC ¶ 61,226 (September 20, 2012) (“Rehe...