Florida Municipal Power Agency v. FERC

• Decision Date: 16 April 2010
• Docket Number: No. 09-1060.,09-1060.
• Citation: 602 F.3d 454
• Parties: FLORIDA MUNICIPAL POWER AGENCY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Florida Power & Light Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

602 F.3d 454

FLORIDA MUNICIPAL POWER AGENCY, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Florida Power & Light Company, Intervenor.

No. 09-1060.

United States Court of Appeals, District of Columbia Circuit.

Argued December 10, 2009.

Decided April 16, 2010.

COPYRIGHT MATERIAL OMITTED

Robert A. Jablon argued the cause for petitioner. With him on the briefs were Daniel I. Davidson, Peter J. Hopkins, and Rebecca J. Baldwin.

Holly E. Cafer, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Cynthia A. Marlette, General Counsel, and Robert H. Solomon, Solicitor.

Clifford (Mike) Naeve argued the cause for intervenor. With him on the brief were Kathryn Kavanagh Baran and Stephen L. Huntoon.

Before: ROGERS and GRIFFITH, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge.

The Florida Municipal Power Agency ("Florida Municipal") petitions for review of two orders of the Federal Energy Regulatory Commission ("FERC") regarding the rate base for network transmission service using the facilities of Florida Power & Light Company ("Florida Power"). Florida Municipal resists the conclusion that the comparability principle, under which FERC applies the same integration standard to Florida Municipal and Florida Power in determining whether their facilities provide any benefit to Florida Power's transmission system, bars the relief Florida Municipal seeks. In regard to FERC's approval of Florida Power's April 2005 compliance filing, Florida Municipal first challenges the sufficiency of the evidence supporting the finding that the test Florida Power used in 2005 on its facilities to identify "unneeded redundancy" was comparable to the test Florida Power used in 1994 to evaluate Florida Municipal's Vero Beach — to — Fort Pierce facilities. Second, Florida Municipal contends its facilities were required to be treated no differently than Florida Power's local facilities, so that Florida Power's rate base must exclude the costs associated with Florida Power's local facilities. We deny the petition.

I.

The background to these proceedings appears in Florida Municipal Power Agency v. FERC, 411 F.3d 287, 288-91 (D.C.Cir.2005)("Florida Municipal I"). Florida Municipal obtained access to Florida Power's network transmission system but did not receive pricing credits for using its own transmission facilities if they were "interconnected" rather than "integrated" with Florida Power's transmission system. See Fla. Mun. Power Agency v. FERC, 315 F.3d 362, 364-68 (D.C.Cir. 2003) ("Florida Municipal II").¹ In denying credits, FERC explained that it had "not directed a merging of the parties' transmission systems or the operation of a joint transmission network." Fla. Mun. Power Agency v. Fla. Power & Light Co., 74 FERC ¶ 61,006, 61,009, 1996 WL 12316 (1996)("FMPA II"). In affirming that denial, the court described FERC's pricing system as allocating the price of network transmission services based on the ratio of each network customer's load to the total load on the transmission system. Fla. Mun. II, 315 F.3d at 363. In addition, the court described FERC's "principle of `comparability,'" in which "the same integration standard that applies to transmission customers for the purpose of determining eligibility for pricing credits, also applies to transmission providers for rate determination purposes." Id. at 364.

On January 25, 2005, FERC agreed with Florida Power that to be considered "integrated" into its transmission system, a facility would need to pass a four-factor test, with one factor being "a facility that provides only unneeded redundancy is not eligible for cost recovery." Fla. Power & Light Co., 110 FERC ¶ 61,058 at ¶ 13, 2005 WL 159589 (2005) ("January 2005 Order"). FERC determined Florida Power had not applied this factor to its facilities in the same way it applied the factor to Florida Municipal's facilities, and Florida Power needed to show that "each facility included in its transmission rate base was needed to deliver power to customers in the area where the facility is located and to other Florida Power load centers." Id. (emphasis added).

In April 2005, Florida Power submitted a compliance filing proposing to remove approximately $29 million in costs from its network transmission service rate. FERC concluded it was unclear whether Florida Power had failed to test its non-radial (i.e., looped) facilities in a manner comparable to the way it tested Florida Municipal's facilities. See Fla. Power & Light Co., 113 FERC ¶ 61,263 at P 20, 2005 WL 3445803 (2005) ("December 2005 Order"). Specifically, Florida Power had not indicated whether "unserved load" resulting from tests of its facilities referred to "load that is directly connected to or supplied by" the facility being tested "and/or load in other Florida Power load centers." Id. at P 23. So FERC accepted Florida Power's compliance filing in part but stated that the test Florida Power had applied to its facilities should have been whether, even without the facility being tested, Florida Power is able to deliver power to its customers in the facility's area "and to other Florida Power load centers." Id. at P 21. Florida Power requested rehearing on the ground that through this use of the word "and" FERC had shifted the comparability standard from that previously used in evaluating the 1994 tests of Florida Municipal's facilities' eligibility for pricing credits. FERC denied the request as untimely. See Fla. Power & Light Co., 116 FERC ¶ 61,013 at P 17, 2006 WL 1868200 (2006)("July 2006 Order"). Florida Power sought rehearing and reconsideration.

By order of February 21, 2008, FERC reconsidered its denial of rehearing. Fla. Power & Light Co., 122 FERC ¶ 61,159, 2008 WL 461047 (2008)("2008 Recons. Order"). FERC acknowledged that it had "erred" in its interpretation of the 1994 test applied to Florida Municipal's Vero Beach — to — Fort Pierce facilities, and concluded that the test Florida Power applied to its facilities to determine whether they provide "unneeded redundancies" was comparable to the 1994 test. Id. at P 9-10. In support of this change in position, FERC relied on the affidavits of two experts, Karabet Adjemian and Hector Sanchez, submitted by Florida Power. FERC accepted Florida Power's April 2005 compliance filing. One Commissioner dissented on the ground the majority had not adequately explained its reversal of previous findings on comparability and Florida Municipal had raised "serious concerns" about the speculativeness of the Adjemian and Sanchez affidavits. 2008 Recons. Order, Dissenting Statement ___-___.

FERC denied Florida Municipal's request for rehearing, reiterating that in its January and December 2005 Orders it had "misinterpreted" Adjemian's 1994 affidavit and thus misstated the test for integration. Fla. Power & Light Co., 125 FERC ¶ 61,344 at P 7, P 20, 2008 WL 5330526 (2008) ("2008 Order Den. Reh'g"). FERC affirmed its determination that the Florida Municipal facilities were "unneeded" because they were not necessary to serve either Florida Power's local or remote load, and that Florida Power's similarly "unneeded" facilities were properly eliminated from its transmission rate base. Id. at P 21. Weighing the evidence, FERC concluded Sanchez's affidavit describing his testing of Florida Power's facilities in 2005 showed he used models and methodologies consistent with Adjemian's 1994 testing of Florida Municipal's facilities. In contrast, Florida Municipal's expert evidence purporting to recreate the 1994 test was unpersuasive because it failed to follow the methodology employed in Adjemian's 1994 test. Ruling that Florida Municipal's objections to the adequacy of Adjemian's 1994 affidavit were brought too late, because FERC had relied on it in the January 2005 Order, FERC also rejected Florida Municipal's suggestion that an adverse inference should be drawn from Florida Power's failure to produce a copy of the 1994 test, observing that Florida Power had produced substantial evidence supporting its position "from a record that stretches back to 1994." 2008 Order Den. Reh'g at P 32. One Commissioner dissented on the ground that the record evidence did not justify the 2008 Reconsideration Order.

Florida Municipal petitions for review of the 2008 Reconsideration Order and the 2008 Order Denying Rehearing. The court "reviews FERC's orders under the arbitrary and capricious standard and upholds FERC's factual findings if supported by substantial evidence" in the record. Fla. Mun. I, 411 F.3d at 291; 5 U.S.C. § 706(2)(A).

II.

Florida Municipal contends the challenged orders are not supported by substantial evidence and violate the principle of comparability between transmission provider — owned transmission and transmission customer — owned transmission. As to the former, Florida Municipal objects to FERC's revised interpretation of Florida Power's expert evidence on its test of Florida Municipal's facilities in 1994. It notes that Adjemian, who conducted the 1994 test, does not remember how the test was done and produced no documentation of the test, and that Sanchez, who conducted the 2005 test, was not sure which testing model and method Adjemian used in 1994. It asserts Adjemian and Sanchez provided conflicting affidavits on the comparability of the 1994 and 2005 tests. For instance, Adjemian's 1994 affidavit at 54 referred to testing whether Florida Power could deliver power "even without Florida Municipal's line," while Sanchez's 2005 affidavit at 7 referred to testing "each Florida Power transmission facility" and described Adjemian as having "removed the Fort Pierce-Vero Beach line." Florida Municipal maintains the evidence of the comparability of the 1994 and 2005 tests is therefore speculative and conjectural.

"An agency changing its course must supply a reasoned analysis...