Fpl Energy Marcus Hook, L.P. v. F.E.R.C.

• Decision Date: 02 December 2005
• Docket Number: No. 04-1341.,04-1341.
• Citation: 430 F.3d 441
• Parties: FPL ENERGY MARCUS HOOK, L.P., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION., Respondent. PJM Interconnection, L.L.C., Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 441

430 F.3d 441

FPL ENERGY MARCUS HOOK, L.P., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION., Respondent.

PJM Interconnection, L.L.C., Intervenor.

No. 04-1341.

United States Court of Appeals, District of Columbia Circuit.

Argued October 31, 2005.

Decided December 2, 2005.

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

Stephen L. Huntoon argued the cause and filed the briefs for petitioner.

Dennis Lane, Former Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Cynthia A. Marlette, General Counsel.

Barry S. Spector argued the cause and filed the brief for intervenor. Michael J. Thompson entered an appearance.

Before: SENTELLE, GARLAND and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge.

FPL Energy Marcus Hook ("Marcus Hook") petitions for review of a Federal Energy Regulatory Commission ("FERC" or "the Commission") order denying a request for a reallocation and redetermination of Marcus Hook's cost responsibility for a construction upgrade resulting from its request to interconnect with an electricity transmission grid. Marcus Hook also petitions for review of FERC's order denying its request for rehearing. Because we find that FERC did not adequately explain its decision on the upgrade's system benefit, we grant the petition for review, partially vacate the orders, and remand for further proceedings.

I.

A.

Formed in 1927 in the Mid-Atlantic region, intervenor PJM Interconnection ("PJM") has operated since 1956 as a tight power pool, having a single control area with free-flowing transmission lines. See Atl. City Elec. Co. v. FERC, 295 F.3d 1, 5 (D.C.Cir.2002). In 1996, FERC initiated "sweeping changes" in the electric utility industry, which led PJM to reorganize itself in 1997 as an independent system operator ("ISO"). Mich. Pub. Power Agency v. FERC, 405 F.3d 8, 10 (D.C.Cir.2005). Adhering to FERC's regulations for ISOs, PJM adopted a pool-wide open access tariff and a regional bid-based energy market in 1997. Id. at 5.

Further changes in 2002 led FERC to designate PJM as the first regional transmission organization ("RTO"). PJM Interconnection, LLC, 101 FERC ¶ 61,345 (2002), order on reh'g, 104 FERC ¶ 61,124 (2003), order on reh'g, 105 FERC ¶ 61,123 (2003), order on reh'g, 109 FERC ¶ 61,067 (2004), reh'g pending. As an RTO, PJM acts as an "umbrella entit[y]" that controls electricity transmission assets. Mich. Pub. Power, 405 F.3d at 10. Under FERC's new regime, electricity-generating plants can interconnect with transmission lines owned by RTOs and then sell energy to one another — a result favorable to competition. As administrative entities, RTOs and ISOs like PJM must handle the interconnections of new electricity generating facilities lying within the geography of their transmission-owning members. PJM's responsibilities included the interconnection of petitioner, whose project resides within the service area of PECO Energy Company, a transmission-owning member of PJM. The Marcus Hook project — a combined cycle, gas-fired, electric generating facility in Marcus Hook, Pennsylvania — entered service in late 2004.

The open access tariff provides the terms and conditions for all such interconnections under PJM's purview. The process begins when a new generating facility first approaches PJM and submits an interconnection request. That request must describe the new facility's size and location, among other things. Tariff Section 36.1. PJM then places all such requests into a first-come, first-served queue. Tariff Section 36.10.

The tariff requires PJM to undertake several studies of the queued projects. The first is a feasibility study, which preliminarily determines what system upgrades are necessary to accommodate the new interconnection. Tariff Section 36.2. From this study, PJM must estimate the requesting party's cost responsibility for the upgrades. Following the feasibility study, PJM must conduct a system impact study, which refines and more comprehensively estimates cost responsibility for necessary system upgrades. Tariff Section 36.4.1. Defined as "a comprehensive regional analysis of the effect" of a new interconnection, a single impact study may include an evaluation of multiple interconnection requests. Id. Customers may terminate or withdraw their interconnection requests based on the impact study's findings. PJM then conducts a final facilities study on the remaining customers and allocates good faith estimates of cost responsibility among them. Tariff Section 36.7. Upon completion of the facilities study, PJM tenders to the interconnection customer an Interconnection Service Agreement ("ISA"), which specifies the customer's actual cost responsibility. Tariff Sections 36.8, 36.8.3, 37.4.

All cost figures produced by PJM's studies must comply with Section 37. Interconnection customers must pay for all necessary attachment facilities. Tariff Section 37.1. In addition, Section 37.2 imposes on the interconnection customer "100 percent of the costs of the minimum amount of [upgrades] necessary to accommodate its Generation Interconnection Request and that would not have been incurred under the Regional Transmission Expansion Plan but for such Generation Interconnection Request, net of benefits resulting from the construction of the upgrades. . . ." PJM prepares Regional Transmission Expansion Plans ("RTEPs"), which forecast "the enhancement and expansion of the Transmission System in order to meet the demands for firm transmission service in the PJM Region." Tariff Section 1.37A; see also PJM Interconnection LLC, 87 FERC ¶ 61,299, 62,202 n. 40 (1999). The costs and benefits listed in Section 37.2 include costs and benefits "associated with accelerating, deferring, or eliminating" planned upgrades, upgrades resulting from modifications to the RTEP, and other upgrades that never become part of an RTEP.

Interconnecting facilities must meet milestones in order to maintain their place within the queue. Tariff Section 36.8.4(a); see also id. Section 36.8.5. Failure to meet a milestone or execute an ISA could trigger termination and withdrawal of the project. Tariff Section 36.8.4(c). Because the tariff allows PJM to evaluate multiple interconnection requests in a single study, withdrawal of one request could affect the cost responsibility of other interconnection customers. Indeed, following a withdrawal, the tariff directs PJM to reevaluate upgrades previously deemed necessary by a facilities study that had evaluated multiple projects. Id. The tariff also directs PJM to redetermine cost responsibility for, and enter into an amended ISA with, customers remaining in the queue.

Following these tariff procedures for facilities interconnection, Marcus Hook submitted an interconnection request to PJM, which placed the project in queue position A21 with a queue date of August 17, 1998. It submitted another small request to PJM on October 22, 2001, which received a queue position of H6. PJM conducted the required feasibility, impact, and facilities studies for Marcus Hook's request.

The facilities study, most important for this case, evaluated the combined effect of Marcus Hook's A21 project and two other projects, queued with earlier priority at A13 and A19. According to the study, sufficient system capacity existed to support the A13 project, but the addition of A19 and A21 would push the system beyond the breaking point. To alleviate the capacity burden, PJM advised an upgrade to the Mickleton-Monroe circuit. Towers along that circuit had been built with a single transmission line but included unused positions for a second line; filling the open positions with a new transmission line would support the new interconnections, including Marcus Hook's. By recommending the upgrade, the facilities study revised the prior studies.

PJM estimated the cost of the Mickleton-Monroe upgrade at nearly $13 million. Because the upgrade was unnecessary at the time of the A13 request, that project escaped cost responsibility entirely. PJM therefore assigned the costs to the later-submitted projects, A19 and Marcus Hook's A21. On January 20, 2002, PJM and Marcus Hook entered into an ISA, which saddled Marcus Hook with over $10 million of the upgrade's total cost. The balance fell to the A19 project.

Had the interconnections proceeded as forecasted in PJM's studies, this action would not have been brought. But, alas, the best-laid plans of mice and RTOs often go awry, and project A13 withdrew from the queue prematurely. The withdrawal presented PJM with an unexpected question: whether to complete the no-longer-necessary Mickleton-Monroe upgrade. PJM's studies of multiple interconnection requests had shown that the transmission system could support projects A19 and A21 without the Mickleton-Monroe upgrade. Scrapping the upgrade would therefore not harm the remaining projects. Economic concerns operated on the other side of the coin, however. At the time of A13's withdrawal, the upgrade was over ninety percent complete; removing the largely completed upgrade would not be an inexpensive undertaking. Judging completion to be the least costly alternative, PJM trudged forward and completed the upgrade.

B.

Marcus Hook disputed its cost responsibility for what it considered to be an unnecessary project. Claiming that PJM had infringed Sections 36.8.4(c) and 37.2 of its tariff, Marcus Hook filed a complaint with FERC. As a remedy, Marcus Hook sought recompense from PJM for over $9 million, the sum total of its payments in support of the Mickleton-Monroe upgrade. To obtain its relief, Marcus Hook asked FERC to direct PJM to draw up a new, revised ISA with reduced cost responsibility for Marcus Hook. The complaint suggested that a favorable ruling would also require PJM to refund the difference between the original and amended ISAs, which Marcus Hook argued...