Idaho Power Co. v. F.E.R.C.
| Decision Date | 13 December 2002 |
| Docket Number | No. 01-1314.,01-1314. |
| Citation | 312 F.3d 454 |
| Parties | IDAHO POWER COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Arizona Public Service Company, Intervenor. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Charles G. Cole argued the cause for petitioner. With him on the briefs were Gary A. Morgans and Alice E. Loughran.
Larry D. Gasteiger, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Cynthia A. Marlette, General Counsel, and Dennis Lane, Solicitor.
John D. McGrane was on the brief for intervenor.
Before: EDWARDS, RANDOLPH and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge EDWARDS.
Petitioner, Idaho Power Company, challenges two FERC orders barring Idaho Power from entering into a 10-year contract to provide electricity to the IP Merchant Group ("IP Merchant") from December 2000 through December 2010. See Idaho Power Co., Order Denying Petition for Declaratory Order, 94 F.E.R.C. ¶ 61,311, 2001 WL 275044 (2001) ("Order Denying Petition"); Idaho Power Co., Order Denying Rehearing and Clarifying Prior Order, 95 F.E.R.C. ¶ 61,224 (2001) ("Order Denying Rehearing"). Before receiving the ill-fated bid from IP Merchant, Idaho Power had been furnishing electric transmission service to the Arizona Public Service Company ("APS"). APS had a "right of first refusal" to match the IP Merchant bid for service from Idaho Power. In order to exercise its right of first refusal, APS had to "agree to accept a contract term at least equal to [the] competing request" offered by IP Merchant in its bid for transmission service from Idaho Power. Idaho Power Company Open Access Transmission Tariff § 2.2 ("Idaho Power OATT"), Joint Appendix ("J.A.") 230. However, because it could only seek service from Idaho Power in 18-month increments, APS was unable to match IP Merchant's 10-year contract bid. FERC nonetheless ruled that Idaho Power was obliged to continue providing service to APS, because the "transmission service requests were not substantially the same in all respects [due to] the dissimilarity in available terms of service." Order Denying Rehearing, 95 F.E.R.C. at 61,759. In other words, FERC reasoned that the offers by APS and IP Merchant were not "substantially the same in all respects," and thus not competing bids, because IP Merchant offered a 10-year term while APS offered only an 18-month term. Order Denying Petition, 94 F.E.R.C. at 62,145; Order Denying Rehearing, 95 F.E.R.C. at 61,759.
FERC's interpretation of the right of first refusal provision defies reason. Idaho Power's Open Access Transmission Tariff ("OATT") and FERC's orders creating the applicable pro forma tariff provide that, in order to exercise a right of first refusal, "the existing firm service customer must agree to accept a contract term at least equal to a competing request by any new Eligible Customer." Idaho Power OATT § 2.2, J.A. 230; Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Standard Costs by Public Utilities and Transmitting Utilities, Order No. 888-A, F.E.R.C. Stats. & Regs. ¶ 31,048 (1997) ("Order No. 888-A"). FERC has turned the Tariff and orders on their heads by suggesting that the competitor must put forward an offer identical to the incumbent's in order for the competing bids to be "substantially the same in all respects." Under this reasoning, the competitor is not allowed to make a better offer, which of course ensures that the incumbent never loses. This is a nonsensical construction of the "right of first refusal," which we reject as arbitrary and capricious. Accordingly, we grant Idaho Power's petition for review.
In 1996, FERC promulgated a set of rules designed to create a more competitive environment in the electric utility industry. Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, F.E.R.C. Stats. & Regs. 31,036 (1996) ("Order No. 888"), order on reh'g, Order No. 888-A, order on reh'g, Order No. 888-B, 81 F.E.R.C. ¶ 61,248, 1997 WL 833250 (1997), order on reh'g, Order No. 888-C, 82 F.E.R.C. ¶ 61,046, 1998 WL 18148 (1998), aff'd in part and remanded in part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C.Cir.2000), aff'd jurisdictional ruling sub nom. New York v. FERC, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). These rules required each utility to separate its transmission function from its wholesale merchant function (i.e., the selling of electric power at wholesale rates). They also required each utility to file and take transmission under an OATT designed to assure access to transmission service on a non-discriminatory basis. FERC's rules specified the terms of a pro forma tariff designed to achieve the competitive goals of Order No. 888. Order No. 888 at 31,926-64. With limited exceptions, each utility's OATT must conform to the non-rate terms and conditions specified in the pro forma tariff. Report of the Committee on Electric Utility Regulation, 18 ENERGY L.J. 197, 200 (1997) ( ). FERC revised the pro forma tariff in Order No. 888-A.
The pro forma tariff required each utility to create an Open Access Same Time Information System ("OASIS"), an electronic system for accepting transmission requests that would make them known simultaneously to all potential customers. While § 13.2 of the pro forma tariff specified that requests for long-term firm service would generally be accepted in the order in which they are received, Order No. 888-A at 30,51516, it also noted a special provision in § 2.2 for determining priority where an incumbent customer seeks to renew service. Id. at 30,516.
Section 2.2 of the tariff provided the incumbent customer with a right of first refusal to match the duration offered by a new customer at the full OATT rate. Section 2.2 provides, in relevant part:
If at the end of the contract term, the Transmission Provider's Transmission System cannot accommodate all of the requests for transmission service the existing firm service customer must agree to accept a contract term at least equal to a competing request by any new Eligible Customer and to pay the current just and reasonable rate, as approved by the Commission, for such service.
Id. at 30,511. FERC explained in the Preamble to the pro forma tariff in Order No. 888-A that, "[b]ecause the purpose of the right of first refusal provision is to be a tie-breaker, the competing requests should be substantially the same in all respects." Id. at 30,198.
Idaho Power provides transmission service in accordance with the rates, terms and conditions of its OATT. Idaho Power filed its OATT pursuant to FERC Order No. 888, and FERC accepted it as the filed rate. Atlantic City Elec. Co., 77 F.E.R.C. ¶ 61,144, 1996 WL 659540 (1996) (); Allegheny Power Sys., Inc., 80 F.E.R.C. ¶ 61,143, 1997 WL 451417 (1997) (rates). Idaho Power revised its OATT pursuant to Order No. 888-A, and FERC accepted the revisions. Idaho Power's OATT is substantially the same as the pro forma tariff that FERC issued. Significantly, § 2.2 of Idaho Power's OATT is identical to § 2.2 of the pro forma tariff.
APS is Idaho Power's incumbent customer, receiving service from Borah/Brady Substation in southeastern Idaho, through Brownlee Substation in western Idaho, to the LaGrande Substation in northeastern Oregon. The history surrounding the dealings between APS and Idaho Power is somewhat convoluted. In 1998, APS submitted several requests through Idaho Power's OASIS for long-term, point-to-point transmission service for an eight-year period. The following year, Idaho Power provided APS with a facility study that demonstrated that existing long-term obligations prevented Idaho Power from meeting APS's service request for the full eight-year period without constructing facility upgrades. Idaho Power offered APS 100 MW of transmission service on Borah West that PacifiCorp had contractual rights to use, but could not due to system limitations. However, Idaho Power cautioned that this service would terminate when PacifiCorp upgraded the facilities and exercised its preexisting rights to the capacity.
After further negotiations between Idaho Power and APS failed to yield an executed service agreement, FERC directed Idaho Power to provide APS with partial interim transmission service. Idaho Power Co., Order Rejecting Unexecuted Service Agreements, and Requiring the Filing of New Service Agreements and the Provision of Partial Interim Transmission Service, 90 F.E.R.C. ¶ 61,009, 2000 WL 254507 (2000). Since Idaho Power's facility study indicated that it could provide 100 MW of APS's requested firm point-to-point service for a term of 18 months rather than the eight years that APS requested, FERC required Idaho Power to file new service agreements providing APS with firm transmission service for an 18-month term. Id. at 61,019. FERC also stated that APS would be entitled to roll over its service at the end of the 18-month term, if it chose not to construct additional facilities and the capacity committed to PacifiCorp remained available. Id. This FERC order effectively restricted APS's ability to bid to 18-month increments.
Subsequently, on November 8, 2000, IP Merchant submitted a request on Idaho Power's OASIS for 200...
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