Illinois Commerce Com'n v. F.E.R.C.
| Citation | 576 F.3d 470 |
| Decision Date | 06 August 2009 |
| Docket Number | No. 08-2124.,No. 08-2071.,No. 08-1306.,No. 08-1780.,No. 08-2239.,08-1306.,08-1780.,08-2071.,08-2124.,08-2239. |
| Parties | ILLINOIS COMMERCE COMMISSION, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Respondents. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
William F. Fields, Maryland Office of People's Counsel, Baltimore, MD, for Intervening Respondent.
Margaret E. Comes, Office of the Attorney General, Newark, NJ, New Jersey Bd. of Public Utilities, for Intervening Respondent New Jersey Bd. of Public Utilities.
Duane W. Luckey, Office of the Attorney General, Columbus, OH, for Petitioner Public Utilities Commission of Ohio.
Before CUDAHY, POSNER, and TINDER, Circuit Judges.
We have before us challenges to a decision by the Federal Energy Regulatory Commission concerning the reasonableness of rates for the transmission of electricity over facilities owned by utilities that belong to a Regional Transmission Organization (that is, a power pool) called PJM Interconnection. PJM Interconnection, L.L.C., 119 F.E.R.C. ¶ 61,063, 2007 WL 1748619 (2007), rehearing denied, 122 F.E.R.C. ¶ 61,082 (2008); see 16 U.S.C. § 824e; Atlantic City Electric Co. v. FERC, 295 F.3d 1, 10 (D.C.Cir.2002). ("PJM" stands for "Pennsylvania-New Jersey-Maryland," but the full name is not used any more.) "RTOs are voluntary associations in which each of the owners of transmission lines that comprise an integrated regional grid cedes to the RTO complete operational control over its transmission lines." Richard J. Pierce, Jr., "Regional Transmission Organizations: Federal Limitations Needed for Tort Liability," 23 Energy L.J. 63, 64 (2002); see also Regional Transmission Organizations, 65 Fed.Reg. 810-01, 2000 WL 4557 (FERC Jan. 6, 2000); Morgan Stanley Capital Group Inc. v. Public Utility District No. 1, ___ U.S. ___, ___, 128 S.Ct. 2733, 2741, 171 L.Ed.2d 607 (2008). PJM's region stretches east and south from the Chicago area, primarily to western Michigan and eastern Indiana, Ohio, Pennsylvania, New Jersey, Delaware, Maryland, the District of Columbia, and Virginia. PJM Interconnection, L.L.C., supra, p. 3, 2007 WL 1748619, see FPL Energy Marcus Hook, L.P. v. FERC, 430 F.3d 441, 442-43 (D.C.Cir.2005). The region is home to more than 50 million consumers of electricity.
Two issues are presented. The first, raised by American Electric Power Service Corporation and the Public Utilities Commission of Ohio (participation by state commissions in rate proceedings before FERC is authorized by 16 U.S.C. § 825g(a); see also § 825l(a)), involves the pricing of electricity transmitted from the Midwest to the East through Ohio. PJM wants that transmission to be priced on the basis of the cost to American Electric of transmitting one more unit of electricity, that is, the marginal cost; and FERC agrees. Such a price excludes the cost that the company incurred when it built the transmission facilities. That cost— which American Electric wants to be permitted to reflect in its rates—is what economists call a "sunk" cost, that is, a cost that has already been incurred. So while its financial burden can be shifted (from American Electric to the eastern utilities), the cost itself cannot be shifted, and therefore shifting the financial burden created by the cost from one set of shoulders to another will have no direct effect on service or investment.
Had FERC decided that American Electric would not be permitted to charge a price that covered the cost of building a new transmission facility or upgrading an existing one, its decision would have affected the allocation of resources and not just of money. It would have deterred the building of new facilities that benefited customers outside American Electric's service area, because building them would become an unprofitable venture. FERC emphasizes, however, that the company's existing facilities, which are all that are involved in this case, were built before 2001 when PJM became a Regional Transmission Organization, and were intended to serve American Electric's customers only. So even if the facilities had not been fully paid for, there would be no economic basis for shifting any part of their costs to other members, because American Electric did not expect when it built the facilities that any part of their cost would be defrayed by anyone besides its customers. PJM and FERC have made clear that American Electric will be allowed to charge a price that covers its costs for transmission to other utilities over new or upgraded facilities.
American Electric points out that some of its existing facilities are not fully depreciated. But it can continue to depreciate them over their remaining useful life in order to create an accounting reserve or obtain a tax benefit. And when it builds a new facility it will be allowed, as we said, to recover the full costs of that facility in its prices.
The company may be trying to extract a monopoly price for the use of its facilities. It stands between western sellers of electricity and their eastern customers and would like to extract a toll for giving the former passage to the latter, a toll that has no relation to its costs of rendering that service. It charged its customers for the costs of building its existing facilities and recovered those costs fully and now wants to recover them all over again from another group of consumers. And it's not as if American Electric were being required to provide transmission to the east at zero price. It is permitted to charge for the service—just not to include in the charge its sunk costs.
The second issue relates to the financing of new transmission facilities. Here the Ohio commission joins its Illinois counterpart, representing the interests of the midwestern utilities in PJM's region, in objecting to PJM's proposed method, approved by FERC, for pricing new transmission facilities that have a capacity of 500 kilovolts or more. Heretofore all new facilities in PJM's region have been financed by contributions from the region's electrical utilities calculated on the basis of the benefits that each utility receives from the facilities. This will continue to be the rule for facilities with capacities of less than 500 kV. But for the higher-voltage facilities FERC has decided that all the utilities in PJM's region should contribute pro rata; that is, their rates should be raised by a uniform amount sufficient to defray the facilities' costs.
FERC's stated reasons are that some of PJM's members entered into similar pro rata sharing agreements with each other more than forty years ago and would like to follow that precedent, that figuring out who benefits from a new transmission facility and by how much is very difficult and so generates litigation, and that everyone benefits from high-capacity transmission facilities because they increase the reliability of the entire network. Despite the stakes in the dispute—the new policy might, for example, force Commonwealth Edison to contribute hundreds of millions of dollars to...
To continue reading
Request your trial
-
In re PJM Interconnection, LLC
...704 F.3d at 148; Tenn. Gas Pipeline, 824 F.2d at 84). [343] Id. at 31-33, 49 (citing 5 U.S.C. § 706(2)(E); 16 U.S.C. § 825l(b); ICC, 576 F.3d at 477; PG&E, 373 F.3d at 1319). See, e.g., P3 Protest at 30-42; Kelliher Aff. ¶ 39; Shanker Aff. ¶¶ 53-59; EPSA Protest at 18-31; Sotkiewicz Aff. ¶¶......
-
N.J. Bd. of Pub. Utilities & N.J. Div. of Rate Counsel v. Fed. Energy Regulatory Comm'n
...transmission organizations,” or “RTOs,” which are voluntary associations of the owners of transmission lines. Ill. Commerce Comm'n v. FERC, 576 F.3d 470, 473 (7th Cir.2009). RTOs were promoted by FERC to increase competition among energy providers by ensuring that owners of transmission lin......
-
In re Sw. Power Pool, Inc.
... 1 181 FERC ¶ 61,053 Southwest Power Pool, Inc. No. ER22-1719-001 United States of ... § ... 824d(e); Ill. Commerce Comm'n v. FERC , 576 F.3d ... 470, 476-77 (7th Cir. 2009) ( ICC v. FERC ... ...
-
El Paso Elec. Co. v. Fed. Energy Regulatory Comm'n
...services that do not “reflect to some degree the costs actually caused by” the person or entity paying them. Ill. Commerce Comm'n v. FERC , 576 F.3d 470, 476 (7th Cir. 2009) (quoting K N Energy, Inc. v. FERC , 968 F.2d 1295, 1300 (D.C. Cir. 1992) ).As they stand, the Compliance Orders do no......
-
Order No. 1000 - One-Year Later
...a compromise to resolve the cost allocation issues in dispute since 2007, including those reviewed in Illinois Commerce Comm'n v. FERC, 576 F.3d 470 (7th Cir. 2009). PJM's filing also reflects fundamental changes to its transmission planning and cost allocation PJM has revised its cost allo......
-
FERC Finds 'More Credible' A Postage Stamp New Transmission Cost Allocation For PJM
...FERC ¶ 61,230 (2012) ("Order on Remand"). 2 Order on Remand at P 126. 3 Order on Remand at P 2. 4 Illinois Commerce Commission v. FERC, 576 F.3d 470 (7th Cir. 5 Order on Remand at P 38. 6 Order on Remand at P 38. 7 Order on Remand at P 48. 8 Order on Remand at P 53. 9 Order on Remand at P 5......
-
Significant Federal Energy Regulatory Commission Activity In Transmission Incentives, Planning And Cost Allocation
...should be based on real, quantifiable benefit consistent with Illinois Commerce Commission v. Federal Energy Regulatory Commission, 576 F3d 470, 476 (7th Cir. 2009). That cost allocation process involves identifying specific and measurable benefits, and then allocating costs in a way roughl......
-
FERC Upholds Postage Stamp Cost Allocation Methodology
...March 30 order responds to a criticism from the U.S. Court of Appeals for the Seventh Circuit. In Illinois Commerce Commission v. FERC, 576 F.3d 470 (7th Cir. 2009), the Seventh Circuit had remanded an earlier FERC order finding that a postage stamp methodology was an appropriate way to all......
-
Grid Reliability Through Clean Energy.
...(ICC III), 756 F.3d 556 (7th Cir. 2014). (291.) ICC II, 721 F.3d at 780. (292.) See id. at 775 (quoting 111. Com. Comm'n v. FERC (ICC I), 576 F.3d 470, 477 (7th Cir. (293.) See ICC III, 756 F.3d at 564-65. (294.) Patrick R. Brown & Audun Botterud, The Value of Inter-regional Coordinatio......
-
Markets, Externalities, and the Federal Power Act: The Federal Energy Regulatory Commission's Authority to Price Carbon Dioxide Emissions
...62. See Elec. Power Supply Ass’n , 136 S. Ct. at 774. 63. See id. 64. Ill. Commerce Comm’n v. Fed. Energy Regulatory Comm’n, 576 F.3d 470, 476 (2009). 65. Elec. Power Supply Ass’n , 136 S. Ct. at 780. 66. Id. at 767. 67. 16 U.S.C. §824(b)(1) (2012). Similarly, FERC’s jurisdiction over elect......
-
Electricity Charges, Mandates, and Subsidies
...related to or quantiies a project’s beneits, FERC still can approve 49. Illinois Commerce Comm’n v. Federal Energy Regulatory Comm’n, 576 F.3d 470 (7th Cir. 2009). 50. Id . at 476. 51. See , e.g. , Gabe Maser, Student Note, It’s Electric, But FERC’s Cost-Causation Boogie-Woogie Fails to Jus......
-
Old statutes, new problems.
...(253) Id, at 49,918-49,930. (254) Specifically, FERC borrows from the Seventh Circuit's decision in Illinois Commerce Commission v. FERC, 576 F.3d 470, 477 (7th Cir. 2009), by requiring that each of the costs assigned to utility ratepayers be "roughly commensurate" with the benefits the lin......