LSP Transmission Holdings II, LLC v. Fed. Energy Regulatory Comm'n

• Decision Date: 19 August 2022
• Docket Number: 20-1465,C/w 20-1466, 21-1004, 21-1005
• Citation: 45 F.4th 979
• Parties: LSP TRANSMISSION HOLDINGS II, LLC, et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Coalition of MISO Transmission Customers, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

45 F.4th 979

LSP TRANSMISSION HOLDINGS II, LLC, et al., Petitioners

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentCoalition of MISO Transmission Customers, et al., Intervenors

No. 20-1465

C/w 20-1466, 21-1004, 21-1005

United States Court of Appeals, District of Columbia Circuit.

Argued February 7, 2022

Decided August 19, 2022

Robert C. Fallon argued the cause for petitioners. With him on the briefs were Michael Ray Engleman and Christina Switzer.

Kenneth R. Stark and Robert A. Weishaar, Jr. were on the brief for intervenors in support of petitioners.

Susanna Y. Chu, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Matthew J. Glover, Attorney.

Kari Valley argued the cause for non-governmental intervenors in support of respondent. With her on the joint brief were Ilia Levitine, Wendy N. Reed, Matthew J. Binette, and David S. Berman.

William D. Booth, Roxane E. Maywalt, Paul L. Zimmering, and Noel J. Darce were on the brief for governmental intervenors in support of respondent.

Before: Rogers, Millett and Pillard, Circuit Judges.

Opinion dissenting in part and concurring in part filed by Circuit Judge Rogers.

Pillard, Circuit Judge:

LSP Transmission Holdings II, LLC, Cardinal Point Electric, LLC, and LS Power Midcontinent, LLC are transmission development companies. They petition for review of a set of Federal Energy Regulatory Commission (FERC) orders that approve modifications to the criteria used by the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission grid operator, to determine whether opportunities to develop proposed transmission upgrades to the interstate power grid are open to competitive bids from companies like petitioners. Petitioners challenge two aspects of the orders: (1) FERC's decision to accept MISO's proposal to use 230 kilovolts (kV) as the minimum voltage threshold for a project to qualify as a Market Efficiency Project (a category of projects subject to competitive bidding) rather than requiring a lower 100 kV threshold; and (2) FERC's approval of an exception from competitive bidding for certain reliability projects needed soon. FERC defends its orders on their merits, but it first contests the petitioners’ standing to challenge the orders and whether the petitions are ripe for review.

We hold that at least one petitioner—LS Power Midcontinent—has standing to raise these claims, and that the petitions are ripe. But the petitions fail on their merits: FERC's decision to accept 230 kV as the new voltage threshold was not arbitrary and capricious, and FERC reasonably approved MISO's Immediate Need Reliability Exception. We therefore deny the petitions for review.

BACKGROUND

I. Regulatory Background

"The Federal Power Act gives FERC jurisdiction over facilities that transmit electricity in interstate commerce." Old Dominion Elec. Coop. v. FERC , 898 F.3d 1254, 1255 (D.C. Cir. 2018). Under the Act, "electric utilities must charge ‘just and reasonable’ rates." Id. (quoting 16 U.S.C. § 824d(a) ). That standard requires applying a concept called the "cost-causation principle," under which "the rates charged for electricity should reflect the costs of providing it." Id. In other words, the "burden" on ratepayers of paying for a project should be "matched with [its] benefit" to them, and FERC "may not single out a party" or group of parties "for the full cost of a project, or even most of it, when the benefits of the project are diffuse." BNP Paribas Energy Trading GP v. FERC , 743 F.3d 264, 268 (D.C. Cir. 2014).

In 2011, to help ensure just and reasonable rates, FERC promulgated Order No. 1000, which has several features relevant to this appeal. See Transmission Plan. & Cost Allocation by Transmission Owning & Operating Pub. Utils. ("Order No. 1000"), 136 FERC ¶ 61,051, P 1 (2011). First, utilities in each planning region must together produce a regional transmission plan to identify transmission alternatives that resolve the region's needs more efficiently or cost-effectively than would uncoordinated local utility proposals. Id. PP 6, 148 ; see Old Dominion , 898 F.3d at 1256. Second, utilities must develop a method for allocating the costs of new transmission facilities selected for cost allocation under the regional plan. 136 FERC ¶ 61,051, PP 9, 558. That formula must abide by the cost-causation principle. Id. P 10 ; Old Dominion , 898 F.3d at 1256. Third, Order No. 1000 requires transmission planning regions to adopt a competitive process for determining which companies will develop the projects for which the region's ratepayers will be charged. 136 FERC ¶ 61,051, PP 7, 313, 323-31. Projects whose costs are allocated only locally, in contrast, need not be competitively bid. See Transmission Plan. & Cost Allocation by Transmission Owning & Operating Pub. Utils. ("Order No. 1000-A"), 139 FERC ¶ 61,132, P 430 (2012) ; see also MISO Transmission Owners v. FERC , 819 F.3d 329, 335 (7th Cir. 2016).

II. Factual and Procedural History

A. MISO "is a regional transmission organization and an independent system operator authorized by" FERC "to administer an open access transmission tariff" and "ensure reliable operation of" high-voltage power lines in the Midcontinent region, encompassing fifteen states and a Canadian province. Joint Br. of Non-Governmental Intervenors for Respondent at iv. Pursuant to Order No. 1000, MISO engages in an annual regional transmission planning process in which it identifies transmission projects that address reliability and economic needs. That process culminates in the creation of a regional transmission plan. See Order No. 1000, 136 FERC ¶ 61,051, P 47.

As part of that process, MISO categorizes its future transmission projects, and those categorizations dictate features of the project relevant to this appeal, including: (1) whether the project will be assigned to the incumbent transmission provider or be subject to competitive bidding by developers; and (2) whether the costs of the project will be allocated to ratepayers across the entire region or only to those in the local zone in which the project is located.

This case concerns three categories of projects. The first category is Market Efficiency Projects, which is one of two MISO categories subject to competitive developer selection and regional cost allocation. (The other competitively bid category, Multi-Value Projects, is not at issue here.) In other words, projects in this category must be assigned to a developer through a competitive bidding process, and the costs of such projects are shared according to a formula throughout the MISO region. The purpose of the Market Efficiency category is to facilitate the development of "projects that, through congestion relief, provide[ ] widespread economic benefits." Prepared Direct Test. of Jesse Moser on Behalf of the Midcontinent Independent System Operator, Inc. ("Moser Testimony") at 30, Joint Appendix (J.A.) 312. Before the challenged orders, to qualify as a Market Efficiency Project, a project had to meet a certain regional benefit-to-cost ratio, cost at least $5 million, and devote fifty percent or more of the project costs to facilities with voltages of at least 345 kV.

The second relevant category of projects is Baseline Reliability Projects. These are network upgrades needed to ensure compliance with applicable national and regional reliability standards. "[E]nsuring the reliability of the electric grid is a primary function of" transmission organizations like MISO. Delaware Div. of Pub. Advoc. v. FERC , 3 F.4th 461, 467 (D.C. Cir. 2021). MISO therefore performs Baseline Reliability Studies to evaluate its compliance with various reliability standards and identify necessary upgrades. Baseline Reliability Projects are not eligible for competitive bidding and the costs of such projects are allocated locally—that is, within the transmission pricing zone where the project is located.¹ If a Baseline Reliability Project also meets the criteria of a Market Efficiency Project, however, it is considered one and is subject to competitive bidding and regional cost allocation (with an exception discussed below for projects needed within a certain timeframe). In this way, MISO's tariff establishes a "hierarchy" of project categories. Moser Testimony at 33-34, J.A. 315-16.

Third, projects that do not fall into any other category are "Other Projects." Those projects are not subject to competitive bidding or regional cost allocation, meaning that all of their costs are allocated to the local zone where the project will be physically located. The Other Projects category includes projects designed to serve economic needs that do not meet the voltage threshold of a Market Efficiency Project.

B. MISO coordinates with various stakeholders—including utilities, municipalities, customers, state utilities commissions, and others—to develop the regional transmission plan. In 2015, MISO began a stakeholder consultation process to develop revisions to its tariff. Starting in February 2019, MISO submitted to FERC a series of proposals that emerged from that process. FERC rejected MISO's first two proposals. It rejected the first proposal because of concerns regarding MISO's proposed new Local Economic Project category for certain economic projects operating below 230 kV. Midcontinent Indep. Sys. Operator, Inc. Order Rejecting Proposed Tariff Revisions ("2019 Proposal Rejection "), 167 FERC ¶ 61,258, PP 1, 9 (2019). That category would have included projects that met both a regional benefit-to-cost ratio and a local benefit-to-cost ratio, but the costs of those projects would have been allocated only locally. Id. PP 58, 63. The Commission disapproved as contrary to the cost-causation principle MISO's plan to "identify regional benefits for Local Economic Projects, but, for the purpose of imposing its preferred cost allocation method, ......