National Ass'n of Regulatory Utility v. F.E.R.C.

• Citation: 475 F.3d 1277
• Decision Date: 12 January 2007
• Docket Number: No. 05-1292.,No. 04-1148.,No. 05-1050.,No. 04-1149.,No. 04-1152.,04-1148.,04-1149.,04-1152.,05-1050.,05-1292.
• Parties: NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS, et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Tenaska, Inc., et al., Intervenors.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

475 F.3d 1277

NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS, et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent

Tenaska, Inc., et al., Intervenors.

No. 04-1148.

No. 04-1149.

No. 04-1152.

No. 05-1050.

No. 05-1292.

United States Court of Appeals, District of Columbia Circuit.

Argued October 13, 2006.

Decided January 12, 2007.

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

Laurence G. Chaset argued the cause for Governmental Petitioners. With him on the briefs were James Bradford Ramsay, Thomas D. Samford, IV, Arocles Aguilar, Aubrey Williams Turner, Jr., Gisele Lunsford Rankin, Florence P. Belser, and Robert D. Cedarbaum.

Andrew W. Tunnell argued the cause for Utility Petitioners. With him on the brief were S. Chris Still, Kevin A. McNamee, Neil H. Butterklee, John D. McGrane, Heath K. Knakmuhs, and Antoine P. Cobb.

Lona T. Perry, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Robert H. Solomon, Solicitor, and Samuel Soopper, Attorney.

Ashley C. Parrish argued the cause for intervenors Tenaska, Inc., et al. With him on the briefs were Neil L. Levy, Jennifer L. Key, Glen L. Ortman, Harvey L. Reiter, and Jonathan D. Schneider. Gregory O. Olaniran entered an appearance.

Before: SENTELLE, Circuit Judge, and EDWARDS and WILLIAMS, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

Opinion dissenting in part filed by Circuit Judge SENTELLE.

WILLIAMS, Senior Circuit Judge.

In 1996 the Federal Energy Regulatory Commission issued Order No. 888 in the hopes of fostering competition in the electric generating industry. Such competition clearly depended on generators' having adequate means of getting their power to market. FERC's solution in Order No. 888 was to require transmission providers, which typically have a natural monopoly, to give generators equal access to transmission facilities. The Commission implemented the requirement in part by mandating the filing of suitable tariffs. See Transmission Access Policy Study Group v. FERC, 225 F.3d 667, 682-83 (D.C.Cir. 2000) ("TAPS"). We affirmed Order No. 888 in TAPS.

In the period directly after issuing Order No. 888, FERC had monitored one element of the process—the interconnection agreements between operators of generators and transmission facilities—on a case-by-case basis. Finding that approach "inadequate" and "inefficient," FERC issued Order No. 2003 and three successive rehearing orders. Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, 104 F.E.R.C. ¶ 61,103 at 30,430 P 10 (2003), order on reh'g, Order No. 2003-A, 106 F.E.R.C. ¶ 61,220 (2004), order on reh'g, Order No. 2003-B, 109 F.E.R.C. ¶ 61,287 (2004), order on reh'g, Order No. 2003-C, 111 F.E.R.C. ¶ 61,401 (2005). In the interests of achieving transparency and preventing transmission facility owners from favoring affiliated generators over independents in interconnection, the orders require all transmission facilities to adopt a standard agreement for interconnecting with generators larger than 20 megawatts.

Here we review claims advanced by two sets of petitioners (the two sets are generally aligned with each other in their positions): four utilities ("Utility Petitioners") and six state regulatory agencies (together with an association of such agencies, the National Association of Regulatory Utility Commissioners) ("Governmental Petitioners"). They challenge Order No. 2003 and its sequels on the grounds that FERC exceeded its jurisdiction, unlawfully commandeered states, departed from its own precedent without explanation, and made policy decisions that are arbitrary and capricious. We reject all of these claims and affirm the orders.

* * * * * *

Petitioners raise a succession of claims that FERC's orders usurp jurisdiction not provided by Congress. FERC's interpretations of the jurisdictional provisions of the Federal Power Act (the "Act") enjoy Chevron deference. Detroit Edison Co. v. FERC, 334 F.3d 48, 53 (D.C.Cir. 2003) (citing TAPS, 225 F.3d at 694).

Section 201(b)(1) of the Act makes the statute applicable to "the transmission of electric energy in interstate commerce and to the sale of electric energy at wholesale in interstate commerce" and gives FERC jurisdiction not only over such transmission and sales but also over "all facilities for such transmission or sale of electric energy." 16 U.S.C. § 824(b)(1). At the same time the Act precludes FERC "jurisdiction . . . over facilities used in local distribution or only for the transmission of electric energy in intrastate commerce." Id. Order No. 2003 asserts jurisdiction over the terms of interconnection between generators and transmission providers, even where the transmission facility also engages in local distribution, but only insofar as the interconnections are "for the purpose of making sales of electric energy for resale in interstate commerce." Order No. 2003 at 30,545-46 P 804. Utility Petitioners claim that this represents an unlawful exercise of jurisdiction over dual-use facilities— ones that engage in both transmission and local distribution.

Petitioners believe that our opinion in Detroit Edison controls. There we rejected FERC's attempt to assert jurisdiction over unbundled retail service, although such service involved neither jurisdictional sales nor jurisdictional transmission. Sales under FERC-jurisdictional tariffs would have enabled the shipper to escape stranded cost charges imposed under state-approved tariffs. 334 F.3d at 52. FERC's purported jurisdictional hook was that the power was being shipped over dual-use facilities that provided both retail and wholesale distribution services. Id. at 52, 54. We were unconvinced by this theory for asserting jurisdiction over non-jurisdictional transactions.

Here the issue is the inverse of Detroit Edison; Order No. 2003 applies to jurisdictional transactions only. FERC determined that the provisions of Order No. 2003 should apply "to interconnections to the facilities of a public utility's Transmission System that, at the time the interconnection is requested, may be used either to transmit electric energy in interstate commerce or to sell electric energy at wholesale in interstate commerce." Order No. 2003-C at 31,656 P 51. "Interconnections," though seemingly not defined explicitly in the orders, clearly are not "facilities," as that would make the term "Interconnection Facilities," as used in the standardized agreements, a redundancy. See, e.g., Order No. 2003 at 30,577. In fact interconnections appear to be relationships between parties with respect to electricity flowing over facilities, and the orders here by their terms control the agreements governing those relationships. See, e.g., "Standard Large Generator Interconnection Agreement (LGIA)," id. at 30,616-67. By establishing standard agreements FERC has exercised its jurisdiction over the terms of those relationships. Cf. TAPS, 225 F.3d at 696 ("FPA § 201 makes clear that all aspects of wholesale sales are subject to federal regulation, regardless of the facilities used." (emphasis added)).

In their reply briefs petitioners note that the orders regulate certain facets of the engineering and construction of facilities needed for the relevant transmissions. Utility Petitioners' Reply Br. at 4; Governmental Petitioners' Reply Br. at 5-6 & n. 9. But petitioners identify no specific aspect of the regulations that they claim is untethered to the Commission's authority over interstate transmissions and wholesale sales. As FERC's authority generally rests on the public interest in constraining exercises of market power, see Associated Gas Distributors v. FERC, 824 F.2d 981, 1003 (D.C.Cir. 1987), whether in the utility's rates or other service terms, and as a common test for the lawfulness of rates is their connection to the reasonably-incurred costs of providing the regulated service, National Fuel Gas Supply Corp. v. FERC, 900 F.2d 340 (D.C.Cir. 1990), it is hard to see how the statute could leave FERC weaponless against conduct that might encourage or cloak the running up of unreasonable costs. The Commission's indisputable authority to disallow recovery of costs imprudently incurred by jurisdictional firms may, of course, impinge as a practical matter on the behavior of non-jurisdictional ones. So far as appears, petitioners in this facial attack have identified no impingement that exceeds what may be encompassed in such conventional exercises of jurisdiction.

Utility Petitioners also dispute FERC's assertion of jurisdiction over facilities jointly owned by private firms and states. This presents questions analogous to those raised by the transmission-and-distribution facilities just discussed, though here the divide is between private and public ownership rather than between transmission and distribution. Section § 201(f) of the Act provides that "[n]o provision in this subchapter shall apply to, or be deemed to include, the United States, a State or any political subdivision of a State." 16 U.S.C. § 824(f). (They are brought back in with respect to particular sections not relevant here. See § 3(22) of the Act, 16 U.S.C. § 796(22); §§ 210-213, 16 U.S.C. §§ 824i-8241; Bonneville Power Administration v. FERC, 422 F.3d 908, 916 (9th Cir.2005).) Therefore, according to petitioners, FERC may not regulate jointly-owned facilities. Although Order No.2003 explicitly states that it applies only "to Interconnection Service provided by the public utility on its portion of a jointly owned facility," Order No.2003 at 30,546 P 807, petitioners claim that FERC's purported distinction is not possible. In their view, an interconnection affects an entire facility, not simply the public utility's portion, and FERC's purported exercise of authority over the service therefore violates § 201(f). The argument fails for reasons similar to...