Northern States Power Co. (Minnesota) v. F.E.R.C.

Decision Date05 August 1994
Docket NumberNo. 92-1449,92-1449
Citation30 F.3d 177
PartiesNORTHERN STATES POWER COMPANY (MINNESOTA), Northern States Power Company (Wisconsin), Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Wisconsin Public Power Inc. SYSTEM; Minnesota Power & Light Company; Public Service Commission of Wisconsin; Southern Minnesota Municipal Power Agency, Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

Petition for Review of an Order of the Federal Energy Regulatory Commission.

Leonard W. Belter, Washington, DC, argued the cause and filed the briefs for petitioners.

Katherine Waldbauer, Atty., F.E.R.C., Washington, DC, argued the cause for respondent. With her on the brief were Jerome M. Feit, Sol., and Joseph S. Davies, Deputy Sol., F.E.R.C., Washington, DC.

On the joint brief for intervenors were Michael P. May, Anita T. Gallucci, and Barbara E. James, Madison, WI. John D. McGrane, Washington, DC, Steven M. Schur, Madison, WI, and Paul D. Bruner, Washington, DC, entered appearances.

Before MIKVA, Chief Judge, EDWARDS, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

In early 1992 Northern States Power Company (Minnesota) and Northern States Power Company (Wisconsin), sister corporations, jointly filed with the Federal Energy Regulatory Commission a proposed tariff of rates for transmission services. Under that tariff, Northern States (as we shall hereinafter refer to the petitioners) would abandon its practice of charging uniform rates for transmission and instead charge rates that vary with the direction of the transmission from or across Northern States' control area. The new rates were intended more accurately to reflect the amount of electricity lost in transmissions to different geographic locations.

The Commission took the position that the operator of an integrated utility system such as Northern States may charge for transmission only a standard, system-wide price based (in part) upon average transmission system losses, and summarily rejected the proposed tariff. See Northern States Power Co. (Minnesota) & Northern States Power Co. (Wisconsin), 59 FERC p 61,100 (1992), reh'g denied, 60 FERC p 61,076 (1992). Northern States, arguing that this rejection was arbitrary and capricious, filed a petition for review. For the reasons set out below, we deny the petition.

I. BACKGROUND

Northern States owns and operates an electrical transmission system that serves parts of Minnesota, North Dakota, South Dakota, Wisconsin, and the Upper Peninsula of Michigan. Northern States uses this system to transmit its own electricity both to retail customers within its control area and to other utilities for resale outside its control area. Northern States also provides unbundled transmission services to other utilities; that is, it transmits electricity across its control area from one utility to another.

The Commission regulates the amount that Northern States (and other utilities) may charge for all such transmission services on a cost-of-service basis. In order to determine a utility's cost of providing a transmission service, the Commission typically treats a transmission network such as Northern States' as an integrated system. In other words, all of the individual facilities used to transmit electricity are treated as if they were part of a single machine. The Commission takes this approach on the ground that a transmission system performs as a whole; the availability of multiple paths for electricity to flow from one point to another contributes to the reliability of the system as a whole. This principle has a strong basis in the physics of electrical transmission for there is no way to determine what path electricity actually takes between two points or indeed whether the electricity at the point of delivery was ever at the point of origin.

As a corollary, in determining permissible prices for transmission services, the Commission treats each transmission customer not as using a single transmission path but rather as using the entire transmission system. Under this "rolled-in" pricing methodology, therefore, each transmission customer pays its share of the capital costs of the entire system. See Public Service Co. of Indiana (PSCI), 56 FPC 3003, 3035 (1976) ("[A]n electric transmission system which operates as an integrated, cohesive network in moving electric energy in bulk and which is designed and constructed to achieve maximum efficiency and reliability at minimum cost on a system-wide basis ... necessitat[es] the adoption of a 'rolled-in' cost approach as the 'consistent and equitable method of costing electric transmission service' " (quoting Detroit Edison Co., 54 FPC 3012, 3020 (1975))); see also Maine Public Service Co. v. Federal Energy Regulatory Commission, 964 F.2d 5, 8 (D.C.Cir.1992); Fort Pierce Utilities Authority v. Federal Energy Regulatory Commission, 730 F.2d 778, 782 (D.C.Cir.1984).

When electricity is transmitted from one point to another, some of it is unavoidably lost. Described physically, the amount of electrical energy lost in a specific transmission is determined by Ohm's Law: transmission losses are a function of the square of the amount of current flowing on the wire and of the resistance it encounters. Resistance, in turn, varies directly in proportion to the length of the wire. Therefore, as the current on a particular line is generally a constant the loss associated with a single transmission of electricity is primarily a function of the distance that the electricity is transmitted.

A utility that operates an integrated transmission system experiences its so-called "transmission system losses" in a slightly different manner. On such a system, the predominant flow of electricity is from generating sources to users of electricity ("loads") located elsewhere. For example, suppose that a utility generates most of its electricity in the southern part, and the remainder in the northern part, of its control area. If it sells most of its electricity to load centers located in the northern part of its control area (or to wholesale customers located north of the control area), then the predominant flow on its transmission system would be from south to north.

When a utility sells transmission services, however, it does not transmit specific units of electricity. "A transmission network functions more like a reservoir [than like a railroad]: a given amount of power enters the system at one point and a like amount is delivered at another point." Fort Pierce Utilities Authority, 730 F.2d at 782. Therefore, transmission system losses are proportionally greater when electricity is transmitted in the direction of the predominant flow than when it is transmitted against the predominant flow. (Do you see why?)

The Commission has not in the past taken this fact into account. Instead, again treating the typical transmission system as an integrated whole, the Commission has required that transmission system losses be rolled-in and that all transmission customers pay an equal amount (per unit) of the cost of such losses. This results in so-called "postage stamp" rates: all transmission customers pay the same price to transmit electricity across a utility's system regardless of the distance or the direction of the transmission they require. The transmission customer compensates the utility for the energy lost during transmission either by paying for it--the amount presumed lost being determined by reference to the transmitting utility's average system losses--or, if the customer is another utility, by accepting less electricity at the point of delivery than it provided to the transmitting utility at the point of receipt.

The predominant flow on the Northern States transmission system is from northwest to southeast. In its proposed tariff, Northern States proposed rates for unbundled transmission service that would take this fact into account. Based upon computer simulations, it imputed four different rates of transmission system loss depending upon the direction of the transmission across its control area; they range from 0.7% for deliveries to the north to 3.9% for deliveries to the east. Northern States also proposed to charge transmission customers within its control area for losses of 2.3%, presumably reflecting the shorter distance involved in transmitting electricity to them.

The Commission rejected this filing, stating that Northern States' " 'proposed loss factors for outside customers are incremental loss factors because they reflect the losses associated with the final increment of load [i.e., a particular flow rather than system-wide losses].' " 60 FERC p 61,076 at 61,252 (quoting 59 FERC p 61,100 at 61,368-69) (bracketed material added by later opinion)....

To continue reading

Request your trial
25 cases
  • Time Warner Entertainment Co., L.P. v. F.C.C., s. 93-1723
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • July 17, 1995
    ...review thereof is particularly deferential. United States v. FCC, 707 F.2d 610, 618 (D.C.Cir.1983); see also Northern States Power Co. v. FERC, 30 F.3d 177, 180 (D.C.Cir.1994). We shall first address both groups of petitioners' challenges to the rules for setting initial rates, then take up......
  • S.C. Pub. Serv. Auth. v. Fed. Energy Regulatory Comm'n
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • August 15, 2014
    ...of the individual facilities used to transmit electricity are treated as if they were part of a single machine.” N. States Power Co. v. FERC, 30 F.3d 177, 179 (D.C.Cir.1994). And because “a transmission system performs as a whole[,] the availability of multiple paths for electricity to flow......
  • Angelex Ltd. v. United States
    • United States
    • U.S. District Court — District of Columbia
    • September 28, 2017
  • In re PJM Interconnection, LLC
    • United States
    • Federal Energy Regulatory Commission
    • July 27, 2023
    ... 184 FERC ¶ 61,055 PJM Interconnection, L.L.C. Nos. ER23-729-001, EL23-19-001 United States of America, Federal Energy Regulatory Commission July 27, ... Federal Power Act (FPA) [ 1 ] by PJM Interconnection, L.L.C. (PJM) to ... ...
  • Request a trial to view additional results
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT