NRG Power Mktg., LLC v. Fed. Energy Regulatory Comm'n

• Decision Date: 14 June 2013
• Docket Number: No. 11–1201.,11–1201.
• Parties: NRG POWER MARKETING, LLC, et al., Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Consolidated Edison Company of New York, Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

718 F.3d 947

NRG POWER MARKETING, LLC, et al., Petitioners

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Consolidated Edison Company of New York, Inc., et al., Intervenors.

No. 11–1201.

United States Court of Appeals,District of Columbia Circuit.

Argued Oct. 12, 2012.

Decided June 14, 2013.

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

Robert C. Fallon argued the cause for petitioners. With him on the briefs were Nathan E. Endrud, Christopher O'Hara, and Abraham Silverman. Brian M. Meloy entered an appearance.

Samuel Soopper, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Robert H. Solomon, Solicitor.

Paul M. Flynn argued the cause for intervenors. With him on the brief were Barry Stewart Spector, William Fielding Young, Tamara L. Linde, Richard L. Roberts, Neil H. Butterklee, and Donald Joseph Stauber. Kenneth R. Carretta entered an appearance.

Before: TATEL, Circuit Judge, SENTELLE and RANDOLPH, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge SENTELLE.

SENTELLE, Senior Circuit Judge:

In September 2010, the Federal Energy Regulatory Commission (“FERC”) approved a settlement between PJM Interconnection, L.L.C. (“PJM”), the New York Independent System Operator, Inc. (“NYISO”), Consolidated Edison Company of New York, Inc. (“ConEd”), Public Service Electric & Gas Company (“PSE & G”), PSE & G Energy Resources & Trading L.L.C., and the New Jersey Board of Public Utilities. Order Approving Contested Settlement and Denying Rehearing,132 FERC ¶ 61,221 (2010). This settlement ended protracted litigation over how to transition transmission service agreements entered into during the 1970s to the open access regime FERC created for transmission lines in its Order No. 888. Promoting Wholesale Competition Through Open Access Non–Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, 61 Fed.Reg. 21,540 (May 10, 1996) (“Order No. 888”). NRG Power Marketing, L.L.C., which objected to the approved settlement, petitions for review of FERC's order approving the contested settlement and of FERC's order granting in part and denying in part NRG's request for rehearing. See Order on Rehearing & Motions,135 FERC ¶ 61,018 (2011). In the settlement proceedings and its request for rehearing, NRG objected to the settlement, which gives ConEd transmission rights not available to other market participants, arguing that it violated FERC's open-access principles as explained in Order No. 888, and that FERC's rationales to justify the settlement as just and reasonable and not unduly discriminatory were flawed and not supported by substantial evidence. For the reasons set forth below, we deny NRG's petition for review, concluding that FERC did not act arbitrarily or capriciously in approving an agreement that did not conform to PJM's open-access transmission tariff, and that FERC's justifications for approving the agreement were reasonable and supported by substantial evidence.

I. BACKGROUNDA. Statutory and Regulatory Background

Historically, electric utilities owned generation, transmission, and distribution facilities, and sold these three services as part of a “bundled” package. Transmission Access Policy Study Group v. FERC, 225 F.3d 667, 681 (D.C.Cir.2000). But as transmission technologies improved and alternative power suppliers emerged, a wholesale energy market developed, giving wholesale energy consumers new sources for competitively priced power. Id. at 681–82. Utility ownership and control of transmission lines, however, remained a barrier to the development of this market. Id. at 682. Recognizing that utilities that owned and controlled transmission lines had a profit-maximizing motive to restrict access to their transmission lines, FERC promulgated regulations aimed at “unbundling” transmission services from the other services a utility offered and opening access to the transmission lines on equal terms. Id. Thus, under its statutory authority to remedy unduly discriminatory or preferential rates, practices, or contracts affecting public utility rates for transmission in interstate commerce, see16 U.S.C. §§ 824d-e, FERC issued Orders No. 888 and 889 to “requir[e] all public utilities owning and/or controlling transmission facilities to offer non-discriminatory open access transmission service.” Transmission Access Policy Study Group, 225 F.3d at 682 (internal citation omitted). In Order No. 888, FERC also urged utilities to consider creating Independent System Operators (“ISOs”) and Regional Transmission Operators (“RTOs”), entities that control and operate all transmission services in a particular region independent of the utilities that own the transmission lines. See Braintree Electric Light Dep't v. FERC, 550 F.3d 6, 8 (D.C.Cir.2008).

As part of Order No. 888, FERC required every transmission-owning public utility to file a non-discriminatory open access transmission tariff (“OATT”) that was either consistent with or superior to a pro forma open-access transmission tariff contained in Order No. 888. See61 Fed.Reg. at 21,619, 21,693–94, 21,706–17;see alsoPreventing Undue Discrimination and Preference in Transmission Service, 72 Fed.Reg. 12,266 (Mar. 15, 2007) (“Order 890”) (amending the pro forma open access transmission tariff implemented by Order No. 888). The pro forma open access transmission tariff contains the minimum terms and conditions for non-discriminatory transmission service, and every transmission-owning public utility must abide by the tariff in providing transmission services to itself and others. Transmission Access Policy Study Group, 225 F.3d at 727. Although FERC did not abrogate existing contracts in Order No. 888, it noted that any new service taken upon expiration would be considered new service and governed by the relevant open access transmission tariff. Sacramento Municipal Utility District v. FERC, 428 F.3d 294, 296 n. 4 (D.C.Cir.2005) (citing Order No. 888).

Of relevance to this case, § 2.2 of the pro forma tariff addresses transmission service agreements that pre-dated the issuance of Order No. 888. See61 Fed.Reg. at 21,709. Entities taking new service after expiration of their firm transmission service contract would be entitled to the right provided under § 2.2, entitled “Reservation Priority For Existing Firm Service Customers,” which provides:

Existing firm service customers (wholesale requirements and transmission-only, with a contract term of one-year or more), have the right to continue to take transmission service from the Transmission Provider when the contract expires, rolls over or is renewed. This transmission reservation priority is independent of whether the existing customer continues to purchase capacity and energy from the Transmission Provider or elects to purchase capacity and energy from another supplier. 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. This transmission reservation priority for existing firm service customers is an ongoing right that may be exercised at the end of all firm contract terms of one-year or longer.

Id.

B. Factual and Procedural Background

In the 1960s and 1970s, ConEd, an electric utility that primarily serves New York City, negotiated with PSE & G, a New Jersey utility, to jointly address the supply problems of northern New Jersey and New York City. This eventually led to two separate transmission service agreements (“TSAs”) between ConEd and PSE & G. ConEd and PSE & G executed the first of these agreements in 1975, which provided that ConEd would supply 400 MW from one of its upstate New York generators to PSE & G's customers in northern New Jersey, while PSE & G would supply 400 MW from one of its New Jersey generators to ConEd's customers in New York City. The second agreement was executed in 1978 and provided for a similar exchange in which ConEd would provide 600 MW from one of its upstate generators to PSE & G's territory in New Jersey, while PSE & G would supply the same amount of energy from its New Jersey territory to New York City. Because of these agreements, ConEd discontinued plans to build new transmissions facilities into New York City, and ConEd and PSE & G agreed to construct or modify facilities to effectuate the TSAs. These agreements remained effective after FERC issued Order No. 888, although ConEd's transmission system became part of the New York Independent System Operator and PSE & G's transmission system became part of PJM Interconnection, a regional transmission operator whose territory includes New Jersey.

After ConEd and PSE & G ceded control of their transmission systems to NYISO and PJM, ConEd filed a complaint with FERC alleging that PSE & G, NYISO, and PJM were failing to honor the 1975 and 1978 TSAs, which were grandfathered agreements under the pro forma open access transmission tariffs. After protracted litigation, the parties, per FERC's directive, filed an operating protocol governing how the 1970s TSAs would be effectuated under the open access transmission tariffs, although the parties did not agree on all terms of the protocol. See Consolidated Edison Co. of New York v. Public Service Electric and Gas Co., 111 FERC ¶ 61,228, 62,040 (2005). FERC nevertheless approved that protocol. Id. at 62,042. The 1975 and 1978 TSAs and the then-effective operating protocol, however, were set to expire in 2012.

Because of the impending expiration date on these TSAs, PJM and ConEd entered into replacement agreements, which they styled as § 2.2 roll-over agreements, with an effective...