El Paso Elec. Co. v. Fed. Energy Regulatory Comm'n
| Decision Date | 08 August 2016 |
| Docket Number | No. 14-60822,14-60822 |
| Citation | 832 F.3d 495 |
| Parties | El Paso Electric Company, Petitioner v. Federal Energy Regulatory Commission, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Patrick Joseph Pearsall, Marnie A. McCormick, Duggins Wren Mann & Romero, L.L.P., Patrick Joseph Pearsall, Winstead, P.C., Austin, TX, for Petitioner.
Jennifer Lynn Spina, Esq., Arizona Public Service Company, Phoenix, AZ, for Intervenor Arizona Public Service Company.
Stephen Matthew Spina, John Daniel Skees, Morgan, Lewis & Bockius, L.L.P., Washington, DC, Charles Albert Moore, Esq., Morgan, Lewis & Bockius, L.L.P., Houston, TX, for Intervenors Xcel Energy Services, Incorporated, Public Service Company of Colorado.
Elizabeth Gabrielle Bloch, Esq., Husch Blackwell, L.L.P., Austin, TX, for Intervenor NV Energy, Incorporated.
Catherine P. McCarthy, Seth Thomas Lucia, Bracewell, L.L.P., Washington, DC, Tony Lee Visage, Esq., Bracewell, L.L.P., Houston, TX, for Intervenors Black Hills Power, Incorporated, Black Hills Colorado Electric Utility Company, L.P., Cheyenne Light Fuel & Power Company.
Paula Grace Maynes, Miller Stratvert P.A., Santa Fe, NM, for Intervenor Public Service Company of New Mexico.
Kurt Hazlett Jacobs, Esq., Troutman Sanders, L.L.P., Washington, DC, for Intervenors Tucson Electric Power Company, UNS Electric, Incorporated.
Ross Ryan Fulton, Elizabeth Evans Rylander, Robert Harris Solomon, Esq., Solicitor, Federal Energy Regulatory Commission, Washington, DC, for Respondent.
Greg R. Wehrer, Squire Patton Boggs (US), L.L.P., Houston, TX, Michael R. Engleman, Squire Patton Boggs, L.L.P., Washington, DC, for Intervenors LSP Transmission Holdings, L.L.C., LS Power Transmission, L.L.C.
Before REAVLEY, HAYNES, and HIGGINSON, Circuit Judges.
El Paso Electric Co. (“EP Electric”) appeals from three decisions1 in which the Federal Energy Regulatory Commission (“FERC” or the “Commission”) reviewed and required revisions to certain compliance filings that EP Electric and other utilities filed with FERC pursuant to Order No. 1000. Order No. 1000 is FERC's rule regulating regional transmission planning and cost allocation by public utilities, also known as “jurisdictional utilities.” See Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities , Order No. 1000, 136 FERC 61,051, 76 Fed. Reg. 49,842 (2011) (hereinafter “Order No. 1000”),order on reh'g , Order No. 1000–A, 139 FERC 61,132, 77 Fed. Reg. 32,184 (2012) (hereinafter “Order No. 1000–A”), order on reh'g , Order No. 1000–B, 141 FERC 61,044, 77 Fed. Reg. 64,890 (2012) (hereinafter “Order No. 1000–B”).2 The vast majority of EP Electric's challenges to FERC's actions through these compliance orders fail. However, we conclude that FERC has acted arbitrarily and capriciously in its mandates regarding the role of non-jurisdictional utilities in cost allocation and regional planning in the WestConnect region. We therefore GRANT the petitions for review in part, VACATE FERC's Compliance Orders on these issues for further explanation and proceedings, and DENY review or DISMISS the petitions in all other respects.
This case concerns a scheme of planning, cost allocation, and regulation imposed by FERC on EP Electric and the Intervenor electricity providers.3 This regulatory scheme relates to FERC's attempts to encourage regional planning and construction of facilities to transmit electricity. In the Federal Power Act (“FPA”), Congress gave FERC jurisdiction “over all facilities” for “the transmission of electric energy in interstate commerce and ... the sale of electric energy at wholesale in interstate commerce.” 16 U.S.C. § 824(b)(1). Section 205 of the FPA prohibited “unreasonable rates and undue discrimination ‘with respect to any transmission or sale subject to the jurisdiction of the Commission,’ ” New York v. FERC , 535 U.S. 1, 7, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) (quoting 16 U.S.C. § 824d(a) –(b) ), and Section 206 of the FPA gave FERC's predecessor “the power to correct such unlawful practices,” id. (citing 16 U.S.C. § 824e(a) ), including on its own motion, S.C. Pub. Serv. Auth. v. FERC (South Carolina ), 762 F.3d 41, 49 (D.C. Cir. 2014).
In 2011, FERC enacted Order No. 1000 to address changes in the electric power industry and to keep rates just and reasonable. Id. at 52. As relevant to the challenges we address in this appeal, Order No. 1000 requires:
Each transmission provider must participate in a regional transmission planning process that complies with the planning principles in [a previous order,] Order No. 890, produces a regional transmission plan for development of new regional transmission facilities, and includes procedures to identify transmission needs driven by public policy requirements established by federal, state, or local laws or regulations and evaluate potential solutions to those needs.
South Carolina , 762 F.3d at 52 (citing Order No. 1000 ¶¶ 2, 146, 203–05, 76 Fed. Reg. at 49,845, 49,867, 49,876–77).
Order No. 1000 mandated cost allocation reforms designed to incentivize the development of cost-efficient transmission facilities in the regional planning process. It did so, in part, by encouraging transparency and certainty about the costs and benefits of such projects, and about which parties would be eligible to fund and develop each project. See Order No. 1000 ¶ 11, 76 Fed. Reg. at 49,846. These cost allocation reforms require each transmission provider subject to FERC's jurisdiction to incorporate in their open access transmission tariff (“OAT Tariff”) “a method (or set of methods) for allocating ex ante the costs of new regional transmission facilities that complies with six regional cost allocation principles.” South Carolina , 762 F.3d at 53 (citing Order No. 1000 ¶ 558, 76 Fed. Reg. at 49,929).
OAT Tariffs must comply with certain cost allocation principles, the most pertinent of which is cost causation.4 Under cost causation, “[t]he cost of transmission facilities must be allocated to those within the transmission planning region that benefit from those facilities in a manner that is at least roughly commensurate with estimated benefits.” Id. at 53 (alteration in original) (quoting Order No. 1000 ¶ 586, 76 Fed. Reg. at 49,932). This cost causation principle targets something called the “ ‘free rider’ problem,” which FERC acknowledged that it sought to “address through its cost allocation reforms” in Order No. 1000. Order No. 1000–A ¶ 562, 77 Fed. Reg. at 32,271. A free rider is an entity that is subsidized by other entities because it refuses to invest in transmission development, allows other entities to pay for that development, and reaps the benefits.5 The free rider problem adversely affects the development of transmission facilities because “[a]ny individual beneficiary [of a new transmission facility] has an incentive to defer investment in the hopes that other beneficiaries [in the region] will value the project enough to fund its development.” Order No. 1000 ¶ 486, 76 Fed. Reg. at 49,919. With the stated purpose of helping to alleviate the free rider problem, FERC mandated binding cost allocation, meaning that entities would not be allowed to opt out of their share of the costs of transmission facilities selected in regional transmission planning.6 Id. ¶¶ 723–25, 76 Fed. Reg. at 49,949–50.
Another important principle for this appeal is that Sections 205 and 206 of the FPA only give FERC the authority to directly regulate “jurisdictional” utilities, a specified category of public utilities that transmit power in interstate commerce. See generally South Carolina , 762 F.3d at 93. The regional planning and cost allocation requirements of Order No. 1000 therefore only directly apply to jurisdictional utilities. See Order No. 1000–A ¶ 275, 77 Fed. Reg. at 32,337. FERC has thus far declined to exercise any authority it may or may not have under Section 211A of the FPA to require participation in these processes by non-jurisdictional utilities.7 See South Carolina , 762 F.3d at 92–94 ; see also 16 U.S.C. § 824j–1(b) ().
Together, EP Electric and Intervenors are members of a regional planning organization called WestConnect. EP Electric and Intervenors emphasize the unique nature of their geographic and transmission planning arrangement. The WestConnect region is geographically comprised of ten non-jurisdictional utilities and eleven jurisdictional utilities. This sets it apart from other regions in the Eastern and Western United States, which the parties claim are overwhelmingly owned by public utilities and run by jurisdictional regional organizations that have long-established transmission planning processes that impose binding cost allocation. Since the jurisdictional utilities in WestConnect are dispersed “like Swiss cheese” throughout the region, the region has long relied on voluntary coordination and planning for regional transmission development. This situation has resulted in shared costs and many jointly owned projects, even given the different regulatory framework in this region than other regions with more jurisdictional utilities. The parties contend that regional planning that included only public utilities would not work for the WestConnect region. Transmission projects generally require cooperation between both types of utilities.
EP Electric and the WestConnect jurisdictional utilities coordinated with each other to file tariff revisions in attempts to comply with Order No. 1000. FERC addressed each of these revisions in its Compliance Orders.
The first WestConnect compliance filing noted that jurisdictional and non-jurisdictional utilities...
To continue reading
Request your trial
-
Midship Pipeline Co. v. Fed. Energy Regulatory Comm'n
...apply the overarching appellate framework of the Administrative Procedure Act (APA), 5 U.S.C. § 701. El Paso Elec. Co. v. Fed. Energy Regul. Comm'n , 832 F.3d 495, 503 (5th Cir. 2016) (citing La. Pub. Serv. Comm'n v. Fed. Energy Regul. Comm'n , 771 F.3d 903, 909 (5th Cir. 2014) ).A.As thres......
-
El Paso Elec. Co. v. Fed. Energy Regulatory Comm'n
...grid improvements in the WestConnect region, which covers utility service to much of the American West. El Paso Elec. v. FERC, 832 F.3d 495, 505-06 (5th Cir. 2016) ("El Paso Elec. I"). Because FERC had not reasonably explained how its orders, which implement the generally applicable Order N......
-
El Paso Elec. Co. v. Fed. Energy Regulatory Comm'n
...and REVERSE the orders. I. BACKGROUND The court thoroughly summarized this case's regulatory, factual, and procedural history in El Paso Elec. I. Only the highlights and more recent developments attention here. See 832 F.3d at 499-503. A. The Federal Power Act The Federal Power Act ("FPA") ......
- Swindol v. Aurora Flight Scis. Corp.