People v. Fed. Energy Regulatory Comm'n

• Decision Date: 22 April 2015
• Docket Number: Docket No. 13–2316–ag.
• Citation: 783 F.3d 946
• Parties: People of the State of NEW YORK and The Public Service Commission of the State of New York, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, The American Public Power Association (APPA); The National Rural Electric Cooperative Association (NRECA); The Transmissions Access Policy Study Group (TAPS); The National Association of Regulatory Utility Commissioners (NARUC); Public Utility District No. 1 of Snohomish County, Washington ; and North American Electric Reliability Corporation, Intervenors.
• Court: U.S. Court of Appeals — Second Circuit

783 F.3d 946

People of the State of NEW YORK and The Public Service Commission of the State of New York, Petitioners

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent

The American Public Power Association (APPA); The National Rural Electric Cooperative Association (NRECA); The Transmissions Access Policy Study Group (TAPS); The National Association of Regulatory Utility Commissioners (NARUC); Public Utility District No. 1 of Snohomish County, Washington ; and North American Electric Reliability Corporation, Intervenors.

Docket No. 13–2316–ag.

United States Court of Appeals, Second Circuit.

Argued: Nov. 20, 2014.

Decided: April 22, 2015.

John C. Graham, Assistant Counsel (Kimberly A. Harriman, General Counsel, on the brief), Public Service Commission of the State of New York, Albany, N.Y., for Petitioners.

Carol J. Banta, Senior Attorney (David L. Morenoff, General Counsel; Robert H. Solomon, Solicitor, on the brief), Federal Energy Regulatory Commission, Washington, D.C., for Respondent.

James Bradford Ramsay, General Counsel; Holly Rachel Smith, Assistant General Counsel, National Association of Regulatory Utility Commissioners, Washington, D.C., for Intervenor National Association of Regulatory Utility Commissioners.

Ellen M. Dunn, Sutherland Asbill & Brennan LLP, New York, N.Y., for Intervenor North American Electric Reliability Corp.

Before: KEARSE, JACOBS, and RAGGI, Circuit Judges.

Opinion

Judge JACOBS concurs in the judgment in a separate opinion.

REENA RAGGI, Circuit Judge:

The State of New York and the Public Service Commission of the State of New York (collectively, “New York”) petition this court for review of two final orders of the Federal Energy Regulatory Commission (“FERC”), insofar as the orders adopt standards and procedures for determining which power distribution facilities are subject to the agency's regulatory jurisdiction and which facilities fall within the statutory exception for local distribution of electric energy. See Revisions to Electric Reliability Organization Definition of Bulk Electric System, Order No. 773, 141 FERC ¶ 61,236 (2012), clarified and reh'g denied, Order No. 773–A, 143 FERC ¶ 61,053 (2013). New York contends that the standards and procedures are an unreasonable interpretation of the agency's statutory grant of jurisdiction. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). It further challenges the standards and procedures as arbitrary and capricious under the Administrative Procedure Act. See 5 U.S.C. § 706. We conclude that these arguments are without merit and, therefore, deny the petition for review.

I. Background

A. The Governing Statute and Regulatory Regime

The Federal Power Act, as amended in 1935, see Pub.L. No. 74–333, tit. II, 49 Stat. 803, 838–54 (1935) (codified at 16 U.S.C. § 792 et seq. ), grants the Federal Power Commission, and now its successor agency FERC, regulatory authority over interstate aspects of the nation's electric power system. See 16 U.S.C. § 824(a). Congress specifically excluded from this jurisdictional grant “facilities used in local distribution or only for the transmission of electric energy in intrastate commerce.” Id. § 824(b)(1). Regulation of these exempted facilities is reserved to the states. See, e.g., New York v. FERC, 535 U.S. 1, 22, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002) ; Connecticut Light & Power Co. v. Fed. Power Comm'n, 324 U.S. 515, 518, 65 S.Ct. 749, 89 L.Ed. 1150 (1945). The statute does not define “facilities used in local distribution.” Thus, from 1996 until the time of the challenged orders, FERC employed a seven-factor test (set out in the margin¹ ) to identify facilities falling within the statutory exemption from jurisdiction. See New York v. FERC, 535 U.S. at 23, 122 S.Ct. 1012.

For many years, FERC exercised its statutory jurisdiction essentially as an economic regulator, overseeing the market for the sale of electricity in interstate commerce. See 16 U.S.C. § 824 ; see also Connecticut Light & Power Co. v. Fed. Power Comm'n, 324 U.S. at 524, 65 S.Ct. 749 (observing that purpose of Federal Power Act “was primarily to regulate the rates and charges of the interstate energy”). After the northeast United States experienced a large-scale blackout in the summer of 2003, however, Congress expanded FERC's regulatory authority by enacting the Electricity Modernization Act of 2005, Pub.L. No. 109–58, tit. XII, 119 Stat. 594, 941–86 (2005). That Act authorizes FERC to adopt and enforce mandatory technical reliability standards for facilities that make up the national energy grid. See 16 U.S.C. § 824o (authorizing FERC to impose reliability standards on facilities that comprise “bulk-power system,” defined to include “facilities and control systems necessary for operating an interconnected electric energy transmission network”). The Act does not require FERC to develop these standards for itself. Rather, it directs FERC to certify an outside organization to develop such standards subject to agency approval. See 16 U.S.C. § 824o (c), (d). To fill this role, FERC certified North American Electric Reliability Corporation (“NERC”), an organization that had previously developed a series of voluntary technical standards for the industry.²

At the same time, however, the statute maintains the Federal Power Act's jurisdictional exception by specifying that the bulk-power system “does not include facilities used in the local distribution of electric energy.” Id. § 824o (a)(1). Again, the statute neither defines “facilities used in ... local distribution” nor instructs as to how such facilities should be identified.

B. Development of the Challenged Orders

In 2007, FERC adopted a number of reliability standards proposed by NERC. See Mandatory Reliability Standards for the Bulk–Power System,

Order No. 693, 118 FERC ¶ 61,218 (2007). In so doing, however, FERC expressed concern that NERC's proposed method for identifying facilities subject to the new standards—which involved deferring to the determinations of various regional councils—left gaps in coverage that would defeat the Electricity Modernization Act's goal of ensuring a stable and reliable nationwide power grid. See

id. ¶ 61,218, at ¶¶ 75–81. FERC therefore directed NERC to revise its proposed definition of the bulk electric system³ to eliminate regional discretion and, instead, to establish a uniform set of rules that include an operating voltage threshold, specific facility configurations to be included or excluded from the bulk electric system notwithstanding their operating voltage, and a process for facilities to seek exemptions from the regulations. See Revision to Electric Reliability Organization Definition of Bulk Electric System, Order No. 743, 133 FERC ¶ 61,150, at ¶ 30 (2010). Various entities, including New York, argued that FERC's directive would result in the agency exceeding its regulatory jurisdiction by presumptively subjecting local distribution facilities operating above a default voltage threshold to federal regulation. FERC rejected this argument and proceeded with its directive, clarifying that NERC would also develop criteria for determining which facilities operating above the default threshold might nevertheless qualify for the local distribution exclusion, and that FERC itself would conduct a factual inquiry on exemption where specified criteria failed to yield a determinative answer as to whether a facility was engaged in local distribution. See Revision to Electric Reliability Organization Definition of Bulk Electric System, Order No. 743–A, 134 FERC ¶ 61,210, at ¶¶ 18–25 (2011).

In early 2012, NERC submitted its new proposed standards and procedures for identifying facilities within the bulk electric system, which FERC proceeded to publish for industry and public comment. See Revision to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure, Notice of Proposed Rulemaking, 139 FERC ¶ 61,247 (2012). Approximately 60 persons and entities commented, including New York, which again voiced objections. Nevertheless, in December 2012, FERC issued Order 773, the first of the orders here at issue. That order essentially adopts NERC's proposed standards and procedures for identifying power transmission facilities that are part of the bulk electric system subject to federal regulation. See Order No. 773, 141 FERC ¶ 61,236, at ¶¶ 1–4. These standards and procedures may be grouped into three categories.

First, any facility with an operating voltage at or exceeding 100 kilovolts (“kV”) is presumed to be part of the nation's bulk electric system, while any facility with a lower operating voltage is presumed to be engaged in local distribution. See id. ¶ 61,236, at ¶ 67 (observing that “this threshold will remove from the bulk electric system the vast majority of facilities that are used in local distribution, which tend to be operated at lower, sub–100 kV voltages”).

Second, notwithstanding these presumptions, the order specifies five facility configurations that are to be included in the bulk electric system, and four configurations that are to be excluded therefrom, regardless of their operating voltages.

See id. One exclusion in particular, “E3,” identifies facilities that operate at over 100 kV but, nevertheless, constitute a local network. The descriptions of the inclusions and exclusions, which are detailed and quite technical, are reproduced in the margin.⁴

Third, even if, at the first two steps of analysis, a facility appears to come within FERC's regulatory jurisdiction, the order affords two avenues for individualized review. One permits a facility falling within federal jurisdiction to seek a technical exemption from the reliability requirements, a case-by-case decision initially made by NERC but appealable on application to FERC. See id. ¶ 61,236, at ¶¶ 27, 238, 269. Separate and independent from that process, a facility that thinks it is engaged in local...