Pub. Util. of Snohomish County v. Fed. Energy Reg. Comm'n, No. 1

• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)
• Writing for the Court: Per Curiam
• Citation: 272 F.3d 607
• Parties: (D.C. Cir. 2001) Public Utility Districtof Snohomish County, Washington, Petitioner v. Federal Energy Regulatory Commission, Respondent PJM Interconnection, L.L.C., et al., Intervenors through 00-1182, 00-1184
• Decision Date: 11 December 2001
• Docket Number: No. 00-1174,No. 1

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272 F.3d 607 (D.C. Cir. 2001) Public Utility District No. 1 of Snohomish County, Washington, Petitioner
v.
Federal Energy Regulatory Commission, Respondent

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PJM Interconnection, L.L.C., et al., Intervenors No. 00-1174 through 00-1182, 00-1184. United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT Argued October 17, 2001
Decided December 11, 2001

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Consolidated with Nos. 00-1175, 00-1176, 00-1177, 00-1178, 00-1179, 00-1180, 00-1181, 00-1182, 00-1184

Petitions for Review of Orders of the Federal Energy Regulatory Commission

Eric L. Christensen argued the cause for petitioner Public Utility District No. 1 of Snohomish County, Washington. With him on the briefs were Michael J. Gianunzio and Deborah A. Swanstrom.

David B. Raskin and Elias G. Farrah argued the cause for Jurisdictional Utilities and Supporting Intervenors. With them on the briefs were Mary A. Murphy, David P. Sharo, Charles G. Cole, Alice E. Loughran, Richard T. Saas, Donald A. Kaplan, Andrew N. Greene, David Earl Goroff, Elizabeth Ward Whittle, Stuart A. Caplan, Michael E. Small and Paul M. Flynn. Catherine M. Giovannoni, Steven J. Ross, Edward H. Comer, Kelly D. Hewitt, Joseph H. Fagan and Scott Wilensky entered appearances.

Jonathan D. Schneider argued the cause and filed the briefs for petitioner South Carolina Public Service Authority.

Susan N. Kelly and Milton J. Grossman were on the brief for intervenor Transmission Dependent Utility Systems.

Dennis Lane, Solicitor, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Larry D. Gasteiger, Attorney. Beth G. Pacella and David H. Coffman, Attorneys, entered appearances.

Robert C. McDiarmid, Daniel I. Davidson, Cynthia S. Bogorad, Susan N. Kelly, Milton J. Grossman and Barry Cohen were on the brief for intervenors American Public Power Association, et al. Joseph P. Serio, Wallace F. Tillman, Alan J. Roth and David E. Pomper entered appearances.

David B. Raskin and Charles G. Cole were on the brief for intervenor Edison Electric Institute on the passive ownership issue.

Before: Randolph, Rogers, and Garland, Circuit Judges.

Opinion for the Court filed Per Curiam.

Per Curiam:

On December 20, 1999, the Federal Energy Regulatory Commission promulgated a final rule to advance the formation of regional transmission organizations ("RTOs"). See Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs. p 31,089 (1999), 65 Fed. Reg. 810 (2000) ("Order 2000"), on reh'g, Order No. 2000-A, FERC Stats. & Regs. p 31,092, 65 Fed. Reg. 12,088 (2000) ("Order 2000-A") (codified at 18 C.F.R. § 35.34).¹ On February 25, 2000, the Commission denied rehearing while clarifying certain provisions of the rule. See Order 2000-A, p 31,092, at 31,354. The petitioners raise a variety of challenges to Order 2000, principally on the grounds that the Commission exceeded its statutory authority, and if it did not, that it acted arbitrarily and capriciously and contrary to law.

The contentions of the Jurisdictional Utilities ("Utilities") are premised on the view that Order 2000 not only mandates certain informational filings as to expected RTO participation but also has the effect of mandating RTO participation. We hold first, that the challenged requirements of Order 2000 are voluntary and impose no mandatory requirements upon the Utilities,

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and second, that the Utilities have failed to demonstrate that they are aggrieved by Order 2000. Accordingly, we dismiss the Utilities' petitions for lack of jurisdiction.

We dismiss as well the petition of the Public Utility District No. 1 of Snohomish County, Washington, which challenged the Commission's failure to address the costs and benefits of RTO formation, and the petition of the South Carolina Public Service Authority, which sought review of the Commission's refusal to forbid passive ownership of an RTO by market participants.

I.

Historically, electric utilities were vertically integrated, owning generation, transmission, and distribution facilities and selling these services as a "bundled" package to wholesale and retail customers in a limited geographical service area. Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities, Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, 60 Fed. Reg. 17,662, 17,668 (proposed Apr. 7, 1995) (codified at 18 C.F.R. §§ 35.15, 35.26-35.29). Beginning in the late 1960s, however, significant economic changes and technological advances in generation and transmission gave rise to many new entrants in the generating markets, which, by using smaller scale technology, could sell energy at a lower price than many utilities' existing generation facilities. Id. at 17,671. But barriers to a competitive wholesale power market remained because if and when the existing vertically integrated utilities provided regional transmission access to these new efficient generating plants, they favored their own generation. Id.

Concluding that these practices were unduly discriminatory and anti-competitive, the Commission issued Orders 888 and 889 in 1996.² Orders 888 and 889 established the foundation for the development of competitive wholesale power markets by requiring non-discriminatory open access transmission services by public utilities. See Transmission Access Policy Study Group v. FERC, 224 F.3d 667, 682 (D.C. Cir. 2000) ("TAPSG"). In the Notice of Proposed Rulemaking underlying the Order now on review, the Commission observed that Orders 888 and 889 "required a significant change in the way many public utilities have done business for most of this century," and that "most public utilities accepted these changes and made substantial good faith efforts to comply with the new requirements." See Notice of Proposed Rule making, Regional Transmission Organizations, 64 Fed. Reg. 31,390, 31,393 (1999) ("NOPR").

Since the issuance of Orders 888 and 889 the electric industry has changed significantly in response to those orders. The availability of open access transmission tariffs has resulted in a much greater reliance on wholesale markets to provide generation resources, which in turn, has resulted in the increase of interregional electricity transfers. This has caused various changes in the industry, including the

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divestiture by integrated utilities of their generating assets, an increase in mergers, increases in new participants in the industry in the form of independent power marketers and generators, an increase in the total volume of trade in the wholesale electricity market, state efforts to increase retail competition, and new and different uses of the transmission grid. In sum, the Commission observed in the underlying NOPR that "[t]he very success of Order Nos. 888 and 889, and the initiative of some utilities that have pursued voluntary restructuring beyond the minimum open access requirements, have put new stresses on regional transmission systems--stresses that call for regional solutions." Id.

In response to these changes in the structure and functioning of the electric industry, the Commission investigated the need for regional transmission entities. The Commission staff found that the transmission grid was being used more intensively than in the past and that "market institutions were not adequately prepared to deal with such a dramatic series of events," as had occurred, for example, mid-June 1998 when the Midwest experienced unprecedented high spot market prices. Id. at 31,394. The staff concluded that to address reliability concerns and foster competition, "better regional coordination in areas such as maintenance of transmission and generation systems and transmission planning and operation" was required. Id. Although, in the wake of Orders 888 and 889, some members of the industry attempted to form various regional entities, the results were "haphazard" and "inconsistent"; while some succeeded, others failed, and "much of the country's transmission facilities remain outside of an operational regional transmission institution." Id. at 31,395.

In Order 2000, the Commission identified two categories of remaining barriers to a competitive wholesale electric market envisioned in Orders 888 and 889: (1) engineering and economic inefficiencies in the current transmission grid; and (2) lingering opportunities for transmission owners to discriminate to favor their own activities. The Commission issued Order 2000 to advance the formation of RTOs in response to these two concerns, indicating that RTOs will remedy "economic and engineering inefficiencies and the continuing opportunity for undue discrimination." Order 2000, p 31,089 at 31,017. According to the Commission, RTOs could: "(1) improve efficiencies in transmission grid management; (2) impose grid reliability; (3) remove remaining opportunities for discriminatory transmission practices; (4) improve market performance; and (5) facilitate lighter handed regulation." Id. at 30,933.

The final rule, as contained in Order 2000 and clarified by Order 2000-A, specifies both the minimum characteristics and functions that a regional entity must satisfy in order to be considered an RTO under the rule. See 18 C.F.R. §§ 35.34(j), (k); see also id. § 35.34(l). The final rule, however, adopts a flexible approach to the structuring of RTOs, allowing an RTO to take the form of an ISO, transco, a combination of the two, or some other form as long as it meets the minimum function and characteristic requirements set forth in the rule.³ See id. § 35.34(b)(1). Five of the minimum requirements of an RTO are relevant to this appeal. First, among the minimum characteristics of an RTO,

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the rule specifies that RTOs must have independence from market participants. See id. § 35.34(j)(1). As one means of ensuring such independence, although the rule allows transmission owners to "retain the...