Transmission Access Policy Study Group v. Fed Energy Regulatory Comm'n

• Decision Date: 14 November 2000
• Docket Number: 97-1715
• Parties: Transmission Access Policy Study Group, et al. Petitioner v. Federal Energy Regulatory Commission, Respondent Vermont Department of Public Service, et al., IntervenorsConsolidated with98-1111, 98-1112, 98-1113, 98-1114, 98-1115, 98-1118,98-1119, 98-1120, 98-1122, 98-1124, 98-1125, 98-1126,98-1127, 98-1128, 98-1129, 98-1131, 98-1132, 98-1134,98-1136, 98-1137, 98-1139, 98-1140, 98-1141, 98-1142,98-1143, 98-1145, 98-1147, 98-1148, 98-1149, 98-1150,98-1152, 98-1153, 98-1154, 98-1155, 98-1156, 98-1159,98-1162, 98-1163, 98-1166, 98-1168, 98-1169, 98-1170,98-1171, 98-1172, 98-1173, 98-1174, 98-1175, 98-1176,98-1178,98-1180 United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
• Court: U.S. Court of Appeals — District of Columbia Circuit

Transmission Access Policy Study Group, et al. Petitioner v Federal Energy Regulatory Commission, Respondent

Vermont Department of Public Service, et al., Intervenors

No. 97-1715 Consolidated with98-1111, 98-1112, 98-1113, 98-1114, 98-1115, 98-1118,98-1119, 98-1120, 98-1122, 98-1124, 98-1125, 98-1126,98-1127, 98-1128, 98-1129, 98-1131, 98-1132, 98-1134,98-1136, 98-1137, 98-1139, 98-1140, 98-1141, 98-1142,98-1143, 98-1145, 98-1147, 98-1148, 98-1149, 98-1150,98-1152, 98-1153, 98-1154, 98-1155, 98-1156, 98-1159,98-1162, 98-1163, 98-1166, 98-1168, 98-1169, 98-1170,98-1171, 98-1172, 98-1173, 98-1174, 98-1175, 98-1176,98-1178,98-1180

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 3, 1999

Decided June 30, 2000

As Amended Nov. 14, 2000

On Petitions for Review of Orders of the Federal Energy Regulatory Commission

Sherilyn Peterson, John T. Miller, Jr., Robert C. McDiarmid, Stanley C. Fickle, Sara D. Schotland, Jeffrey L. Landsman, Lawrence G. Malone, Jeffery D. Watkiss, Richard M. Lorenzo, Isaac D. Benkin, Wallace E. Brand, Daniel I. Davidson, Cynthia S. Bogorad, Harvey L. Reiter and Randolph Lee Elliott argued the causes for petitioners. With them on the briefs were William R. Maurer, Ben Finkelstein, David E. Pomper, Ronald N. Carroll, John Michael Adragna, Sean T. Beeny, Wallace F. Tillman, Susan N. Kelly, Craig W. Silverstein, A. Hewitt Rose, Bryan G. Tabler, James D. Pembroke, David C. Vladeck, Robert F. Shapiro, Lynn N. Hargis, Wallace L. Duncan, Richmond F. Allan, Alan H. Richardson, Michael A. Mullett, C. Kirby Mullen, Robert A. Jablon, Sara C. Weinberg, John F. Wickes, Jr., Todd A. Richardson, Brian A. Statz, John P. Cook, Charles F. Wheatley, Jr., Christine C. Ryan, Robert S. Tongren, Joseph P. Serio, Barry E. Cohen, Carrol S. Verosky, Jennifer S. McGinnity, Jonathan D. Feinberg, Charles D. Gray, Robert Vandiver, Cynthia Miller, Helene S. Wallenstein, William H. Chambliss, C. Meade Browder, Jr., Mary W. Cochran, Paul R. Hightower, Brad M. Purdy, Gisele L. Rankin, Robert D. Cedarbaum, Edward H. Comer, Edward Berlin, Robert V. Zener, Elizabeth W. Whittle, James H. McGrew, Donald K. Dankner, Frederick J. Killion, Joseph L. Lakshmanan, Stephen C. Palmer, Michael E. Ward, Steven J. Ross, Marvin T. Griff and Thomas C. Trauger. Leja D. Courter, Robert E. Glennon, Jr., Neil Butterklee, Zachary D. Wilson, Sheila S. Hollis, Janice L. Lower and James B. Ramsay entered appearances.

John H. Conway, Deputy Solicitor, Federal Energy Regulatory Commission, and Timm L. Abendroth and Larry D. Gasteiger, Attorneys, argued the causes for respondent.With them on the brief was Jay L. Witkin, Solicitor. Susan J. Court, Special Counsel, and Edward S. Geldermann, Attorney, entered appearances.

Edward Berlin argued the cause for intervenors. With him on the briefs were J. Phillip Jordan, Robert V. Zener, Edward H. Comer, William M. Lange, Deborah A. Moss, James H. McGrew, Steven J. Ross, Elizabeth W. Whittle, Richard M. Lorenzo, David M. Stahl, D. Cameron Findlay, Peter Thornton, J. Phillip Jordan, Robert V. Zener, Robert C. McDiarmid, Cynthia S. Bogorad, Ben Finkelstein, Peter J. Hopkins, Margaret A. McGoldrick, Jeffery D. Watkiss, Ronald N. Carroll, Sara D. Schotland, Alan H. Richardson, Wallace L. Duncan, Richmond F. Allan, A. Hewitt Rose, Wallace F. Tillman, Susan N. Kelly, John M. Adragna, Sean T. Beeny and Randolph Lee Elliott. Edward J. Twomey, Richard P. Bonnifield, Frederick H. Ritts, David L. Huard, Dan H. McCrary, Mark A. Crosswhite, John N. Estes, III, Kevin J. McIntyre, John S. Moot, Clark E. Downs, Martin V. Kirkwood, Robert S. Waters, John T. Stough, Jr., Bruce L. Richardson, Floyd L. Norton, IV, William S. Scherman, Douglas F. John, Gary D. Bachman, Nicholas W. Fels, Robert Weinberg, Robert A. Jablon, Peter G. Esposito, Christine C. Ryan, Sheila S. Hollis, Stephen L. Teichler, James K. Mitchell, Gordon J. Smith, Edward J. Brady, Kevin F. Duffy, Michael P. May, Barbara S. Brenner, Michael J. Rustum, Sandra E. Rizzo, Kirk H. Betts, Pierre F. de Ravel d'Esclapon, Glen L. Ortman and William D. DeGrandis entered appearances.

Before: Sentelle, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed Per Curiam¹:

Table of Contents

I .Introduction 7

II. FERC's Authority to Require Open Access 11

A. Statutory Challenges: FPA ss 205 and206 14

1.ss 205 and 206 and Otter Tail Power Company 15

2.s 206(a) Procedural and Evidentiary Requirements 18

3.Discriminatory Effect of Order 888 21

B. Constitutional Challenge: Fifth Amendment Takings Clause 23

III. Federal versus State Jurisdiction over Transmission Services 24

A. Bundled Retail Sales 26

B. Local Distribution Facilities 31

IV. Reciprocity 35

A. Indirect Regulation of Non-Jurisdictional Utilities 36

B. Limitation on Reciprocity 37

V. Stranded Cost Recovery Provisions 39

A. Wholesale Stranded Costs 40 1.FERC's Authority to Provide for Stranded Cost Recovery 44

a. Reasonable expectation of continued service 44

b. Sections 206 and 212 of the FPA 46

c. Implications of Cajun 48

2.Natural Gas Precedent and Conformance to Cost Causation Principles 49

a. Natural gas precedent: AGD, K N Energy, and UDC 50

b. Conformance to cost causation principles 54

3.FERC's Mobile-Sierra Findings 57

a. FERC's authority to make a generic public interest finding 59

b. FERC's stranded cost public interest finding 61

c. FERC's public interest finding regarding customers 62

4.Availability of Stranded Cost Recovery to Non-jurisdictional

Utilities and G & T Cooperatives 63

5.Challenges to Technical Aspects of Order 888's Stranded Cost Recovery Provisions 65

a. POSCR's challenges to the stranded cost formula 66

b. Inclusion of known and measurable costs 68

c. Treatment of energy costs in the market option 68

d. Rescission of notice of termination provision 70

e. Provision for benefits lost 71

B. Retail Stranded Costs 72 1.Stranded Costs Arising from Retail Wheeling 72

a. FERC's jurisdiction over retail stranded costs 73

b. FERC's refusal to assert jurisdiction over all retail stranded costs 76

2.Stranded Costs Relating to Retail-Turned-Wholesale Customers 80

VI. Credits for Customer-Owned Facilities and Behind-The-Meter Generation 85

VII. Liability, Interface Allocation, and Discounting 90

A. Liability and Indemnification 90

B. Interface Allocation 94

C. Delivery-Point-Specific Discounting 96

VIII. Tariff Terms and Conditions 100

A. Headroom Allocation 100

B. Headroom Prioritization 101

C. Duplicative Charges 102

D. Multiple Control Areas 103

E. Right-of-First-Refusal 104

X. National Environmental Policy Act and Regulatory Flexibility Act Compliance 105

A. NEPA Compliance 105

1.Adequacy of Base Case 105

2.Failure to Adopt Mitigation Measures 107

B. Regulatory Flexibility Act Compliance 108

Following two notices of proposed rulemaking, the Federal Energy Regulatory Commission issued Orders 888 and 889 on April 24, 1996.² Reflecting the Commission's effort to end

discriminatory and anticompetitive practices in the national electricity market and to ensure that electricity customers pay the lowest prices possible, these orders represent, as the Commission described in a later order not before us, "the foundation necessary to develop competitive bulk power markets...." Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 810, 812 (2000).

Open access is the essence of Orders 888 and 889. Under these orders, utilities must now provide access to their transmission lines to anyone purchasing or selling electricity in the interstate market on the same terms and conditions as they use their own lines. By requiring utilities to transmit competitors' electricity, open access transmission is expected to increase competition from alternative power suppliers, giving consumers the benefit of a competitive market. Most fundamentally, FERC's open access policies, combined with parallel action now occurring on the state level, are intended to create a market in which customers may purchase power from any of a number of suppliers. A municipality or factory in Florida, for example, will no longer have to purchase power from its local utility but instead may seek cheaper power anywhere in the country. A customer in Vermont may purchase electricity from an environmentally friendly power producer in California or a cogeneration facility in Oklahoma.

All key players in the electricity market have challenged various provisions of Orders 888 and 889. Their claims range from the hypertechnical to arguments that FERC lacks authority to order open access transmission at all. Finding few defects in the orders, we uphold them in nearly all respects.

I. Introduction

Historically, vertically integrated utilities owned generation, transmission, and distribution facilities. They sold generation, transmission, and distribution services as part of a "bundled" package. Due to technological limitations on the distance over which electricity could be transmitted, each utility served only customers in a limited geographic area. And because of their natural monopoly characteristics, utilities have been heavily regulated at both the federal and state levels.

Since enactment of the Federal Power Act in 1935, the electricity industry has undergone significant change, both economically and technologically. Economies of scale have justified the construction of large (greater than 500 MW) generation facilities, such as nuclear power plants. Technological advances in the 1970s and 1980s have permitted small plants to operate efficiently as well. See Notice of Proposed Rulemaking, Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, FERC Stats. & Regs. p 32,514 at 33,059-60, 60 Fed. Reg. 17,662 (1995) ("Open Access NOPR"). Technological improvements also made feasible the transmission...