Transmission Agency of Northern Cal. v. F.E.R.C.

• Decision Date: 10 December 2010
• Docket Number: Nos. 09-1216,Nos. 09-1213,Nos. 09-1247,Nos. 09-1246,Nos. 09-1217,Nos. 09-1245,s. 09-1213,s. 09-1216,s. 09-1217,s. 09-1245,s. 09-1246,s. 09-1247
• Parties: TRANSMISSION AGENCY OF NORTHERN CALIFORNIA, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent City of Redding, California, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

628 F.3d 538

393 U.S.App.D.C. 310

TRANSMISSION AGENCY OF NORTHERN CALIFORNIA, Petitioner

v. FEDERAL ENERGY REGULATORY COMMISSION, RespondentCity of Redding, California, et al., Intervenors.

Nos. 09-1213, 09-1216, 09-1217, 09-1245, 09-1246, 09-1247.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 21, 2010.

Decided Dec. 10, 2010.

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

Michael Postar and Harvey L. Reiter argued the cause for petitioners. With them on the briefs were Bhaveeta K. Mody, Jon R. Stickman, Abigail Briggerman, Sean M. Neal, John McCaffrey, Peter J. Scanlon, and Jason T. Gray. Lisa S. Gast, Matthew R. Rudolphi, and Marie D. Zosa entered appearances.

Joseph B. Nelson, Deborah A. Swanstrom, and Lodie D. White were on the briefs for intervenors Imperial Irrigation District and City of Los Angeles Department of Water and Power in support of petitioners.

Samuel Soopper, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Thomas R. Sheets, General Counsel, and Robert H. Solomon, Solicitor.

Daniel J. Shonkwiler argued the cause for intervenors California Independent System Operator Corporation and Southern California Edison Company in support of respondent. With him on the brief were Nancy J. Saracino, Roger E. Collanton, Jennifer R. Hasbrouck, Erin K. Moore, and Mark R. Huffman. Erin K. Moore and Mark D. Patrizio entered appearances.

Before: GINSBURG, HENDERSON and ROGERS, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Various municipalities ¹ petition for review of two Federal Energy RegulatoryCommission orders conditionally approving the California Independent System Operator ("CAISO")'s proposal to create an Integrated Balancing Authority Area ("IBAA") by combining the Sacramento Municipal Utility District ("SMUD") and the Turlock Irrigation District ("Turlock") for the purpose of pricing transactions. We deny the petitions for review.

I.

The court has recently summarized much of the pertinent background in Sacramento Municipal Utility District v. FERC, 616 F.3d 520, 523-24 (D.C.Cir.2010), a related case. Following the Commission's promulgation of Order No. 888, which called for nationwide deregulation of electricity transmission and encouraged public utilities to participate in regional transmission organizations and independent system operators, the California legislature in 1996 created the CAISO to operate transmission and other ancillary services on parts of the California electric power system. In response to the 2000 California energy crisis, the CAISO, at the Commission's behest, began redesigning the California electricity market to foster greater reliability and economic efficiency on its system.² In 2008, the CAISO filed proposed revisions to its existing tariff and the Market Redesign and Technology Upgrade Tariff, which it described as "a comprehensive redesign of the California electricity markets ... aimed at enhancing reliability and increasing the efficient utilization of the CAISO Controlled Grid." CAISO, Amendments to MRTU Tariff Provisions, at 1, Docket No. ER08-1113-000 (June 17, 2008) ("IBAA Proposal"). The amended tariff would: (1) implement locational marginal pricing ³; (2) implement a full network model of the transmission system to improve dispatch efficiency; (3) include day-ahead and real-time energy markets; and (4) ensure that day-ahead schedules are physically feasible. The Commission has approved the market redesign in a series of orders, two of which concern the CAISO's IBAA Proposal and are challenged here. Order Conditionally Accepting Tariff Changes and Directing Compliance Filing, 124 FERC ¶ 61,271 (Sept. 19, 2008) (" Order "); Order on Rehearing and Clarification, 128 FERC ¶ 61,103 (July 30, 2009) (" Rehearing Order ").

According to the CAISO, the "most important objective" of its proposal was to "protect CAISO ratepayers from unjust and unreasonable prices that may result inthe absence of the CAISO having accurate information ... to verify the location of external resources." IBAA Proposal at 2. The CAISO's inability to verify the location of external resources stemmed from California's and the Pacific Northwest's electricity transmission infrastructure. The California-Oregon Intertie, which delivers electricity from the Pacific Northwest to central California, is comprised of three 500 kilovolt power lines that run parallel to each other. The first line, the California-Oregon Transmission Project ("COTP"), runs from the Captain Jack substation in Oregon to the Tesla substation in central California, ending at the Olinda substation. TANC is a participant in, and the project manager of, the COTP. The COTP is generally located within the SMUD balancing authority area and is not part of the CAISO-controlled grid. The remaining two lines, known collectively as the Pacific AC Intertie ("PACI") and at times referred to individually as "PACI-P" and "PACI-W," run from the Malin substation in Oregon to the Tracy substation in central California, ending at the Round Mountain substation. The PACI is physically located within the geographic area of the CAISO-controlled grid, although the CAISO is not an owner of the PACI. The Captain Jack substation and the Malin substation are electrically connected; likewise the Tesla substation and the Tracy substation are electrically connected. The basic structure of the California-Oregon Intertie looks like this:

Image 1 (4.11" X 1.86") Available for Offline Print

The IBAA Proposal focuses on SMUD and Turlock, two independent but interconnected "balancing authority areas," see Sacramento Mun., 616 F.3d at 524 n. 2, that draw power from the Pacific Northwest over the California-Oregon Intertie when purchasing this power is cheaper than generating it locally. Together they have twelve interconnections with the CAISO-controlled grid. The CAISO was concerned that it would be unable to model power flows and calculate locational marginal prices accurately for these entities due to "parallel flows," also known as "unscheduled flows." Although a "scheduled" or "contract" flow is planned between two points over a specific path, the power does not always flow over the scheduled route if there are other paths; it flows over the path of least resistance, creating a parallel flow. In some instances, as in the California-Oregon Intertie, the presence of parallel lines means that when a scheduled flow occurs there will necessarily be an unscheduled flow over parallel lines.

The CAISO's proposed solution in the IBAA Proposal was two-fold. It first combined SMUD and Turlock into a single IBAA for purposes of the full network model. And, second, to rectify concerns regarding market manipulation and to model the IBAA connection points more accurately, the IBAA Proposal used a "singlehub" approach whereby one default proxy price would be selected for all twelve connection points: All imports into the CAISO system from the IBAA would be priced as if they originated at the Captain Jack substation in Oregon; all exports from the CAISO system to the IBAA would be priced at a hypothetical "SMUD hub." Alternatively, SMUD and Turlock or future IBAA entities could enter into individual market efficiency enhancement agreements ("MEEAs") with the CAISO to receive a more accurate pricing structure upon providing the CAISO with information allowing it to verify the location and operation of the resources used to carry out interchange transactions between the CAISO-controlled grid and the IBAA.

The CAISO explained that the elements of its single hub, default pricing point proposal were justified by and "result[ed] directly from the limited type and amount of information the CAISO expects to receive from the IBAA [e]ntities." IBAA Proposal at 5. The Commission agreed, concluding that "by using a more accurate representation of the locations of external resources used to implement interchange transactions in the CAISO's full network model the IBAA [P]roposal will help to ensure that interchange transactions from the SMUD and Turlock balancing authority areas are appropriately valued for purposes of managing congestion on the CAISO-controlled grid, and reduce the likelihood of significant differences between scheduled flows and actual flows." Order ¶ 5. Accordingly, the Commission found the CAISO tariff, as amended by the IBAA Proposal, was "just and reasonable" under the Federal Power Act ("FPA"), 16 U.S.C. § 824d, but conditioned its approval on the modification of the IBAA Proposal in several ways, including that the CAISO address potential over-collection for charges based upon losses of energy during transmission due to the modeling of parallel flows, specify in its tariff the information to be provided for establishing MEEAs, and treat such information as confidential. See Order ¶¶ 6 & n.6, 8. The CAISO satisfied the conditions in additional filings and the Commission denied rehearing, rejecting various challenges, some of which are renewed in the pending petitions. See Rehearing Order ¶ 1.

II.

Petitioners challenge the Commission's jurisdiction to review and approve a tariff amendment governing the pricing of electricity in the CAISO market, and also contend that the Commission's acceptance of the IBAA Proposal amending the CAISO tariff was neither a reasonable exercise of its discretion under the FPA nor supported by substantial evidence of record.

The court "review[s] [the Commission's] orders under the arbitrary and capricious standard and uphold[s] [the Commission's] factual findings if supported by substantial evidence." Am. Gas Ass'n v. FERC, 593 F.3d 14, 19 (D.C.Cir.2010) (citation and quotation marks omitted). The court must affirm the Commission's orders "so long as [the Commission] examine[d] the relevant data and articulate[d] a ... rational connection between the facts found and the choice made. In...