E. Tx. Electric Cooperative v. Fed. Energy Regulatory Comm'n, 99-1222

Decision Date25 July 2000
Docket NumberNo. 99-1222,99-1222
Citation218 F.3d 750
Parties(D.C. Cir. 2000) East Texas Electric Cooperative, Inc., et al.,Petitioners v. Federal Energy Regulatory Commission, Respondent Central Power and Light Company, et al., Intervenors
CourtU.S. Court of Appeals — District of Columbia Circuit

On Petition for Review of Orders of theFederal Energy Regulatory Commission

A. Hewitt Rose, III argued the cause for the petitioners.

David H. Coffman, Attorney, Federal Energy Regulatory Commission, argued the cause for the respondent. John H. Conway, Acting Solicitor, Federal Energy Regulatory Commission, was on brief. Jay L. Witkin, Solicitor, and Susan J. Court, Counsel, Federal Energy Regulatory Commission, entered appearances.

Clark Evans Downs argued the cause for the Intervenors. Martin V. Kirkwood was on brief.

Before: Edwards, Chief Judge, Henderson and Rogers, Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge:

Petitioners East Texas Electric Cooperative, Inc., Northeast Texas Electric Cooperative, Inc. and Tex-La Electric Cooperative of Texas, Inc. (collectively, Texas Electric) seek review of three orders of the Federal Energy Regulatory Commission (FERC, Commission) ultimately approving the open access transmission tariff the CSW Operating Companies (CSW)1 proposed for their provision of electric power to Texas Electric, inter alia. Texas Electric argues that the Commission, in its Tariff Order, Central Power & Light Co., 81 F.E.R.C. p 61,311 (1997), accepted certain rates included in CSW's proposed rates but rejected and ordered modification of another. CSW not only responded to the Commission's directive regarding modification of the specified rate, they also eliminated a different rate which, Texas Electric argues, had been accepted and was therefore not supposed to be eliminated. The Commission accepted CSW's compliance filing in relevant part in its Compliance Order, Central Power & Light Co., 85 F.E.R.C. p 61,224 (1998), including the alleged rate change resulting from the elimination of the rate earlier accepted. Finally, in its Rehearing Order, Central Power & Light Co., 87 F.E.R.C. p 61,073 (1999), the Commission rejected Texas Electric's arguments and concluded CSW had complied with the Tariff Order directives.

Texas Electric argues, citing 16 U.S.C. § 824d, that CSW failed to justify the rate change as the Federal Power Act (Act) requires and that the Commission's acceptance, without explanation, of CSW's compliance filing and its resulting approval of CSW's elimination of the previously accepted charge (thereby effecting a rate change) also failed to satisfy the Commission's duty under the Administrative Procedure Act, 5 U.S.C. § 706(2). Texas Electric further contends the new rates unduly discriminate against it (and other CSW customers) and that the Commission violated its duty under the Act, 16 U.S.C. § 824e, to assure that rates are not unduly discriminatory.

The Commission on the other hand claims it did not accept the proposed rates in the Tariff Order and that nothing therein prohibited CSW from eliminating the rate at issue. Rather, the Commission claims that its Tariff Order makes clear the decision was left to CSW's discretion. We defer to FERC's interpretation of its Tariff Order as not limiting CSW's revised transmission tariff. We conclude, however, that the Tariff Order did not sufficiently notify Texas Electric of CSW's discretion to modify the original proposal, particularly in light of the Tariff Order's language approving the rates at issue. Hence Texas Electric's failure to seek rehearing does not bar it from raising this issue before us. Moreover, the Commission failed to explain why the revised tariff was lawful, that is, just and reasonable. Given that the revision at issue could not fairly have been anticipated by Texas Electric, the Commission erred in summarily approving that part of the Compliance Tariff without explaining whether the new rates were just and reasonable; accordingly, we remand for FERC to make that determination.

I.

The CSW System operates in two power districts: the Southwest Power Pool (SPP) and the Electric Reliability Council of Texas (ERCOT). Of the four operating companies in the CSW System, two are entirely within SPP and the other two are entirely within ERCOT.2 CSW's facilities are interconnected, however, forming a single, integrated system.

In 1996 FERC addressed the rate systems of public utilities, like those comprising CSW, who are members of registered public utilities holding companies. In Order No. 888 (filed May 10, 1996), Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities, FERC Stats. & Regs. p 31,035, 61 Fed. Reg. 21,540 (1996), codified as revised at 18 C.F.R. Pts. 35 & 385 (1999),3 which resulted from a rule-making proceeding designed to remedy undue discrimination in the transmission of electric power, FERC required all such utilities to file a tariff permitting transmission service across the holding company's entire system at a single price. See Transmission Access Policy Study Group, 2000 WL 762706, at *3, *5 (D.C. Cir. June 30, 2000); see also Tariff Order, 81 F.E.R.C. at 62,430 (discussing Order No. 888). Thus, individual member utilities within a holding company could no longer charge separate, "pancaked" rates4 for what is a single transmission over the holding company's system. Id. at 62,432.Instead, the utilities must provide the transmission under a single rate, resulting in a de facto reduction of the overall charge. FERC addressed the CSW System specifically, directing the utilities therein to file "a system tariff that will provide comparable service to all wholesale users on the CSW System, regardless of whether they take transmission service wholly within ERCOT or the SPP, or take transmission service between the reliability councils over the North and East Interconnections." Order No. 888, 61 Fed. Reg. at 21,595. Furthermore, FERC noted that "[i]t may be appropriate to have different rates for transmission service wholly within ERCOT or the SPP, and for service between [them]."Id. at 21,595 n.422.

CSW filed a proposed transmission tariff that provided separate rates for wholly intra-ERCOT service and wholly intra-SPP service but did not provide a single CSW System wide rate for transmissions through both ERCOT and SPP.Thus, customers requiring service traversing the SPP ERCOT boundary would pay pancaked rates. In its Tariff Order the Commission analyzed CSW's separate rates for the two service areas (ERCOT and SPP) and determined that the rate structures were reasonable.

Assessing different rates for service in the different regions is reasonable.... [I]t is appropriate to allow CSW to adopt the Texas Commission's regional network pricing structure for services wholly in ERCOT. As acorollary, it is also reasonable for CSW to assess a single postage stamp rate for service wholly within SPP.

Tariff Order, 81 F.E.R.C. at 62,432-33. The Commission, however, then rejected the pancaked rates for service traversing both areas. See id. at 62,433. It "require[d] CSW to revise its tariff to propose a single rate for use of the entire CSW system" and added that, "[w]hile CSW may continue to propose multiple charges, their total sum may not exceed CSW's average system cost." Id. In closing the Commission further described its action:

The Commission orders:

(A) CSW is hereby directed to make the changes discussed in the body of this order within 30 days of the date of this order.

(B) The proposed CSW Tariff is hereby accepted for filing, as modified as directed in Ordering Paragraph (A)above, effective January 1, 1997....

Id. at 62,440.

CSW filed a Compliance Tariff proposing a single four company, system-wide rate applicable both to customers served by transmissions through ERCOT and SPP and to customers accessing only SPP service.5 The tariff also set a rate applicable to customers using only ERCOT but eliminated the comparable rate for "SPP-only" customers it had originally proposed. Texas Electric protested the Compliance Tariff's elimination of the intra-SPP rate. It argued that the Tariff Order had approved the intra-SPP rate and, therefore, CSW must justify elimination of the rate as the Act requires. In addition, Texas Electric argued that the intraSPP rate was necessary to prevent undue discrimination in light of the intra-ERCOT rate which remained in effect and was less expensive than the system-wide rate to which SPP-only customers had become subject. In the Compliance Order the Commission focused on whether CSW had complied with the Tariff Order. The Commission found that it had: "In the [Tariff Order], we directed [CSW] to submit a single, system-wide rate, and they have done so." Compliance Order, 85 F.E.R.C. at 61,924. Accordingly, the Commission approved elimination of the intra-SPP rate.

Texas Electric requested rehearing challenging FERC's approval of the elimination of the intra-SPP rate in the Compliance Tariff. It argued that elimination of the rate was not consistent with the Tariff Order and lacked adequate justification by CSW and adequate consideration by the Commission. In the Rehearing Order, the Commission again rejected Texas Electric's challenges because it found CSW had complied with its directive in the Tariff Order (that is, to propose a single rate for use of the entire CSW system) when it eliminated the intra-SPP rate in favor of a single-system rate. See Rehearing Order, 87 F.E.R.C. at 61,300. The Commission added that, if Texas Electric wished to challenge the directive, it could have done so on rehearing of the Tariff Order but not on rehearing of the Compliance Order. See id.

II.

"As a general matter, we will uphold FERC's factual findings if supported by substantial evidence and will endorse its orders so...

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