Wabash Valley Power Assoc. v. Fed. Energy Regulatory Comm'n

• Decision Date: 02 November 2001
• Docket Number: No. 00-1297,00-1297
• Citation: 268 F.3d 1105
• Parties: (D.C. Cir. 2001) Wabash Valley Power Association, Inc., Petitioner v. Federal Energy Regulatory Commission, Respondent American Electric Power Company, Inc., Intervenor
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1105

268 F.3d 1105 (D.C. Cir. 2001)

Wabash Valley Power Association, Inc., Petitioner v. Federal Energy Regulatory Commission, Respondent

American Electric Power Company, Inc., Intervenor

No. 00-1297

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 7, 2001

Decided November 2, 2001

[Copyrighted Material Omitted]

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

James T. Malysiak argued the cause for petitioner. With him on the briefs was Lee A. Freeman, Jr.

Andrew K. Soto, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Susan J. Court, Associate Solicitor.

J. A. Bouknight, Jr. argued the cause for intervenor. With him on the brief were Douglas G. Green and Samuel T. Perkins. Shannen W. Coffin entered an appearance.

Before: Ginsburg, Chief Judge, Edwards and Sentelle, Circuit Judges.

Opinion for the Court filed by Circuit Judge Edwards.

Harry T. Edwards, Circuit Judge:

American Electric Power Co., Inc. ("AEP") and Central and South West Corp. ("CSW"), two large regional utility holding companies, jointly petitioned the Federal Energy Regulatory Commission ("FERC" or "Commission") for merger approval, as required by § 203 of the Federal Power Act, 16 U.S.C. § 824b(a) (1994). When presented with a merger or acquisition request, FERC "shall approve" the request if the merger or acquisition "will be consistent with the public interest." Id. After lengthy review, FERC conditionally approved the AEP-CSW merger and required the combined company, referred to as New AEP, to divest certain generation assets and share transmission capacity information. See Am. Elec. Power Co. & Cent. & S. W. Corp., 90 F.E.R.C. p 61,242 (Mar. 15, 2000). Wabash Valley Power Association, Inc. ("Wabash"), an Indiana competitor and customer of AEP, petitions for review.

Wabash contends that FERC's decision was both procedurally and substantively defective. Many of Wabash's claims have been forfeited, however, because they were not properly raised with FERC in the first instance. Therefore, these claims may not be considered by the court. And we find no merit in the claims that are properly before this court.

Because AEP and CSW sought merger approval in the midst of sweeping regulatory changes in the electric industry, FERC chose to impose "interim" mitigation measures to limit New AEP's market power. Wabash contends that FERC's approach is improper under the Federal Power Act, because the interim measures are deficient. We disagree. On the record at hand, we find that FERC acted reasonably in adopting two stages of restrictions to limit New AEP's market power. Both stages of restrictions adequately limit New AEP's ability to strategically manipulate electricity generation to cause transmission bottlenecks. We also reject Wabash's claims that FERC's merger approval should be overturned because it is inconsistent with subsequent staff statements and because it did not fully eliminate rate pancaking. These claims have no bearing on the question of whether FERC's approval of the merger was arbitrary and capricious. We therefore deny Wabash's petition for review.

I. Background

AEP and CSW sought to merge in the midst of a seachange in the regulations governing the electricity industry. Because many of the issues raised by petitioner relate to the application of these new regulations, we begin with a brief summary of the current regulatory landscape and then move to the procedural history of this case.

A. Current Regulations

By amending portions of the Federal Power Act of 1935, the Energy Policy Act of 1992 authorized FERC to order utilities to transmit other sellers' power over their transmission lines on a case-by-case basis. See Pub. L. No. 102-486, 106 Stat. 2776, 2915-16 (1992) (codified at 16 U.S.C. §§ 824jk); Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000) (hereinafter Transmission Access) (discussing history), cert. granted sub nom. New York v. FERC, 121 S. Ct. 1185 (2001). Finding that utilities would use their market power to deny transmission access to competing generation sources FERC subsequently used its statutory authority, see 16 U.S.C. §§ 824d(b), 824e(a), to require utilities to provide open access to their transmission lines in a nondiscriminatory fashion. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996), clarified, 76 F.E.R.C. p 61,009 (July 2, 1996) and 61 Fed. Reg. 51,696 (Oct. 3, 1996), on reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (Mar. 14, 1997), clarified, 79 F.E.R.C. p 61,182 (May 16, 1997), on reh'g, Order No. 888-B, 62 Fed. Reg. 64,688 (Dec. 9, 1997), on reh'g, Order No. 888-C, 82 F.E.R.C. p 61,046 (Jan. 20, 1998), aff'd, Transmission Access, 225 F.3d 667, cert. granted sub nom. New York, 121 S. Ct. 1185. Order No. 888, among other things, set forth the framework for creating Independent System Operators ("ISOs"), independent companies that manage transmission facilities owned by utilities. 61 Fed. Reg. at 21,596. ISOs have no financial stake in any power market participant, have the ability to halt generation causing transmission system constraints, and must provide real-time transmission information to market participants. Id.

At the same time, FERC also issued Order No. 889 which required all owners and operators of electricity transmission systems to participate in an Open Access Same-time Information System, or OASIS. Open Access Same-Time Information System and Standards of Conduct, Order No. 889, 61 Fed. Reg. 21,737 (May 10, 1996), on reh'g, Order No. 889-A, 62 Fed. Reg. 12,484 (Mar. 14, 1997), on reh'g, Order No. 889B, 62 Fed. Reg. 64,715 (Dec. 9, 1997), aff'd, Transmission Access, 225 F.3d 667, cert. granted sub nom. New York, 121 S. Ct. 1185. One of the main functions of an OASIS is to calculate Available Transmission Capacity ("ATC"), the difference between a transmission system's total capacity and already-committed capacity. Order No. 889, 61 Fed. Reg. at 21,749. Because ATC often limits where electricity can be sold, this information allows generators to determine additional potential markets.

In 1999, FERC found that the changes brought by Orders Nos. 888 and 889 had imposed significant strain on "traditional means of grid management" and that "continued discrimination in the provision of transmission services by vertically integrated utilities may also be impeding fully competitive electricity markets." Regional Transmission Organizations; Notice of Proposed Rulemaking, 64 Fed. Reg. 31,390, at 31,391 (June 10, 1999). Although Orders Nos. 888 and 889 reduced overt discrimination, transmission-owning utilities resorted to "more subtle means to frustrate their marketing competitors and favor their own marketing interests." Id. at 31,402. As a consequence, the Orders were ineffective in completely removing transmission discrimination. Functional limitations arising from the relatively small size of the ISOs also limited their ability to provide essential information accurately, such as ATC: "it is not possible to calculate accurately the transmission capability of one system without knowing the flows scheduled by all other interconnected transmission providers in the region." Id. at 31,403.

In response to the shortcomings of Orders Nos. 888 and 889, FERC issued Order No. 2000, which established the framework for Regional Transmission Organizations, or RTOs. See Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 810 (Jan. 6, 2000), on reh'g, Order No. 2000-A, 65 Fed. Reg. 12,088 (Mar. 8, 2000), petitions for review pending sub nom. Public Utility District No. 1 of Snohomish County, Washington v. FERC, No. 00-1174 (D.C. Cir. argued Oct. 17, 2001). RTOs build upon many ISO features and have four main characteristics: independence, sufficient size and regional scope, operational authority for all transmission facilities under their control, and exclusive authority for maintaining short term grid reliability. 65 Fed. Reg. 810, at 842-75. FERC requires RTOs to be larger, more independent, and exercise more sophisticated control over the transmission system than ISOs. In 2001, FERC further clarified the scope requirements of RTOs, forcing several parties into mediation with an ultimate goal of creating four RTOs one for the Northeast, Southeast, Midwest, and West. See, e.g., Order Provisionally Granting RTO Status, 96 F.E.R.C. p 61,061 (July 12, 2001).

B. Procedural History

AEP and CSW jointly applied to FERC for merger approval on April 30, 1998. At that time, AEP, through whollyowned subsidiaries, provided power to three million customers in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia, and West Virginia with over 23,000 megawatts ("MW") of generating capacity and 22,000 miles of transmission lines. Am. Elec. Power Co., 90 F.E.R.C. p 61,242, at 61,776. CSW, also through wholly-owned subsidiaries, served 1.7 million customers in Arkansas, Louisiana, Oklahoma, and Texas with over 14,000 MW of generating capacity and 16,000 miles of transmission lines. See Joint Application of Am. Elec. Power Co., Inc. & Cent. & S. W. Corp. (Apr. 30, 1998), reprinted in Joint Appendix ("J.A.") 134, 165 (hereinafter "Joint Application").

To determine whether a proposed merger meets the Federal Power Act's § 203 public interest standard, FERC requires applicants to conduct a competitive analysis screen, referred to as an Appendix A analysis, using the framework established by the Department of Justice/Federal Trade Commission Merger Guidelines. See Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act; Policy Statement, 61 Fed. Reg. 68,595, at 68,606 (Dec. 30, 1996). The Appendix A analysis requires applicants to:

1) identify the relevant products;

2) identify customers who may be...