Western Massachusetts Elec. Co. v. F.E.R.C.

Decision Date15 January 1999
Docket NumberNos. 92-1665,94-1290 and 97-1726,s. 92-1665
Citation165 F.3d 922
PartiesWESTERN MASSACHUSETTS ELECTRIC COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Pittsfield Generating Company, L.P., and Masspower, Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

David B. Raskin argued the cause for petitioner. With him on the briefs was Frederic Lee Klein.

Samuel Soopper, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Jay L. Witkin, Solicitor, and John H. Conway, Deputy Solicitor. Edward S. Geldermann, Attorney, entered an appearance.

Before: HENDERSON, RANDOLPH, and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge:

Western Massachusetts Electric Company--WMECO--petitions for review of six orders of the Federal Energy Regulatory Commission asserting jurisdiction over certain interconnection agreements and ordering the cost of grid upgrades associated with the interconnections to be rolled into WMECO's rate base rather than be borne exclusively by the interconnecting facilities. For the reasons that follow, we deny the petitions for review.

I The Altresco Agreements

Altresco-Pittsfield Limited Partnership 1 operates a 165 MW cogeneration plant located adjacent to a General Electric facility in Pittsfield, Massachusetts. In 1988, the Altresco plant was certified as a "qualifying facility" under the Public Utility Regulatory Policies Act of 1978 (PURPA). See 16 U.S.C. §§ 824a-3(j) and 796(17) & (18). Altresco's certification as a qualifying facility allows it to compel electric utilities to purchase the power it generates and to require interconnection with those purchasing utilities in order to facilitate such sales. See 18 C.F.R. § 292.303(a) & (c).

Beginning in 1989, Altresco entered into a series of contracts with WMECO under which Altresco would interconnect with WMECO's transmission grid. The purpose of the interconnection was to enable WMECO to transmit Altresco-generated power across its grid to the New England Power Company (NEPCO); WMECO would not itself purchase any of Altresco's output. The agreements set out the terms and conditions under which WMECO was to construct, operate, and maintain the interconnection. The interconnection itself was to be accomplished by means of a radial line from Altresco's generating facility to a point on WMECO's grid. According to studies performed by WMECO, the Altresco interconnection required certain lines and substations on the grid to be upgraded in order to preserve the grid's reliability. Altresco was to bear the $3.9 million 2 cost of the interconnection, including the cost of the upgrades to WMECO's grid.

Believing that the Altresco interconnection agreements would be subject to state rather than federal regulatory authority, WMECO filed the agreements with the Massachusetts Department of Public Utilities rather than with the Commission. In 1989 and 1990, WMECO negotiated transmission service agreements with NEPCO under which WMECO would wheel Altresco-generated power to NEPCO. These transmission agreements were filed with the Commission. The Commission responded on April 24, 1992, with an order setting the transmission rates for hearing and also asserting jurisdiction over the interconnection agreements themselves. See Western Massachusetts Elec. Co., 59 F.E.R.C. p 61,091, at 61,343 (1992).

WMECO requested a rehearing on the question of the Commission's jurisdiction over the interconnection agreements, arguing that PURPA gives state authorities jurisdiction over interconnections between utilities and qualifying facilities. It further argued that the agreements did not fall within the Commission's jurisdiction because they involved facilities rather than services, because they were all preoperational, and because they did not involve the interstate transmission of power.

In a November 1992 order, the Commission rejected WMECO's arguments and denied its request for rehearing on the question of jurisdiction. See Western Massachusetts Elec. Co., 61 F.E.R.C. p 61,182 (1992). The Commission relied on § 205(c) of the Federal Power Act, 16 U.S.C. § 824d(c), and on 18 C.F.R. § 292.303, the regulation setting out the obligation to interconnect. Section 205(c) provides for Commission jurisdiction over "all contracts which in any manner affect or relate to [transmission] rates, charges, classifications, and services, [which are subject to the jurisdiction of the Commission]." 16 U.S.C. § 824d(c). The agreements "relate to" transmission rates, the Commission held, because the purpose of the interconnection was to facilitate transmission of Altresco-generated power to NEPCO. Therefore the agreements fell within the Commission's jurisdiction under § 205(c).

The Commission also held that the regulation assigning jurisdiction over interconnections to state authorities did not apply in this case because WMECO had no obligation to interconnect under § 292.303. WMECO was providing only transmission service; it was not purchasing any of Altresco's output. As the Commission saw it, § 292.303 does not extend the obligation to interconnect "to utilities located between the buyer and the seller that provide transmission service." 61 F.E.R.C. at 61,662. When there is no obligation to interconnect, the regulation providing for state regulatory authority over interconnections, 18 C.F.R. § 292.306(a), does not apply. The Commission concluded, therefore, that these agreements were fully within its jurisdiction.

The Commission's orders of April and November 1992 asserting jurisdiction and denying rehearing are the subject of WMECO's December 1992 petition for review in this Court, No. 92-1665.

The Commission ordered an evidentiary hearing before an administrative law judge to determine the "justness and reasonableness" of assigning to Altresco all costs associated with the interconnection agreements. Western Massachusetts Elec. Co., 63 F.E.R.C. p 61,039, at 61,197 (1993). In the hearing, WMECO argued that the entire cost, including the cost of the grid upgrades, was directly related to the interconnection and therefore could properly be assigned to Altresco. The Commission staff countered that only the $510,000 cost of the radial line from Altresco's plant to the WMECO grid was assignable to the interconnection itself. The remaining amount, in the staff's view, should be allocated to system upgrades, upgrades that should be rolled into the rate base and recovered from all WMECO customers.

The ALJ ruled that the statute did not support the Commission's interpretation of what constitutes interconnection costs. See Western Massachusetts Elec. Co., 64 F.E.R.C. p 63,028, at 65,127 (1993). According to the ALJ, nothing in PURPA or in the Commission's regulations implementing PURPA limits interconnection costs to the cost of radial lines. Because the local grid upgrades were directly related to the interconnection, the ALJ concluded that it was just and reasonable for WMECO to assign to Altresco the entire cost incurred under the interconnection agreements, including the cost of the grid upgrades.

In a December 1996 order, the Commission reversed the ALJ's initial decision with regard to the cost of the grid upgrades. It agreed with the testimony of staff witness Tekumalla that the upgrades provided a system-wide benefit and concluded that, because "the cost of the reinforcements must be treated as grid-related costs rather than as interconnection costs," it was proper for WMECO to recover the cost of the upgrades from all customers on the grid through rolled-in rates. See Western Massachusetts Elec. Co., 77 F.E.R.C. p 61,268, at 62,120 (1996). The Commission denied a request for rehearing. See Western Massachusetts Elec. Co., 81 F.E.R.C. p 61,152, at 61,692 (1997). The orders reversing the ALJ and denying rehearing are the subject of WMECO's December 1997 petition for review, No. 97-1726.

The Masspower Agreements

Masspower owns a natural-gas-fired cogeneration plant in Springfield, Massachusetts. The plant is a qualifying facility under PURPA. In 1991, WMECO agreed to interconnect Masspower's plant with the WMECO transmission grid. The interconnection was intended to allow WMECO to purchase a portion of Masspower's output and to wheel the rest of it across its transmission grid to other purchasers. As with the Altresco agreements, the Masspower agreements included upgrades to the transmission grid and required the qualifying facility to bear all the costs associated with the interconnection, including the cost of the upgrades. Because, in the Altresco proceedings, the Commission had already asserted jurisdiction over agreements similarly involving the transmission of qualifying-facility energy to other producers, WMECO filed the Masspower agreements and proposed transmission rates with the Commission, rather than with the state regulatory authority.

In support of its cost assignment to Masspower, WMECO argued that the grid upgrades were necessitated by the interconnection and that they were actually less expensive than a radial line would have been. The agreements assigned all interconnection and grid reinforcement costs to Masspower, and the proposed transmission rates included additional charges for customers receiving Masspower energy. Such a plan, the Commission held, would result in the over-collection of costs, contrary to the Commission's transmission pricing guidelines. Accordingly, the Commission ordered WMECO to file revised charges assigning the costs of the interconnection--but not of the grid upgrades--to Masspower. The Commission denied WMECO's request for rehearing in February 1994. See Western Massachusetts Elec. Co., 66 F.E.R.C. p 61,167 (1994). The order to file revised charges and the order denying rehearing are the subject of WMECO's April 1994 ...

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