Esi Energy, LLC v. Fed. Energy Regulatory Comm'n
Opinion
For a second time, we consider the ramifications of a utility filing more than one rate with the Federal Energy Regulatory Commission ("FERC" or the "Commission") during the time in which the utility negotiates an agreement with a prospective customer.
See
W. Deptford Energy, LLC v. FERC
,
Upon review, we uphold FERC's determination that the governing rate is the rate in effect at the time the agreement was completed. Because we find that FERC properly considered the Court's findings on remand, adequately explained its decision, and properly considered the evidence, FERC did not act arbitrarily and capriciously in interpreting the new rate. We therefore deny the Petition for Review.
I.
The Federal Power Act, 16 U.S.C. §§ 791a
et seq.
, charges the Commission with regulating "the transmission of electric energy" and "the sale of electric energy at wholesale" in interstate commerce,
To that end, the Act requires every public utility to "file with the Commission" and "keep open in convenient form and
*324
place for public inspection schedules showing all rates and charges for any transmission or sale subject to the jurisdiction of the Commission." 16 U.S.C. § 824d(c). That obligation applies whether the rates and charges are set "unilaterally by tariff" or agreed upon in individual contracts between sellers and buyers.
NRG Power Mktg.
,
The Federal Power Act's express mandate of openness, transparency, and consistency in rates prevents discrimination, promotes fair and equal access to the utilities' services, ensures the stability and predictability of rates, and reinforces the Commission's jurisdictional authority.
See
Maislin Indus., U.S., Inc. v. Primary Steel, Inc.
,
To foster competition in the wholesale energy market, the Commission drastically overhauled the regulatory scheme for public utilities in 1996. As part of that effort, the Commission ordered regulated utilities to separate financially their wholesale power-generation and power-transmission services.
See
Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities
, Order No. 888,
Problems soon arose, however, because every time a new generator of electricity asked to use a transmission network owned by another-to interconnect the two entities-disputes between the generator and the owner of the transmission grid would arise, delaying completion of the interconnection process.
See
Standardization of Generator Interconnection Agreements and Procedures
, Order No. 2003,
To address those issues, the Commission in 2003 issued Order No. 2003, 104 FERC at PP. 11-12. That order replaced the Commission's case-by-case approach with a standardized process. The Order requires all regulated utilities that "own, control, or operate" transmission facilities to include standardized interconnection procedures and a form interconnection agreement in their filed tariffs.
II.
A.
PJM Interconnection, LLC ("PJM"), is a regional transmission organization, an
*325
independent entity that operates transmission facilities in thirteen states and the District of Columbia.
See
FPL Energy Marcus Hook, L.P. v. FERC
,
The submission of an interconnection request triggers a review by the utility and holds the requestor's place in the interconnection queue until it concludes. During this process, PJM conducts a series of studies to determine the impact of a generator interconnection request on the PJM transmission system, including the need for upgrades or additions to those transmission facilities,
W. Deptford
,
While a new service request might be what prompts a network upgrade, the "integrated transmission grid is a cohesive network,"
Entergy Servs., Inc.
,
In 1998, three generators submitted interconnection requests to PJM for the following projects: the Mantua Creek Project, the Liberty Electric Project, and the Marcus Hook Project. Order Denying Rehearing,
PJM Interconnection, LLC
,
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As the Upgrade neared completion, Mantua Creek unexpectedly cancelled its project and withdrew from the queue.
See
2012 Order at P. 3. That decrease in the demand for power made the Upgrade unnecessary to support Marcus Hook's and Liberty Electric's projects. But PJM determined that completion of the almost-final Upgrade was the "least costly alternative," and thus "trudged forward and completed the upgrade."
Marcus Hook
,
Marcus Hook felt differently about being required to continue financing the Upgrade and filed a complaint with the Commission seeking a refund.
Marcus Hook
,
The next year, West Deptford submitted an interconnection request to PJM. 2012 Order at P. 4. Under Section 37.7 of the PJM Tariff that was in effect on the date that West Deptford submitted its request (July 31, 2006), PJM could seek reimbursement for a previously constructed network upgrade from a new applicant for interconnection like West Deptford if the new proposed project (i) used the added capacity created by the upgrade or would have required the upgrade itself, (ii) the cost of the upgrade was at least $10 million, and (iii) the upgrade was "placed in service no more than five years prior to the affected Interconnection Customer's Interconnection Queue Closing Date."
W. Deptford
,
Based on Section 37.7, PJM's first study of West Deptford's project proposed imposing financial responsibility for the Upgrade on West Deptford.
See
2012 Order at PP. 5, 9 ; PJM Feasibility Study 8 (Nov. 2006). West Deptford did not dispute that, if the 2006 Tariff controls its interconnection agreement, it must reimburse Marcus Hook and Liberty Electric for the costs of the Upgrade. Order Accepting Interconnection Service Agreements,
PJM Interconnection, LLC
,
Eighteen months later, while West Deptford's interconnection request was still pending, PJM filed several proposed amendments to its tariff. 2012 Order at P. 11 ;
see also
Dominion
,
Proceedings commenced before the Commission challenging aspects of the 2008 tariff, but West Deptford was not a party. In those proceedings, PJM received an inquiry asking whether the new cost-allocation provisions would "apply only to projects that enter the interconnection queue on or after the proposed effective date of August 1, 2008 or whether they will apply also to projects that have entered the queue before that date." Request for Clarification of American Municipal Power-Ohio, Inc. at 1,
Dominion Res. Servs., Inc. v. PJM Interconnection, LLC
, Docket No. EL08-36-001 (FERC June 20, 2008). PJM responded that one revised provision of the tariff not at issue here "will become effective on August 1, 2008, and will be initially applied to the U2-Queue (this queue will close on July 31, 2008)." Answer of PJM Interconnection, LLC to Request for Clarification of American Municipal Power-Ohio, Inc. at 4,
Dominion Res. Servs., Inc. v. PJM Interconnection, LLC
, Docket No. EL08-36-001 (FERC July 7, 2008). With respect to Section 219(a), the provision at issue here, PJM separately stated that "[t]hese modifications are intended to be effective as of August 1, 2008, and will be initially applied to the U2-Queue."
On August 19, 2008, the Commission accepted PJM's revised tariff, but referenced only PJM's clarification of the effective date for the provision not relevant here, stating that Section 217.3a "will be applied to the U2-Queue effective August 1, 2008." FERC Letter Order at 1,
Dominion Res. Servs., Inc. v. PJM Interconnection, LLC
, Docket No. EL08-36-001 (FERC Aug. 19, 2008). The Commission did not mention PJM's clarification of the effective date for the provision at issue in this case, Section 219(a).
See
Over the next three years, PJM conducted additional studies of West Deptford's interconnection request. In these studies, PJM expressed its intention to charge West Deptford the full $10 million for the Upgrade, as had been permitted by the superseded tariff. PJM System Impact Study Report 4-5 (Sept. 2010); PJM Facilities Study Report 4, 10 (Apr. 2011). West Deptford claimed, and no one disputed, that it repeatedly objected to this attempted cost allocation.
B.
In 2011, PJM provided West Deptford a draft interconnection service agreement that imposed the full cost of the Upgrade on West Deptford. Mot. to Intervene & Protest of West Deptford Energy, LLC 9,
PJM Interconnection, LLC
, Docket No. ER11-4073-000 (FERC Aug. 8, 2011) ("West Deptford Protest"). West Deptford objected,
The Commission rejected West Deptford's protest. Acknowledging that West Deptford could not be liable for the Upgrade under the on-file tariff, the Commission nonetheless concluded that the cost-allocation provisions of the superseded tariff should govern "since, at the time when West Deptford entered the PJM interconnection queue, that provision was the one that established its financial responsibility." 2011 Order at P. 35. According to the
*328
Commission, that fact put West Deptford "on notice of the costs to which it potentially would be liable."
West Deptford requested rehearing, which the Commission denied. The Commission said that PJM could enforce the superseded tariff's cost-allocation rule because, during the tariff-revision proceedings to which West Deptford was not a party, PJM had clarified that the new tariff's cost-allocation provision (Section 219) would only apply starting with projects in the "U2-Queue," which closed in the Summer of 2008. 2012 Order at P. 31. The Commission also reasoned that each of PJM's interconnection studies had provided West Deptford notice of PJM's intent to enforce the superseded tariff's cost-allocation provision.
West Deptford timely petitioned for review, and PJM and Marcus Hook intervened. On review, this Court vacated the Commission's orders in part and remanded the case because the Commission "provided no reasoned explanation for how its decision comport[ed] with statutory direction, prior agency practice, or the purposes of the filed rate doctrine."
W. Deptford
,
On remand, FERC reversed its prior position and concluded that Section 219-the tariff provision in effect at the time the interconnection agreement was filed-applied to PJM's assessment of costs to West Deptford because none of the evidence gave West Deptford sufficient notice that the old tariff would govern its interconnection agreement. Order on Remand,
The Commission also determined that Section 219 was ambiguous as to what action needed to be taken within the prescribed five-year window in order to trigger cost responsibility, but concluded that the most reasonable interpretation was that the appropriate "end-date" was the date on which West Deptford signed its interconnection agreement.
Marcus Hook 1 now contends that on remand the Commission acted arbitrarily and capriciously and did not engage in reasoned decisionmaking insofar as the Commission (1) determined that West Deptford's responsibility to pay for the network upgrades was to be determined in accordance with PJM Tariff Section 219 rather than Section 37.7 and (2) adopted an interpretation of Section 219 that conflicts with FERC precedent, the evidence on which FERC relied, and the policies underlying the judicially recognized exceptions to the filed rate doctrine.
*329 III.
The Court reviews Commission orders under the arbitrary-and-capricious standard, and we will uphold the Commission's factual findings if they are supported by substantial evidence.
See
A.
On remand, the Commission held that West Deptford's responsibility to pay for the network upgrades was to be determined in accordance with PJM Tariff Section 219 rather than Section 37.7. To sustain that determination, the Commission was obligated to provide a reasoned explanation of how applying Section 219 comported with the text of the Federal Power Act and prior Commission precedent. Unlike its prior decision, the Commission's decision on remand did both.
First, FERC reasonably relied on our decision in
West Deptford
to conclude, contrary to its prior finding, that it was "not sufficiently clear ... that the projects in earlier queues would continue to be governed by section 37.7." Order on Remand at P. 15. In its initial decision, the Commission found that Section 219 was plainly prospective based on PJM's Transmittal Letter and PJM's answer in
Dominion
, and thus that Section 37.7 governed West Deptford's interconnection agreement.
See generally
2011 Order ; 2012 Order. In
West Deptford
, we concluded that both the letter and PJM's answer in
Dominion
were ambiguous.
In light of this ambiguity and "an unbroken Commission practice of holding that interconnection agreements filed after the designated effective date of an amended tariff are governed by the amended tariff,
*330
unless the amended tariff has a grandfathering provision,"
While Marcus Hook does not contest the Commission's understanding of its own precedent, Marcus Hook maintains that the Commission erred by failing to consider extrinsic evidence and Marcus Hook's additional arguments on remand. As to the first, Marcus Hook contends that the extrinsic evidence "incontestably shows that Section 219 was not to be applied to West Deptford," and yet, FERC ignored such evidence improperly in reliance on our decision in
West Deptford
. Pet'r's Br. 31-33. However, the Commission's interpretation of our decision was correct. In
West Deptford
, we rejected reliance on the evidence Marcus Hook cites-PJM's Transmittal Letter, PJM's answer in
Dominion
, and the West Deptford Facilities Study Agreement. With respect to the letter and PJM's answer, as previously discussed, FERC found, based on our prior decision, that neither provided any clarity regarding Section 219's applicability. Similarly, we rejected the argument that the facilities studies agreements supported Marcus Hook's position.
W. Deptford
,
As to the latter, Marcus Hook contends that the Commission refused to consider additional arguments it raised on remand, and therefore, the decision is arbitrary and capricious. We disagree. The first objection Marcus Hook claims that FERC ignored was that West Deptford's parent company, LS Power Associates, was a party to the Dominion proceeding-the 2008 proceeding in which the new tariff replaced the old tariff-and therefore notice provided in that proceeding could be imputed to West Deptford. This objection is waived, however, because Marcus Hook did not raise it on rehearing and has provided no reasonable ground for its failure to do so. 16 U.S.C. § 825 l (b) ("No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is a reasonable ground for failure to do so."). We find that the remaining objections Marcus Hook claims were ignored, including arguments Marcus Hook repeats with respect to the facilities study agreements, were directly and adequately addressed by the Commission.
Accordingly, we conclude that the Commission reasonably determined that Section 219 should govern West Deptford's interconnection agreement.
B.
We next address Marcus Hook's argument that even if the costs associated with Network Upgrade 28 are governed by
*331
Section 219 of the tariff, the Commission erred in determining that the execution date of West Deptford's interconnection agreement was the relevant event for assigning cost responsibility under the tariff. Pet'r's Br. 40-41. As previously discussed, we give substantial deference to the Commission's interpretation of filed tariffs unless the language is unambiguous.
Old Dominion
,
PJM Tariff § 219 provides as follows:
Cost responsibility under this Section 219 may be assigned with respect to any facility or upgrade:
(a) the completed cost of which was $5,000,000 or more, for a period of time not to exceed five years from the execution date of the Interconnection Service Agreement for the project that initially necessitated the requirement for the Local Upgrade or Network Upgrade.
Both parties agree that the tariff is silent with respect to the relevant event for determining cost responsibility under Section 219. Pet'r's Br. 40; Resp't's Br. 31 (citing Rehearing Order at P. 22 );
see also
Order on Remand at P. 22. Accordingly, we will defer to the Commission's construction so long as that construction is reasonable.
Williams Nat. Gas Co. v. FERC
,
Here, the Commission concluded that the proper date for determining cost responsibility is the date on which the interconnection agreement is executed. Order on Remand at P. 22 ; Rehearing Order at P. 22. In its Order on Remand, the Commission supported this interpretation by pointing out that "the tariff identifies the assignment of cost responsibility ... as the operative date, and that responsibility is not determined until the interconnection agreement is executed." Order on Remand at P. 22. Additionally, FERC explained that this reading was "consistent with the court's determination that the interconnection agreement defines the tariff provisions applicable to the Marcus Hook interconnection."
Marcus Hook contends that none of the Commission's justifications withstand scrutiny, and that the dispositive date should be either the date West Deptford submitted its interconnection request (July 31, 2006) or when PJM determined that Network Upgrade 28 was required for West Deptford's generation project to be interconnected (November 2006). Pet'r's Br. 41, 45. Although Marcus Hook's suggested interpretation is a possible reading of the tariff provision, it is no more reasonable than the one the Commission put forward. Accordingly, we find that the Commission did not err in its interpretation of Section 219 of the revised tariff.
For the foregoing reasons, we deny the Petition for Review.
The Court previously granted ESI Energy's motion to substitute itself for FPL Energy Marcus Hook, L.P. Doc. No. 1651533. However, to maintain consistency with the earlier proceedings and the parties' briefing, this opinion refers to Petitioner as "Marcus Hook" instead of ESI Energy.
Reference
- Full Case Name
- ESI ENERGY, LLC, Petitioner v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent PJM Interconnection, L.L.C. and West Deptford Energy, LLC, Intervenors
- Cited By
- 9 cases
- Status
- Published