Entergy Arkansas, LLC v. FERC ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 8, 2021 Decided July 15, 2022
No. 20-1262
ENTERGY ARKANSAS, LLC, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MISSISSIPPI PUBLIC SERVICE COMMISSION, ET AL.,
INTERVENORS
Consolidated with 20-1391
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Jennifer S. Amerkhail argued the cause and filed the briefs
for petitioners. Zachary C. Schauf entered an appearance.
Carol J. Banta, Attorney, Federal Energy Regulatory
Commission, argued the cause for
2
respondent. With her on the brief were Matthew R.
Christiansen, General Counsel, and Robert H. Solomon,
Solicitor.
Before: ROGERS and WILKINS, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge. The instant petition arises from a
three-year effort to establish a cost allocation method for
allocating Midcontinent Independent System Operator, Inc.’s
(“MISO”) share of costs for interregional transmission projects
connecting a region operated by MISO and an adjacent region
operated by PJM Interconnection, L.L.C. (“PJM”). In 2016,
the Federal Energy Regulatory Commission (“FERC” or
“Commission”) required MISO to institute reforms to its
interregional planning process and directed MISO to propose a
cost allocation method for its share of certain interregional
project costs. Since that time, MISO has twice submitted
proposals for such cost allocation. Both times, FERC rejected
the proposals, finding that they were not just and reasonable as
required by the Federal Power Act (the “Act”), 16 U.S.C. §§
791 et seq., because they were inconsistent with the cost
causation principle. After the second rejection, FERC, on its
own initiative, established a cost allocation method for certain
MISO-PJM projects. In this consolidated action, Petitioners
challenge FERC’s rejection of MISO’s second proposal and
FERC’s corresponding implementation of a cost allocation
method. For the reasons below, we deny the petitions and
affirm FERC’s orders in all respects.
3
I.
Section 201 of the Act gives FERC jurisdiction over
facilities that engage in transmission and sale of electricity at
wholesale in interstate commerce. 16 U.S.C. § 824(b)(1).
Under the Act, FERC has the power to review rates in
connection with transmission services or sales to ensure that
such rates are “just and reasonable” and to set aside as
“unlawful” any rate or charge it deems not just and reasonable.
16 U.S.C. § 824d(a). Additionally, pursuant to Section 206, if
FERC finds a rate or charge to be “unjust, unreasonable, unduly
discriminatory or preferential,” FERC “shall determine the just
and reasonable rate . . . to be thereafter observed and in force,
and shall fix the same by order.” 16 U.S.C. § 824e(a).
In assessing whether a rate is “just and reasonable,” FERC
and the courts determine, among other things, whether the rate
comports with the “cost-causation principle” which requires
that the rates charged for electricity reflect the costs of
providing it. See Old Dominion Elec. Coop. v. FERC, 898 F.3d
1254, 1255 (D.C. Cir. 2018) (hereinafter “Old Dominion”).
“We often frame this principle as one that ensures burden is
matched with benefit, so that FERC generally may not single
out a party for the full cost of a project, or even most of it, when
the benefits of the project are diffuse.” Id. (internal quotation
marks and citations omitted).
Under a FERC regulation, known as “Order No. 1000,”
see Transmission Planning and Cost Allocation by
Transmission Owning and Operating Public Utilities, 136
FERC ¶ 61,051 (2011), electric utilities are subject to two
relevant requirements:
First, utilities in each planning region must
jointly produce a regional transmission plan to
4
determine what new facilities would best meet
regional needs for electricity. Second, in their
respective tariffs, utilities must include a
formula for allocating the costs of new
transmission facilities selected in the regional
transmission plan for purposes of cost
allocation. This formula must satisfy six general
principles, the first of which is the cost-
causation principle: The cost of transmission
facilities must be allocated to those within the
transmission planning region that benefit from
those facilities in a manner that is at least
roughly commensurate with estimated benefits.
Order No. 1000 requires each utility to show,
through compliance filings, that its cost-
allocation formula is consistent with the six
specified principles.
Old Dominion, 898 F.3d at 1256 (internal quotation marks and
citations omitted).
In accordance with Order No. 1000, MISO and PJM
jointly planned—and subsequently approved as part of their
respective regional transmission plans—interregional projects
that connected and benefited both regions. Once interregional
projects were identified, MISO and PJM allocated the costs of
such projects between their regions. Each region then allocated
its share of costs from the interregional project to subdivided
zones within their own respective regions. This case involves
the cost allocation method for MISO’s share of a MISO-PJM
interregional transmission project.
Under MISO’s original regional transmission plan, MISO
established different project categories, each with different
qualifying criteria and cost allocations. MISO’s share of an
5
interregional project’s costs is then assigned according to the
allocation method that corresponds with the MISO project
type, of which there were historically three. 1 The most relevant
category to this appeal is the “Market Efficiency Project”—a
higher-voltage transmission project that reduces congestion
and lowers the costs of power in the region. Originally, to
qualify as a Market Efficiency Project, a transmission project
was required to (1) cost at least $5 million, (2) consist of
facilities that have voltages of 345 kilovolts (kV) or higher, and
(3) have a total regional benefit-to-cost ratio of at least 1.25-to-
1, with benefits measured using an Adjusted Production Cost
Savings metric (“Production Cost Metric”). J.A. 355. The
Production Cost Metric measures the extent to which a new
transmission project will make electricity cheaper by
measuring the total reduction in costs resulting from the new
project. See Midwest Independent Transmission System
Operator, Inc., 118 FERC ¶ 61,209, ¶ 5 n.6 (2007). Under the
original plan, once a project was deemed a Market Efficiency
Project, 20 percent of the project cost was allocated on a
region-wide basis to all customers across the entire MISO
footprint (known as the “postage-stamp approach”). The
remaining 80 percent was allocated to zones based on each
zone’s proportion of the Production Cost Metric benefits that it
received. The orders on review stem from FERC’s resolution
of an earlier complaint proceeding and subsequent filings
related to this original plan. We start with a brief summary of
the relevant proceedings and filings.
1
The three MISO project types are: Baseline Reliability Projects,
Market Efficiency Projects, and Multi-Value Projects. See J.A. 354–
55 (describing the three types of projects and corresponding
allocation method).
6
Northern Indiana Public Service Company Complaint Order
In 2013, Northern Indiana Public Service Company
(“NIPSCO”), a utility in northern Indiana whose transmission
system connects to the “seams” of MISO’s and PJM’s systems,
filed a complaint against MISO and PJM, seeking reform of the
MISO-PJM joint interregional transmission planning process.
Northern Indiana Public Service Co. v. Midcontinent
Independent System Operator, Inc., 155 FERC ¶ 61,058 (2016)
(hereinafter “NIPSCO Complaint Order”). FERC granted in
part and denied in part the NIPSCO Complaint, ordering,
among other things, that MISO revise its Market Efficiency
Project criteria. Id. ¶ 54. FERC found that MISO’s then-
current “cost and voltage thresholds prohibit from
consideration certain transmission projects in the MISO-PJM
interregional transmission planning process that benefit both
regions, as evidenced by the Quick Hit Analysis,” 2 which was
submitted by MISO. Id. ¶ 129. Given that the Quick Hit
Analysis identified interregional projects that were less than the
current voltage and cost thresholds but nevertheless provided
benefits to both regions, FERC reasoned that such projects
“should therefore not be automatically excluded from
consideration.” Id. ¶ 131. Accordingly, FERC directed MISO
to lower its minimum voltage threshold for a Market Efficiency
Project from 345 kV to 100 kV and to remove the $5 million
minimum cost requirement. Id.Given the revised lower voltage threshold, FERC found
that MISO did not address what regional cost allocation
method would apply to this new gap—that is, how MISO
would allocate its “share of the cost of an interregional
2
“The Quick Hit Analysis [was] an effort by MISO, PJM and its
stakeholders to identify near-term interregional economic
transmission projects to remedy recent historical interregional
congestion issues.” NIPSCO Complaint Order, ¶ 100 n.175.
7
economic transmission project operating above 100 kV but
below the original threshold of 345 kV.” J.A. 357. As such,
FERC directed MISO to submit a further compliance filing to
either confirm that MISO would apply the existing cost
allocation method for Market Efficiency Projects or propose
tariff revisions to apply a different regional cost allocation.
2019 First Regional & Interregional Filings
In February 2019, MISO filed proposals for both its
regional and interregional transmission projects. J.A. 604–05.
In its First Regional Filing, MISO proposed to (1) lower the
minimum voltage threshold for Market Efficiency Projects
from 345 kV to 230 kV and (2) eliminate the 20 percent region-
wide cost sharing and instead allocate 100 percent of the costs
to pricing zones based on a benefit-to-cost ratio measured not
only by the Production Cost Metric but also two additional
benefit metrics, the Avoided Reliability Project Savings
Metric 3 and a MISO-SPP Settlement Agreement Cost Metric
(“SPP Metric”). Midcontinent Independent System Operator,
Inc., Order Rejecting Proposed Tariff Revisions, 167 FERC
¶ 61,258, ¶¶ 15–19 (2019) (hereinafter “First Regional
Order”). Relevant here is the SPP Metric, which measures any
savings or increased costs in annual payments—made by
MISO to another region operator named Southwest Power
Pool, Inc. (“SPP”) pursuant to a settlement agreement—that
result from the implementation of a Market Efficiency Project.
Id. ¶ 17. MISO also proposed a new category of projects called
Local Economic Projects, which would operate at above 100
kV and below 230 kV and would meet certain minimum
3
This metric measures the “savings realized by transmission
customers when a Market Efficiency Project eliminates the need to
develop one or more future reliability projects.” First Regional
Order, ¶ 16.
8
regional and local benefit-to-cost ratios for each pricing zone
in which a project is located. Id. ¶¶ 9–10. MISO proposed
allocating 100 percent of the costs of these projects to the
pricing zones in which the project is located, not based upon
the benefits MISO calculates will accrue to all impacted pricing
zones. Id.In its First Interregional Filing, MISO proposed to create a
new interregional transmission project category with SPP and
PJM called an Interregional Economic Project, defined as any
transmission project that qualifies as a Market Efficiency
Project (230 kV or higher) or a Local Economic Project
(between 100 kV and 230 kV) under the MISO-PJM plan.
Midcontinent Independent System Operator, Inc., Order
Rejecting Proposed Revisions and Compliance Filing and
Directing Further Compliance, 167 FERC ¶ 61,259, ¶¶ 5–7
(2019) (hereinafter “First Interregional Order”). MISO
further proposed to allocate costs of MISO’s share of these
projects in the same manner as the corresponding regional
project categories. Id. ¶¶ 8–9.
FERC rejected MISO’s First Regional Filing because it
determined that the proposed cost allocation method for Local
Economic Projects was not just and reasonable. First Regional
Order, ¶ 1. Specifically, FERC found the proposed benefits
test for the Local Economic Project category—which would
require both a minimum regional and local benefit-to-cost
ratio—was inconsistent with the cost causation principle. Id.¶¶ 56–63. MISO would identify the project’s regional benefits,
but ignore such benefits and instead implement its preferred
method of allocating 100 percent of the project’s costs to the
pricing zone where the project is located, rather than to all the
zones that have been identified as beneficiaries. Id. Put
simply, FERC found that the proposal failed to allocate costs
commensurate with benefits. Id. ¶ 63. Additionally, because
9
the proposals in MISO’s First Interregional Filing relied on
definitions and provisions rejected in the First Regional Filing,
FERC rejected the interregional proposal as well. First
Interregional Order, ¶ 21. It directed MISO to submit a further
compliance filing addressing the allocation of MISO’s share of
costs for interregional projects between 100 kV and 345 kV.
Id.2020 Second Regional & Interregional Filings
In January 2020, MISO again submitted companion
proposals for certain regional network upgrades (“Second
Regional Filing”) and interregional projects (“Second
Interregional Filing”). In its Second Regional Filing, MISO
again proposed to create a new project type, Local Economic
Projects, with the same qualifying criteria as outlined in the
First Regional Filing. Midcontinent Independent System
Operator, Inc., Order Rejecting Proposed Tariff Revisions, 170
FERC ¶ 61,241, ¶¶ 13–16 (2020) (hereinafter “Second
Regional Order”). However, it removed the requirement that
the project meet the minimum regional benefit-to-cost ratio and
instead proposed that the project meet only the minimum local
benefit-to-cost ratio. Id. ¶ 16. MISO contended that this
change rectified the cost causation principle issue discussed in
the First Regional Order because costs would only be allocated
to the local pricing zone based on demonstrable benefits
identified using the three benefit metrics (outlined in the
previous section), which would account for project type
differences. Id.In its Second Interregional Filing, which was “designed to
work seamlessly with the revisions proposed in the [Second
Regional Filing],” J.A. 300, MISO again proposed to create a
new Interregional Economic Project category, with differing
cost allocation methods depending on the voltage level.
10
Midcontinent Independent System Operator, Inc., Order
Rejecting Proposed Revisions and Compliance Filing and
Establishing Just and Reasonable Rate, 170 FERC ¶ 61,242(2020) (hereinafter “Second Interregional Order”). For
Interregional Economic Projects with a voltage level of 230 kV
or higher, MISO proposed allocating its share of costs from the
MISO-PJM interregional project the same way as Market
Efficiency projects, namely allocating 100 percent of the costs
to the pricing zones that benefit from the project. Id. ¶ 11. For
projects between 100 kV and 230 kV, MISO proposed a cost
allocation method similar to the category of Local Economic
Projects in the Second Regional Filing—that is, allocating 100
percent of the projects’ costs to the pricing zones in which the
project is located. Id. ¶ 12.
In companion orders issued on March 20, 2020, FERC
again rejected both MISO’s Second Regional and Second
Interregional Filing. In rejecting MISO’s Second Regional
Filing, FERC again found that the cost allocation method for
Local Economic Projects was not just and reasonable because
it remained inconsistent with the cost causation principle.
Second Regional Order, ¶ 59. Despite the removal of the
regional benefit-to-cost ratio requirement, FERC found
MISO’s Second Regional Filing to be “identical to the proposal
previously rejected in the 2019 [First] Regional Order.” Id.
¶ 60. FERC determined that the Second Regional Filing was
not consistent with the cost causation principle because it
inappropriately relied on the SPP metric, which would
calculate benefits outside of the local pricing zone where the
project is located, but then disregard these benefits by
allocating costs solely within that pricing zone. Id. ¶ 59; see
also id. ¶¶ 66–67. FERC further found it “incongruous” for
MISO to apply the Production Cost Metric, which MISO states
is the most reliable measure of a net impact of a project, only
to the zone where the project is physically located. Id. ¶ 68.
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FERC affirmed these findings on rehearing. See Midcontinent
Independent System Operator, Inc., Order Addressing
Arguments Raised on Rehearing, 172 FERC ¶ 61,100 (2020)
(hereinafter “Regional Rehearing Order”).
Because MISO’s Second Interregional Filing also relied
on provisions and definitions in the Second Regional Filing,
FERC again rejected MISO’s interregional filing. Second
Interregional Order, ¶ 29. FERC also determined that its
rejection of this filing meant that MISO’s outstanding
compliance requirement—to establish a cost allocation method
for interregional projects between 100 kV and 345 kV—
remained unfulfilled. Id. ¶ 30. As such, FERC exercised its
authority under Section 206 of the Act, to establish a “just and
reasonable rate.” Id. FERC determined that it was appropriate
to allocate “100% of MISO’s share of the cost of MISO-PJM
interregional economic transmission projects” between 100 kV
and 345 kV “that qualify as Market Efficiency Projects” using
MISO’s Production Cost Metric (“Replacement Method”). Id.
¶ 31. On rehearing, FERC again confirmed its rejection of
MISO’s Second Interregional Filing as well as its
establishment of a cost allocation method for interregional
projects between 100 kV and 345 kV. See Midcontinent
Independent System Operator, Inc., Order on Compliance and
Addressing Arguments Raised on Rehearing, 172 FERC
¶ 61,101 (2020) (hereinafter “Interregional Rehearing
Order”).
2020 Third Regional Filing
In April 2020, MISO submitted a Third Regional Filing
with no corresponding interregional filing, which FERC
subsequently accepted. See Midcontinent Independent System
Operator, Inc., Order Accepting Proposed Tariff and
Transmission Owners Agreement Revisions, 172 FERC
12¶ 61,095 (2020) (hereinafter “Third Regional Order”).
Specifically, FERC approved MISO’s proposal to (1) lower the
Market Efficiency Projects’ minimum threshold voltage from
345 kV to 230 kV; (2) eliminate the 20 percent system-wide
allocation; and (3) allocate 100 percent of the project costs
based on each pricing zone’s identifiable net-positive benefits
as determined by three separate benefit metrics. Id. ¶¶ 33, 46.
Procedural History
Petitioners are members of the MISO Transmission
Owners, which is “a group of investor-owned transmission
owners, cooperative utilities, and municipal utilities that own
electric transmission facilities over which . . . [MISO] provides
electric transmission service.” Case No. 20-1262, Dkt. No.
1852900, at 2. On July 17, 2020, the MISO Transmission
Owners group filed a petition for review of the Second
Interregional Order. Id. at 1. After members of the group
withdrew from the case, the remaining instant Petitioners 4
moved to rename the appeal and filed a second petition for
review of the Interregional Rehearing Order. See Case No.
20-1391, Dkt. No. 1864341, at 1–2. On October 2, 2020, the
Court consolidated the appeals. Case No. 20-1391, Dkt. No.
1864529. MISO as well as the Mississippi Public Service
Commission and the Mississippi Public Utilities Staff
(together, “MPSC”) filed motions to intervene, which were
subsequently granted. See Case No. 20-3191, Dkt No.
1867511, Dkt No. 1865903; Dkt. No. 1869462. While MPSC
intervened in support of Petitioners, see Case No. 20-1391,
4
Petitioners include: Entergy Arkansas, LLC; Entergy Louisiana,
LLC; Entergy Mississippi, LLC; Entergy New Orleans, LLC;
Entergy Texas, Inc.; Northern States Power Co. (a Minnesota
corporation, subsidiary of Xcel Energy Inc.); and Northern States
Power Company (a Wisconsin corporation, a subsidiary of Xcel
Energy Inc.).
13
Dkt. No. 1872536, MISO only filed a notice advising the Court
that it “neither supports nor opposes the Petitioners’ or the
Respondents’ positions” but rather only sought to “preserve its
opportunity to participate as needed,” Case No. 20-1391, Dkt.
No. 1871683, at 2.
II.
This Court reviews FERC’s orders under the arbitrary and
capricious standard. FPL Energy Marcus Hook, L.P. v. FERC,
430 F.3d 441, 446 (D.C. Cir. 2005). “Under the arbitrary-and-
capricious standard of review, we uphold FERC decisions if
the agency has examined the relevant considerations and
articulated a satisfactory explanation for its action, including a
rational connection between the facts found and the choice
made.” Old Dominion, 898 F.3d at 1260 (internal quotation
marks and citations omitted). “In reviewing FERC’s orders,
we are particularly deferential to the Commission’s expertise
with respect to ratemaking issues.” ExxonMobile Oil Corp. v.
FERC, 487 F.3d 945, 951 (D.C. Cir. 2007) (per curiam)
(internal quotation marks and citation omitted); see also Alcoa
Inc. v. FERC, 564 F.3d 1342, 1347 (D.C. Cir. 2009) (“In
matters of ratemaking, our review is highly deferential, as
issues of rate design are fairly technical and, insofar as they are
not technical, involve policy judgments that lie at the core of
the regulatory mission.”) (internal quotation marks, alterations,
and citations omitted). “The court owes the Commission great
deference in this realm because the statutory requirement that
rates be just and reasonable is obviously incapable of precise
judicial definition, and the Commission must have
considerable latitude in developing a methodology responsive
to its regulatory challenge.” S.C. Pub. Serv. Auth. v. FERC,
762 F.3d 41, 55 (D.C. Cir. 2014) (per curiam) (internal
quotation marks and citations omitted) (cleaned up). However,
the court will set aside FERC’s orders regarding allocation of
14
costs if they are either unreasonable or inadequately explained.
Old Dominion, 898 F.3d at 1260.
III.
As an initial matter, we address the question of standing.
Even where, as here, FERC does not dispute standing, “we
have an ‘independent obligation to assure ourselves that
standing exists.’” Exelon Corp. v. FERC, 911 F.3d 1236, 1240
(D.C. Cir. 2018) (quoting Summers v. Earth Island Inst., 555
U.S. 488, 499 (2009)) (alteration accepted). Petitioners assert
that under FERC’s Replacement Method, MISO will allocate
some of the costs of rebuilding an existing 138 kV line
(“Project NC-11”), located on the northern border of Indiana,
to Petitioners’ customers across eleven zones in the MISO
region. See Pet’r Br. at 6. Yet, some of these customers do not
benefit from Project NC-11. Id. at 7. By contrast, Petitioners
contend that under MISO’s proposed cost allocation method,
none of the costs would be allocated to its customers consistent
with cost causation principles. Id. We conclude that these
assertions are sufficient to establish standing, given that a
favorable decision by this Court would remedy Petitioners’
injuries.
Petitioners challenge both FERC’s rejection of MISO’s
Second Interregional Filing as well as FERC’s establishment
of a Replacement Method for cost allocation. We address each
challenge in turn.
A. MISO’s Second Interregional Filing
In its Second Interregional Filing, MISO proposed to
create a new category of projects called Interregional
Economic Projects (with voltages between 100 kV and 230
kV), using the same cost allocation method as used for Local
15
Economic Projects in its Second Regional Filing. Second
Interregional Order, ¶ 12. Specifically, it proposed allocating
100 percent of MISO’s share of costs of the project to the
pricing zone in which the project is located. Id. FERC found
that this allocation method was inconsistent with the cost
causation principle because it inappropriately relied on the SPP
Metric, which in FERC’s view would likely identify regional
transmission benefits that MISO would ultimately disregard in
allocating costs. Second Regional Order, ¶ 67. The SPP
Metric measures the reduction in annual payments from MISO
to SPP pursuant to the MISO-SPP Settlement Agreement that
allows MISO to make better economic use of its system. Under
the settlement agreement, MISO pays SPP for the use of
inadvertent flows over SPP’s grid that are tied to the amount of
transmission capacity that MISO controls in the MISO-SPP
Settlement Region. MISO then passes on the SPP charges to
the utilities on MISO’s grid in a two-part charge based on a pro
rata share plus an estimate of benefits from increased flows
allowed by the payments. A new transmission line on MISO’s
system could increase MISO’s transmission capacity, thereby
decreasing the payments MISO would have to make to SPP.
Consequently, it would reduce the payments each utility zone
makes to MISO. The SPP Metric measures the benefits that
flow to each utility zone—that is, the reduced payments it
would have to make to MISO—as a result of a project’s impact
on MISO’s transmission capacity. These benefits are
calculated for all of the pricing zones within the MISO region.
Yet MISO’s benefit-cost determination would consider only
the portion of these benefits calculated for the pricing zone in
which the project is physically located. Second Regional
Order, ¶ 67.
FERC found that, based on the Court’s decision in Old
Dominion, MISO’s proposed allocation method using the SPP
metric was inconsistent with the cost causation principle. Id.
16
¶ 69. In Old Dominion, FERC approved a proposal to
eliminate cost-sharing for two high-voltage transmission lines
that benefitted the entire region, resulting in a local zone
bearing the entire cost of the two regionally-beneficial projects.
898 F.3d at 1255. Specifically, although FERC found that
high-voltage transmission projects have significant regional
benefits that accrue to all members of the transmission
operator, it approved a hybrid cost-allocation method which
allocated half of the costs on a pro rata basis, regardless of
where the specific project is located (postage stamp
component), and the remaining costs based on an estimate of
which zones most directly benefit from the project. Id. at
1256–57. FERC viewed the hybrid cost allocation method as
roughly commensurate with the benefits received because the
postage stamp component captured the full spectrum of
benefits including those regional benefits that are difficult to
quantify. Id. at 1257. The Court found that FERC’s decision
to approve this proposal was arbitrary because “the cost-
causation principle prevents regionally beneficial projects from
being arbitrarily excluded from cost sharing—a necessary
corollary to ensuring that the costs of such projects are
allocated commensurate with their benefits.” Id. at 1263.
Here, FERC noted that the concern expressed in Old Dominion
applied “with similar force” to MISO’s proposed cost
allocation method because it would determine benefits outside
of the local zone where the project was located “but then
disregard these benefits and allocate costs for the project solely
within one Transmission Pricing Zone.” Second Regional
Order, ¶ 69. Petitioners make three main arguments
challenging this finding, which we address in turn.
First, Petitioners contend that it was reversible error for
FERC to reject the Second Interregional Filing simply because
it shared tariff language with the Second Regional Filing that
FERC rejected. In Petitioners’ view, FERC was obligated to
17
independently evaluate the Second Interregional Filing to
determine if its local zone allocation was appropriate for low-
voltage interregional projects. This argument quickly fails.
According to MISO’s own representations to FERC in its
filings, the Second Interregional Filing was “designed to work
seamlessly with the revisions proposed in the [Second Regional
Filing]” and relied on definitions and provisions in the Second
Regional Filing. J.A. 300. As such, it was appropriate and well
within FERC’s discretion to reject MISO’s Second
Interregional Filing based on its rejection of the Second
Regional Filing, as it would obviously suffer from the same
critical flaw. See Tenn. Valley Mun. Gas Ass’n v. FERC, 140
F.3d 1085, 1088 (D.C. Cir. 1998) (“An agency has broad
discretion to determine when and how to hear and decide the
matters that come before it.”).
Second, Petitioners maintain that FERC’s decision was
arbitrary and capricious because FERC failed to identify
significant regional benefits provided by interregional
transmission projects. In support of this contention, Petitioners
point to FERC’s statement in its Third Regional Order that
“neither MISO nor the Commission in the March 2020 Order
has made the finding that MISO projects between 100 kV and
230 kV produce ‘significant regional benefits,’” Third
Regional Order, ¶ 49, as evidence that such projects do not
have regional benefits. Petitioners also argue that FERC
ignored the testimony of MISO’s expert that benefits from
projects below 230 kV are “generally smaller and locally
concentrated.” J.A. 278.
These arguments are without merit. First, as FERC noted,
it made clear that its Third Regional Order was only addressing
regional projects, not interregional ones. See Third Regional
Order, ¶ 51. Similarly, MISO’s expert testimony was in
support of MISO’s Second Regional Filing and therefore
18
discussed the mostly localized, rather than regional benefits, of
regional projects, not interregional ones. Compare J.A. 246–
83 (expert’s regional filing testimony), with J.A. 319–44
(expert’s interregional filing testimony). Second, Petitioners’
argument is fatally flawed because the very subject of these
compliance filings and orders is the development of cost
allocation methods for interregional projects that both MISO
and PJM have already determined would benefit their
respective regions. Indeed, in its original NIPSCO Complaint
Order, FERC found that the Quick Hit Analysis submitted by
MISO demonstrated that some interregional projects below
345 kV provided benefits to both regional systems and thus,
ordered MISO to lower the voltage threshold to 100 kV so such
projects could be accounted for in cost allocation. 5 See
NIPSCO Complaint Order, ¶¶ 129, 131.
5
We reject Petitioners’ contention that FERC is barred on appeal
from relying on the Quick Hit Analysis. Under the principles of SEC
v. Chenery Corp., 318 U.S. 80 (1943), a court’s review of an agency
order is limited to the grounds upon which the agency itself based its
action and “agency decisions may not be affirmed on grounds not
actually relied upon by the agency.” Calpine Corp. v. FERC, 702
F.3d 41, 46 (D.C. Cir. 2012) (citing Chenery, 318 U.S. at 87–88).
Here, while FERC did not explicitly reference the Quick Hit
Analysis in its Second Regional Order, it relied on the Quick Hit
Analysis as the basis for its original directive that MISO lower the
Market Efficiency Project threshold because the Quick Hit Analysis
identified lower-voltage interregional projects that benefitted both
regions and therefore should “not be automatically excluded from
consideration.” NIPSCO Complaint Order, ¶ 131. In response to
this finding and directive, MISO was required to submit compliance
filings demonstrating a cost allocation method for these projects.
These compliance filings and orders are the subject of the instant
appeal. As such, the Quick Hit Analysis necessarily was a ground
that FERC actually relied on in its Second Regional Order because
it serves as the basis for FERC’s original directive that MISO was
seeking to comply with. See Second Regional Order, ¶¶ 5–6
19
Lastly, Petitioners contend that FERC erroneously
departed from the cost causation principle in Old Dominion by
requiring exact precision in cost allocation. We disagree. A
general principle of Old Dominion is that in order for a cost
allocation method to be consistent with the cost causation
principle, such method cannot “prevent[] regionally beneficial
projects from being arbitrarily excluded from cost sharing.”
Old Dominion, 898 F.3d at 1263. FERC reasonably concluded
that MISO’s proposed cost allocation method would do just
that. The SPP Metric measures the benefits that flow to each
utility zone, i.e., the reduced payments it would have to make
to MISO, as a result of a project’s impact on MISO’s
transmission capacity. These benefits are calculated for all of
the pricing zones within the MISO region, yet MISO would
only use the portion of these benefits calculated for the pricing
zone in which the project is physically located for its benefit-
cost determination. Second Regional Order, ¶ 67. Because
MISO’s SPP Metric would identify regional benefits, 6
disregarding such known benefits in cost allocation is
inconsistent with the cost causation principle. Accordingly,
(discussing FERC’s findings and directives in the NIPSCO
Complaint Order as background and the basis for MISO’s current
compliance filing). Indeed, Petitioners concede this point but instead
proffer arguments relating to the underlying merits of the Quick Hit
Analysis, which are jurisdictionally barred as such arguments were
not raised on FERC’s rehearing of the NIPSCO Complaint Order in
2017. See 16 U.S.C. § 825l(b).
6
We note that Petitioners’ arguments regarding the irrelevance of the
SPP Metric to the MISO-PJM interregional planning process are
jurisdictionally barred by Section 313(b) of the Act because
Petitioners failed to raise it on agency rehearing. See 16 U.S.C. §
825l(b).
20
FERC reasonably rejected MISO’s Second Interregional
Filing.
B. FERC’s Replacement Cost Allocation Method
Because it found that MISO’s outstanding compliance
requirement to establish a cost allocation method for MISO’s
share of MISO-PJM interregional projects between 100 kV and
345 kV remained unfulfilled, FERC exercised its authority,
pursuant to Section 206 of the Act, to allocate the entirety of
MISO’s share of the cost of such projects that qualify as Market
Efficiency Projects using MISO’s current Production Cost
Metric. Second Interregional Order, ¶¶ 30–31. We find that
Petitioners fail to meet its burden of demonstrating that
FERC’s Replacement Method was not just and reasonable. As
FERC noted in its order, the Production Cost Metric is one that
MISO had been using to calculate benefits of Market
Efficiency Projects since their inception in 2007 and is
regarded by MISO as one of its most reliable measures of the
net economic impact of a project. Id. ¶ 31; Midwest
Independent Transmission System Operator, Inc., 118 FERC ¶
61,209, ¶ 30. Additionally, FERC explained that MISO
already uses this metric in its cost allocation method for Market
Efficiency Projects at 345 kV and above. Second Interregional
Order, ¶ 31. To be sure, MISO’s expert did testify that lower-
voltage projects may be more sensitive to incorrect
assumptions under this metric, thereby flagging a potential
flaw in the use of this metric. However, Petitioners have not
demonstrated that the use of this metric is so unreasonable or
deficient as to warrant reversal. 7 Rather, at bottom, Petitioners
7
Petitioners’ arguments regarding FERC purportedly ignoring its
evidence concerning a specific interregional project, Project NC-11,
are not properly before the Court because such evidence is not in the
administrative record as FERC rejected Petitioners’ late-filed
21
simply argue that, in its view, a better method exists. “But
FERC is not required to choose the best solution, only a
reasonable one.” Petal Gas Storage, LLC v. FERC, 496 F.3d
695, 703 (D.C. Cir. 2007) (citation omitted). It is not our job
to determine that “FERC made the better call,” rather, our
“important but limited role is to ensure that the Commission
engaged in reasoned decisionmaking—that it weighed
competing views, selected a . . . formula with adequate support
in the record, and intelligibly explained the reasons for making
that choice.” FERC v. Elec. Power Supply Ass’n, 577 U.S. 260,
295 (2016). FERC has satisfied this standard. Notably, MISO
still has the right to propose its own cost allocation method for
FERC to review, and if found to be just and reasonable, to
approve. See Second Interregional Order, ¶ 31 n.40;
Interregional Rehearing Order, ¶ 30. Accordingly, we affirm
FERC’s Replacement Method.
IV.
For the foregoing reasons, we deny the petitions for review
and affirm FERC’s orders in all respects.
So ordered.
pleading containing this evidence. See Interregional Rehearing
Order, ¶ 15.