West Deptford Energy, LLC v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 6, 2014 Decided August 26, 2014
No. 12-1340
WEST DEPTFORD ENERGY, LLC,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
FPL ENERGY MARCUS HOOK, L.P. AND PJM
INTERCONNECTION, L.L.C.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Ashley C. Parrish argued the cause for petitioner. With
him on the briefs were Karen F. Grohman, Neil L. Levy, and
Stephanie S. Lim.
Holly E. Cafer, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
were David L. Morenoff, Acting General Counsel, Robert H.
Solomon, Solicitor, and Beth G. Pacella, Senior Attorney.
2
Paul M. Flynn argued the cause for intervenors. With
him on the brief were Barry S. Spector, Jennifer H. Tribulski,
and Stephen L. Huntoon.
Before: GARLAND, Chief Judge, and SRINIVASAN and
MILLETT, Circuit Judges.
Opinion for the Court filed by Circuit Judge MILLETT.
MILLETT, Circuit Judge: The Federal Power Act requires
regulated utilities to file with the Federal Energy Regulatory
Commission, as a matter of open and accessible public record,
any rates and charges they intend to impose for sales of
electrical energy that are subject to the Commission’s
jurisdiction. See 16 U.S.C. § 824d(c). As a consequence,
utilities are forbidden to charge any rate other than the one on
file with the Commission, a prohibition that has become
known as the “filed rate doctrine.” See NSTAR Elec. & Gas
Corp. v. FERC, 481 F.3d 794, 800 (D.C. Cir. 2007); see also
Arkansas La. Gas Co. v. Hall, 453 U.S. 571, 577 (1981)
(describing filed rate doctrine under the Natural Gas Act).
That requirement of transparent, public filing of rates ensures
evenhandedness, fairness, stability, and predictability in the
prices charged for electrical energy.
The question in this case is, when a utility filed more than
one rate with the Commission during the time it was
negotiating an agreement with a prospective customer, which
of the two filed rates governs: the rate at the time
negotiations commenced or the rate at the time the agreement
was completed? West Deptford argues that, as a matter of
practice, the Commission has used the rate on file at the time
the agreement was finalized. The Commission is of the view
that it can pick and choose which rate applies on a case-by-
case basis. See PJM Interconnection, L.L.C., 136 FERC
3
¶ 61,195 (2011) (“Order”); PJM Interconnection, L.L.C., 139
FERC ¶ 61,184 (2012) (“Rehearing Order”). We vacate the
Commission’s orders in part and remand because the
Commission has provided no reasoned explanation for how its
decision comports with statutory direction, prior agency
practice, or the purposes of the filed rate doctrine.
I
STATUTORY AND REGULATORY FRAMEWORK
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, id. § 824(b)(1). In exercising that
authority, the Commission must ensure that “[a]ll rates and
charges” for the “transmission or sale of electric energy
subject to” its jurisdiction are “just and reasonable,” and that
no public utility’s rates are unduly discriminatory or
preferential. Id. § 824d(a) & (b); see NRG Power Marketing,
LLC v. Maine Public Utils. Comm’n, 558 U.S. 165, 167
(2010).
To that end, the Act requires every public utility to “file
with the Commission” and “keep open in convenient form
and 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 Marketing, 558 U.S.
at 171. When a public utility seeks to change its filed rate, it
must “fil[e] with the Commission * * * new schedules stating
plainly the change or changes * * * and the time when the
change or changes will go into effect.” 16 U.S.C. § 824d(d).
4
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 Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S.
116, 130–131 (1990); Consolidated Edison Co. of New York
v. FERC, 347 F.3d 964, 969 (D.C. Cir. 2003); Consolidated
Edison Co. of New York v. FERC, 958 F.2d 429, 432 (D.C.
Cir. 1992) (R.B. Ginsburg, J.).
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 Order No. 888, FERC Stats. & Regs. ¶ 31,036
(1996); see also New York v. FERC, 535 U.S. 1, 11 (2002)
(describing Order No. 888). Accordingly, public utilities
must now file tariffs with the Commission establishing
separate rates for wholesale power generation service,
transmission service, and any ancillary service. New York,
535 U.S. at 11. In addition, they must “take transmission of
[their] own wholesale sales and purchases under a single
general tariff applicable equally to [themselves] and to
others.” Id.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 Order No. 2003, FERC Stats. & Regs. ¶ 31,146
P 11 (2003). The Commission waded into those disputes case
by case, delaying entry into the market by new generators and
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providing an unfair competitive advantage to utilities owning
both transmission and generation facilities. Id. at PP 10–11.
To address those issues, the Commission, in 2003, issued
Order No. 2003, FERC Stats. & Regs. ¶ 31,146 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. Id. at P 2. By
mandating that “standard set of procedures,” the Commission
“minimize[d] opportunities for undue discrimination and
expedit[ed] the development of new generation, while
protecting reliability and ensuring that rates are just and
reasonable.” Id. at P 11.
FACTUAL BACKGROUND
1. PJM Interconnection, L.L.C., is a regional
transmission organization, an independent entity that operates
transmission facilities in thirteen states and the District of
Columbia. See FPL Energy Marcus Hook, L.P. v. FERC, 430
F.3d 441, 442–443 (D.C. Cir. 2005). Under PJM’s Open
Access Transmission Tariff, the interconnection process
begins when a generator of electricity submits an
interconnection request to PJM. PJM Tariff § 36.1.01, J.A.
747–748. Each request is placed into a “first-come, first-
served queue.” Marcus Hook, 430 F.3d at 443; see PJM
Tariff § 201, J.A. 752.
The submission of an interconnection request triggers an
often lengthy 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
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additions to those transmission facilities,” PJM Br. 6, and an
estimate of the requestor’s cost responsibility for any needed
upgrades, see Marcus Hook, 430 F.3d at 443. Those studies
do “not set a rate for interconnection service,” however; they
merely provide “a non-binding estimate of costs.” Dominion
Res. Servs., Inc. v. PJM Interconnection, L.L.C, 123 FERC
¶ 61,025 P 52 (2008). Customers are thus free to “terminate
or withdraw their interconnection requests” at any time.
Marcus Hook, 430 F.3d at 443. Once PJM finishes the
studies, it provides the requestor with a proposed
interconnection service agreement that “specifies the
customer’s actual cost responsibility,” including the cost of
any upgrades needed to PJM’s transmission network to
sustain the increased demand. Id.While a new service request might be what prompts a
network upgrade, the “integrated transmission grid is a
cohesive network,” Entergy Servs., Inc., 96 FERC ¶ 61,311,
62,202 (2001), and thus completed upgrades, whether they
increase network capacity or simply improve stability,
generally “benefit all transmission customers.” Order No.
2003, FERC Stats. & Regs. ¶ 31,146 at P 21. For that reason,
those generators who have to pay for upgrades under the PJM
Tariff receive “incremental auction revenue rights” that give
the generator the right to revenue from future sales of
transmission services associated with the new or upgraded
facility. See PJM Tariff § 231.1, J.A. 764; see also PJM
Interconnection, L.L.C., 126 FERC ¶ 61,280 P 3 (2009)
(describing the function of auction revenue rights). That
auction revenue, in turn, partially compensates the generator
for the financial burden it bore in improving the transmission
network for all users. See Order No. 2003, FERC Stats. &
Regs. ¶ 31,146 at P 694.
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2. 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. Rehearing Order at P 3; Marcus Hook, 430 F.3d at
444. PJM determined that the projects’ combined load would
“push [its] system beyond the breaking point,” and thus
advised a $13 million upgrade (“Upgrade”) to a transmission
circuit. Marcus Hook, 430 F.3d at 444. Because that
Upgrade was unnecessary at the time the first project, Mantua
Creek, entered the queue, Mantua Creek was not assigned any
cost responsibility for the Upgrade. Marcus Hook, 430 F.3d
at 444. Marcus Hook and Liberty Electric bore it all, with
90% of the Upgrade’s cost assigned to Marcus Hook. See id.;
see also Rehearing Order at P 3. Both generators moved
forward with the project, with Marcus Hook agreeing to pay
“over $10 million of the upgrade’s total cost.” Marcus Hook,
430 F.3d at 444.
As the Upgrade neared completion, Mantua Creek
unexpectedly cancelled its project and withdrew from the
queue. See Rehearing 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, 430 F.3d at 444. The
Upgrade was placed into service in June 2003.
Marcus Hook felt differently about being required to
continue financing the Upgrade. Having paid over $9 million
to PJM for improvements that were no longer necessary,
Marcus Hook filed a complaint with the Commission seeking
a refund. Marcus Hook, 430 F.3d at 444–445. The
Commission rejected Marcus Hook’s complaint. See FPL
Energy Marcus Hook, L.P. v. PJM Interconnection, L.L.C.,
8
107 FERC ¶ 61,069 (2004) (Marcus Hook I), reh’g denied,
108 FERC ¶ 61,171 (2004) (Marcus Hook II). In 2005, this
court upheld the Commission’s decision in relevant part.
Marcus Hook, 430 F.3d at 447–449.
3. The next year, petitioner West Deptford submitted an
interconnection request to PJM. Rehearing 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.” PJM
Superseded Tariff § 37.7, J.A. 745.
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 Rehearing Order at
PP 5, 9; PJM Feasibility Study 8 (Nov. 2006), J.A. 580. West
Deptford does 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 at
P 28.
Eighteen months later, while West Deptford’s
interconnection request was still pending, PJM filed several
proposed amendments to its tariff. Rehearing Order at P 11;
see also Dominion, 123 FERC ¶ 61,025 at PP 1–3 (settlement
of administrative challenge to PJM Tariff resulted in proposed
amendments). One proposed amendment significantly
changed Section 37.7’s assignment of financial responsibility
9
for prior upgrades. As relevant here, under Section 219 of the
new 2008 tariff, PJM could seek reimbursement for
previously constructed network upgrades only for a period of
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.”
PJM Tariff § 219(a), J.A. 762. While the tariff was silent
about the effective date of that change, a transmittal letter
from PJM noted that the next interconnection queue would
begin on August 1, 2008, and then “request[ed] an August 1,
2008 effective date for these Tariff revisions.” PJM
Transmittal Letter 17, J.A. 711. Because Liberty Electric
executed its interconnection agreement on May 14, 2001 and
Marcus Hook executed its agreement on January 22, 2002,
Rehearing Order at P 10, the Commission and PJM agree that,
if the 2008 tariff controls, then that tariff’s five-year time
limit insulates West Deptford from having to pay for the
Upgrade, Order at P 34.
Proceedings commenced before the Commission
challenging aspects of the 2008 tariff, but West Deptford was
not a party. In that proceeding, 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, L.L.C., Docket No.
EL08-36-001 (FERC June 20, 2008). PJM responded that
one revised provision of the tariff (known as Section 217.3a,
J.A. 761, which governs upgrades costing less than $5 million
and is 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
10
Interconnection, L.L.C. to Request for Clarification of
American Municipal Power – Ohio, Inc. at 4, Dominion Res.
Servs., Inc. v. PJM Interconnection, L.L.C., Docket No.
EL08-36-001 (FERC July 7, 2008), J.A. 555. With respect to
Section 219(a), J.A. 762, 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.” Id.
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, L.L.C., Docket No.
EL08-36-001 (August 19, 2008), J.A. 742. The Commission
did not mention PJM’s clarification of the effective date for
the provision at issue in this case, Section 219(a). See id.
Over the next three years, PJM conducted two more
studies of West Deptford’s interconnection request. In both
of them, 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
(September 2010), J.A. 594–595; PJM Facilities Study Report
4, 10 (April 2011), J.A. 612, 618. West Deptford claims,
Reply Br. 25, and no one disputes, that it repeatedly objected
to this attempted cost allocation.
PROCEDURAL HISTORY
In 2011, PJM provided West Deptford a draft
interconnection service agreement that imposed the full cost
of the Upgrade on West Deptford. West Deptford Protest at
9, J.A. 434. West Deptford objected, id., and PJM filed the
unexecuted agreement with the Commission, seeking its
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resolution of the dispute. Rehearing Order at P 6. West
Deptford argued that imposing the superseded tariff’s terms
for cost allocation violated both the filed rate doctrine and
past Commission precedent enforcing the terms of tariffs that
were in effect when an interconnection agreement was
executed or filed, rather than when a prospective customer
entered the queue. West Deptford Protest at 15, J.A. 440.
West Deptford also argued, as relevant here, that even if it
were required to reimburse Marcus Hook and Liberty Electric
for the Upgrade, its cost should be offset by the value of the
auction revenue rights that Marcus Hook and Liberty Electric
had already received and exercised as a result of having
previously paid for the Upgrade’s construction. Id. at 26–27,
J.A. 451–452.
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.” Order at P 35. According to the
Commission, that fact put West Deptford “on notice of the
costs to which it potentially would be liable.” Id. at P 38.
With respect to West Deptford’s separate claim for
auction revenue rights, the Commission ruled that the issue
was not ripe. Order at P 43. In so ruling, the Commission
relied this time on the on-file 2008 Tariff, and noted that it
provided that the surrender of auction revenue rights applies
only once the “New Service Customer * * * executes * * * an
Interconnection Service Agreement,” which West Deptford
has not yet done. Id. at P 43 (quoting PJM Tariff
§ 231.4(1)(b), J.A. 767; omissions in original).
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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. Rehearing 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. Id. at P 28.
With respect to past Commission precedent, the Commission
stated that its decisions did not bind it to “a single policy to
address all of the myriad issues that may arise from a change
to cost allocation in the interconnection process.” Id. at P 38.
Finally, the Commission restated, without additional
explanation, its conclusion that West Deptford’s auction-
revenue-rights claim would be unripe until after it executed
the interconnection agreement. Id. at P 59.
West Deptford timely petitioned for review, and PJM and
Marcus Hook intervened.
II
STANDARD OF REVIEW
We have jurisdiction under 16 U.S.C. § 825l(b). We
review Commission orders under the arbitrary and capricious
standard, and will uphold the Commission’s factual findings
if they are supported by substantial evidence. See 5 U.S.C.
§ 706(2); see also, e.g., Sacramento Municipal Util. Dist. v.
FERC, 616 F.3d 520, 528 (D.C. Cir. 2010). Under that
familiar standard, we must determine whether the
Commission’s orders “examined the relevant data and
articulated a rational connection between the facts found and
13
the choice made.” Alcoa Inc. v. FERC, 564 F.3d 1342, 1347
(D.C. Cir. 2009) (internal punctuation and citation omitted).
While we defer to the Commission’s interpretation of its own
precedent, see NSTAR, 481 F.3d at 799, the Commission
cannot depart from those rulings without “‘provid[ing] a
reasoned analysis indicating that prior policies and standards
are being deliberately changed, not casually ignored.’” Alcoa,
564 F.3d at 1347 (quoting Entergy Servs., Inc. v. FERC, 319
F.3d 536, 541 (D.C. Cir. 2003)). Those same principles also
govern our review of the Commission’s application of the
filed rate doctrine. See NSTAR, 481 F.3d at 800. Our review
of the Commission’s interpretation of filed tariffs is
“Chevron-like in nature,” which means that we give
“substantial deference” to the Commission’s interpretation
unless “the tariff language is unambiguous.” Old Dominion
Elec. Co-Op., Inc. v. FERC, 518 F.3d 43, 48 (D.C. Cir. 2008)
(internal quotation marks omitted).
III
ANALYSIS
As in many Federal Energy Regulatory Commission
cases, aspects of this case seem complex. But the legal
principles that dictate our decision are relatively
straightforward. The Commission held that the amount of
money West Deptford would have to pay to obtain
transmission services would be dictated by a tariff provision
that had been superseded more than three years before PJM
even proposed a contract. To sustain that determination, the
Commission was obligated to provide a reasoned explanation
of how applying that charge comported with the text of the
Federal Power Act and prior Commission precedent. The
Commission’s decision did neither. Nor did the
Commission’s ripeness analysis adequately address West
14
Deptford’s claims concerning already-exercised auction
revenue rights. We accordingly vacate the orders in part and
remand the case to the Commission for further proceedings
consistent with this decision.
A. THE COMMISSION’S APPLICATION OF THE
SUPERSEDED TARIFF WAS NOT ADEQUATELY
REASONED
1. The Commission’s decision, first and foremost, must
conform to statutory direction. And the Federal Power Act is
quite clear: “All rates and charges made, demanded, or
received by any public utility for or in connection with the
transmission or sale of electric energy” subject to the
Commission’s jurisdiction must be “file[d] with the
Commission,” “open in convenient form,” and available for
“public inspection.” 16 U.S.C. § 824d(a) & (c) (emphasis
added). Furthermore, if a utility makes any changes to a filed
“rate, charge, classification, or service,” its public filing with
the Commission must “stat[e] plainly” both the changes made
to the tariff “then in force,” and “the time when the change or
changes will go into effect.” Id. § 824d(d) (emphasis added).
PJM’s 2008 tariff did not identify any effective date for
its changed cost-allocation provision, let alone do so
“plainly.” In particular, nothing in the tariff explained when
the cost-allocation rules would transition from those
previously in force (which would have obligated West
Deptford to pay for the Upgrade) to those in the 2008 tariff
(which would not charge West Deptford for the Upgrade).
Right out of the box, then, the Commission’s application of
the superseded tariff, rather than the new one, ran into
statutory headwinds that the Commission needed to address.
2. As the Commission noted, Order at P 37, a
transmittal letter accompanying the new tariff did request an
15
“August 1, 2008 effective date for these Tariff revisions,” J.A.
711. The Commission’s decision seems to assume, and West
Deptford does not disagree, that the transmittal letter satisfied
the Act’s legal requirements that the notice of the change’s
effective date be “fil[ed] with the Commission” and be “open
for public inspection,” 16 U.S.C. § 824d(d), and so we
assume for purposes of decision that it does (although it
would have been far better for the Commission to explain its
thinking).
The dispute in this case centers, instead, on whether the
Commission’s application of the transmittal letter’s request
for an August 1, 2008 effective date in this case “plainly”
stated that the effective date would be August 1, 2008 only for
those generators in the U2 queue, and not for those generators
in earlier queues who signed interconnection agreements after
the August 1st effective date. The Commission failed to
adequately explain how it found the statutory requirements
satisfied in this case.
To start with, the letter, by its plain terms, does not
contain the limitation on who gets the August 1, 2008
effective date that the Commission enforced. At best, the
request for “an August 1, 2008 effective date for these Tariff
revisions,” J.A. 711, is silent about whether the date of the
interconnection agreement or of entry into the queue had to
fall on or after August 1st. And, at worst, given the Federal
Power Act’s textual application of filed rates to “any
transmission or sale,” 16 U.S.C. § 824d(c), the letter implies
that, beginning August 1st, all charges for transmission and
sales contracts, including interconnection service, would hew
to the new tariff’s terms.
PJM’s letter transmitting the new tariff to the
Commission did introduce its proposed effective date by
16
noting that it requested August 1, 2008, “[b]ecause the next
interconnection queue will begin on August 1, 2008.” J.A.
711. But that introductory clause, which is crafted in
explanatory rather than operative language, simply adds to the
confusion about what must be in place by August 1st.
Furthermore, the Commission never endorsed that
prefatory language as part of the effective date when it
accepted PJM’s tariff revisions, see J.A. 742, and it has failed
to provide any explanation of whether and how the bare
mention of the next queue date, without endorsement by the
Commission at the time of acceptance, could have legally
operative force for purposes of the filed rate doctrine. Indeed,
the Commission has yet to explain, in this ruling or any other
of which we are aware, what the legal status of information in
a transmittal letter is—and what the impact of Commission
endorsement is—for purposes of compliance with the Federal
Power Act’s filed rate requirements.
3. A further barrier to affirming the Commission’s
decision is that it appears to contradict Commission precedent
applying the tariff in effect on the date of execution of an
interconnection agreement or the agreement’s filing with the
Commission, and not the date a generator entered the queue.
For example, in Midwest Independent Transmission System
Operator, Inc. (MISO III), 125 FERC ¶ 61,277 P 10 (2008),
Midwest filed an amended tariff that took effect in August
2008. When Midwest filed two interconnection agreements
the next month, however, it sought—just as PJM does here—
to apply the superseded tariff that was in effect when its
customers entered the queue, rather than the updated tariff.
Id. at P 5. The Commission flatly rejected that effort. Id. at
P 10. In sharp contrast to its decision in this case, the
Commission ruled that Midwest could not apply the old tariff
17
to agreements executed after the amended tariff took effect.
Id.The Commission reaffirmed that position two years later
in another Midwest case. Describing its previous holding in
MISO III, the Commission explained that, “because two
generator interconnection agreements had been executed after
the effective date of newly revised interconnection queue
rules, the interconnection agreements [had to] be revised to
conform with the new rules,” rather than the rules in place at
the time the generators entered the queue. Midwest Indep.
Transmission Sys. Operator, Inc. (MISO IV), 129 FERC
¶ 61,060 P 62 n.120 (2009). The Commission then held that,
as in MISO III, it had to apply the tariff “effective and on file
on the date that the interconnection agreement is executed or
filed unexecuted.” MISO IV, 129 FERC ¶ 61,060 at P 62; see
also Midwest Indep. Transmission Sys. Operator, Inc. (MISO
I), 114 FERC ¶ 61,106 P 70 (2006) (interconnection
agreement would be governed by the presently effective tariff,
rather than the tariff in effect when the agreement was being
negotiated); Midwest Indep. Transmission Sys. Operator, Inc.
(MISO V), 131 FERC ¶ 61,165 P 32 (2010) (although cost-
allocation methodology in tariff changed while
interconnection agreement was being negotiated, “the cost
allocation methodology that was effective and on file” on the
date the agreement was executed or filed with the
Commission controlled); Midwest Indep. Transmission Sys.
Operator, Inc. (MISO VI), 138 FERC ¶ 61,199 P 42 (2012)
(declining to apply deadlines in an amended tariff because the
interconnection agreement was governed by “the tariff
effective and on file at the time the [agreement] was filed with
the Commission and proposed to take effect”); MidAmerican
Energy Co., 116 FERC ¶ 61,018 P 13 (2006) (following
practice of “review[ing] interconnection agreements based on
18
the terms and conditions in effect on the date when they are
filed”).
Indeed, until now, there appeared to be 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, unless the
amended tariff has a grandfathering provision. See Edison
Mission Energy v. Midwest Indep. Transmission Sys.
Operator, Inc., 136 FERC ¶ 61,035 PP 38–40 (2011)
(applying grandfathering provision in tariff that divided
interconnection requests into four categories based on their
status when tariff revisions took effect); Arizona Public Serv.
Co., 137 FERC ¶ 61,099 P 25 (2011) (accepting proposed
tariff revision “grandfather[ing] existing interconnection
requests for” customers that had reached a certain milestone
in the interconnection process).
It is textbook administrative law that an agency must
“provide[] a reasoned explanation for departing from
precedent or treating similar situations differently,” ANR
Pipeline Co v. FERC, 71 F.3d 897, 901 (D.C. Cir. 1995), and
Commission cases are no exception, see Colorado Interstate
Gas Co. v. FERC, 146 F.3d 889, 893 (D.C. Cir. 1998)
(“Because it has not adequately explained its decision to treat
[entities] differently in a context where they appear similarly
situated, we remand the case to the Commission for a fuller
explanation.”). The Commission, however, failed to provide
a reasoned explanation for why West Deptford’s
interconnection agreement should be treated any differently
than those in predecessor decisions. Accordingly, the
Commission’s deviation from that precedent is not “justified
either as consistent with precedent or as a considered
departure therefrom.” Williams Gas Processing-Gulf Coast
Co. v. FERC, 475 F.3d 319, 327 (D.C. Cir. 2006).
19
4. With a paean to administrative flexibility, the
Commission argues that it can employ a case-by-case
approach to deciding whether entry into the queue or, instead,
the execution or filing of an interconnection agreement is the
relevant trigger for an effective date. Perhaps. But the
Commission must first provide a reasoned decision
explicating how such case-by-case variation, absent explicit
tariff provisions publicly identifying different effective dates
for customers, jibes with the Federal Power Act’s unqualified
directive that “the time when the change or changes” in an
amended tariff will displace the schedules “then in force” and
“go into effect” must be “plainly” stated in an open,
accessible, and convenient manner, 16 U.S.C. § 824d(d). In
addition, the Commission would have to explain how such a
case-by-case approach would protect against the
discrimination and unpredictability in rates and charges that
Section 824d proscribes. See NSTAR, 481 F.3d at 800.
That is just the beginning. The Commission would also
need to elucidate how such case-by-case variation would fit
with the Federal Power Act’s purposes given that it has
previously decided that those aims are best served by
imposing increased uniformity in tariff terms in lieu of
conducting case-by-case adjudications. See Order No. 2003,
FERC Stats. & Regs. ¶ 31,146 at P 11. Generally, such
standardization “ensures that interconnection customers * * *
receive non-discriminatory service and that all
interconnection customers are treated on a consistent and fair
basis.” MidAmerican Energy, 116 FERC ¶ 61,018 at P 7.
And finally, the Commission would have to provide a
reasoned analysis, resting on articulated objective, non-
discriminatory, and evenhanded criteria, that would justify
treating West Deptford differently than the generators in all
those other cases in which the Commission enforced the tariff
20
in effect at the time an agreement was filed or executed. See
Muwekma Ohlone Tribe v. Salazar, 708 F.3d 209, 216 (D.C.
Cir. 2013) (“Agency action is arbitrary and capricious if ‘the
agency offers insufficient reasons for treating similar
situations differently.’”) (quoting County of Los Angeles v.
Shalala, 192 F.3d 1005, 1022 (D.C. Cir. 1999)). That is
because identifying the relevant factors that would govern a
case-by-case analysis is critical to ensuring that the Federal
Power Act’s requirements of openness, equal treatment, and
predictability in rates are enforced.
The Commission’s decision in this case did none of those
things. The Commission instead pointed to yet another
Midwest decision as purportedly evidencing its case-by-case
approach. See Rehearing Order at P 40 (citing Midwest
Indep. Transmission Sys. Operator, Inc. (MISO II), 124 FERC
¶ 61,183 P 90 (2008), order on reh’g, 127 FERC ¶ 61,294).
But MISO II makes things worse not better for the
Commission’s position. In that case, the Commission
permitted Midwest to apply interconnection procedures from
its old tariff to certain customers already waiting in the queue.
MISO II, 124 FERC ¶ 61,183 at PP 1, 84–90. But the
Commission did so because the text of the revised tariff itself
provided for that differential treatment. See Proposed
Revisions to Open Access Transmission and Energy Markets
Tariff part 2, § 5.1.2, Midwest Indep. Sys. Operator, Inc.,
Docket No. ER08-1169 (FERC June 26, 2008). In other
words, all that MISO II establishes is that the Commission
may approve a tariff the express terms of which differentiate
when its terms will take effect and when they will not. That
does nothing to justify what appears to be the Commission’s
one-off decision in this case to deviate both from the filed
tariff and from precedent consistently enforcing the tariff on
file on the date an agreement is filed or executed, even though
21
the on-file tariff contained no grandfather clause or any other
indication of its variable application.
Compounding the problem for the Commission is its
reliance on FPL Energy Marcus Hook, L.P. v. PJM
Interconnection, L.L.C. (Marcus Hook III), 118 FERC
¶ 61,169 (2008). Critically, that case involved not just the
PJM system, but the very network upgrade for which cost
allocation is at issue in this case. Id. at P 2. The Commission
in this case read Marcus Hook III as establishing that the time
a generator enters the queue could be the relevant point at
which costs are determined, given how long the
interconnection process can take and the need to account for
business risks at the outset. Order at P 36 & n.29; Rehearing
Order at P 36. But in so stating, the Commission coyly cited
a footnote in Marcus Hook III, and described it as applying
the “tariff on file ‘when the interconnection was being
considered.’” Order at P 36 n.29 (quoting Marcus Hook III,
118 FERC ¶ 61,169 at P 11 n.9) (emphasis added); Rehearing
Order at P 36 (quoting same footnote). So fortified, the
Commission then assured that “[s]imilarly, the tariff we apply
here is the one on file when West Deptford’s interconnection
request was being considered.” Rehearing Order at P 36
(emphasis added).
The Commission would have done better to look above
the footnote to what it actually ruled in Marcus Hook III,
because there is nothing at all “similar[]” about the two
outcomes. Quite the opposite, as counsel for the Commission
conceded at oral argument, Oral Arg. Tr. 44:18-20, Marcus
Hook III applied not the tariff in effect at the time the
interconnection customer entered the queue, but “the PJM
tariff in effect at the time the Interconnection Service
Agreement was executed[.]” 118 FERC ¶ 61,169 at P 10
(emphasis added); see also FPL Energy Marcus Hook, L.P. v.
22
PJM Interconnection, L.L.C. (Marcus Hook IV), 123 FERC
¶ 61,289 P 6 n.6 (2008) (reconfirming, on denial of rehearing,
that PJM’s 2001 tariff, which was “in force at the time of
execution of the [interconnection service agreement],”
controlled); see also id. at P 80 (tariff provision in effect “at
the time that the [interconnection service agreement] was
executed” “properly governs the relationship between the
parties”).
In other words, the last time the Commission addressed
for this very same tariff the question of which event the
effective date turned on—the queue entry date or the
interconnection agreement date—the Commission gave the
exact opposite answer. That is the very essence of
unreasoned and arbitrary decisionmaking: “[G]loss[ing] over
or swerv[ing] from prior precedents without discussion * * *
cross[es] the line from the tolerably terse to the intolerably
mute.” Bush-Quayle ’92 Primary Committee, Inc. v. FEC,
104 F.3d 448, 453 (D.C. Cir. 1997) (internal quotation marks
omitted).
5. The Commission also invoked the so-called notice
exception to the filed rate doctrine. We have said that the
“filed rate doctrine simply does not extend to cases in which
buyers are on adequate notice that resolution of some specific
issue may cause a later adjustment to the rate being collected
at the time of service.” Natural Gas Clearinghouse v. FERC,
965 F.2d 1066, 1075 (D.C. Cir. 1992). Unfortunately, “[o]ur
decisions on the necessary notice have not been altogether
clear.” Transwestern Pipeline Co. v. FERC, 897 F.2d 570,
577 (D.C. Cir. 1990). For the most part, however, the notice
exception has been confined to two scenarios.
First, it permits the filing of tariffs that provide a formula
for calculating rates, rather than a specific rate number. This
23
court had held that such a “formula itself is the filed rate that
provides sufficient notice to ratepayers” to comport with the
Federal Power Act’s open-filing requirements, and that the
objectivity of formulae ensures evenhandedness,
predictability and stability in rates. Public Utils. Comm’n v.
FERC, 254 F.3d 250, 254 n.3 (D.C. Cir. 2001); see also
Transwestern Pipeline, 897 F.2d at 578 (“The Commission
need not confine rates to specific, absolute numbers but may
approve a tariff containing a rate ‘formula’ or a rate ‘rule’
* * *; it may not, however, simply announce some formula
and later reveal that the formula was to govern from the date
of announcement[.]”); see also id. (“[W]e think that where the
Commission explicitly adopts a formula and indicates when it
will take effect, courts may not * * * say that such a formula
may never qualify as a ‘rate[.]’”) (emphasis added); NSTAR,
481 F.3d at 801 (confirming the “acceptability of tariffs with
a rate formula” under the filed rate doctrine).
Second, the notice exception has been applied when
judicial invalidation of Commission decisions has resulted in
retroactive changes in rates. Canadian Ass’n of Petroleum
Producers v. FERC, 254 F.3d 289, 299–300 (D.C. Cir. 2001);
Western Resources, Inc. v. FERC, 72 F.3d 147, 151 (D.C. Cir.
1995); Public Utils. Comm’n v. FERC, 988 F.2d 154, 163–
166 (D.C. Cir. 1993); Natural Gas Clearinghouse, 965 F.2d
at 1075–1077. The Commission has reasoned, and this court
has agreed, that generators in those cases were aware in
advance of the risk of litigation-induced change and, more
importantly, “[w]ere the Commission not able to take
remedial action to correct its errors, ‘[ratepayers] would be
substantially and irreparably injured by Commission errors,
and judicial review would be powerless to protect them from
many of the losses so incurred.’” See Western Resources, 72
24
F.3d at 151 (quoting Natural Gas Clearinghouse, 965 F.2d at1074–1075) (internal brackets omitted). 1
This case presented neither of those well-established
situations. Instead, the Commission pointed (Order at P 26)
to PJM’s statement in a pleading during the tariff-revision
process that the revisions to the cost-allocation provision “are
intended to be effective as of August 1, 2008, and will be
initially applied to the U2-queue.” J.A. 555. The
Commission’s decision, however, failed to provide any
reasoned explanation of how such language in a non-binding
pleading in litigation to which West Deptford was not even a
party could provide the type of fair notice the Federal Power
Act and precedent require.
To begin with, as the Commission’s counsel
acknowledged at oral argument, PJM’s supposedly clarifying
statement was actually “confusing” as to the effective date.
Oral Arg. Tr. 49:8. While the pleading said that amended
Section 219(a) would “be effective as of August 1, 2008, and
will be initially applied to the U2-Queue,” just a few
sentences earlier PJM said that the “U2-Queue * * * will
close on July 31, 2008.” Answer of PJM Interconnection,
L.L.C. to Request for Clarification of American Municipal
Power – Ohio, Inc. at 4, Dominion Res. Servs., Inc. v. PJM
Interconnection, L.L.C., Docket No. EL08-36-001 (FERC
July 7, 2008), J.A. 555. The first statement suggests
prospectivity; the latter applies Section 219 backward to some
unidentified date (apparently, sometime in May 2008) at
which the U2 queue started. 2 Applying the new provision to
1
Parties may also mutually agree to give a new rate retroactive
effect. See Consolidated Edison, 347 F.3d at 969.
2
See PJM INTERCONNECTION, L.L.C., Generation Queues: Active,
http://www.pjm.com/planning/generation-interconnection/
generation-queue-active.aspx (follow “U2” hyperlink) (last visited
25
customers who started the process in May ill fits the concept
of an August effective date. More to the point, that
contradiction undermines the Commission’s insistence that it
accepted PJM’s tariff with only “prospective” effect,
Rehearing Order at P 29, and “appl[ied] the tariff change at
issue only to future queue participants,” id. at P 42.
Beyond that, charging customers with notice of every
statement in every pleading submitted in proceedings to
which they are not even parties is a far logical leap from the
discrete categories to which the notice exception has generally
been limited. The Commission cited no prior application of
the notice exception that stretched this far. The Commission
also failed to explain how that material expansion of the
notice exception remains consistent with the express
commands of the Federal Power Act and the filed rate
doctrine, or how an exception so broadly construed could
avoid consuming the rule that rates are supposed to identify
new changes “plainly,” and do so in filed tariffs that are “open
in convenient form and place for public inspection.” 16
U.S.C. § 824d(c) & (d). Perhaps it can do that, but the
decision on review provides no trace of a reasoned decision in
that regard.
Finally, the Commission indicated that the studies PJM
undertook while West Deptford was in the queue provided
ample notice because each assigned West Deptford financial
responsibility for the Upgrade. The problem with that
argument is threefold. First, it overlooks that West Deptford
repeatedly objected throughout that time period to any such
imposition of cost responsibility as impermissible.
August 3, 2008) (listing projects entering the U2 queue from May
16, 2008 through July 31, 2008).
26
Second, as with the pleading, the Commission provides
no reasoned explanation for expanding the notice exception to
encompass such one-way assertions, especially since
generators have no apparent way to challenge any costs such
studies purport to assign at that stage in the interconnection
process.
Third, the Commission’s position paid no heed to prior
Commission precedent that treated such studies as just a
“non-binding estimate of costs.” Dominion, 123 FERC
¶ 61,025 at P 52.
In sum, because the Commission failed, at multiple steps,
to provide any reasoned explanation of how its decision
conformed to the Federal Power Act and prior precedent, we
must remand for the Commission “to explain why its decision
in this case is not inconsistent with [past precedent] or,
alternatively, to justify its apparent departures.” Brusco Tug
& Barge Co. v. NLRB, 247 F.3d 273, 278 (D.C. Cir. 2001);
see also Northeast Energy Associates v. FERC, 158 F.3d 150,
156 (D.C. Cir. 1998).
B. The Commission Failed to Address the Impact of
Already Exercised Auction Revenue Rights on West
Deptford’s Cost
Before the Commission, West Deptford made two
distinct arguments regarding auction revenue rights should the
2006 Tariff apply. First, West Deptford argued that PJM
could not force West Deptford to pay for the Upgrade until
Marcus Hook and Liberty Electric surrendered any
unexercised auction revenue rights they still had. Second,
West Deptford contended that its $10 million charge should
be offset by the amount of compensation for building the
Upgrade that Marcus Hook and Liberty Electric had already
received from auction revenue rights they had previously
27
exercised. West Deptford Protest at 25–27, J.A. 450–452;
West Deptford Request for Rehearing at 24–26, J.A. 665–667.
Addressing only the first argument, the Commission
construed the 2008 PJM Tariff to require transfer of
unexercised auction rights only after West Deptford executed
“‘an Interconnection Service Agreement.’” Order at P 43
(quoting PJM Tariff § 231.4(1)). Because West Deptford
“ha[d] not yet executed its” agreement, the Commission ruled
that West Deptford’s claim was “not yet ripe.” Id. In
denying rehearing, the Commission reiterated that, once West
Deptford executes the interconnection service agreement, its
claim to auction revenue rights “will be perfected and PJM
will be required to assign those [rights] as provided in its
tariff.” Rehearing Order at P 59.
While the Commission’s decision about the transfer of
auction rights yet to be exercised was reasonable as far as it
went, it did not go far enough. The ripeness rationale does
not work for West Deptford’s separate argument that the $10
million price tag should have been offset by the amount of the
cost that Marcus Hook and Liberty Electric had already
recovered through exercising auction revenue rights. Put
differently, West Deptford asked the Commission for a price
check on the Upgrade. There was nothing unripe about that.
To the extent that Marcus Hook and Liberty Electric already
recouped their payments from those auction revenue rights,
they would have been paid a second time when West
Deptford handed over its $10 million. Oral Arg. Tr. 38:19-20.
West Deptford thus is presently out of pocket any such
overpayment.
The Commission’s counsel posited at oral argument that
the issue remained unripe because, under the PJM Tariff,
Marcus Hook or Liberty Electric could choose not to
28
relinquish any auction rights. Oral Arg. Tr. 68:13-21. But if
that happened, it would appear to reduce West Deptford’s
financial responsibility to zero, and disentitle Marcus Hook
and Liberty Electric to their respective shares of the $10
million already paid over by West Deptford. See PJM Tariff
§ 231.4(d)(2), J.A. 767. Why Marcus Hook and Liberty
Electric are allowed to keep both the funds already received
from exercised auction rights and the $10 million is left
entirely unexplained by the Commission.
In any event, we need not—and indeed cannot—consider
“appellate counsel’s post hoc rationalizations” for
Commission action. Maine Public Utils. Comm’n v. FERC,
625 F.3d 754, 759 (D.C. Cir. 2010) (internal quotation marks
omitted). The Commission’s failure to explain why the
retrospective offsets could not be calculated, and our inability
to “discern a reasoned path” to that conclusion, Marcus Hook,
430 F.3d at 449, require us to remand for further explanation.
IV
CONCLUSION
Because the Commission failed to provide an adequate
explanation either for its decision to apply the superseded
tariff to an interconnection agreement filed after the new
tariff’s effective date, or for its refusal to address the auction
revenue rights offset, we grant West Deptford’s petition for
review, vacate the Commission’s orders in relevant part, and
remand to the Commission for additional explanation
consistent with the decision of this court.
So ordered.