PJM Power Providers Group v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 8, 2017 Decided January 26, 2018
No. 15-1453
PJM POWER PROVIDERS GROUP,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
PJM INTERCONNECTION, LLC, ET AL.,
INTERVENORS
Consolidated with 15-1455
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Kenneth R. Carretta argued the cause for petitioners. With
him on the briefs were Cara J. Lewis and John L. Shepherd Jr.
John N. Estes III and Paul F. Wight entered appearances.
Anand R. Viswanathan, Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent. With
him on the brief was Robert H. Solomon, Solicitor. Lisa B.
Luftig, Attorney, entered an appearance.
2
Paul M. Flynn argued the cause for intervenors. With him
on the brief were Jennifer H. Tribulski, Ryan J. Collins,
Adrienne E. Clair, Robert A. Weishaar Jr., Gary J. Newell,
Christopher S. Porrino, Attorney General, Office of the
Attorney General for the State of New Jersey, and Carolyn
McIntosh, Deputy Attorney General. Dennis Lane and Alex
Moreau, Deputy Attorney General, Office of the Attorney
General for the State of New Jersey, entered appearances.
Before: GARLAND, Chief Judge, WILKINS, Circuit Judge,
and EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Chief Judge GARLAND.
GARLAND, Chief Judge: Congress has given the Federal
Energy Regulatory Commission (FERC) authority to regulate
the transmission and sale at wholesale of electric energy in
interstate commerce. 16 U.S.C. § 824(a), (b). FERC tasks
certain non-profit entities, known as regional transmission
organizations, with managing the transmission of electricity over
the electric grid and ensuring that energy is reliably available for
consumers. 18 C.F.R. § 35.34; see Advanced Energy Mgmt.
Alliance v. FERC, 860 F.3d 656, 659 (D.C. Cir. 2017). One
such regional transmission organization is PJM Interconnection,
LLC, which has responsibility for administering a tariff that
determines the rates paid to energy providers for providing
electric capacity in the broad mid-Atlantic region.1 See
Advanced Energy, 860 F.3d at 659-60. FERC, in turn, must
ensure that PJM Interconnection’s tariff is “just and reasonable.”
16 U.S.C. § 824d(a).
1
“‘Capacity’ is the ability to produce electricity. Purchasers of
capacity acquire the right to buy electricity in the future.” Advanced
Energy, 860 F.3d at 659.
3
This case concerns one element of PJM Interconnection’s
2014 tariff revisions: the estimated cost of new entry, which
approximates the revenue that a newly constructed power
generator would need to recoup its costs. Through a
complicated methodology, which we fortunately need not test
the reader’s patience by explaining again, the cost of new entry
affects the prices paid to energy providers for electric capacity.
See TC Ravenswood, LLC v. FERC, 741 F.3d 112, 114-15 (D.C.
Cir. 2013); see also N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d
74, 84-87 (3d Cir. 2014). The petitioners in this case -- PJM
Power Providers Group, a coalition of energy providers, and the
PSEG Companies, a public utility holding company and its
subsidiaries -- challenge FERC’s orders approving PJM
Interconnection’s tariff. See 149 FERC ¶ 61,183 (Nov. 28,
2014) (Initial Order); 153 FERC ¶ 61,035 (Oct. 15, 2015)
(Rehearing Order). In the petitioners’ view, the cost of new
entry submitted by PJM Interconnection and approved by FERC
is too low. Consequently, they argue, the resulting price that
they are paid for wholesale capacity is also too low. And this,
they say, means that the PJM Interconnection tariff that FERC
approved is not just and reasonable.
I
We review FERC’s orders under the Administrative
Procedure Act, asking whether they are “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.”
Braintree Elec. Light Dep’t v. FERC, 667 F.3d 1284, 1288 (D.C.
Cir. 2012) (quoting 5 U.S.C. § 706(2)(A)). The Commission’s
factual findings, “if supported by substantial evidence,” are
“conclusive.” 16 U.S.C. § 825l(b).
The petitioners acknowledge that “[t]he questions posed
here are purely factual issues,” and they challenge FERC’s
orders solely on the ground that they are unsupported by
4
substantial evidence. Petitioners’ Reply Br. 4. Our review in
these circumstances 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.” Alcoa Inc. v. FERC, 564 F.3d 1342, 1347 (D.C. Cir.
2009) (internal quotation marks and citation omitted). As the
Supreme Court has made clear, our role is “not to ask whether
a regulatory decision is the best one possible or even whether it
is better than the alternatives.” FERC v. Elec. Power Supply
Ass’n, 136 S. Ct. 760, 782 (2016). Instead, we must “affirm the
Commission’s orders so long as FERC examined the relevant
data and articulated a rational connection between the facts
found and the choice made.” Alcoa, 564 F.3d at 1347 (internal
quotation marks and citation omitted); see Elec. Power Supply
Ass’n, 136 S. Ct. at 782.
Having examined them in detail, we conclude that none of
the petitioners’ objections to the cost-of-new-entry figure that
FERC approved can overcome our deferential standard of
review.
1. The petitioners’ first objection is that FERC lacked
substantial evidence to approve the estimates of labor costs that
formed part of the calculation of the cost of new entry. FERC’s
labor-cost analysis relied principally on affidavits by Paul
Sotkiewicz, an economist employed by PJM Interconnection.
See Initial Order P 108; Rehearing Order PP 76, 78. Sotkiewicz
concluded that a generic power generator could be constructed
in 360,000 labor hours, a figure he supported by pointing to,
inter alia, three studies conducted by different consulting firms.
See Sotkiewicz Initial Affidavit ¶¶ 38, 39 (J.A. 73-74);
Sotkiewicz Answering Affidavit ¶¶ 5, 6 (J.A. 683). The
petitioners attack Sotkiewicz’s reliance on each of those studies.
5
One of the studies, authored by the CH2M Hill engineering
firm, had previously been submitted in a 2011 FERC
proceeding. The petitioners maintain that this study lacks
“probative value” because the prior proceeding was resolved by
settlement before the Commission had an opportunity to make
a final just-and-reasonable determination. Petitioners’ Reply Br.
15. But the fact that the matter was settled does nothing to
diminish the study’s reliability. Nor is there any requirement
that witnesses cite only to studies that FERC has previously
blessed.
The petitioners assert that a second study, prepared by
Sargent & Lundy, could not have contained the data Sotkiewicz
said it did. But consultants from the firm that commissioned the
Sargent & Lundy study filed an affidavit corroborating
Sotkiewicz’s representations. See Pfeifenberger & Zhou
Affidavit 23 (J.A. 639). Although the petitioners insist that the
affidavit is hearsay, hearsay can constitute substantial evidence
in an administrative proceeding. See Lacson v. U.S. Dep’t of
Homeland Sec., 726 F.3d 170, 178 (D.C. Cir. 2013). And here
it does, because the consultants were “uniquely in a position to
know” the relevant information. Honeywell Int’l, Inc. v. EPA,
372 F.3d 441, 447 (D.C. Cir. 2004) (citation omitted); see
Second Taxing Dist. v. FERC, 683 F.2d 477, 488 & n.14 (D.C.
Cir. 1982).
As to the third study, prepared by Stantec Consulting
Services, the petitioners object on the ground that no witness
with personal knowledge of that study appeared before FERC
and that the report itself was not entered into the record. The
petitioners cite no authority for the proposition that
personal-knowledge testimony is required for reliance on an
expert report in a FERC proceeding. Indeed, as we have just
mentioned, hearsay can be admissible in such proceedings. And
6
although failure to include an underlying report in the record of
an agency proceeding could be troubling in some circumstances,
here FERC reasonably relied on Sotkiewicz’s assessment of
multiple information sources -- “including a review of
publicly-available data” -- of which the Stantec estimate was
just one part. Rehearing Order P 76; see Initial Order P 108
(noting that “PJM reviewed the market monitor’s estimate of
construction labor and found that it was consistent with public
information on utility construction labor costs”); id. (citing
Sotkiewicz’s statement that “the values closely track data from
the U.S. Bureau of Labor Statistics Quarterly Census of
Employment and Wages”); Sotkiewicz Initial Affidavit ¶¶ 37,
41 (J.A. 73-75) (discussing Bureau of Labor Statistics data);
Sotkiewicz Answering Affidavit ¶¶ 5, 8 (J.A. 683-84) (same).
2. Next, the petitioners contend that FERC should have
accepted the labor-cost calculations of the petitioners’ expert,
Robert Uniszkiewicz, who, in their view, possessed more
“expertise and experience regarding construction related
matters” than did Sotkiewicz. Petitioners’ Br. 52. But FERC
reasonably explained that it preferred Sotkiewicz’s analysis to
Uniszkiewicz’s because the latter had failed to account for
economies of scale. Rehearing Order P 77. This court “defers
to the Commission’s resolution of factual disputes between
expert witnesses,” Transmission Agency of N. Cal. v. FERC, 628
F.3d 538, 551 (D.C. Cir. 2010) (quoting Elec. Consumers Res.
Council v. FERC, 407 F.3d 1232, 1236 (D.C. Cir. 2005)), and
the Commission’s explanation for its preference was reasonable.
The petitioners further argue that FERC should have held an
evidentiary hearing to adjudge the comparative credibility of the
two experts. But the petitioners’ challenge -- based on their
claim of the superior expertise of their witness -- goes not to
Sotkiewicz’s credibility but to the weight of his evidence.
FERC did not abuse its discretion in deciding to rely on the
7
written record to resolve that question. See Minisink Residents
for Envt’l Pres. & Safety v. FERC, 762 F.3d 97, 114-15 (D.C.
Cir. 2014); Blumenthal v. FERC, 613 F.3d 1142, 1144-45 (D.C.
Cir. 2010).
3. Finally, the petitioners contend that FERC erred in
approving another input to the estimated cost of new entry: the
cost of capital. FERC approved the methodology that the
Brattle Group, PJM Interconnection’s consultant, used to
estimate this input. That methodology relied on a proxy group
of eight energy companies, including publicly traded
independent power producers, merchant generation companies
that were recently acquired by other companies, and recent
merchant generation divestitures. See Samuel A. Newell et al.,
Cost of New Entry Estimates for Combustion Turbine and
Combined Cycle Plants in PJM 34-37 & tbl.25 (May 15, 2014)
(J.A. 159-62). The petitioners object to PJM’s reliance on this
group, maintaining that the majority of new generator
construction is instead financed by private-equity firms, which,
they assert, require higher rates of return than publicly traded
companies.
But “[m]erely because petitioners can conceive of a . . .
method that they believe would be superior to the one FERC
approved does not mean that FERC erred in concluding the
latter was just and reasonable.” Wisc. Pub. Power, Inc. v.
FERC, 493 F.3d 239, 266 (D.C. Cir. 2007). FERC considered
the petitioners’ contention, but approved PJM’s exclusion of
private-equity investors from the sample because their cost of
capital was not observable in the market and hence was not
“verifiable.” Rehearing Order P 57; see also Newell et al.,
supra, at 35 n.27 (J.A. 160) (“We do not include private equity
investors in our sample because the cost of equity cannot be
observed in market data.”). Moreover, the Commission
concluded that the private-equity data the petitioners proffered
8
was unreliable for calculating cost of capital in the electricity
context because it “consist[ed] of portfolios of investments in
many different projects in many different industries.” Initial
Order PP 82, 91; see Rehearing Order P 67. This response was
a “reasonable explanation for rejecting” the petitioners’
contention. See Elec. Consumers Res. Council, 407 F.3d at
1241.
II
For the foregoing reasons, the petitioners’ objections fail to
undermine the substantial evidence supporting FERC’s approval
of PJM Interconnection’s figure for the cost of new entry. The
petitions for review are therefore
Denied.