Ameren Servs. Co. v. Fed. Energy Regulatory Comm'n

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 8, 2017 Decided June 22, 2018
No. 16-1150
AMEREN SERVICES COMPANY, AS AGENT FOR UNION ELECTRIC
COMPANY D/B/A AMEREN MISSOURI, AMEREN ILLINOIS
COMPANY D/B/A AMEREN ILLINOIS AND AMEREN
TRANSMISSION COMPANY OF ILLINOIS, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MIDCONTINENT INDEPENDENT SYSTEM OPERATOR, INC., ET
AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Michael J. Thompson argued the cause for petitioners
MISO Transmission Owners and intervenor Midcontinent
Independent System Operator, Inc. On the joint briefs were
Jim Holsclaw, Matthew R. Dorsett, Christopher D. Supino,
Brooksany Barrowes, and Marcia Hook. Wendy N. Reed and
Matthew J. Binette entered appearances.
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Nicholas M. Gladd, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the briefs were Robert H. Solomon, Solicitor, and Elizabeth E.
Rylander, Attorney. Beth G. Pacella, Attorney, entered an
appearance.
Before: TATEL, GRIFFITH and SRINIVASAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge SRINIVASAN.
In 2011, the Federal Energy Regulatory Commission
issued Order 1000, which aims, among other things, to
encourage the development of “interregional” electricity
transmission projects—projects spanning more than one
geographic region. The interregional component of Order
1000 rested on the belief that certain interregional projects
might meet the needs of transmission providers and customers
more efficiently and effectively than regional projects, but that
prevailing incentives and coordination mechanisms did not
adequately encourage regional transmission providers to
pursue interregional projects.
To that end, Order 1000 calls for regional providers to
jointly evaluate interregional projects. As part of that process,
providers must adopt cost-allocation methodologies for
dividing up the costs of a joint project. The primary goal of
Order 1000’s cost-allocation provisions is to assure that the
relative costs borne by a particular transmission provider be
commensurate with the relative benefits gained by the provider
from the project.
This case concerns one transmission provider’s proposed
interregional cost-allocation methodology. Midcontinent
Independent System Operator (MISO), an organization that
operates transmission facilities on behalf of providers across
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fifteen states in the Midwest, proposed to conduct cost
allocation for interregional projects using what’s called a cost-
avoidance method. The share of costs allocated to MISO under
that method corresponds to the benefits to MISO of its regional
projects that would be displaced by the interregional project.
In identifying which regional projects should be regarded as
displaced by an interregional project, MISO proposed to
exclude any project that had already been approved by the
MISO board.
The Commission rejected MISO’s cost-allocation
approach. In the Commission’s view, excluding approved
regional projects from the analysis would result in a failure to
account for the full potential benefits of an interregional
project. The transmission providers that make up MISO filed
a petition for review in this court. We deny the petition.
I.
A.
Electric transmission in the United States is largely
managed by regional transmission organizations (RTOs) and
independent system operators (ISOs). Those entities operate
the electric transmission systems for a geographic region on
behalf of the local utilities (known as transmission providers)
in a region. MISO operates transmission facilities in the
midwestern United States on behalf of more than two dozen
transmission providers, petitioners here.
For the past several decades, the Federal Energy
Regulatory Commission, acting under its authority to fix just
and reasonable rates under section 206 of the Federal Power
Act has issued orders requiring RTOs and ISOs to adopt
practices meant to encourage competition in the market for
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electricity. E.g., Transmission Planning and Cost Allocation
by Transmission Owning and Operating Public Utilities, Order
No. 1000, 136 FERC ¶ 61,051 at PP 1-5 (2011). Order 1000,
among the most recent of those orders, requires ISOs and RTOs
to consider and evaluate interregional projects—projects
embracing more than one region—and set certain parameters
for allocating the costs of those interregional projects among
providers. Id. The Commission’s aim is to induce the
construction of interregional projects “if such facilities address
the needs of the transmission planning regions more efficiently
or cost-effectively” than regional projects. Id. at 111.
Order 1000’s cost-allocation provisions seek to further that
goal. Establishing both a mechanism and set of principles for
cost allocation, Order 1000 calls for neighboring ISOs and
RTOs to reach agreements on cost allocation for interregional
projects that avoid free rider problems, that improve
transparency with respect to the costs of interregional projects,
and that otherwise align regional and interregional planning
processes. The guiding principle behind Order 1000’s cost-
allocation provisions is that the costs of interregional projects
should be “allocated in a way that is roughly commensurate
with benefits.” Id. at 178.
This court considered a petition for review raising a variety
of challenges to Order 1000. S.C. Pub. Serv. Authority v.
FERC, 762 F.3d 41 (D.C. Cir. 2014) (per curiam). The court
sustained Order 1000 in all respects.
B.
MISO submitted filings to the Commission that purported
to comply with Order 1000’s interregional project coordination
and cost-allocation provisions. The particular filing at issue in
this case concerns the cost-allocation methodology MISO
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proposed to use with respect to one of its neighboring
transmission planning regions, the Southeastern Regional
Transmission Planning organization (SERTP).
MISO proposed to conduct cost allocation using a “cost-
avoidance” method. Under that method, the costs allocated to
MISO for a given interregional project would correspond to the
costs of the regional projects MISO expects to avoid as a result
of the interregional project—that is, the costs of the regional
projects rendered unnecessary by the interregional project. Of
central relevance here, MISO proposed to include in its cost
calculation only those displaced projects that had been
identified in the regional transmission plan but had yet to be
approved. The costs of displaced projects already approved in
the regional transmission plan would be excluded from the
calculation.
The Commission accepted MISO’s compliance filing in
part. The Commission concluded that the cost-avoidance
method largely complied with Order 1000’s cost-allocation
provisions calling for the costs of an interregional project to be
allocated in a manner roughly commensurate with the project’s
benefits. As a general matter, the Commission said, the costs
of regional projects that would be avoided by undertaking an
interregional project should approximate the expected benefits
of the interregional project.
The Commission ultimately rejected MISO’s proposed
cost-allocation method, however, because it excluded from its
calculation the costs of any displaced projects that had already
been approved in MISO’s transmission plan. By excluding
approved projects, the Commission determined, MISO’s
methodology would undervalue the benefits of an interregional
project. That undervaluation, the Commission found, would
result in an improper allocation of costs: relative to its
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neighboring region (SERTP), MISO would bear a lesser share
of costs than would be warranted based on the share of an
interregional project’s benefits it would receive.
In addition, the Commission concluded, inclusion of
approved regional projects in the cost-allocation analysis
would make it more likely that MISO would pursue a beneficial
interregional project—i.e., one that would displace less
efficient and less cost-effective regional projects. That is
because, if MISO counts an approved regional project for cost-
allocation purposes, it also includes that project when assessing
the benefits of an interregional project for purposes of deciding
whether to undertake the project. The inclusion of an approved
regional project for cost-allocation purposes thus ultimately
makes it more likely that an interregional project will be
pursued.
MISO filed a request for clarification and, in the
alternative, rehearing. MISO argued that the Commission’s
requirement to include approved regional projects in MISO’s
cost-avoidance calculation could lead to the displacement of
those approved projects: if, as just explained, the inclusion of
approved regional projects increases the likelihood that an
interregional project will be pursued, the selection of that
project could occasion the displacement of approved regional
projects that are rendered unnecessary. The possibility that
already-approved regional projects could be displaced, MISO
contended, creates uncertainty among transmission providers
and harms investors and consumers.
The Commission denied MISO’s petition, reiterating its
position that MISO’s cost-avoidance methodology failed to
account for the full range of projects displaced by interregional
projects, thus undervaluing the benefits of an interregional
project. The Commission also noted that MISO’s cost-
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avoidance methodology lacked adequate transparency to
comply with Order 1000 because MISO failed to explain what
it meant for a project to be “identified,” but not approved, in its
current regional transmission plan. Midcontinent Indep. Sys.
Operator, Inc., 153 FERC ¶ 61,247 at P 10 (Nov. 25, 2015).
The transmission providers forming MISO filed a petition
for review in this court, and MISO intervened in their support.
The transmission providers making up SERTP intervened on
the Commission’s side. Petitioners advance two principal
arguments: first, that the Commission did not adequately
respond to their contention that the mandated change in cost-
allocation methodology would displace approved projects,
causing harm to the providers and their customers; and second,
that the Commission’s denial of MISO’s compliance filing did
not comport with the Commission’s affirmative obligation
under section 206 of the Federal Power Act, 16 U.S.C. § 824e,
to justify its rates as just and reasonable.
II.
At the outset, the Commission argues that we should not
reach the merits of petitioners’ arguments for three separate
reasons: (i) petitioners lack standing; (ii) the issues are not ripe
for consideration; and (iii) petitioners did not exhaust one of
their arguments. We conclude that petitioners have standing
and that the dispute is ripe, but that petitioners failed to exhaust
one of their arguments before the Commission.
A.
We consider first whether petitioners have standing to
challenge the Commission’s actions. To establish standing,
petitioners must demonstrate: (i) that they have suffered or will
imminently suffer a concrete and particularized injury, (ii) that
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a causal connection exists between the injury and the
challenged conduct, and (iii) that the injury is likely to be
redressed by a favorable judicial decision. Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61 (1992).
The Commission argues that petitioners have suffered no
cognizable injury and that any injury bears no causal
connection to the orders on review. In the Commission’s view,
any injury the petitioning transmission providers suffered from
its orders is too abstract and speculative to give rise to standing.
We need not resolve whether the petitioners have standing,
because we conclude that the intervenor, MISO, has standing
as the object of the orders on review.
“[T]he presence of one party with standing is sufficient to
satisfy Article III’s case-or-controversy requirement.”
Rumsfeld v. Forum for Acad. & Inst. Rights, Inc., 547 U.S. 47,
52 n.2 (2006). A party that has properly intervened “becomes
a full participant in the lawsuit and is treated just as if it were
an original party.” Schneider v. Dumbarton Developers, Inc.,
767 F.2d 1007, 1017 (D.C. Cir. 1985). That rule applies
equally in the contexts of an appeal and a petition for review.
See Stringfellow v. Concerned Neighbors in Action, 480 U.S.
370, 376-77 (1987). The Supreme Court has therefore
concluded that an intervenor may maintain an appeal even if
the original party does not appeal, as long as the intervenor has
standing to invoke the appellate court’s jurisdiction. See
Diamond v. Charles, 476 U.S. 54, 68 (1986).
It follows that an intervenor with standing to assert a claim
on petition for review may maintain an action even if the party
originally petitioning for review lacks standing to assert the
claim. See Greenbaum v. Bailey, 781 F.3d 1240, 1242-43 (10th
Cir. 2015); Bond v. Utreras, 585 F.3d 1061, 1071-72 (7th Cir.
2009); cf. Town of Chester v. Laroe Estates, Inc., 137 S. Ct.
91645, 1651 (2017) (stating that an intervenor of right may
“seek[] additional relief beyond that which the plaintiff
requests” if it has standing as to the relief it seeks). See
generally 15A Charles Alan Wright et al., Federal Practice and
Procedure § 3902.1 (2d ed. 2018). Although our circuit has yet
to hold as much expressly, we have applied that understanding
without comment. See Am. Chemistry Council v. Dep’t of
Transp., 468 F.3d 810, 821 (D.C. Cir. 2006).
We conclude that MISO has standing to challenge the
Commission’s denial of its compliance filing, and that we thus
can consider petitioners’ claims that the denial is arbitrary and
capricious and contrary to law: MISO has joined petitioners’
arguments in full and those arguments are identical in
substance and scope to MISO’s claims. See Town of Chester,
137 S. Ct. at 1651. MISO, unlike petitioners, is the direct
“object of the action” being challenged. Defenders of Wildlife,
504 U.S. at 561. The Commission denied MISO’s compliance
filing on the ground that it did not comply with Order 1000’s
cost-allocation provisions. That denial requires MISO not only
to resubmit its compliance filing but also to revise its tariff. In
those circumstances, “there is ordinarily little question” that the
government’s action causes the regulated party an “injury, and
that a judgment preventing . . . that action will redress it.” Id.
at 561-62.
The principle that a regulated party generally has standing
to challenge an agency action regulating its behavior holds true
here. The challenged orders require MISO to revise its tariff,
and that revision could require MISO to pay a greater
proportion of the costs of certain interregional projects jointly
undertaken by MISO and its neighboring region SERTP. A
favorable decision from our court is likely to prevent the
challenged revision to MISO’s tariff. Accordingly, as the
Commission itself acknowledged in oral argument, Oral
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Argument at 25:28-25:38, even if petitioners lack standing,
MISO, as the object of the agency’s action, has standing.
B.
The Commission next argues that we cannot consider
petitioners’ claims at this time because they are not ripe for our
review. In the Commission’s view, petitioners’ claims are
unripe because it is unclear at this point whether the
Commission’s orders will in fact result in the displacement of
any approved regional project. The Commission notes that, in
the event any displacement were to occur, petitioners could
seek rehearing and judicial review then. We conclude that
petitioners’ claims are ripe for our review.
We defer review of administrative decisions on ripeness
grounds “where (1) delay would permit better review of the
issues while (2) causing no significant hardship to the parties.”
N. Ind. Pub. Serv. Co. v. FERC, 954 F.2d 736, 738 (D.C. Cir.
1992). If a claim “rests ‘upon contingent future events that may
not occur,’” it is unripe. N.Y. State Elec. & Gas Corp. v. FERC,
177 F.3d 1037, 1040 (D.C. Cir. 1999) (quoting Texas v. United
States, 523 U.S. 296, 300 (1998)).
Here, review is appropriate now. Contrary to the
Commission’s suggestion, we need not know with certainty
whether approved projects will in fact be displaced by the
Commission’s orders to assess whether the orders adequately
addressed petitioners’ concerns. The actual displacement of
approved projects tells us little about the adequacy of the
Commission’s explanation, especially when the Commission
justified its decision on grounds that acknowledge the
possibility that displacement will occur. Nor would further
factual development aid the determination whether the
Commission failed to make the requisite finding of just and
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reasonable rates under section 206 of the Federal Power Act.
The claim that the Commission failed to make an affirmative
finding under section 206 does not depend on factual questions
about the displacement of projects.
C.
Finally, the Commission argues that we cannot reach the
merits of one of petitioners’ claims because it was not properly
presented to the agency in a request for rehearing. We agree.
Under 16 U.S.C. § 825l(b), parties seeking judicial review
of the Commission’s orders under the Federal Power Act must
“first petition for rehearing of those orders and must
themselves raise in that petition all of the objections urged on
appeal,” unless they can show “reasonable grounds” for their
failure to do so. Wabash Valley Power Ass’n v. FERC, 268
F.3d 1105, 1114 (D.C. Cir. 2001) (formatting modified and
citations omitted). Whether petitioners have complied with
this “unusually strict [exhaustion] requirement,” id., hinges on
whether their request for rehearing “alerted the Commission to
the legal arguments” they now raise on judicial review, Save
Our Sebasticook v. FERC, 431 F.3d 379, 381 (D.C. Cir. 2005).
Petitioners must raise each argument with “specificity,” Wis.
Power & Light Co. v. FERC, 363 F.3d 453, 460 (D.C. Cir.
2004); objections may not be preserved either “indirectly,”
Office of the Consumers’ Counsel v. FERC, 914 F.2d 290, 295
(D.C. Cir. 1990), or “implicitly,” Kelley ex rel. Mich. Dep’t of
Nat’l Res. v. FERC, 96 F.3d 1482, 1488 (D.C. Cir. 1996).
In this case, petitioners raise two objections to the
Commission’s orders. First, they argue that the Commission
failed to respond adequately to their concerns about the
displacement of approved regional projects and the harms to
transmission providers and customers resulting therefrom.
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Petitioners adequately raised that argument in their petition for
rehearing.
Second, petitioners contend that the Commission’s orders
impermissibly shifted to them the burden of proving that the
rates proposed in MISO’s compliance filing were just and
reasonable. In their view, section 206 of the Federal Power Act
required the Commission first to prove that the proposed rates
were unjust and unreasonable, and then determine new rates
that would be just and reasonable. But that argument, as the
Commission points out, appeared nowhere in petitioners’
requests for rehearing. Petitioners’ rehearing requests instead
focused on the harms they would suffer as a result of the
Commission’s orders, not on whether the Commission had
improperly shifted the burden of proving just and reasonable
rates to the petitioners.
Petitioners respond that the question whether the
Commission has complied with its statutory obligation to
ensure just and reasonable rates ultimately inheres in every
challenge to the Commission’s rate orders, and thus can never
be considered a new argument raised for the first time in a
petition for review. Petitioners misunderstand the Federal
Power Act’s exhaustion requirement. To bring a particular
claim in a petition for review, a petitioner needs to have alerted
the Commission to the specific “legal argument[]” presented
on rehearing (absent a reasonable ground for not doing so).
Save Our Sebasticook, 431 F.3d at 381. Petitioners failed to do
so here.
If we were to accept petitioners’ rationale, parties would
never need to raise specific legal arguments before the
Commission as long as they broadly challenge the justness and
reasonableness of rates under section 206 before the court of
appeals. Such a holding would undermine the Federal Power
13
Act’s exhaustion requirement as to a class of claims, and would
contravene our precedents requiring that parties specifically—
rather than implicitly or indirectly—raise claims before the
Commission on rehearing. Here, petitioners failed to satisfy
that requirement with regard to their contention that the
Commission did not comply with section 206 of the Federal
Power Act.
III.
On the merits, petitioners argue that the Commission failed
to give adequate consideration to their concerns about the
effects of displacing approved regional projects. We disagree.
We set aside the Commission’s actions if they are
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A). “An agency’s
failure to respond meaningfully to objections raised by a party
renders its decision arbitrary and capricious.” PPL
Wallingford Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C.
Cir. 2005) (internal quotation marks omitted). But if “FERC
‘has considered the relevant factors and articulated a rational
connection between the facts found and the choice made,’ we
will uphold its decision.” Aera Energy LLC v. FERC, 789 F.3d
184, 190 (D.C. Cir. 2015) (quoting Transcon. Gas Pipe Line
Corp. v. FERC, 518 F.3d 916, 919 (D.C. Cir. 2008)). That is
the case here.
Petitioners contend that the Commission failed to give
adequate consideration to four concerns they had raised in their
request for rehearing. We conclude that the Commission
adequately addressed each of petitioners’ concerns.
First, petitioners argued generally that the Commission’s
orders could require them to replace an already-approved
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regional project with a new interregional project. In response,
the Commission acknowledged that possibility, noting that
“displacing a selected regional transmission project with a
more efficient or cost-effective interregional transmission
solution” would not be “inconsistent with MISO’s regional
transmission planning process.” Midcontinent Indep. Sys.
Operator, Inc., 153 FERC ¶ 61,247 at P 12.
Second, petitioners contended that the displacement of
approved regional projects would harm certain stakeholders in
various ways. For instance, developers might have already
expended significant sums of money on approved projects that
would be subject to displacement by a new interregional
project. And on a prospective basis, developers might find it
more difficult to gain access to financing for an approved
project if it might be displaced. That could in turn have the
effect of raising rates for consumers.
The Commission offered several responses. The
Commission’s central response was that failing to account for
approved regional projects that would be displaced by an
interregional project would undervalue the benefits of the
interregional project. The cost-avoidance method could
approximate the benefits of an interregional project, the
Commission explained, if it captured all the regional benefits
gained by the ISO or RTO, including the efficiency and public-
policy benefits of the interregional project. But it could capture
all the regional benefits only if it included all regional projects
that stood to be displaced by an interregional project. Indeed,
the Commission noted, approved projects tend to be the most
efficient and cost-effective projects. So by excluding them
from the calculation of benefits of an interregional project,
MISO would disregard the most beneficial projects. The result
would be a significant undervaluation of the benefits of the
interregional project.
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Undervaluing the benefits, the Commission explained,
would violate Order 1000’s core cost-allocation principle: that
an interregional project’s costs be allocated in a manner
“roughly commensurate” with the project’s benefits.
Midcontinent Indep. Sys. Operator, Inc., 153 FERC ¶ 61,247
at P 10. As a result, MISO would be allocated a smaller
proportion of an interregional project’s costs, relative to its
neighbor SERTP, than would be appropriate had the benefits
been properly calculated. In addition, MISO would be less
likely to pursue “more efficient or cost-effective” interregional
projects. Id. As explained, undervaluation of an interregional
project’s benefits for cost-allocation purposes would result in
an under-appreciation of the project’s benefits for purposes of
deciding whether to undertake the project.
In short, the Commission, while not disputing the
possibility that the harms raised by petitioners could come to
pass, determined that the interest in an appropriate allocation
of the costs of an interregional project (and the resulting
implications for undertaking interregional projects) required
MISO to account for already-approved regional projects in its
cost-allocation methodology. We see no basis for setting aside
that determination by the Commission.
Third, petitioners argued in their request for rehearing that,
“in the interests of certainty and fairness to potential [project]
bidders,” there “must be some point at which the comparisons
of different regional and interregional projects concludes.”
J.A. 277. In petitioners’ view, the logical point to make that
comparison is after the identification of projects but before
their approval. The Commission permissibly disagreed,
concluding that petitioners could properly account for the
benefits of an interregional project only if they considered the
benefits of approved projects, not merely of identified ones.
That might lead to the displacement of approved regional
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projects only when it is appropriate to do so—i.e., when an
interregional project is selected in a region’s own transmission
planning process as the more efficient or cost-effective solution
to a transmission need. The Commission further noted that
other regions had adopted the same approach without protest.
Fourth, petitioners contended that their existing tariff did
“not contemplate removing projects from [their] bid
solicitation process.” J.A. 276. In response, the Commission
pointed out that MISO’s tariff already contained provisions
allowing for the removal of bids under certain circumstances,
including cost increases or changes in developer qualifications.
In light of those provisions, the Commission explained, it
would not be inconsistent with MISO’s transmission planning
process to allow the displacement of approved regional projects
when those projects are rendered unnecessary by a more
optimal interregional project.
In the end, we conclude that the Commission adequately
responded to petitioners’ concerns about the possible effects of
including approved regional projects in the cost-allocation
calculation. Petitioners ultimately disagree with the
Commission’s policy judgment about whether the importance
of properly calculating an interregional project’s benefits
outweighs the effects of potentially displacing approved
regional projects. Petitioners’ disagreement with the
Commission’s resolution of that issue does not render the
Commission’s explanation any less thorough or reasoned.
* * * * *
For the foregoing reasons, we deny the petition for review.
It is so ordered.