Public Service Electric and Gas Co. v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 7, 2014 Decided April 14, 2015
No. 12-1382
PUBLIC SERVICE ELECTRIC AND GAS COMPANY, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
JERSEY CENTRAL POWER & LIGHT COMPANY, ET AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
John Lee Shepherd Jr. argued the cause for petitioners.
With him on the briefs were Jodi L. Moskowitz, Gary E. Guy,
John Longstreth, Donald A. Kaplan, and William M. Keyser.
Randall B. Palmer, Kenneth G. Jaffe, and Michael E.
Ward were on the reply brief for intervenors Jersey Central
Power & Light Company, et al. in support of petitioners.
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Lona T. Perry, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were David L. Morenoff, Acting General
Counsel, and Robert H. Solomon, Solicitor.
Before: SRINIVASAN, Circuit Judge, and SENTELLE and
RANDOLPH, Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: Petitioners are fourteen
electrical transmission companies operating as members of
the regional transmission organization PJM Interconnection,
LLC. As incumbent members of the organization, petitioners
contend that PJM’s governing agreements afford them a right
of first refusal for proposed transmission facility expansions
or upgrades within their zones. The Federal Energy
Regulatory Commission (“FERC”) held that no such right of
first refusal exists and that PJM may designate third-party
developers to construct transmission facilities within
incumbent members’ zones. The incumbent transmission
owners petition for review, arguing that the Commission lacks
jurisdiction over transmission facility development and that
the Commission’s interpretation of PJM’s governing
agreements is arbitrary, capricious, or otherwise not in
accordance with law under the Administrative Procedure Act,
5 U.S.C. § 706(2).
We held this case in abeyance pending the decision in
South Carolina Public Service Authority v. FERC, 762 F.3d
41 (D.C. Cir. 2014). Now that there is a final decision in that
case, we remove this case from abeyance. After reviewing
the original and supplemental briefing, and with the benefit of
oral argument, we dismiss the petition for review because
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Article III of the Constitution does not permit us to issue an
advisory opinion.
I.
Petitioners are members of PJM Interconnection, LLC, a
regional transmission organization “to which transmission
providers . . . transfer operational control of their facilities for
the purpose of efficient coordination.” Morgan Stanley
Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty.,
Wash., 554 U.S. 527, 536 (2008). Regional transmission
organizations like PJM combine multiple utility power grids
into a single transmission system to “reduce technical
inefficiencies caused when different utilities operate different
portions of the grid independently.” Id. Formed in 1927,
PJM is the oldest and largest regional transmission
organization. Atlantic City Elec. Co. v. FERC, 295 F.3d 1, 5
(D.C. Cir. 2002). Today, PJM coordinates the movement of
wholesale electricity in thirteen mid-Atlantic states and the
District of Columbia. Maryland Pub. Serv. Comm’n v. FERC,
632 F.3d 1283, 1284 (D.C. Cir. 2011) (per curiam).
“Among its duties, PJM is responsible for preventing
interruptions to the delivery of electricity . . . by ensuring that
its system has sufficient generating capacity.” Id. PJM
fulfills this duty in part by upgrading and enhancing its
system in accordance with procedures set forth in its
governing agreements, which include: the Regional
Transmission Expansion Plan in PJM’s Operating Agreement,
the Consolidated Transmission Owners Agreement (“Owners
Agreement”), and the PJM Open Access Transmission Tariff
(“Tariff”).
Petitioners seek review of four FERC orders from two
proceedings. In both proceedings, non-incumbent developers
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argued that no right of first refusal existed within PJM’s
governing agreements for incumbent transmission owners.
A.
The first proceeding arose on a petition to the
Commission by Primary Power, LLC, a non-incumbent
developer hoping to build the Grid Plus project, a proposed
expansion project comprised of four installations within the
PJM system. Primary Power sought FERC’s assurance that if
it were selected for the project, it would be eligible to employ
cost-based rate recovery in the operation of the project.
Incumbent members of PJM, petitioners before us, opposed
the petition, arguing that Section 1.5.6 of the Regional
Transmission Expansion Plan created a right of first refusal
which would be violated by the grant of rights to the
newcomer. Section 1.5.6(f) states, in pertinent part:
For each enhancement or expansion that is included in
the recommended plan, the plan shall consider [a
number of selection factors] . . . and designate one or
more Transmission Owners or other entities to
construct, own and, unless otherwise provided, finance
the recommended transmission enhancement or
expansion. To the extent that one or more
Transmission Owners are designated to construct, own
and/or finance a recommended transmission
enhancement or expansion, the recommended plan
shall designate the Transmission Owner that owns
transmission facilities located in the Zone where the
particular enhancement or expansion is to be located.
FERC rejected the incumbent transmission owners’
arguments in Primary Power, LLC, 131 FERC ¶ 61,0155
(2010) (order on petition for declaratory order). Interpreting
PJM’s Operating Agreement, FERC explained that Sections
1.5.7(c)(iii) and 1.5.6(f) of the Agreement allowed non-
incumbent developers to compete for and construct projects
under the expansion protocol. Id. PP 62-65. FERC held that
“the PJM Tariff permits, but does not require, PJM to
designate Primary Power, an entity other than an incumbent
transmission owner, as the entity to build Grid Plus.” Id.P 62. FERC concluded that Section 1.5.6(f) did not create a
right of first refusal for incumbent transmission owners
because the “shall designate” clause requiring PJM to assign
projects to transmission owners who own facilities in the zone
where the project is located only “applies by its own terms ‘to
the extent that one or more Transmission Owners are
designated.’” Id. P 65 (quoting Operating Agreement
§ 1.5.6(f)). The “shall designate” clause, FERC further
explained, does not apply when PJM designates non-
incumbent “other entities” to construct the project. Id. P 64.
Addressing the recovery of development costs, FERC
acknowledged that merchant transmission facilities are not
eligible for cost-based rates under the PJM Tariff. Id. P 68.
But if PJM includes the Grid Plus project in its expansion
plan, FERC explained that Primary Power “would be eligible
to seek cost-based rate recovery as would any other
transmission owner.” Id. P 70. In other words, FERC noted
that the “PJM’s Tariff contains no prohibition on a non-
incumbent party becoming a transmission owner to receive
cost-based rates.” Id.
Incumbent transmission owners timely sought rehearing.
Among other things, they argued that FERC ignored their
exclusive right to build and operate all non-merchant projects
in their own zones, and FERC misinterpreted the “other
entity” language from Section 1.5.6(f) of the PJM Operating
Agreement. Incumbent transmission owners also suggested
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that FERC exceeded its statutory authority when it required
them to give up rights that they did not cede to PJM.
FERC denied the rehearing request and affirmed its
previous order. Primary Power, LLC, 140 FERC ¶ 61,052(2012) (order denying rehearing). Although the language
from the expansion protocol is ambiguous, FERC reiterated
that it neither established a right of first refusal for incumbent
transmission owners nor precluded a non-incumbent
developer from recovering cost-based rates if selected for a
project under PJM’s expansion plan. Id. P 35. In light of
PJM’s obligation to operate in a non-discriminatory manner,
FERC interpreted PJM’s expansion protocol as “provid[ing]
an opportunity for a wide variety of participants and different
business models.” Id. FERC stressed that, while incumbent
transmission owners may participate in the process, PJM’s
protocol neither guaranteed incumbent owners the right to
construct projects in their zones nor required them to
undertake such construction. Id.B.
In the second proceeding under review, non-incumbent
developer Central Transmission, LLC, filed a complaint
pursuant to Section 206 of the Federal Power Act (“FPA”),
alleging that the PJM Tariff is unjust and unreasonable
because it prevents Central Transmission from constructing a
proposed transmission project and receiving cost-based rate
recovery for it. Incumbent transmission owners protested,
arguing that the complaint should be dismissed because
Central Transmission did not satisfy the burden of proof
under Section 206. The right of first refusal, incumbent
owners explained, did not create a barrier to entry because
non-incumbent developers like Central Transmission were
free to build PJM expansion projects as merchant developers.
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FERC dismissed the complaint, concluding that the
Section 206 proceeding was unnecessary. See Central
Transmission, LLC v. PJM Interconnection, LLC, 131 FERC
¶ 61,243 (2010) (order on complaint). Applying its decision
in Primary Power, 131 FERC ¶ 61,015 (2010), FERC
explained that PJM’s governing agreements allowed non-
incumbent parties like Central Transmission to become
transmission owners eligible for cost-based rates. Central
Transmission, LLC, 131 FERC ¶ 61,243, P 46. Consequently,
FERC saw no need to revise the PJM Tariff or Operating
Agreement. Id. P 48.
Petitioner Public Service Electric and Gas Company
(“PSEG”) timely sought rehearing. Taking no issue with the
ultimate result (dismissal of the complaint), PSEG instead
objected to the Commission’s reliance on the Primary Power
order. The Central Transmission and Primary Power orders,
PSEG argued, ignored incumbent transmission owners’
exclusive right to build projects in their own zones.
According to PSEG, the Commission’s reading of PJM’s
governing agreements was simply wrong.
The Commission denied PSEG’s rehearing request on the
same day that it denied rehearing in Primary Power. See
Central Transmission, LLC v. PJM Interconnection, LLC, 140
FERC ¶ 61,053 (2012) (order on rehearing). Consistent with
its Primary Power order, the Commission reiterated that
PJM’s expansion protocol does not grant incumbent
transmission owners a right of first refusal that would prevent
non-incumbent transmission developers from building an
economic project. Id. P 17.
C.
As noted above, we held this case in abeyance pending
the decision in South Carolina Public Service Authority v.
FERC because we hoped to “benefit from resolution of the
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question of FERC’s authority to prohibit a regional
transmission organization’s tariff from including a right of
first refusal for incumbent transmission owners to build and
operate transmission facilities.” Pub. Serv. Elec. & Gas Co.,
et al. v. FERC, No. 12-1382 (D.C. Cir. Jan. 15, 2014) (order
holding case in abeyance). In South Carolina Public Service
Authority v. FERC, petitioners challenged the Commission’s
authority to adopt Order No. 1000, which required
transmission providers to remove from their “jurisdictional
tariffs and agreements any provisions that establish a federal
right of first refusal for an incumbent transmission developer
to construct new regional transmission facilities included in a
regional transmission plan.” Transmission Planning and Cost
Allocation by Transmission Owning and Operating Public
Utilities, Order 1000, 76 Fed. Reg. 49,842, 49,846 (Aug. 11,
2011).
The South Carolina petitioners argued that Section 206
of the FPA prevented FERC from removing rights of first
refusal under Order No. 1000 because the rights of first
refusal were too attenuated from a “practice” “affecting . . .
rate[s].” S.C. Pub. Serv. Auth., 762 F.3d at 84. This Court
applied the familiar two-step framework of Chevron U.S.A.
Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837(1984), rejected petitioners’ argument, and held “that the
removal mandate is a legitimate exercise of the Commission’s
authority.” S.C. Pub. Serv. Auth., 762 F.3d at 72.
While this petition was pending, FERC directed PJM to
comply with Order No. 1000 and remove or revise “any
provision that could be read as supplying a federal right of
first refusal for any type of transmission project that is
selected in the regional transmission plan for purposes of cost
allocation.” PJM Interconnection, LLC, 142 FERC ¶ 61,214,
P 222. PJM complied, and, as of the January 1, 2014
effective date, PJM’s governing agreements no longer contain
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language that could be read to create a right of first refusal for
incumbent transmission owners. PJM Interconnection, LLC,
147 FERC ¶ 61,128, P 29. Because we are now left
interpreting superseded language from PJM’s governing
agreements, FERC contends that this case no longer presents
a live controversy and any decision at this time would
constitute an impermissible advisory opinion. Resp’t Supp’l
Br. 12 (citing Princeton Univ. v. Schmid, 455 U.S. 100, 103
(1982)). For the reasons explained below, we agree.
II.
“‘[T]he oldest and most consistent thread in the federal
law of justiciability is that the federal courts will not give
advisory opinions.’” Flast v. Cohen, 392 U.S. 83, 96 (1968)
(quoting C. Wright, Federal Courts 34 (1963)). To satisfy the
firmly established Article III case or controversy requirement,
“there must be a live controversy at the time” we review the
case. Sosna v. Iowa, 419 U.S. 393, 402 (1975). It is not
enough that there may have been a live controversy when the
petitioners first filed their appeal. See Burke v. Barnes, 479
U.S. 361, 363 (1987); Chamber of Commerce v. EPA, 642
F.3d 192, 199 (D.C. Cir. 2011).
Petitioners concede that their jurisdictional argument fails
under South Carolina Public Service Authority v. FERC, yet
suggest that there is still a live controversy because nothing
from that case impacted petitioners’ argument that FERC’s
interpretation of PJM’s governing agreements was arbitrary
and capricious. Pet’rs Supp’l Br. 4–5. If we do not address
the merits of their argument, petitioners explain, any future
challenge to the Central Transmission and Primary Power
orders will amount to an impermissible collateral attack on
those orders. Pet’rs Reply Br. 17 (citing Pacific Gas & Elec.
Co. v. FERC, 533 F.3d 820, 825 (D.C. Cir. 2008); Wisc.
Public Power, Inc. v. FERC, 493 F3d 239, 265-66 (D.C. Cir.
2007)). While petitioners are no doubt correct that our
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decision today ends any direct review of the FERC decisions
before us, that does not inherently preclude this court from
answering similar questions should they arise in the future in
a live controversy.
Indeed, petitioners are involved in ongoing litigation
challenging FERC’s compliance orders that required them to
remove any provision that could be read as supplying a right
of first refusal from PJM’s governing agreements. See
American Transmission Systems, Inc., et al. v. FERC, Nos.
14-1085 & 14-1136 (D.C. Cir. filed May 27, 2014). That case
involves the interpretation of the same language from the
now-superseded agreements at issue in this case. See PJM
Interconnection, LLC, 142 FERC ¶ 61,214, PP 221-24; PJM
Interconnection, LLC, 147 FERC ¶ 61,128, PP 94-103.
Petitioners explain: “The chief question presented in that case
is whether FERC violated the Mobile-Sierra doctrine by
directing PJM and the PJM Transmission Owners (including
the Petitioners in this case) to remove or change the same
provisions of PJM’s governing agreements and PJM Tariff
whose meaning is disputed in this petition for review.” Pet’rs
Supp’l Br. 5.
The Mobile-Sierra doctrine requires FERC to presume
“that a rate set by a freely negotiated wholesale-energy
contract meets the just and reasonable requirement” from the
FPA, 16 U.S.C. § 824d(a). NRG Power Marketing, LLC v.
Maine Pub. Util. Comm’n, 558 U.S. 165, 167 (2010) (internal
quotation marks omitted). When it clarified the impact of
Order No. 1000, FERC explained that it would not require
“transmission providers to eliminate a federal right of first
refusal before the Commission makes a determination
regarding whether an agreement is protected by a Mobile-
Sierra provision.” Transmission Planning and Cost
Allocation, 77 Fed. Reg. 32,184, 32,245 (May 31, 2012). In
South Carolina Public Service Authority v. FERC, this Court
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deferred consideration of “whether or how Mobile-Sierra will
ultimately apply to particular contracts” because the effects of
the order had not been felt by the parties. 762 F.3d at 81
(citing Associated Gas Distribs. v. FERC, 824 F.2d 981, 1007
(D.C. Cir. 1987)).
Unlike the petitioners in South Carolina, petitioners in
this case have felt the effects of the order because FERC
concluded that the disputed provisions from PJM’s governing
agreements were “not in compliance with Order No. 1000’s
requirement to eliminate any federal right of first refusal” and
directed PJM to remove the provisions in its compliance
order. PJM Interconnection, LLC, 142 FERC ¶ 61,214,
P 221. FERC’s interpretation of PJM’s governing agreements
as they existed before January 1, 2014 only presents a live
controversy to the extent that it is coupled with, and thus
impacts, petitioners’ ongoing Mobile-Sierra challenge. But
petitioners’ Mobile-Sierra challenge is not directly before
us—instead, it is present in American Transmission Systems,
Inc., et al. v. FERC. Consequently, we conclude that the issue
before us (the proper interpretation of the superseded
language from PJM’s governing agreements) does not present
a live controversy.
***
With no live controversy between adverse parties, we
conclude that any decision issued at this time would constitute
an impermissible advisory opinion. We must therefore
dismiss incumbent transmission owners’ petition for review.
So ordered.