Protesting entities separately petitioned for review of the Federal Energy Regulatory Commission’s (FERC) orders that approved regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities.
After consolidation, the Court of Appeals held that:
- The FERC failed to reasonably explain why a “flow-based” method called the “solution-based distribution-factor analysis” (DFAX), which assigned costs based on how much each utility used a facility over time, was permissible to be used to allocate the costs of the upgrades;
- The “de minimis” threshold used in the DFAX violated the Federal Power Act’s cost-causation principle and caused undue discrimination;
- The FERC reasonably explained its decision that netting the flows to each delivery point in a zone to calculate total flow in a zone did not violate the Federal Power Act’s cost-causation principle and did not cause undue discrimination;
- It was reasonable to use a model of the flow of electricity that assumed that each zone was at peak demand;
- The FERC reasonably read the tariff as requiring an appropriate substitute proxy for the DFAX method;
- Responsibility of public utility outside of transmission organization’s region to pay costs associated with the upgrades ended upon termination of its power exchange transmission service, or “wheeling,” agreement with transmission owner; and
- The FERC reasonably came to and adequately explained conclusion that the overall cost allocation for entities outside the transmission organization’s region was not unjust or unreasonable.
When approving regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, which upgrades were “non-flow-based” projects, the Federal Energy Regulatory Commission (FERC) failed to reasonably explain why a “flow-based” method called the “solution-based distribution-factor analysis” (DFAX), which assigned costs based on how much each utility used a facility over time, was permissible to be used to allocate the costs of the upgrades; when evaluating a separate project that also conferred non-flow-based benefits, the FERC had determined that using DFAX was not warranted, and although the FERC claimed that the upgrade projects involved resolving short-circuit issues in a way that made those projects like flow-based projects, the FERC conceded that, like the stability issue with the separate project, short-circuit problems were not directly caused by flow overloads on a facility.
When reviewing the Federal Energy Regulatory Commission’s (FERC) orders that approved regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, the Court of Appeals had jurisdiction to consider argument that the FERC acted arbitrarily in treating the upgrade projects differently from a separate project when determining the appropriateness of the method used to assign costs; even though the protesting utilities failed to raise the argument when applying for rehearing of an initial FERC order, the FERC did not change its position as to the separate project until after the application for rehearing of the initial order, so the protesting utilities had a reasonable ground for failing to raise the argument.
The “de minimis” threshold used in the “flow-based” method called the “solution-based distribution-factor analysis” (DFAX) to allocate costs for upgrades to transmission owner’s facilities violated the Federal Power Act’s cost-causation principle and caused undue discrimination; under the threshold, if the “distribution factor,” which was computed by dividing a zone’s use of a facility by the zone’s total load, was below 1%, then the zone would be assigned no costs, but such a threshold operated as a too-big-to-pay rule that bordered on the absurd.
Federal Energy Regulatory Commission (FERC) reasonably explained its decision that netting the flows to each delivery point in a zone to calculate total flow in a zone, which was a calculation process done as part of the “flow-based” method called the “solution-based distribution-factor analysis” (DFAX) to allocate costs for upgrades to transmission owner’s facilities, did not violate the Federal Power Act’s cost-causation principle and did not cause undue discrimination; under “netting,” receipt of electricity in a negative direction offset the receipt of electricity in a positive direction, but since counterflows increased capacity, it was reasonable to treat them as benefits that the zones could confer on the facilities.
When deciding on protesting entities’ petitions for review of the Federal Energy Regulatory Commission’s (FERC) orders that approved regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, the Court of Appeals lacked jurisdiction to consider certain arguments as to why netting the flows to each delivery point in a zone to calculate total flow in a zone violate the Federal Power Act’s cost-causation principle and caused undue discrimination; protesting utilities did not raise such argument in their applications for rehearing.
When deciding whether to approve regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, it was reasonable for the Federal Energy Regulatory Commission’s (FERC) to use a model of the flow of electricity that assumed that each zone was at peak demand; despite argument that the assumption overestimated the merchant transmission facilities’ use of the transmission facilities, the assumption was reasonable since transmission owner had to be able to meet peak load to guarantee system reliability.
When deciding whether to approve regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, the Federal Energy Regulatory Commission (FERC) reasonably read the tariff as requiring an appropriate substitute proxy for the “solution-based distribution-factor analysis” (DFAX) method to allocate costs of upgrades to transmission owner’s facilities only when the modeled flows were not consistent with the normal expected flow results that an engineer would expect to see; despite argument that the tariff required a departure from the DFAX method if it violated the Federal Power Act’s cost-causation principle, such an approach did not comport with requirement of FERC that costs be assigned ex ante.
Public utility’s responsibility to pay costs associated with upgrades to transmission owner’s facilities ended upon termination of its power exchange transmission service, or “wheeling,” agreement with transmission owner, and thus transmission organization for region that did not include utility could not allocate such costs to utility after the termination; post-wheeling-agreement settlement that clarified the parties’ rights and obligations made clear that utility had no liability for transmission enhancement charges after termination of term of service.
When reviewing Federal Energy Regulatory Commission’s (FERC) orders that approved regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, the Court of Appeals lacked jurisdiction to consider intervenor’s argument that the FERC’s decision to allow merchant transmission facility to avoid cost allocations for one of the upgrade projects was arbitrary; such an argument appeared nowhere in intervenor’s requests for rehearing before the FERC, which generally challenged the FERC’s handling of cost allocation.
When deciding whether to approve regional transmission organization’s cost allocations for upgrades to transmission owner’s facilities, the Federal Energy Regulatory Commission (FERC) reasonably came to and adequately explained conclusion that the overall cost allocation for entities outside the transmission organization’s region was not unjust or unreasonable; the FERC recognized that transmission organization was upgrade project’s planner, and the FERC relied on transmission organization’s statement that the project would still be needed in region even if there were no flows on the transmission facilities interconnecting the two regions at issue.