Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01222/USCOURTS-caDC-99-01222-0/pdf.json

Parties Involved:
Central Power and Light Company
Intervenor
East Texas Electric Cooperative, Inc.
Petitioner
Federal Energy Regulatory Commission
Respondent
Northeast Texas Electric Cooperative, Inc.
Petitioner
Public Service Company of Oklahoma
Intervenor
Southwestern Electric Power Company
Intervenor
Tex-La Electric Cooperative of Texas, Inc.
Petitioner
West Texas Utilities Company
Intervenor

Document Text:

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 10, 2000 Decided July 25, 2000

No. 99-1222

East Texas Electric Cooperative, Inc., et al.,

Petitioners

v.

Federal Energy Regulatory Commission,

Respondent

Central Power and Light Company, et al.,

Intervenors

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

A. Hewitt Rose, III argued the cause for the petitioners.

David H. Coffman, Attorney, Federal Energy Regulatory

Commission, argued the cause for the respondent. John H.

Conway, Acting Solicitor, Federal Energy Regulatory Commission, was on brief. Jay L. Witkin, Solicitor, and Susan J.

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 1 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Court, Counsel, Federal Energy Regulatory Commission, entered appearances.

Clark Evans Downs argued the cause for the Intervenors.

Martin V. Kirkwood was on brief.

Before: Edwards, Chief Judge, Henderson and Rogers,

Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge: Petitioners

East Texas Electric Cooperative, Inc., Northeast Texas Electric Cooperative, Inc. and Tex-La Electric Cooperative of

Texas, Inc. (collectively, Texas Electric) seek review of three

orders of the Federal Energy Regulatory Commission

(FERC, Commission) ultimately approving the open access

transmission tariff the CSW Operating Companies (CSW)1

proposed for their provision of electric power to Texas Electric, inter alia. Texas Electric argues that the Commission,

in its Tariff Order, Central Power & Light Co., 81 F.E.R.C.

p 61,311 (1997), accepted certain rates included in CSW's

proposed rates but rejected and ordered modification of

another. CSW not only responded to the Commission's directive regarding modification of the specified rate, they also

eliminated a different rate which, Texas Electric argues, had

been accepted and was therefore not supposed to be eliminated. The Commission accepted CSW's compliance filing in

relevant part in its Compliance Order, Central Power & Light

Co., 85 F.E.R.C. p 61,224 (1998), including the alleged rate

change resulting from the elimination of the rate earlier

accepted. Finally, in its Rehearing Order, Central Power &

Light Co., 87 F.E.R.C. p 61,073 (1999), the Commission rejected Texas Electric's arguments and concluded CSW had complied with the Tariff Order directives.

__________

1 The Central and South West Corporation, a registered public

utility holding company, is comprised of four operating companies

(CSW): Southwestern Electric Power Company; Public Service

Company of Oklahoma; Central Power and Light Company; and

West Texas Utilities Company. CSW filed a brief as intervenors in

support of the Commission.

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 2 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Texas Electric argues, citing 16 U.S.C. s 824d, that CSW

failed to justify the rate change as the Federal Power Act

(Act) requires and that the Commission's acceptance, without

explanation, of CSW's compliance filing and its resulting

approval of CSW's elimination of the previously accepted

charge (thereby effecting a rate change) also failed to satisfy

the Commission's duty under the Administrative Procedure

Act, 5 U.S.C. s 706(2). Texas Electric further contends the

new rates unduly discriminate against it (and other CSW

customers) and that the Commission violated its duty under

the Act, 16 U.S.C. s 824e, to assure that rates are not unduly

discriminatory.

The Commission on the other hand claims it did not accept

the proposed rates in the Tariff Order and that nothing

therein prohibited CSW from eliminating the rate at issue.

Rather, the Commission claims that its Tariff Order makes

clear the decision was left to CSW's discretion. We defer to

FERC's interpretation of its Tariff Order as not limiting

CSW's revised transmission tariff. We conclude, however,

that the Tariff Order did not sufficiently notify Texas Electric

of CSW's discretion to modify the original proposal, particularly in light of the Tariff Order's language approving the

rates at issue. Hence Texas Electric's failure to seek rehearing does not bar it from raising this issue before us. Moreover, the Commission failed to explain why the revised tariff

was lawful, that is, just and reasonable. Given that the

revision at issue could not fairly have been anticipated by

Texas Electric, the Commission erred in summarily approving that part of the Compliance Tariff without explaining

whether the new rates were just and reasonable; accordingly,

we remand for FERC to make that determination.

I.

The CSW System operates in two power districts: the

Southwest Power Pool (SPP) and the Electric Reliability

Council of Texas (ERCOT). Of the four operating companies

in the CSW System, two are entirely within SPP and the

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 3 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

other two are entirely within ERCOT.2 CSW's facilities are

interconnected, however, forming a single, integrated system.

In 1996 FERC addressed the rate systems of public utilities, like those comprising CSW, who are members of registered public utilities holding companies. In Order No. 888

(filed May 10, 1996), Promoting Wholesale Competition

Through Open Access Non-discriminatory Transmission

Services by Public Utilities, FERC Stats. & Regs. p 31,035,

61 Fed. Reg. 21,540 (1996), codified as revised at 18 C.F.R.

Pts. 35 & 385 (1999),3 which resulted from a rule-making

proceeding designed to remedy undue discrimination in the

transmission of electric power, FERC required all such utilities to file a tariff permitting transmission service across the

holding company's entire system at a single price. See

Transmission Access Policy Study Group, 2000 WL 762706,

at *3, *5 (D.C. Cir. June 30, 2000); see also Tariff Order, 81

F.E.R.C. at 62,430 (discussing Order No. 888). Thus, individual member utilities within a holding company could no longer

charge separate, "pancaked" rates4 for what is a single trans-

__________

2 ERCOT operates entirely in Texas and, to a large extent, is

governed by the Public Utility Commission of Texas. Although the

ERCOT companies became subject to FERC jurisdiction as a result

of their interconnection with the SPP companies, FERC commonly

defers to the Texas transmission ratemaking methodologies within

ERCOT. See Brief of Commission at 7; Brief of Petitioners at 5.

3 For the revisions and clarifications of Order No. 888, see 76

F.E.R.C. p 61,009 (1996), 76 F.E.R.C. p 61,347 (1996), and 79

F.E.R.C. p 61,182 (1997), on reh'g, Order No. 888-A, FERC Stats.

& Regs. p 31,048, 62 Fed. Reg. 12,274 (1997), on reh'g, Order No.

888-B, 81 F.E.R.C. p 61,248, 62 Fed. Reg. 64,688 (1997), on reh'g,

Order No. 888-C, 82 F.E.R.C. p 61,046 (1998), aff'd in part and

remanded sub nom. Transmission Access Policy Study Group v.

FERC, 2000 WL 762706 (D.C. Cir. June 30, 2000).

4 A "pancaked" rate is equal to the sum of the rates for a single

transmission of two or more utilities within a holding company's

system. In other words, the customer must pay each utility's

separate charge for a single transmission: here, the customer would

pay both SPP and ERCOT rates for a transmission through their

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 4 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

mission over the holding company's system. Id. at 62,432.

Instead, the utilities must provide the transmission under a

single rate, resulting in a de facto reduction of the overall

charge. FERC addressed the CSW System specifically, directing the utilities therein to file "a system tariff that will

provide comparable service to all wholesale users on the CSW

System, regardless of whether they take transmission service

wholly within ERCOT or the SPP, or take transmission

service between the reliability councils over the North and

East Interconnections." Order No. 888, 61 Fed. Reg. at

21,595. Furthermore, FERC noted that "[i]t may be appropriate to have different rates for transmission service wholly

within ERCOT or the SPP, and for service between [them]."

Id. at 21,595 n.422.

CSW filed a proposed transmission tariff that provided

separate rates for wholly intra-ERCOT service and wholly

intra-SPP service but did not provide a single CSW Systemwide rate for transmissions through both ERCOT and SPP.

Thus, customers requiring service traversing the SPPERCOT boundary would pay pancaked rates. In its Tariff

Order the Commission analyzed CSW's separate rates for the

two service areas (ERCOT and SPP) and determined that the

rate structures were reasonable.

Assessing different rates for service in the different

regions is reasonable.... [I]t is appropriate to allow

CSW to adopt the Texas Commission's regional network

pricing structure for services wholly in ERCOT. As a

corollary, it is also reasonable for CSW to assess a single

postage stamp rate for service wholly within SPP.

Tariff Order, 81 F.E.R.C. at 62,432-33. The Commission,

however, then rejected the pancaked rates for service traversing both areas. See id. at 62,433. It "require[d] CSW to

revise its tariff to propose a single rate for use of the entire

CSW system" and added that, "[w]hile CSW may continue to

propose multiple charges, their total sum may not exceed

__________

separate service areas but within the CSW System. See Brief of

Commission at 11.

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 5 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

CSW's average system cost." Id. In closing the Commission

further described its action:

The Commission orders:

(A) CSW is hereby directed to make the changes

discussed in the body of this order within 30 days of the

date of this order.

(B) The proposed CSW Tariff is hereby accepted for

filing, as modified as directed in Ordering Paragraph (A)

above, effective January 1, 1997....

Id. at 62,440.

CSW filed a Compliance Tariff proposing a single fourcompany, system-wide rate applicable both to customers

served by transmissions through ERCOT and SPP and to

customers accessing only SPP service.5 The tariff also set a

rate applicable to customers using only ERCOT but eliminated the comparable rate for "SPP-only" customers it had

originally proposed. Texas Electric protested the Compliance Tariff's elimination of the intra-SPP rate. It argued

that the Tariff Order had approved the intra-SPP rate and,

therefore, CSW must justify elimination of the rate as the Act

requires. In addition, Texas Electric argued that the intraSPP rate was necessary to prevent undue discrimination in

light of the intra-ERCOT rate which remained in effect and

was less expensive than the system-wide rate to which

SPP-only customers had become subject. In the Compliance

Order the Commission focused on whether CSW had complied with the Tariff Order. The Commission found that it

had: "In the [Tariff Order], we directed [CSW] to submit a

single, system-wide rate, and they have done so." Compliance Order, 85 F.E.R.C. at 61,924. Accordingly, the Commission approved elimination of the intra-SPP rate.

Texas Electric requested rehearing challenging FERC's

approval of the elimination of the intra-SPP rate in the

__________

5 Although Texas Electric requested rehearing on "the Commission's approval of direct assignment of the costs of transmission

facility upgrades," Joint Appendix 42, it did not challenge the

system-wide rates or CSW's authority to establish multiple charges.

Compliance Tariff. It argued that elimination of the rate was

not consistent with the Tariff Order and lacked adequate

justification by CSW and adequate consideration by the Commission. In the Rehearing Order, the Commission again

rejected Texas Electric's challenges because it found CSW

had complied with its directive in the Tariff Order (that is, to

propose a single rate for use of the entire CSW system) when

it eliminated the intra-SPP rate in favor of a single-system

rate. See Rehearing Order, 87 F.E.R.C. at 61,300. The

Commission added that, if Texas Electric wished to challenge

the directive, it could have done so on rehearing of the Tariff

Order but not on rehearing of the Compliance Order. See id.

II.

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 6 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

"As a general matter, we will uphold FERC's factual

findings if supported by substantial evidence and will endorse

its orders so long as they are based on reasoned decision

making." Texaco, Inc. v. FERC, 148 F.3d 1091, 1095 (D.C.

Cir. 1999) (citing Koch Gateway Pipeline Co. v. FERC, 136

F.3d 810, 814 (D.C. Cir. 1998)). And if FERC interprets its

own orders reasonably, we will sustain its interpretations.

See Natural Gas Clearinghouse v. FERC, 108 F.3d 397, 399

(D.C. Cir. 1997).

Arguing that the Tariff Order left CSW free to eliminate

the multiple charges they had proposed, FERC relies on the

permissive "may" in the statement that "CSW may continue

to propose multiple charges," Tariff Order, 81 F.E.R.C. at

62,433 (emphasis added). Although FERC precedent generally confines the scope of modifications in compliance filings

to the Commission's particular directives, see Entergy Power

Mktg. Corp., 75 F.E.R.C. p 61,282 at 61,903 (1996); Southern

Co. Servs., 63 F.E.R.C. p 61,217 at 62,595-96 (1993), here the

Commission specifically left to CSW the decision whether to

"continue to propose multiple charges." 81 F.E.R.C. at

62,433. Thus, CSW's subsequent elimination of the intra-SPP

rate was contemplated and in fact authorized, albeit not

ordered, in the Tariff Order. FERC points to specific language supporting its interpretation of its Tariff Order as nonUSCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 7 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

prescriptive with regard to proposing multiple charges, see

Brief of Commission at 21,6 and, finding FERC's interpretation of its own order reasonable, we must sustain it against

Texas Electric's challenge. See Natural Gas Clearinghouse,

108 F.3d at 399.

Nevertheless the Tariff Order did not provide sufficient

notice to Texas Electric that CSW could eliminate the approved intra-SPP rate. See McElroy Elecs. Corp. v. FCC,

990 F.2d 1351, 1358 (D.C. Cir. 1993) ("[W]e look not at the

reasonableness of the Commission's intended interpretation,

but at the clarity with which the agency made that intent

known."). Much of the Tariff Order indicated acceptance of

CSW's proposed tariff, including the declarations in the introductory paragraph: "In this order, the Commission directs

modifications to and accepts for filing, as modified, a joint

system-wide open access transmission tariff." Tariff Order,

81 F.E.R.C. at 62,430 (emphasis added). In the Commission's

concluding list of orders, it also accepted the tariff for filing

conditioned on the modifications CSW were directed to make.7

See id. at 62,440. The Commission approved the separate

intra-SPP and intra-ERCOT rates so long as their sum did

not exceed CSW's average system cost. See id. at 62,432-33.

In fact, FERC deemed the methodology used to determine

separate rates "appropriate" and "reasonable." Id. at 62,433.

One reasonable interpretation of the phrase granting CSW

discretion is an indication of FERC policy toward future rate

__________

6 In brief the Commission argued:

As for any requirement that [CSW] must retain their intraSPP rates, the Tariff Order spoke to that as well. The Tariff

Order specifically stated that "[w]hile CSW may continue to

propose multiple charges, their total sum may not exceed

CSW's average system cost." By using the permissive "may,"

FERC made clear that [CSW] had the discretion to keep or

eliminate multiple charges including the SPP-only rates.

Brief of Commission at 21 (citations omitted) (emphasis in original).

7 As noted earlier, proposed tariff modifications are ordinarily

limited to what the Commission directs but the Commission did not

direct CSW to eliminate the intra-SPP rate.

changes, as "may continue" implies future action. This interpretation is all the more reasonable if, given FERC's discussion in approving the separate, regional rates, the reader

interpreted the order as accepting the proposed rates that

were not subject to the directed modification. On the whole

it was not unreasonable for Texas Electric to have overlooked

or misread the permissive language of the Tariff Order so as

to relieve it of the obligation to petition for clarification or

rehearing. It is for this reason we disagree with the Commission's statement in the Rehearing Order that Texas Electric failed to preserve its challenge (thus precluding our

exercise of jurisdiction) because it did not raise the objection

in its petition for rehearing of the Tariff Order.

The judicial review portion of the Act provides that "[n]o

objection to the order of the Commission shall be considered

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 8 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

by the court unless such objection shall have been urged

before the Commission in the application for rehearing unless

there is reasonable ground for failure so to do." 16 U.S.C.

s 825l(b). We have consistently rejected agency efforts to

bind parties "by what the agency intended, but failed to

communicate." McElroy Elecs. Corp. v. FCC, 990 F.2d 1351

(D.C. Cir. 1993). Rather, an agency order must provide

reasonable notice of its import:

The policy requiring timely filing of motions for reconsideration is one of fairness to [FERC8] and to parties

affected by its order; only a perversion of that policy

could be used to cut off the rights of a party that filed its

application in good faith, as soon as it could reasonably

have become aware of the import of an [FERC] order.

Endorsement of the position that the [FERC] takes

would permit an administrative agency to enter an ambiguous or obscure order, wilfully or otherwise, wait out

the required time, then enter an "explanatory" order that

__________

8 Instead of referring to FERC, the opinion refers to "FPC,"

the former Federal Power Commission and the predecessor of

FERC. See, e.g., Elizabethtown Gas Co. v. FERC, 575 F.2d 885,

886 (D.C. Cir. 1978).

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 9 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

would extinguish the review rights of parties prejudicially affected.

Sam Rayburn Dam Elec. Coop. v. Federal Power Comm'n,

515 F.2d 998, 1007 (D.C. Cir. 1975). As earlier discussed, it

was not clear that the Commission could allow elimination of

the intra-SPP rate (absent statutorily mandated procedures)

until it did so in the Compliance Order. Texas Electric's

challenge made in its request for rehearing of the Compliance

Order, therefore, was not untimely. See MCI Telecomms.

Corp. v. FCC, 765 F.2d 1186, 1190-91 (D.C. Cir. 1985) (because implication of policy did not follow from earlier order,

request for rehearing of subsequent order enunciating policy

was timely); Sam Rayburn Dam, 515 F.2d at 1007-08 (not

clear until further clarification order that purchaser of electric power was "aggrieved" so application for rehearing was

timely filed); see also RCA Global Communications, Inc. v.

FCC, 758 F.2d 722, 730-31 (D.C. Cir. 1985) ("We simply

cannot agree that a fair reading of the Prescription Order ...

permits the conclusion that [petitioner] did know or should

have known that the Commission had confronted, much less

resolved, the issue [petitioner] now petitions us to review.");

cf. ANR Pipeline Co. v. FERC, 988 F.2d 1229, 1230 (D.C. Cir.

1993) ("[W]e believe that an ordinary reader familiar with the

industry background would have recognized a very substantial likelihood that the order meant what the Commission

ultimately said it meant.").

Having concluded that Texas Electric's challenge to the

Compliance Order was timely, we look at its merits. The

Commission's summary approval of the Compliance Tariff

cannot be regarded as a finding that a modification beyond

the modifications directed, that is, the new rate to which

SPP-only customers were subjected, was just and reasonable.9 Ultimately, the Commission failed to offer anything

__________

9 While it might be argued that the mere reference to the Tariff

Order was sufficient to establish that the rates accepted in the

Compliance Order were reasonable because no multiple rates would

be summed and yield a rate exceeding CSW's average system cost

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 10 of 11
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

from which the court can "discern a reasoned path ... to the

decision [the Commission] reached." K N Energy, Inc. v.

FERC, 968 F.2d 1295, 1303-04 (D.C. Cir. 1992). Accordingly,

we conclude the Commission's approval of the rates proposed

in the Compliance Tariff was arbitrary and capricious and

remand for reconsideration. See AT&T v. FCC, 974 F.2d

1351, 1355 (D.C. Cir. 1992) ("We conclude that the Reconsideration Order is arbitrary and capricious for want of an

adequate explanation and remand it for further consideration.").

For the foregoing reasons, we remand to FERC for further

proceedings consistent with this opinion.

So ordered.

__________

in violation of the condition the Commission had set, see Tariff

Order, 81 F.E.R.C. at 62,433, nonetheless we cannot agree that the

Commission determined the rates reflected in the Compliance Tariff

were just. For example, the Commission did not respond to Texas

Electric's challenge that the elimination of the separate, intra-SPP

rate constituted undue discrimination in light of the continued

existence of a separate, intra-ERCOT rate.

USCA Case #99-1222 Document #531651 Filed: 07/25/2000 Page 11 of 11