Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-04-01116/USCOURTS-caDC-04-01116-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Florida Municipal Power Agency
Petitioner
Florida Power & Light Company
Intervenor

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 22, 2005 Decided June 14, 2005

No. 04-1116

FLORIDA MUNICIPAL POWER AGENCY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

FLORIDA POWER & LIGHT COMPANY,

INTERVENOR

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Robert A. Jablon argued the cause for petitioner. With him

on the briefs were Daniel I. Davidson and Peter J. Hopkins.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on the

brief were Cynthia A. Marlette, General Counsel, and Dennis

Lane, Solicitor.

Clifford M. Naeve, Glen S.Bernstein, andKathrynK. Baran

were on the brief for intervenor. 

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Before: GINSBURG, Chief Judge, and EDWARDS and TATEL,

Circuit Judges.

Opinion for the Court filed by Circuit Judge EDWARDS. 

EDWARDS, Circuit Judge: Florida Municipal Power

Agency (“FMPA”), a public agency that sells electric power

supply for its member cities, petitions this court for review of

two Federal Energy Regulatory Commission (“FERC” or

“Commission”) decisions in which the Commission declined to

consider whether a network service provider can charge a

network customer full load ratio prices where it is physically

impossible for that provider to service the customer’s full load.

The case presents the latest chapter in an ongoing dispute

between petitioner FMPA and intervenor Florida Power and

Light Company (“Florida Power”) over the cost that Florida

Power may allocate to FMPA for network transmission service.

In the orders under review, the Commission declined to consider

the load ratio pricing issue on the ground that it had already

addressed FMPA’s argument in a final rule that sets out the

general parameters for network transmission service. 

Counsel for FERC has conceded to the court that the final

rule upon which the Commission relied does not address the

specific issue of physical impossibility as it relates to load ratio

pricing. Moreover, it is clear that the final rule left open the

possibility of exceptions to the general load ratio pricing

scheme. FERC’s refusal to consider whether physical

incapacity provides a proper basis for an exception to full load

ratio pricing is therefore arbitrary and capricious. Accordingly,

we grant the petition for review and remand the case to FERC

for further consideration consistent with this opinion. 

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I. BACKGROUND

A. Regulatory Framework

In order to facilitate competition in wholesale bulk power

and bring more efficient power to consumers, FERC issued

Order No. 888, requiring public utilities that own, control, or

operate transmission systems to have on file open access tariffs

that offer, inter alia, network transmission service. See

Promoting Wholesale Competition Through Open Access

Non-Discriminatory Transmission Services by Public Utilities;

Recovery of Stranded Costs byPublicUtilitiesand Transmitting

Utilities, 61 Fed. Reg. 21,540, 21,541 (May 10, 1996) (“Order

No. 888” or “Final Rule”), on reh’g, 62 Fed. Reg. 12,274 (Mar.

14, 1997) (“Order No. 888-A”), on reh’g, 62 Fed. Reg. 64,688

(Dec. 9, 1997), on reh’g, 82 F.E.R.C. ¶ 61,046 (Jan. 20, 1998),

aff’d Transmission Access Policy Study Group v. FERC, 225

F.3d 667 (D.C. Cir. 2000) (per curiam) (“TAPS”), aff’d sub nom.

New York v. FERC, 535 U.S. 1 (2002). “Network service allows

more flexibility” than point-to-point service, another form of

service offered under the pro forma tariff, “by allowing a

transmission customer to use the entire transmission network to

provide generation service for specified resources and specified

loads without having to pay multiple charges for each

resource-load pairing.” Order No. 888, 61 Fed. Reg. at 21,547

n.65. Network service permits a utility company using another

utility’s transmission system “to fully integrate load [i.e., the

aggregate demand for service on the system at any given time,]

and resources on an instantaneous basis in a manner similar to

the transmission owner’s integration of its own load and

resources.” Id. at 21,547. We recognized in TAPS that

“network service, as the Commission defined it, means that

network customers can call upon the transmission provider to

supply not just some, but all of their load at any given moment,

when for instance they experience blackouts or brownouts.”

TAPS, 225 F.3d at 726. 

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Order No. 888 endorsed the “load ratio allocation method

of pricing” for network service. This method allocates the costs

of network transmission based on the ratio of each customer’s

load to the entire load on the system. See Order No. 888, 61

Fed. Reg. at 21,599; Fla. Mun. Power Agency v. FERC, 315

F.3d 362, 363 (D.C. Cir. 2003), cert. denied, 540 U.S. 946

(2003). The Commission “recognize[d],” however, “that

alternative allocation proposals may have merit and welcome[d]

their submittal.” Order No. 888, 61 Fed. Reg. at 21,599. The

Order made it clear that such applications would “be evaluated

on a case-by-case basis and decided on their merits.” Id.

Order No. 888-A, which addressed petitions for clarification

and rehearing relating to the Final Rule, considered the concerns

of some transmission customers, including FMPA, that

“network customers should not be charged a network rate to use

their own transmission (or distribution) system to serve loads

that are located beyond the transmission owner’s system,” a

phenomenon known as load and generation “behind-the-meter.”

Order No. 888-A, 62 Fed. Reg. at 12,322. FERC’s analysis

drew at length from the “Complaint Case,” in which FMPA

sought to have the Commission direct Florida Power to provide

network transmission service to FMPA and its members. After

granting FMPA’s request for the service, FERC largely adopted

Florida Power’s proposed cost-allocation method, under which

the costs of Florida Power’s transmission system would be

shared based on the “relative native loads that receive network

service,” see Fla. Mun. Power Agency, 67 F.E.R.C. ¶ 61,167, at

61,477-78, 61,481 (May 11, 1994) (“FMPA I”), reh’g granted

in part, 74 F.E.R.C. ¶ 61,006 (Jan. 5, 1996) (“FMPA II”), reh’g

denied, 96 F.E.R.C. ¶ 61,130 (July 26, 2001), aff’d on other

grounds, 315 F.3d 362, the load ratio pricing method

subsequently adopted in Order No. 888 and clarified in Order

No. 888-A. Order No. 888-A echoed and amplified FMPA I and

FMPA II, explaining that a customer may exclude “the entirety

of a discrete load” from its network load (and obtain

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point-to-point service as necessary for that load), but it cannot

exclude merely part of that discrete load, even if that part is

served by behind-the-meter generation. Order No. 888-A, 62

Fed. Reg. at 12,323. 

B. Prior Proceedings in the Present Case

In 1993, Florida Power filed an “extensive and

comprehensive rate filing designed to overhaul [Florida

Power’s] existing tariff structure.” Fla. Power & Light Co., 64

F.E.R.C. ¶ 61,361, at 63,480 (Sept. 24, 1993). This rate filing

marked the beginning of the “Rate Case,” a FERC proceeding

that is docketed separately from the Complaint Case. Numerous

parties, including FMPA (as a member of “Florida Cities”)

intervened in the Rate Case. The Commission accepted and

suspended Florida Power’s rate filing and set most issues for

hearing before an Administrative Law Judge (“ALJ”), who

subsequently issued a lengthy initial decision on December 13,

1995. See Fla. Power & Light Co., 73 F.E.R.C. ¶ 63,018 (Dec.

13, 1995). 

On April 17, 2000, Florida Power filed a settlement

agreement that proposed to resolve issues pertaining to its

cost-of-service, with the exception of three “FMPA Reserved

Issues.” The settlement was approved in Florida Power & Light

Co., 92 F.E.R.C. ¶ 61,241 (Sept. 18, 2000). One of the reserved

issues was “treatment of behind-the-meter generation and

associated load.” Fla. Power & Light Co., Settlement

Agreement at 6, reprinted in Joint Appendix (“J.A.”) 55, 57. On

June 30, 2003, FMPA filed a motion requesting that FERC

direct it and Florida Power to file further pleadings on the

reserved issues. 

The challenged portions of the decisions under review relate

to the Commission’s disposition of the behind-the-meter

generation and associated load reserved issue. The Commission

declined to consider the issue on the ground that FMPA had

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raised its present concerns in the Order Nos. 888 and 888-A

proceedings and the issue of load ratio pricing for network

service had been resolved by FERC in those orders. See Fla.

Power & Light Co., 105 F.E.R.C. ¶ 61,287, at 62,409-10 (Dec.

16, 2003). 

FMPA “accept[ed] that network transmission pricing

allocations . . . should be based upon . . . customers’ full load,”

but sought rehearing on “a very discrete aspect” of the load ratio

pricing issue – i.e., “whether FMPA should be charged by

[Florida Power] for network transmission integration service to

serve load where [Florida Power] cannot provide the service

because of physical transmission limitations.” FMPA Req. for

Reh’g at 4, reprinted in J.A. 262, 265 (emphasis omitted).

FMPA’s principal argument was that it cannot be charged for

service that Florida Power cannot provide because of physical

transmission limitations. FMPA contended that such charges

would be inconsistent with the Administrative Procedure Act, 5

U.S.C. § 706(2)(A) (2000), and the Federal Power Act, 16

U.S.C. §§ 824d-824e (2000). To highlight its concerns, FMPA

cited its member city, Key West, which sits approximately 120

miles from Florida Power’s interconnection point. The

intervening transmission system that connects Key West to

Florida Power does not have the physical capacity to serve Key

West’s full peak load. According to FMPA, it is therefore

physically impossible for Florida Power to provide network

service for the entirety of that load. See Req. for Reh’g at 5-7,

J.A. 266-68. 

The Commission denied the request for rehearing, stating:

We disagree with FMPA’s premise that the transmission

pricing guidance contained in Order Nos. 888 and 888-A is

only generic in nature and did not address the application of

load ratio pricing to the circumstances raised here by

FMPA; Order No. 888-A clearly addressed the

circumstances cited by FMPA and states that the “bottom

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line is that all potential transmission customers, including

those with generation behind the meter, must choose

between network integration transmission service or

point-to-point transmission service. Each of these services

has its own advantages and risks.”

Fla. Power & Light Co., 106 F.E.R.C. ¶ 61,204, at 61,696-97

(Mar. 3, 2004) (quoting Order No. 888-A, 62 Fed. Reg. at

12,323). 

Notwithstanding FERC’s decision suggesting otherwise, it

is undisputed here that Order No. 888-A did not address whether

physical impossibility warrants an exception to the general rule

against permitting partial load ratio pricing for network

customers. FMPA petitions this court for review of that discrete

issue. 

II. ANALYSIS

We review FERC’s orders under the arbitrary and

capricious standard and uphold the Commission’s factual

findings if supported by substantial evidence. See Fla. Mun.

Power Agency v. FERC, 315 F.3d at 365. We “may uphold

agency orders based only on reasoning that is fairly stated by the

agency in the order under review, see SEC v. Chenery Corp.,

318 U.S. 80, 88 (1943); ‘post hoc rationalizations by agency

counsel will not suffice,’ Western Union Corp. v. FCC, 856 F.2d

315, 318 (D.C. Cir. 1988).” Williams Gas Processing - Gulf

Coast Co., L.P. v. FERC, 373 F.3d 1335, 1345 (D.C. Cir. 2004).

Applying this standard, we hold that FERC’s refusal to consider

whether physical incapacity provides a proper basis for an

exception to full load ratio pricing does not withstand review. 

FERC refused to address the discrete issue of physical

impossibility, highlighted in FMPA’s request for rehearing, see

FMPA Req. for Reh’g at 4-5, J.A. 265-66, on the ground that

“Order No. 888-A clearly addressed the circumstances cited by

FMPA.” Florida Power, 106 F.E.R.C. at 61,696-97. Because

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the record clearly shows that FERC has not specifically

addressed the issue of physical impossibility, the agency’s

rationale is unreasonable. To be sure, FERC considered myriad

permutations of the behind-the-meter generation issue in Order

No. 888-A. As counsel for FERC acknowledged at the oral

argument, however, FERC has never expressly addressed

FMPA’s request for an impossibility exception. See Recording

of Oral Argument at 45:15-:30.

Order No. 888, moreover, explicitly left open the possibility

of such exceptions by stating that FERC would continue to

consider alternative proposals for allocating the cost of network

integration and would evaluate those alternatives on the merits

on a case-by-case basis. See Order No. 888, 61 Fed. Reg. at

21,599. And this court contemplated the availability of such

exceptions in affirming the Final Rule. See TAPS, 225 F.3d at

689 (“FERC . . . recognized that its generic findings may have

exceptions, and thus that Order 888 may in individual

circumstances have a different result than that intended.”). 

Petitioner seeks such an exception – alternative cost

allocation in the case of physical incapacity. A petitioner

seeking review of an agency’s failure to grant a waiver of a

general rule must show that the agency acted arbitrarily by

failing to give “meaningful consideration” to the application for

waiver. United Gas Pipe Line Co. v. FERC, 707 F.2d 1507,

1511 (D.C. Cir. 1983). FMPA has easily met this standard of

review in this case, because it is undisputed that the Commission

declined to address FMPA’s request for an impossibility

exception. See Gas Transmission Northwest Corp. v. FERC,

363 F.3d 500, 503 (D.C. Cir. 2004) (“Stating that [something]

is an existing requirement does not answer [the] argument that

this is one of those circumstances in which it should be

waived.”). 

Simply put, FERC has failed to explain why network

customers should be charged by the transmission provider for

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network service that the provider is physically constrained from

offering and, relatedly, why physical impossibility should not be

recognized as an exception to the general rule against permitting

partial load ratio pricing for network customers. We therefore

remand this discrete issue to the Commission. We emphasize,

however, the narrow contours of our ruling: FMPA has

conceded that it must pay for full capacity regardless of whether

it intends to use that full capacity. See Pet’r Br. at 11-12, 23;

Recording of Oral Argument at 12:53-13:21. Because we find

that FERC erred in failing to consider the appropriateness of an

exception to Order No. 888’s general provisions, we do not

reach FMPA’s statutory argument, i.e., that such a charge for

service that cannot be provided is not just and reasonable under

the Federal Power Act, 16 U.S.C. §§ 824d-824e. In granting the

petition for review, moreover, we do not define physical

impossibility or consider whether the record in this case presents

such incapacity. If these questions are pertinent at this juncture,

we leave them to the Commission to consider in the first

instance.

III. CONCLUSION

We hereby grant the petition for review and remand the

case for further proceedings consistent with this opinion. 

So ordered.

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