Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-04-01340/USCOURTS-caDC-04-01340-0/pdf.json

Parties Involved:
Allegheny Electric Cooperative, Inc.
Intervenor
Allegheny Power
Petitioner
Federal Energy Regulatory Commission
Respondent

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 25, 2005 Decided February 7, 2006 

No. 04-1340 

ALLEGHENY POWER, 

PETITIONER

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

ALLEGHENY ELECTRIC COOPERATIVE, INC., 

INTERVENOR

On Petition for Review of Orders of the 

Federal Energy Regulatory Commission 

 Leonard W. Belter argued the cause for petitioner. With 

him on the briefs were Raymond B. Wuslich and Margaret H. 

Claybour. 

 Beth G. Pacella, 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. 

 Robert Weinberg and Eli D. Eilbott were on the brief for 

intervenor in support of respondent. 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 1 of 20
2

 Before: TATEL and GRIFFITH, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge. 

 Opinion for the Court filed by Senior Circuit Judge

WILLIAMS. 

 WILLIAMS, Senior Circuit Judge: This is a dispute between 

a utility and the Federal Energy Regulatory Commission over 

the rate for sending electricity over certain low-voltage facilities 

not covered by the relevant Open Access Transmission Tariff. 

We grant the utility’s petition in part and dismiss it in part. 

* * * 

 Allegheny Energy, Inc., owns (1) Allegheny Energy Supply 

Company, L.L.C., which owns and operates generation facilities, 

and (2) several utilities, divided along state lines and collectively 

doing business as Allegheny Power (“Allegheny”), which 

deliver electric power. The Allegheny utility operating in 

Pennsylvania is West Penn Power Company. 

 Allegheny Electric Cooperative, Inc. (“AEC”), is an 

organization through which fourteen local distribution 

cooperatives in Pennsylvania buy their electricity. It is a 

wholesale customer of Allegheny. AEC receives electricity 

from Allegheny at 18 delivery points, all West Penn facilities. 

 The case in essence starts with a contract that Allegheny 

and AEC signed in 1994. One of the types of service provided 

under the contract—and the only one that concerns us here—is 

known as partial requirements service. Allegheny Power, 97 

FERC ¶ 61,274, at 62,164 (2001) (“2001 Order”). In pricing 

this service, Allegheny bundled the cost of generating the 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 2 of 20
3

electricity with the cost of sending it to AEC. At the time, such 

bundling was commonplace in contracts between vertically 

integrated utilities and their customers. Midwest ISO 

Transmission Owners v. FERC, 373 F.3d 1361, 1363-64 (D.C. 

Cir. 2004). 

 In 1996, FERC concluded that this type of bundling allowed 

vertically integrated utilities to discriminate in favor of their own 

generators. To ensure open and equal access to the grid and 

thereby foster competition in sale and generation of power, the 

Commission in Order No. 888 required every utility transmitting 

electric power in interstate commerce to adopt, for the sale of its 

“transmission services,” a non-discriminatory schedule of terms 

and conditions, with prices reflecting transmission costs 

unbundled from generation costs. Such a schedule is known as 

an Open Access Transmission Tariff (“OATT”). 18 C.F.R. 

§ 35.28(c)(1); Promoting Wholesale Competition Through Open 

Access Non-Discriminatory Transmission Services by Public 

Utilities; Recovery of Stranded Costs by Public Utilities and 

Transmitting Utilities, Order No. 888, FERC Stats. & Regs. 

Preambles ¶ 31,036, at 31,654, 61 Fed. Reg. 21,540, at 21,552 

(1996) (“Order No. 888”). 

 Order No. 888 indisputably covers the service that 

Allegheny provides to AEC. See Transmission Access Policy 

Study Group v. FERC, 225 F.3d 667, 695-96 (D.C. Cir. 2000) 

(construing Order No. 888 to cover, inter alia, any transfer of 

electricity from a utility to a customer who then resells it, 

regardless of the type of facilities involved), aff’d on other 

grounds sub nom. New York v. FERC, 535 U.S. 1 (2002). 

 FERC policy requires that rates subject to Order No. 888 be 

unbundled “at the earliest contractual opportunity,” which 

includes the first time a contract becomes subject to extensions. 

2001 Order, 97 FERC at 62,167. In Allegheny’s 1994 contract 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 3 of 20
4

with AEC, the initial term was to expire on November 30, 2001, 

and the contract was to be automatically renewed annually, 

subject to “revised charges, terms, and conditions,” unless either 

party terminated it on two years’ notice. Id. at 62,164. In the 

months leading up to the initial term’s expiration, Allegheny 

informed AEC that, for the one-year renewal period beginning 

December 1, 2001, it would unbundle the generation and 

transmission charges, the latter to be determined by an OATT 

adopted by PJM Interconnection, L.L.C. (“PJM”). Id. at 62,165. 

PJM is a regional transmission organization that operates the 

transmission facilities of its member utilities (including 

Allegheny) to ensure open access.1

 

 The PJM OATT specifies terms and conditions for the use 

of all Allegheny transmission facilities with voltage of 138 kV 

or greater. For Allegheny transmission facilities of lesser 

voltage, the PJM OATT punts, stating simply that service “will 

be provided at rates determined on a case-by-case basis.” See 

Pennsylvania-New Jersey-Maryland Interconnection, 92 FERC 

¶ 61,282, at 61,952 (2000) (approving this provision of the PJM 

OATT); Pennsylvania-New Jersey-Maryland Interconnection, 

 1

 Actually, Allegheny’s proposal was slightly more complex: the 

charges were to be governed by PJM’s OATT only for the last eleven 

months of the one-year extension period; for the first month, they were 

to be governed by a different OATT devised by Allegheny itself. The 

two OATTs were apparently identical in the aspect that matters for our 

opinion, i.e., they both failed to specify rates for services below 138 

kV. See Addendum to Agreement (Oct. 19, 2001) at 3-4 and 

Attachment D (proposing a single rate for subtransmission facilities 

throughout the one-year extension period, supporting the inference 

that the facilities not covered by the PJM OATT were the same as 

those not covered by the Allegheny OATT). Some of our references 

below to the PJM OATT would be more accurate if we also mentioned 

the parallel implications of the Allegheny OATT, but since it makes 

no difference to the analysis, we shall omit such cumbersome details. 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 4 of 20
5

81 FERC ¶ 61,257, at 62,251 (1997) (same). For purposes of 

simplicity, we will refer to the facilities whose rates are 

specified in the PJM OATT as “transmission facilities” and 

those whose rates are determined case-by-case as 

“subtransmission facilities.” 

 Thus—as a result of the unbundling mandated by Order No. 

888, the Allegheny-AEC contract’s terms for its initial 

expiration, and the provisions of the PJM OATT—the rate that 

AEC would pay for use of Allegheny’s subtransmission facilities 

during the one-year renewal period was to be determined on a 

“case-by-case” basis. Shortly before the expiration of the initial 

contract term, Allegheny filed a unilateral addendum stating 

that, for the upcoming renewal period, it would assess AEC 

“sub-transmission charges for service over facilities not covered 

by the OATTs,” and would calculate these charges through the 

method of “direct assignment.” 2001 Order, 97 FERC at 

62,165; Addendum to Agreement (Oct. 19, 2001) at 3-4 and 

Attachment D. Direct assignment was the method by which 

Allegheny had calculated subtransmission charges for all the 

settlement agreements that it had made with other wholesale 

customers whose contracts expired in the years after Order No. 

888. Brief on Exceptions of Allegheny Power at 6. 

Direct assignment allocates the cost of specific facilities to 

customers in proportion to their use of such facilities. Direct 

Testimony of Menhorn, Exh. Allegheny-1, at 2-10. The 

alternative is “rolled-in” pricing, under which every customer 

pays the same unit rate, based on the costs of all facilities, 

rolled-in together without differentiating on the basis of the role 

played by particular facilities in providing service to particular 

customers. Both methods are aimed at matching a user’s rates 

with the costs incurred to provide the service it enjoys. Rolledin pricing is thought to make sense when the facilities are 

integrated, i.e., when the service to each customer is most 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 5 of 20
6

practicably seen as depending on the entirety of the facilities in 

question. See generally Western Massachusetts Electric Co. v. 

FERC, 165 F.3d 922, 927-28 (D.C. Cir. 1999); Maine Public 

Service Co. v. FERC, 964 F.2d 5, 8 (D.C. Cir. 1992); Sierra 

Pacific Power Co. v. FERC, 793 F.2d 1086, 1088 (9th Cir. 

1986); Otter Tail Power Co., 12 FERC ¶ 61,169, at 61,420 

(1980). To some extent, of course, the cost of information may 

influence Commission judgment; even where facility usage may 

be conceptually severable, the interdependency among the 

facilities may be such that the calculations necessary for direct 

assignment simply aren’t worth the effort. 

 In light of protests by AEC, the Commission conditionally 

accepted Allegheny’s addendum for filing, suspended it for a 

nominal period, pronounced it effective subject to refunds, and 

encouraged the parties to settle. 2001 Order, 97 FERC at 

62,167. 

 Settlement negotiations failed to resolve all issues, and the 

matter was assigned to an ALJ to determine, inter alia, whether 

Allegheny’s calculation of the subtransmission rate was just and 

reasonable. Allegheny Power, 103 FERC ¶ 63,001 (2003) (“ALJ 

Decision”). AEC agreed with Allegheny that direct assignment 

was the proper method but disagreed on how to apply it. 

Commission staff, however, argued that the rate for 

subtransmission service should be calculated via the rolled-in 

method, Direct Testimony of Farrokhpay, Exh. Staff-3, at 11, 

which the PJM OATT was (and is) using for service over 

Allegheny’s transmission facilities. Thus, Staff was effectively 

proposing that Allegheny charge AEC two distinct rolled-in 

rates, one that reflected the cost of the transmission facilities, 

and another that reflected the cost of the subtransmission 

facilities. As FERC counsel noted at oral argument, use of two 

such rolled-in rates is a novelty, occasioned (in part) by PJM’s 

decision to specify a rate for Allegheny’s transmission facilities 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 6 of 20
7

and to leave subtransmission to be priced case-by-case. Oral 

Arg. Recording at 31:45-32:40, 33:20-33:45. 

 Agreeing with staff, the ALJ ordered Allegheny to calculate 

the subtransmission charge to AEC by rolling in the costs of all 

the West Penn subtransmission facilities. ALJ Decision, 103 

FERC at PP 10-17, pp. 65,001-02. The case then went to the 

full Commission, which affirmed the ALJ, Allegheny Power, 

106 FERC ¶ 61,241 (2004) (“Opinion No. 469”), and later 

denied Allegheny’s petition for rehearing, Allegheny Power, 108 

FERC ¶ 61,151 (2004) (“Opinion No. 469-A”). 

 Allegheny petitions to vacate FERC’s roll-in order and to 

remand with instructions to use direct assignment instead. AEC, 

having abandoned its prior support for direct assignment, 

intervenes in support of FERC. 

* * * 

 To begin, we address the issues of standard of review and 

burden of persuasion. Allegheny filed the addendum embodying 

its proposed direct assignment rate under § 205 of the Federal 

Power Act, 16 U.S.C. § 824d. Allegheny asserts (and no party 

questions) that that proposal is governed by § 205(e), which 

states that a utility seeking a rate increase bears “the burden of 

proof to show that the increased rate . . . is just and reasonable.” 

FPA § 205(e), 16 U.S.C. § 824d(e). 

 At the same time, Allegheny contends that insofar as the 

Commission imposed its own preferred method (as distinct from 

merely rejecting Allegheny’s proposal), § 206(b) of the Act, 16 

U.S.C. § 824e(b), assigns the agency the burden of showing its 

method to be just and reasonable. But § 206 applies only when 

the Commission seeks to impose its own preferred rate in place 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 7 of 20
8

of the “existing rate.” Midwest ISO, 373 F.3d at 1368. Here, the 

rate at the time of filing was a charge that bundled generation, 

transmission, and subtransmission—a charge rendered unlawful 

by a prior FERC rulemaking and therefore off the table in this 

adjudication. In Midwest ISO, where FERC (as here) made a 

rate determination without there being an existing rate or 

practice to fall back on, we reviewed the agency’s decision 

under the arbitrary and capricious standard, 5 U.S.C. 

§ 706(2)(A), and its factual findings under the substantial 

evidence standard, 16 U.S.C. § 825l(b). Midwest ISO, 373 F.3d 

at 1368. We shall apply the same standard here insofar as the 

agency went beyond rejecting the utility’s method and imposed 

its own. The arbitrary and capricious standard speaks, of course, 

to the degree of deference that we owe the agency, not to burden 

of proof or persuasion. As we shall see, however, the case 

relating to FERC’s imposition of its rolled-in method can be 

resolved without addressing issues of burden allocation. 

* * * 

 Before reaching the merits of Allegheny’s claims we must 

address the Commission’s arguments that Allegheny failed to 

preserve its objections adequately. Both arguments turn on the 

Act’s jurisdictional provision that the court may consider only 

objections that “have been urged before the Commission in the 

application for rehearing unless there is reasonable ground for 

failure so to do.” § 313(b), 16 U.S.C. § 825l(b). 

 The ALJ, in rejecting Allegheny’s direct assignment 

proposal and imposing staff’s recommended roll-in, gave four 

reasons for his decision. The first was his conclusion that the 

facilities at issue were integrated. ALJ Decision, 103 FERC at 

PP 11-12, p. 65,002. The remaining three reasons all concerned 

independent failings in Allegheny’s support for its direct 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 8 of 20
9

assignment proposal—defects in its cost data and its 

identification of facilities used by AEC. Id. at PP 10, 13, pp. 

65,001-02. 

The Commission affirmed the ALJ’s roll-in order “for the 

reasons stated by the [ALJ],” and noted that, “as pointed out by 

the [ALJ] . . . , Allegheny Power failed to provide adequate 

justification for its proposed direct assignment.” Opinion No. 

469, 106 FERC at P 17, p. 61,850. Although the rest of the 

Commission’s discussion of the ratemaking method focused 

exclusively on the issue of integration, it plainly adopted by 

reference all four of the reasons articulated by the ALJ. This is 

enough. Gannett Rochester Newspapers, a Division of Gannett 

Co. v. NLRB, 988 F.2d 198, 204 (D.C. Cir. 1993); United Food 

and Commercial Workers Int’l Union v. NLRB, 880 F.2d 1422, 

1436 (D.C. Cir. 1989). 

 Allegheny, in its petition for rehearing, objected specifically 

only to the integration finding, Request of Allegheny Power 

Company for Rehearing at 1-7, but also purported to incorporate 

by reference the entirety of its prior Brief on Exceptions, id. at 2. 

Unfortunately for Allegheny, what is sauce for the agency isn’t 

sauce for petitioner. Under § 313(b) an objection cannot be 

preserved “indirectly,” Officer of the Consumers’ Counsel, State 

of Ohio v. FERC, 914 F.2d 290, 295 (D.C. Cir. 1990) 

(construing the identical provision of the Natural Gas Act, 15 

U.S.C. § 717r(b)), but must be raised with “specificity,” 

Wisconsin Power & Light Co. v. FERC, 363 F.3d 453, 460 (D.C. 

Cir. 2004). Allegheny notes that, in Columbia Gas 

Transmission Corp. v. FERC, 404 F.3d 459, 462 (D.C. Cir. 

2005) (construing 15 U.S.C. § 717r(b)), “a terse request for 

rehearing was adequate when the Commission itself offered only 

a half-sentence explanation in its initial order and responded to 

the objection on rehearing,” Reply Brief of Petitioner at 6. But 

the objection in Columbia Gas was explicit and elicited a 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 9 of 20
10

response from the Commission, 404 F.3d at 462, neither of 

which can be said for Allegheny’s attempted incorporation by 

reference. Allegheny therefore cannot now object to the other 

three findings. 

 The question remains whether those three findings are 

enough to support the Commission’s order. Surely they are as to 

its rejection of Allegheny’s proposed direct assignment method, 

as under § 205(e) Allegheny bears the burden of showing that 

method to be just and reasonable. What of FERC’s decision that 

Allegheny must instead conduct a roll-in of all West Penn 

subtransmission facilities? Allegheny’s loss on the cost and 

facility-identification issues would be fatal on the current record 

if direct assignment and the West-Penn-wide roll-in were the 

only two options. But that is not so here. In its petition for 

rehearing, Allegheny offered a “third way,” calling for 

adjustments in any rolled-in rate for AEC to remove the 

allegedly distorting effect of costs and loads charged to other 

subtransmission customers by direct assignment. See Request 

of Allegheny Power Company for Rehearing at 7, Allegheny 

Appendix (“A.A.”) at 693; see also Allegheny Brief on 

Exceptions at 21-23, A.A. at 672-75; ALJ Hearing Tr. 1/28/03 at 

395-99, A.A. at 573-76 (testimony of staff witness Farrokhpay 

on examination by Allegheny). The ALJ’s findings on cost data 

and identification of facilities do not necessarily explain the 

Commission’s rejection of Allegheny’s proposal of an adjusted 

roll-in. 

 The Commission acknowledged the proposal, Opinion No. 

469-A, 108 FERC at P 20, p. 61,864, and specifically explained 

its rejection of a related alternative argument (that the other 

customers should have their rates converted to the rolled-in 

method, rejected by FERC on the ground that their rates weren’t 

before the Commission), id. at PP 35-37, 40, pp. 61,866-67. As 

to the proposal itself, the Commission lumped it together with 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 10 of 20
11

all of Allegheny’s objections (including its plea for direct 

assignment), declared that “[a]ll of these objections . . . are 

beside the point,” and rejected them all in blanket fashion, 

relying upon Allegheny’s failure to substantiate its direct 

assignment methodology and upon the “integration” findings 

from its own previous order. Id. at PP 21-22, p. 61,865. 

(Insofar as Allegheny may suggest that the Commission has 

initiated a default rule in favor of roll-in, we are unconvinced, as 

the cases cited by the Commission relied on findings of 

integration. See id. & n.3.) Thus, the Commission’s response to 

the adjusted roll-in proposal was so framed as to make that 

response’s adequacy contingent on the factual support for, and 

the reasonableness of, its integration findings. 

There remains a final hurdle for Allegheny on this point—

its failure to raise the adjusted roll-in issue in its briefs before 

this court. But as FERC, in rejecting the adjusted roll-in on 

rehearing, implicitly relied solely on the integration findings, 

and as Allegheny before us plainly put FERC on notice to 

defend those findings, we see no unfairness to FERC in our 

addressing them, even though the route has proven circuitous. 

 The Commission makes a second waiver argument—

namely that Allegheny’s petition for rehearing failed to question 

what the Commission says was a finding in Opinion No. 469 

that the Allegheny subtransmission facilities serving AEC are 

integrated with Allegheny’s larger network of transmission 

facilities. Instead, says the Commission, the petition for 

rehearing attacked a non-existent Commission theory—that the 

facilities in question were operated as “a single integrated 

subtransmission network.” Br. for Respondent at 16. 

 The difficulty with this argument is that it invokes a 

Commission finding in Opinion No. 469 that either didn’t exist, 

or existed only in such obscurity as to be undetectable by a 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 11 of 20
12

reasonable litigant. Opinion No. 469, in a section titled 

“Commission Finding,” explicitly directed that the 

“subtransmission service charges to AEC should be calculated 

based on the system-wide average costs of Allegheny Power’s 

subtransmission facilities.” Opinion No. 469, 106 FERC at P 17, 

p. 61,850. In the same section it states that “we find that the 

facilities used by Allegheny Power to serve AEC are part of an 

integrated subtransmission/distribution network.” Id. Although 

the term “distribution” is not entirely precise, it certainly refers 

to lower-voltage facilities of some kind, not transmission 

facilities. What is more, the “Commission Finding” says 

nothing about transmission facilities. Admittedly, a more 

peripheral section of Opinion No. 469—the summary of ALJ 

findings—is somewhat ambiguous. Id. at P 4, p. 61,848 (stating 

that the ALJ found that the facilities at issue “constitute part of 

Allegheny Power’s total integrated network” and referring to the 

“integrated subtransmission/distribution network serving 

Allegheny Power’s entire system”). But such ambiguity cannot 

override the clear language of the “Commission Finding.” 

Besides, the ALJ decision to which the summary refers is quite 

clear that the facilities at issue “are part of an integrated 

subtransmission/distribution network.” ALJ Decision, 103 

FERC at P 11, p. 65,002. 

 FERC counsel responds that, even if the Commission did 

invoke an integrated subtransmission/distribution network in 

Opinion No. 469 and introduced the theory of integration with 

the larger transmission network only in Opinion No. 469-A, 

Allegheny is barred by its failure to file a second petition for 

rehearing to contest the new rationale. Oral Arg. Recording at 

23:25-23:55. This argument relies upon Town of Norwood, 

Massachusetts v. FERC, 906 F.2d 772, 775 (D.C. Cir. 1990), in 

which we held that § 313(b) requires “an application for 

rehearing of an order on rehearing when the later order modifies 

the results of the earlier one in a significant way, raising 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 12 of 20
13

objections to the rehearing order that are substantially different 

from those raised against the original one.” But Norwood

requires a second petition only when the result is different; a 

petitioner need not file a second petition “when the outcome had 

not been changed but the Commission had ‘supplie[d] a new 

improved rationale.’” California Department of Water 

Resources v. FERC, 306 F.3d 1121, 1126 (D.C. Cir. 2002) 

(quoting Southern Natural Gas Co. v. FERC, 877 F.2d 1066, 

1073 (D.C. Cir. 1989)); see also Norwood, 906 F.2d at 775 

(“[T]he Federal Power Act does not require an endless cycle of 

rehearing applications.”). The rule is thus analogous to the 

circumstances under which an appellee must file a cross-appeal. 

See, e.g., Freeman v. B&B Associates, 790 F.2d 145, 151 (D.C. 

Cir. 1986) (“Only when an appellee attempts to overturn or 

modify a district court’s judgment must the appellee file a crossappeal.”). Here, the rationale changed, but the result—a roll-in 

of all West Penn subtransmission facilities—remained the same. 

 Thus none of the Commission’s waiver arguments insulates 

from review its rejection of Allegheny’s argument that any 

rolled-in rates must be adjusted. As the Commission gave no 

explicit explanation for that rejection and implicitly relied only 

on its integration finding, its order can survive only if its 

integration finding is itself neither arbitrary nor capricious. 

* * * 

 We therefore at last reach the merits of the Commission’s 

treatment of integration. We find it to be arbitrary and 

capricious and not supported by substantial evidence. 

 As noted above, FERC mandated a rolled-in rate for 

Allegheny’s subtransmission facilities separate and distinct from 

the PJM OATT’s rolled-in rate for Allegheny’s transmission 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 13 of 20
14

facilities. It did so for the stated reason that all the facilities—

both transmission and subtransmission—are integrated, i.e., act 

together as a single piece of equipment. Opinion No. 469-A, 108 

FERC at P 22, p. 61,865. Several aspects of this decision are 

unexplained. 

 First, the Commission shifted without a word from a theory 

of integration among subtransmission facilities to integration 

between facilities for subtransmission and transmission. Given 

that the evidence before the ALJ addressed the first and not the 

second (so far as appears), this left gaps either of data or analysis 

or both (matters to which we return below). At the very least, it 

appeared inconsistent with the Commission’s decision in PP&L, 

88 FERC ¶ 61,235 (1999), reh’g denied 95 FERC ¶ 61,160 

(2001), which appeared to present a parallel issue. A utility 

whose transmission rates were also determined by the PJM 

OATT sought an outcome similar to the one FERC mandated 

here: it wanted a separate rolled-in rate for low-voltage facilities 

to be charged to those of its wholesale customers who took 

delivery from those facilities. FERC rejected the request in 

terms that appeared to treat integration among the 

subtransmission facilities as a prerequisite. PP&L had 

“provided no support for its assertions that the low voltage 

facilities operate as an integrated system and that the use of the 

rolled-in rate methodology is thus the proper basis for rates for 

transmission service over these facilities.” 88 FERC at 61,770. 

 By the same token, if the record in fact showed integration 

between the subtransmission and transmission facilities—that 

they act together as a single piece of equipment—the precedent 

invoked by FERC suggests that the solution is a rolled-in rate 

encompassing both high-voltage and low-voltage facilities, not a 

separate roll-in of low-voltage facilities only. The aggregated 

subtransmission-transmission rate, in any event, was the solution 

in all cases invoked on this point by the Commission and AEC: 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 14 of 20
15

Maine Public Service Co., 964 F.2d at 8-9; Niagara Mohawk 

Power Corp., 42 FERC ¶ 61,143, at 61,532-33 (1988); Kansas 

Gas & Electric Co., 39 FERC ¶ 63,013, at 65,053-55 (1987),

aff’d in relevant part, 49 FERC ¶ 61,295, at 62,117 (1989); 

reh’g granted in part, 52 FERC ¶ 61,301 (1990); Utah Power & 

Light Co., 24 FERC ¶ 63,108, at 65,176-79 (1983), aff’d, 27 

FERC ¶ 61,258, at 61,486-87 (1984), reh’g denied, 28 FERC 

¶ 61,088, at 61,165-67 (1984), aff’d sub nom. Sierra Pacific, 793 

F.2d at 1087-90; Potomac Edison Co., 20 FERC ¶ 63,060, at 

65,257-59 (1982), aff’d in relevant part, 23 FERC ¶ 61,106, at 

61,255-56 (1983); Minnesota Power & Light Co., 16 FERC 

¶ 63,012, at 65,069-80 (1981) (because the record showed no 

integration between subtransmission and transmission facilities, 

it did not support petitioner’s request for aggregating the cost of 

the two sets of facilities), aff’d in relevant part, 21 FERC 

¶ 61,233, at 61,519 (1982); see also Oral Arg. Recording at 

33:30-33:40 (statement of FERC counsel that this is the “first 

time the Commission had before it a case-by-case situation 

where we have a roll-in of the low-voltage transmission rates, 

and yes this is different”); Reply Brief of Allegheny Power 

(before ALJ) at 6. 

 In short, the Commission appears hitherto to have applied 

the following matching principles: (1) If subtransmission and 

transmission facilities are integrated with each other, a single 

rate rolling them both together is appropriate. (2) If 

subtransmission facilities are integrated with each other, a 

separate rolled-in rate for subtransmission facilities is 

appropriate. As noted, in PP&L the Commission said the factual 

predicate for application of Rule #2 was not shown. 88 FERC at 

61,770. In Puget Sound Energy, Inc., 98 FERC ¶ 61,168 (2002), 

it approved separate roll-ins for high-voltage and low-voltage 

facilities, but simply on the ground that the new arrangement did 

not entail a rate increase for any customer, id. at 61,622. The 

Commission apparently hasn’t developed a rule specific to the 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 15 of 20
16

case where subtransmission facilities are integrated with each 

other and with transmission facilities. Given the Commission’s 

scuttling away from its earlier supposition that the 

subtransmission facilities were integrated with each other, it 

appears to be asserting the finding required for Rule #1 and yet 

to have adopted the rate indicated by Rule #2. 

 As we suggested earlier, there seem to be gaps either in the 

data before the Commission or in the necessary analysis. In part 

this arises from its shift from an idea of integrated 

subtransmission facilities to the broader integration claim. As 

noted above, FERC originally stated—in the ALJ decision and 

in Opinion No. 469—that the subtransmission facilities were 

integrated among themselves. It then concluded—when denying 

rehearing in Opinion No. 469-A—that those facilities were 

integrated with the transmission facilities. The evidence 

marshaled in the ALJ decision and in Opinion No. 469 was, not 

surprisingly, aimed at proving the staff’s contention and the 

agency’s conclusions in those decisions, i.e., the first proposition 

and not the second. Opinion No. 469, closely following the 

ALJ, focused on nine of the 18 interconnection points between 

Allegheny and AEC, and invoked five defining elements of 

integration: 

Trial Staff states that 9 of the 18 Allegheny Power 

interconnection points with AEC are normally served in 

network configurations and that the integrated nature of 

Allegheny Power’s facilities are based on the following: (1) 

the facilities are looped, not radial; (2) energy does not flow 

in just one direction over these Allegheny Power facilities; 

(3) Allegheny Power serves not only AEC but also its own 

customers over these facilities; (4) the looped configuration 

enables Allegheny Power to provide support and added 

reliability to the other looped lines; and (5) an outage on 

any one of these facilities affects the power flows on other 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 16 of 20
17

facilities. 

Opinion No. 469, 106 FERC at P 17, p. 61,850. Putting aside 

for a moment the nine interconnection points not covered by this 

finding, the integration here appears to be only what the 

Commission was then claiming—integration among 

subtransmission facilities. This certainly appears to be the focus 

of the direct testimony of the staff engineering expert—which 

the Commission decisions track very closely. Direct Testimony 

of Farrokhpay, Exh. Staff-3, at 1-18, esp. 7-12.2

 But when the 

agency in its denial of rehearing switched to the broader 

integration theory, it largely repeated the same evidence as 

before, neither adding new evidence nor explaining why the old 

evidence supported the new conclusion. Opinion No. 469-A, 

108 FERC at P 22, p. 61,865. While at least one FERC 

precedent suggests that integration of subtransmission facilities 

with each other is relevant to their integration with the 

transmission grid, Utah Power, 28 FERC at 61,166, here the 

Commission did not articulate such a proposition, much less 

establish its logical role. 

 The second problem relates to how the Commission fills the 

gap left by the recognition that the finding on the five integration 

factors covered only nine of the 18 interconnection points. By 

way of background we observe that these five factors were 

articulated—with similar wording and in the same sequence—in 

Mansfield Municipal Electric Department v. New England 

Power Co., 97 FERC ¶ 61,134, at 61,613-14 (2001). In 

Northeast Texas Electric Cooperative, Inc., 108 FERC ¶ 61,084, 

at P 51, p. 61,434 (2004), the Commission crowned them the 

 2

 The expert did mention the transmission system in his oral 

testimony, but he said only that some subtransmission facilities were 

“connected” to the grid, ALJ Hearing Tr. 1/28/03 at 379. As FERC 

counsel admits, connection does not necessarily mean integration. 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 17 of 20
18

“five-factor Mansfield Test,” and appeared to rule that a 

negative showing on all five factors constituted “‘exceptional 

circumstances’ that merit[] direct assignment.” (FERC didn’t 

cite Mansfield in any of its decisions here or in its brief.) For the 

remaining nine points, Opinion No. 469—again following the 

ALJ—simply stated that those points, “while radially connected 

to Allegheny Power, are typically backed up by an Allegheny 

Power network of 25 kV lines.” Opinion No. 469, 106 FERC at 

P 17, p. 61,850.3 It is not clear whether “back-up” is 

synonymous with one of the five Mansfield factors (e.g., an 

indicator that the facilities provide “support and added 

reliability”) or whether it is a distinct factor that the Commission 

means to add to the test. It is also unclear how the Commission 

defines back-up on the facts of this case. Its entire treatment of 

the concept consists of the sentence quoted above. 

 This cursory treatment might be permissible if prior FERC 

cases revealed a clear and consistent policy on how back-up is 

defined and how it contributes to integration and justifies roll-in. 

But the cases reveal no such policy. Perhaps most important, 

they are inconsistent as to whether the back-up required to show 

integration refers to back-up capability that is used with some 

level of frequency or that merely has the potential for use. The 

distinction is plainly important for this case, as FERC counsel 

 3

 The quoted sentence is obviously drawn from Direct Testimony 

of Farrokhpay, Exh. Staff-3, at 11. Farrokhpay later said the modifier 

“25 kV” should be corrected to read “subtransmission,” ALJ Hearing 

Tr. 1/23/03 at 367, and thus to extend his claim to facilities in northcentral and south-central Pennsylvania (which are 12.5 kV, 46 kV, 

etc.), rather than limit it to western Pennsylvania, where the 25 kV 

facilities are located. System Map; Legend for AEC Interconnection 

Points, Exh. Staff-14. Thus Farrokhpay’s sentence, though obscure 

for the reasons stated in the text, is more supportive of the 

Commission than the Commission noticed. 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 18 of 20
19

acknowledged that there was “no evidence about how often it 

[i.e., utilization of back-up] happens.” Oral Arg. Recording at 

28:05-28:10; see also Direct Testimony of Farrokhpay, Exh. 

Staff-3, at 10-11; ALJ Hearing Tr. 1/23/03 at 375. 

 In general, the Commission appears to have regarded 

potential back-up as insufficient. In Minnesota Power, 21 FERC 

at 61,519, the Commission adopted the decision of the ALJ, 16 

FERC ¶ 63,012, who, in turn, although recognizing that certain 

facilities could back up others if certain switches normally kept 

open were closed (switch closure enables power transmission), 

id. at 65,071, ruled that the choice of ratemaking method should 

be premised on “the common, prevailing situation, not on what 

physically could take place,” id. at 65,071-72 (emphasis added). 

And in Niagara Mohawk, 42 FERC at 61,533, the Commission 

shunned reliance on mere potential. Responding to an argument 

that staff had demonstrated that certain subtransmission lines 

were “only theoretically capable of providing” additional 

reliability, it insisted that the evidence showed support “‘on an 

everyday basis.’” Id. (citation omitted). 

 Qualifying this is a FERC decision of considerable 

ambiguity. In Utah Power, 28 FERC at 61,166, the Commission 

suggested that Minnesota Power’s focus on the “common, 

prevailing situation” did not apply to a case where integration 

was clearly demonstrated by other evidence; but it is unclear 

why the matter would be of any consequence at all in such a 

case. The Ninth Circuit, affirming Utah Power, in dictum 

quoted with approval a passage from the intervenor’s brief to the 

effect that parallel paths establish integration even where 

connection between the two is interrupted by an open switch. 

Sierra Pacific, 793 F.2d at 1088. Of course the Ninth Circuit 

doesn’t establish FERC policy. 

 In the present case, FERC counsel, when pressed at oral 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 19 of 20
20

argument to articulate a standard, stated that the “mere 

potentiality” for back-up was sufficient for roll-in. Oral Arg. 

Recording at 30:10-30:20. To distinguish Minnesota Power, 

counsel emphasized, Oral Arg. Recording at 34:20-36:15, that 

the outcome there rested partly on the fact that closing the 

switches for the sake of back-up could have damaged the 

facilities, 16 FERC at 65,072, suggesting that Minnesota Power

stands for a very narrow “damage” exception to the supposed 

rule that potential back-up suffices for roll-in. But counsel has 

pointed to nothing said by FERC itself establishing such a 

concept. SEC v. Chenery Corp., 332 U.S. 194, 196 (1947). 

 The above discussion would be inaccurate if it conveyed the 

impression that the actual/potential distinction is the only aspect 

of “back-up” that is obscure to this court. The discussion does, 

however, pinpoint what appears the most critical uncertainty in 

the Commission’s handling of the matter. On remand we 

assume that the Commission will address the parties’ 

contentions with enough clarity for any later reviewing court to 

comprehend its position. 

* * * 

 We dismiss Allegheny’s petition insofar as it challenges 

FERC’s rejection of direct assignment. We vacate FERC’s 

order of a West-Penn-wide roll-in and remand for the 

Commission to consider whether or not an adjusted roll-in is 

appropriate (and such additional alternatives as it may deem 

appropriate to consider). 

 So ordered. 

USCA Case #04-1340 Document #947880 Filed: 02/07/2006 Page 20 of 20