Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-01-01462/USCOURTS-caDC-01-01462-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Golden Spread Electric Cooperative, Inc.
Petitioner
Southwestern Public Service Company
Intervenor

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 16, 2003 Decided February 11, 2003

No. 01-1462

GOLDEN SPREAD ELECTRIC COOPERATIVE, INC.,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

SOUTHWESTERN PUBLIC SERVICE COMPANY,

INTERVENOR

PETITION FOR REVIEW OF ORDERS OF THE

FEDERAL ENERGY REGULATORY COMMISSION

Robert A. O’Neil argued the cause for petitioner. With

him on the briefs were Mary A. Hekman and Craig W.

Silverstein.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #01-1462 Document #731351 Filed: 02/11/2003 Page 1 of 7
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the brief were Cynthia A. Marlette, General Counsel, and

Dennis Lane, Solicitor.

William M. Dudley argued the cause for intervenor. With

him on the brief was Floyd L. Norton IV.

Before: EDWARDS and SENTELLE, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS.

WILLIAMS, Senior Circuit Judge: In 1999 the Federal Energy Regulatory Commission approved a tariff that allowed

Southwestern Public Service Company (‘‘SPS’’) to make sales

to affiliates at whatever price the market would bear. Golden

Spread objected, claiming that this extension of SPS’s authority posed new problems, ones not addressed by the Commission in prior decisions that allowed SPS to sell at market

rates—but not to sell to its affiliates at all. Finding that

FERC did not adequately explain its reasons for rejecting

Golden Spread’s protest, we remand the case to the agency.

* * *

In 1995 SPS filed a tariff under § 205 of the Federal Power

Act, 16 U.S.C. § 824d, under which SPS could sell power at

market rates, Southwestern Public Service Company, 72

FERC ¶ 61,208 (1995) (the ‘‘1995 Order’’), but could not sell to

its affiliates, id. at 61,968. Finding that the market was

sufficiently competitive to justify the introduction of marketbased rates, id. at 61,966, FERC approved the tariff. But its

approval included a condition that SPS provide a market

analysis every three years, so that the Commission could

assess whether ‘‘then-current competitive conditions continue

to reflect [SPS’s] lack of market power in short-term markets.’’ Id. at 61,967.

SPS then became the subject of a rather complex transaction, as a result of which a holding company called New

Century Energies, Inc. became the owner of SPS and Public

Service Company of Colorado. The latter has a power marketing affiliate with the allusive moniker ‘‘e prime’’; like SPS,

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e prime was authorized to sell at market rates. See Public

Service Company of Colorado and e prime, 74 FERC

¶ 61,351 (1996). (On consummation of the merger, of course,

it became an affiliate of SPS and subject to the restriction on

SPS’s selling authority.) Another affiliate is New Century

Services, which acts as New Century’s ‘‘service subsidiary’’;

for simplicity’s sake we call both it and the parent New

Century.1

On SPS’s filing of its triennial update on September 1,

1998, Golden Spread intervened, asking FERC to rescind the

earlier grant of authority to sell at market prices. The

parties settled the dispute with an agreement they now call

the Global Settlement, in which Golden Spread agreed to

drop its protest ‘‘without prejudice’’ but secured in exchange

a set of contracts designed to protect it against unfavorable

market conditions. With the parties in agreement, FERC

approved the settlement, and the market-based rate authority

remained in place. Southwestern Public Service Co., 86

FERC ¶ 61,050, clarified, 86 FERC ¶ 61,260 (1999).

Seven days after the approval of the Global Settlement,

New Century filed the tariff application at issue here, which

among other things would allow sales by SPS to affiliates

(including e prime); as with SPS’s non-affiliate transactions,

the rates would be limited only by the market. Golden

Spread once again filed a protest, claiming that the new tariff

could result in rates that were not just and reasonable. It

asked FERC either to reject the new tariff or at least to add

conditions to prevent SPS from manipulating transactions

with its affiliates in such a way as to in fact exert market

power. FERC rejected Golden Spread’s proposals and approved the tariff, New Century Services, Inc., 86 FERC

¶ 61,307 (1999) (the ‘‘Initial Order’’), later denying Golden

Spread’s request for rehearing, New Century Services, Inc.,

96 FERC ¶ 61,223 (2001) (the ‘‘Rehearing Order’’).

1 After the Commission’s orders here, the parent New Century

merged with Northern States Power Company, forming a new

corporation known as Xcel Energy Inc. See Northern States

Power Co., 90 FERC ¶ 61,020 (2000).

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* * *

In its papers before the Commission Golden Spread expressed its primary concern rather obscurely. Although we

said in City of Vernon v. FERC, 845 F.2d 1042, 1047 (D.C.

Cir. 1988), that the Commission ‘‘cannot be asked to make silk

purse responses to sow’s ear arguments,’’ we also implicitly

held that a sow’s ear argument deserves at least a sow’s ear

answer; we found the claim there expressed just clearly

enough to have required a real substantive response. Golden

Spread’s claims, sow’s ear though they may be, didn’t get

such a response here.

At the core of its arguments was the idea that under the

new tariff SPS would be able to ‘‘park’’ all of its excess

capacity with affiliates such as e prime, which could then turn

around and sell that capacity at market rates. In times of

shortage for Golden Spread, occasioned by a failure or any

temporary cessation at one of its own generation plants, the

affiliate would be able to exert market power, extracting

supra-competitive prices from Golden Spread.

At the outset this claim poses the question how the orders’

grant to SPS of authority to sell to its affiliates actually

increased Golden Spread’s risks. If e prime can now sell

power at astronomical rates, why could not SPS have done so

before the orders? But Golden Spread makes a case that the

incremental authority plays a critical role. As part of the

Global Settlement, Golden Spread and SPS signed a Replacement Energy Agreement (‘‘REA’’) that allowed either company, in the event of failure of its own generation facilities, to

purchase excess energy from the other, at cost-based rates.

The agreement protected Golden Spread from the risk of

having to buy emergency power from SPS at supracompetitive rates. But Golden Spread argues that the REA

offers it no protection in a situation where SPS has committed its otherwise excess energy to an affiliate. With the new

authority, it says, SPS can strip itself of ‘‘excess’’ energy,

while at the same time leaving its affiliate free to insist on

excessive prices from Golden Spread. Neither the CommisUSCA Case #01-1462 Document #731351 Filed: 02/11/2003 Page 4 of 7
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sion nor SPS (as intervenor) seems to question this porous

interpretation of the REA.

Of course SPS’s possible frustration of the REA would still

pose no great risk to Golden Spread if there were enough

alternative sources of supply with access to the relevant

market. Golden Spread acknowledges that FERC explicitly

determined in the 1995 Order that SPS did not control even

25 percent of either installed or uncommitted capacity in any

of the markets considered. To this Golden Spread responds

that the figures rely on market definitions that are unrealistic

in light of current constraints on power transmission.

Whereas the Commission analyzed SPS’s share of various

broadly defined markets, Golden Spread fears that transmission congestion would prevent it from securing supplies for its

customers in the Texas panhandle. It points to a publication

of the Public Utility Commission of Texas, Report to The

Texas Senate Interim Committee on Electric Utility Restructuring (July 1998), finding that SPS was the source of 80 per

cent of the power generated in the panhandle, and that

transmission facilities were capable of importing only 10 per

cent of the region’s generating capacity. Id. at 19–21.

The Commission has not directly disputed these claims of

constrained transmission capacity. In the Rehearing Order,

to be sure, it said that there was ‘‘no foundation to Golden

Spread’s complaint that we failed to evaluate potential transmission constraints’’ in the Initial Order, see Rehearing Order, 96 FERC at 61,916, but in fact that assertion rested

solely on the Initial Order’s finding of non-discrimination,

see id.; see also Initial Order, 86 FERC at 62,066 (saying the

applicable open access tariffs assured that ‘‘customers are

treated on a non-discriminatory basis’’). But Golden Spread’s

theory doesn’t depend on discrimination. It depicts SPS

selling (otherwise excess) power at supra-competitive prices

to e prime, which in turn could pass those prices on to Golden

Spread. Golden Spread’s access to non-discriminatory transmission would assure its ability to import such over-priced

power, but wouldn’t supply it with power priced at cost—the

benefit it thought it had secured under the REA.

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In this context there is little purchase to the Commission’s

point that it had subjected the present tariff to the conditions

on affiliate transactions laid out in Detroit Edison Co., 80

FERC ¶ 61,348 at 62,197 (1997). Those conditions require (1)

that the rates for sales to affiliates be no lower than the rate

charged to non-affiliates; (2) that offers to sell power to the

affiliate be simultaneously offered to non-affiliated customers

through an electronic bulletin board; and (3) that the actual

price charged to all affiliates be posted on the board. Id.

These conditions are plainly aimed at protecting retail competitors from underpricing in affiliate sales; they do nothing

to protect Golden Spread from the danger it espies in SPS’s

ability to shift its otherwise uncommitted energy to e prime

at supra-competitive prices. One can imagine circumstances

and interpretations of the REA in which SPS’s duty of nondiscriminatory transmission or the Detroit Edison conditions

could wholly or partially thwart this scenario,2

 but a mere

partial solution would not justify the Commission’s brush-off

of Golden Spread’s claim; more importantly, the Commission

has not even attempted any such interpretation of the controlling instruments.

Finally, in its briefs and at oral argument, FERC parried

Golden Spread’s contentions by pointing to the affiliate codes

of conduct imposed on SPS and its affiliates. See, e.g., Open

Access Same–Time Information System (Formerly Real–

Time Information Networks) and Standards of Conduct, 61

Fed. Reg. 21,737 at 21,743–45 (1996). But the Commission

did not advance this argument or make any findings to that

effect in either of the orders. Its ‘‘action must be measured

by what [it] did, not by what it might have done.’’ SEC v.

Chenery Corp., 318 U.S. 80, 93–94 (1943). Similarly, the

Commission’s observation in its brief that its 1995 examination of the transmission market had shown no ‘‘significant’’

transmission constraints, see Southwestern, 72 FERC at

2 Suppose, for example, that Golden Spread’s demand for equal

treatment with e prime forced a reduction in the latter’s take of

SPS power, which under the REA was interpreted as rendering

some of that power ‘‘excess’’ and consequently available to Golden

Spread.

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61,967, refers to a finding that was four years old at the time

of the Initial Order and that at no time addressed the precise

region identified by Golden Spread.

In short, we find that the Commission has not answered

Golden Spread’s contentions that authority for SPS to sell to

affiliates will frustrate Golden Spread’s contractual protection

against possible SPS market power. Answers may exist in

abundance, but it is up to the Commission to provide them.

The Commission’s orders are

Remanded.

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