Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-04-01252/USCOURTS-caDC-04-01252-0/pdf.json

Parties Involved:
Consumers Energy Company
Petitioner
Federal Energy Regulatory Commission
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 8, 2005 Decided November 4, 2005

 Reissued December 23, 2005

No. 03-1403

CONSUMERS ENERGY COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

WISCONSIN ELECTRIC POWER COMPANY, ET AL.,

INTERVENORS

Consolidated with

04-1252

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

Deborah A. Moss argued the cause and filed the briefs for

petitioner.

Patrick Y. Lee, Attorney, Federal Energy Regulatory

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

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

Lane, Solicitor.

USCA Case #04-1252 Document #929883 Filed: 11/04/2005 Page 1 of 10
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Before: GINSBURG, Chief Judge, and TATEL and BROWN,

Circuit Judges.

Opinion of the Court filed by Circuit Judge TATEL. 

TATEL, Circuit Judge: In these consolidated cases,

petitioner, a public utility, challenges two Federal Energy

Regulatory Commission orders denying reimbursement for

certain costs incurred in connection with the establishment of a

now-defunct regional transmission organization. Finding

FERC’s decisions neither arbitrary nor capricious, we deny the

petitions for review. 

I.

In the late 1990s, FERC began encouraging transmissionowning utilities to place their transmission facilities under the

control of Regional Transmission Organizations (RTOs). In

response, petitioner Consumers Energy Company (CECo),

joined several other transmission-owning utilities to develop the

Alliance RTO. Although FERC initially approved the Alliance

companies’ development plan, it eventually rejected the plan,

finding that the Alliance RTO lacked sufficient geographic

scope to exist as a stand-alone entity. See Alliance Cos., 97

F.E.R.C. ¶ 61,327, 62,529-30 (2001). In that same December

2001 order, FERC found that the public interest would be better

served if the Alliance companies placed their transmission

facilities under the control of an already existing RTO, the

Midwest Independent System Operator (MISO). See id. at

62,531. Acknowledging that the Alliance companies had

incurred significant expenses in developing the Alliance RTO,

FERC stated that it would consider proposals for recovery of all

prudently incurred Alliance start-up costs. See id. In a later

order, issued April 25, 2002, FERC clarified that it would

“allow recovery of all costs prudently incurred by any Alliance

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GridCo participant to establish an RTO once it is a member of

an RTO.” Alliance Cos., 99 F.E.R.C. ¶ 61,105, 61,442 (2002).

Critical to the issues before us, FERC has interpreted this “April

25 order” as imposing two requirements for recovery of

“prudently incurred” Alliance costs: parties seeking

reimbursement must have (1) been an Alliance GridCo

participant, and (2) joined an RTO.

After FERC announced that Alliance RTO members could

recover their costs, CECo sold its transmission facilities to

another utility, Michigan Transco. FERC officially authorized

that transaction on February 13, 2002, see Trans-Elect, Inc., 98

F.E.R.C. ¶ 61,142 (2002), but the parties subsequently amended

the sales contract to account for the later-issued April 25 order.

The amended contract provided that only CECo could recover

the Alliance RTO costs that it incurred in connection with the

transmission facilities, and that if FERC decided to reimburse

Michigan Transco instead of CECo, Michigan Transco must

remit the recovered funds to CECo. Michigan Transco also

agreed to make reasonable efforts to help CECo obtain

reimbursement. On May 1, six days after the April 25 order,

CECo and Michigan Transco closed the sale. As required by the

sales contract, Michigan Transco immediately transferred

control of the transmission facilities to MISO. 

Setting the stage for the issues now before us, MISO then

requested FERC authorization to reimburse CECo

approximately $8.3 million for its Alliance-related costs. FERC

denied MISO’s request, explaining that because CECo had sold

its transmission facilities to Michigan Transco, it had never

joined an RTO as required for recovery by the April 25 order.

FERC also asserted that, through the sale to Michigan Transco,

CECo had received adequate compensation for its Alliance

development costs. See Midwest Indep. Transmission Sys.

Operator, Inc., 103 F.E.R.C. ¶ 61,219, 61,838 (2003) (the

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“CECo order”); Midwest Indep. Transmission Sys. Operator,

Inc., 104 F.E.R.C. ¶ 61,298, 62,121 (2003) (denying rehearing).

Having failed in its efforts to reimburse CECo directly,

MISO asked FERC for permission to give the $8.3 million to

Michigan Transco, which had a contractual obligation to pass

the money along to CECo. FERC denied MISO’s request,

explaining that it amounted to a collateral attack on the

Commission’s earlier order denying MISO’s request to

reimburse CECo, and in any event, that Michigan Transco was

ineligible to recover the costs because it had never been an

Alliance participant as required by the April 25 order. See

Midwest Indep. Transmission Sys. Operator, Inc., 107 F.E.R.C.

¶ 61,131 (2004) (the “Michigan Transco order”); Midwest Indep.

Transmission Sys. Operator, Inc., 108 F.E.R.C. ¶ 61,010 (2004)

(denying rehearing). 

CECo filed petitions for review of the CECo and the

Michigan Transco orders. We consider both petitions in these

consolidated proceedings. See Consumers Energy Co. v. FERC,

No. 04-1252 (D.C. Cir. Aug. 5, 2004).

II. 

We will set aside FERC’s orders only if we find them

“arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706(2)(A). In evaluating

FERC’s interpretation of its own orders, we afford the

Commission substantial deference, upholding the agency’s

decision “unless its interpretation is plainly erroneous or

inconsistent” with the order. Bluestone Energy Design, Inc. v.

FERC, 74 F.3d 1288, 1292 (D.C. Cir. 1996) (internal quotations

omitted); see also CMC Real Estate Corp. v. ICC, 807 F.2d

1025, 1034 (D.C. Cir. 1986) (“It is well established that an

agency’s interpretation of the intended effect of its own orders

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is controlling unless clearly erroneous.”). Applying this highly

deferential standard of review, we consider each order in turn.

The CECo Order

Although we agree with CECo that FERC provided no

evidence for its assertion that CECo was “adequately

compensated” for its Alliance-related costs through the sale of

its transmission facilities to Michigan Transco, FERC gave an

additional explanation for its decision—that CECo failed to

comply with the express terms of the April 25 order—which is

both well-reasoned and independent from the compensation

rationale. See Greater Boston Television Corp. v. FCC, 444

F.2d 841, 851 (D.C. Cir. 1970) (stating that the court would not

vacate an agency decision “because of errors that are not

material”). Recall that the April 25 order states that FERC will

“allow recovery of all costs prudently incurred by any Alliance

GridCo participant to establish an RTO once it is a member of

an RTO.” Alliance Cos., 99 F.E.R.C. at 61,442 (emphasis

added). As FERC explained, because CECo had sold its

transmission facilities, it had no way of becoming a member of

an RTO—a prerequisite for recovery under the April 25 order.

Acknowledging that FERC’s decision comports with the

April 25 order’s plain language, CECo argues that denying

recovery “elevates form over substance and is contrary to

[FERC’s] policy goal.” Petitioner’s Br. at 32. According to

CECo, FERC authorized Alliance participants to recover their

Alliance costs in order to encourage them to place their

transmission systems under MISO’s control. Emphasizing that

it did just that by contractually requiring Michigan Transco to

transfer control of the transmission facilities to MISO, CECo

argues that FERC had no justifiable policy basis for denying

reimbursement. Although we assume that CECo correctly

describes FERC’s policy objectives and its own advancement of

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those objectives, CECo’s argument faces an insurmountable

obstacle, i.e., nothing in the April 25 order entitles CECo to

recover its costs simply because it facilitated the transfer of its

transmission facilities to MISO. To the contrary, the April 25

order speaks quite clearly about the conditions for

reimbursement, and CECo simply failed to satisfy them. To the

extent that CECo believes the April 25 order’s requirements are

arbitrary and capricious, it should have challenged that order

directly. In the case before us, however, CECo challenges only

the order denying it recovery. 

CECo insists it is “inequitable” for FERC, having never

questioned the prudence of CECo’s Alliance expenses, to deny

it recovery “merely because CECo sold it[s] transmission

facilities to Michigan Transco prior to the date that functional

control of these transmission facilities was transferred to

MISO.” Petitioner’s Br. at 33. As FERC pointed out in the

CECo order, however, “[t]he April 25 Order was issued before

[CECo] closed on the deal it proposed . . . . [CECo] nevertheless

closed, and also did not seek clarification of the April 25 Order.”

Alliance Cos., 103 F.E.R.C. at 61,838. CECo argues that

because the closing date for the sale was only five days after

FERC issued the April 25 order, any request for clarification

would have been futile because FERC would have had

insufficient time to answer before the sale was completed. But

again, FERC has a persuasive answer: CECo provides no

explanation for why “the closing date could not have been

extended for some period while clarification was sought, or that

CECo could not have requested an expedited FERC ruling to

meet the scheduled closing date.” Reply Br. at 24. 

Finally, CECo insists it had no need to seek clarification

because, according to the company, the April 25 order cannot

reasonably be read to preclude recovery by both CECo and

Michigan Transco. As CECo sees it, the order introduced

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ambiguity only as to which company—CECo or Michigan

Transco—could, following the sale, recover CECo’s start-up

costs, an ambiguity the company says it addressed by amending

the contract to require Michigan Transco to remit to CECo any

costs recovered on CECo’s behalf. But again, the April 25

order’s plain language precludes this argument. Not only does

that order disqualify CECo from recovering its Alliance costs

(because CECo never became an RTO member) but nothing in

the order even hints that it may nevertheless recover those costs

simply because the company to which it sold its transmission

facilities (Michigan Transco) likewise failed to satisfy one of the

order’s requirements—though, as we shall explain below, a

different requirement than the one that doomed CECo’s

recovery effort. CECo wrongly assumed that the April 25 order

means something other than what it says—a mistake for which

it has no one to blame but itself.

The Michigan Transco Order

Before addressing the merits of CECo’s challenge to the

Michigan Transco order, we must consider FERC’s argument

that CECo lacks standing to challenge that order. To meet the

constitutional requirements for standing, a plaintiff must show

“an injury to himself that is likely to be redressed by a favorable

decision.” Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 38

(1976). 

FERC argues that because the Michigan Transco order

rejected payment to Michigan Transco, the purported injury was

to Michigan Transco, not CECo, and that only Michigan

Transco would receive any redress were we to order FERC to

reconsider its decision. CECo responds that Michigan Transco

has a contractual obligation to remit to it any Alliance RTO

start-up costs it recovers, and that this contractual relationship

sufficiently connects CECo’s injury and redress to FERC’s

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order. We agree with CECo. The company altered its contract

with Michigan Transco to ensure that were CECo unable to

recover its Alliance costs on its own, it could do so through

Michigan Transco, and Michigan Transco pursued

reimbursement on CECo’s behalf only because the contract

required it to do so. CECo therefore has a “concrete personal

stake” in the issue before us. APPC Servs., Inc. v. Spring

Commc’ns, 418 F.3d 1238, 1242 (D.C. Cir. 2005). Although

FERC points out that Michigan Transco could breach its

contractual duty to remit any recovered costs to CECo, we think

that possibility far too speculative to sever the connection

between FERC’s order and CECo’s injury and redress. See

Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)

(stating that for Article III standing purposes, it need only be

“likely” that a favorable court decision will redress the

plaintiff’s injury).

On the merits, FERC gave two reasons for rejecting MISO’s

request to reimburse Michigan Transco. First, it ruled that the

request amounted to a collateral attack on the earlier order

denying CECo’s reimbursement petition. According to FERC,

because Michigan Transco would remit any recovered costs to

CECo, MISO’s request to reimburse Michigan Transco involved

the same question as the earlier order, i.e., whether CECo was

eligible to recover its Alliance costs. Setting aside that this

argument conflicts with FERC’s insistence that CECo lacks

standing—Michigan Transco is either likely to remit any

recovered funds to CECo or it’s not—we see no merit in the

Commission’s argument. FERC denied MISO’s request to

reimburse CECo because the company failed the April 25

order’s second recovery condition (membership in an RTO),

whereas Michigan Transco’s eligibility turns on the order’s first

condition (participation in Alliance RTO development efforts).

Accordingly, the request to reimburse Michigan Transco does

not “present[ ] the same issue” that the Commission resolved in

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denying recovery to CECo. Midwest Indep. Transmission Sys.

Operator, Inc., 107 F.E.R.C. at 61,438. 

Fortunately for FERC, the order includes a second,

independent, and completely persuasive rationale for denying

Michigan Transco’s reimbursement request: that because

Michigan Transco had in fact never been a member of the

Alliance RTO, it failed to satisfy the April 25 order’s first

condition, which limits recovery of costs to those “incurred by

any Alliance GridCo participant.” Alliance Cos., 99 F.E.R.C. at

61,442. CECo’s effort to avoid the consequences of the order’s

plain language—it argues that by effectuating the transfer of its

transmission facilities to MISO, it accomplished FERC’s policy

goals—fails for the reasons given above. 

III.

In sum, FERC provided a satisfactory explanation for

denying CECo and Michigan Transco reimbursement for

CECo’s Alliance costs. Simply put, neither company met the

conditions for reimbursement set forth in the April 25 order. To

be sure, this means CECo will be unable to recover its prudently

incurred Alliance costs. But that loss flows not from any

arbitrary action by FERC, but rather from CECo’s failure to

challenge the April 25 order and its decision to consummate the

sale to Michigan Transco notwithstanding the April 25 order’s

unambiguous statement that only those transmission owners

which were Alliance participants and that are now RTO

members may recover their Alliance costs. Michigan Transco

cannot satisfy the order’s first requirement (participation in

Alliance RTO efforts) and CECo, which had been an Alliance

participant, cannot satisfy the second (RTO membership)

because it sold its transmission facilities to Michigan Transco

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prior to transferring them to MISO. We deny the petitions for

review. 

So ordered.

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