Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-04-01111/USCOURTS-caDC-04-01111-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Michigan Electric Transmission Company, LLC
Intervenor
Michigan Public Power Agency
Petitioner
Michigan South Central Power Agency
Petitioner

Document Text:

Notice: This opinion is subject to formalrevision before publication in the

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 15, 2005 Decided April 15, 2005

No. 04-1111

MICHIGAN PUBLIC POWER AGENCY AND

MICHIGAN SOUTH CENTRAL POWER AGENCY,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

MICHIGAN ELECTRIC TRANSMISSION COMPANY, LLC,

INTERVENOR

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Alan I. Robbins argued the cause and filed the briefs for

petitioners.

Robert H. Solomon, Deputy Solicitor, Federal Energy

Regulatory Commission, argued the cause for respondent. With

him on the brief were Cynthia A. Marlette, General Counsel, and

USCA Case #04-1111 Document #889433 Filed: 04/15/2005 Page 1 of 16
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Dennis Lane, Solicitor.

Before: SENTELLE, HENDERSON and ROGERS, Circuit

Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

Concurring opinion filed by Circuit Judge HENDERSON.

ROGERS, Circuit Judge: Michigan Public Power Agency

and Michigan South Central Power Agency (collectively

“Michigan Agencies”) petition for review of two orders of the

Federal Energy Regulatory Commission ruling that Michigan

Electric Transmission Company (“METC”) could pass through

to the Michigan Agencies a share of the annual charges that the

Commission had assessed directly to the Midwest Independent

Transmission System Operator, Inc. (“MISO”) and that, in turn,

had been passed through to METC. The Michigan Agencies

contend that the Commission acted beyond its statutory

authority when it approved an amendment to their Transmission

Ownership and Operating Agreements (“Operating

Agreements”) allowing METC to pass through annual charges

to them, and that the Commission failed to engage in reasoned

decisionmaking when, for the first time, it did not distinguish

between the transmission that the Michigan Agencies take

pursuant to their ownership interests and the transmission that

they take as tariff customers. While we find no merit to the

Michigan Agencies’ contention that the Commission lacked

authority to allow the pass-through of annual charges to them,

because the Commission failed to provide an adequate

explanation for its apparent departure from past practice, we

grant the petition for review and remand the case to the

Commission for further explanation.

I.

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The Commission has a nearly twenty-year history of

assessing annual charges directly to public utilities. As the court

recently noted, the Commission is “[o]bligated by statute to

recoup its costs from industries it regulates.” Midwest Indep.

Transmission Sys. Operator, Inc. v. FERC (“MISO II”), 388

F.3d 903, 905 (D.C. Cir. 2004). In the Omnibus Budget

Reconciliation Act of 1986, Congress required the Commission

to “assess and collect fees and annual charges in any fiscal year

in amounts equal to all of the costs incurred by the Commission

in that fiscal year.” 42 U.S.C. § 7178(a)(1) (2000). According

to the Commission, it “is required to collect not only all its

direct costs but also all its indirect expenses such as hearing

costs and indirect personnel costs.” Revision of Annual Charges

Assessed to Public Utilities, Order No. 641, FERC Stats. &

Regs. ¶ 31,109, at 31,841 n.4, 65 Fed. Reg. 65,757, 65,757

(Nov. 2, 2000). These annual charges, however, may be directly

assessed only to public utilities. See 16 U.S.C. § 824(f) (2000);

18 C.F.R. § 382.201 (2004). 

The Commission initially calculated annual charges with

respect to electricity regulation based on both a public utility’s

transmission and wholesale sales in interstate commerce. See

Annual Charges Underthe Omnibus Budget Reconciliation Act

of 1986, Order No. 472, FERC Stats. & Regs. ¶ 30,746, 52 Fed.

Reg. 21,263 (June 5, 1987). In 2000, however, the Commission

altered its methodology for calculating annual charges in Order

No. 641 to consider only the transmission of electricity in

interstate commerce by public utilities. See Order No. 641,

FERC Stats. & Regs. ¶ 31,109, 65 Fed. Reg. 65,757 (Nov. 2,

2000) (codified at 18 C.F.R. § 382.201). See generally MISO II,

388 F.3d at 906-08.

The Commission’s methodological shift in calculating

annual charges was motivated in large part by the sweeping

changes in the electricity industry brought about by Order No.

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888, FERC Stats. & Regs. ¶ 31,036, at 31,654, 61 Fed. Reg.

24,540, 21,551 (May 10, 1996), and related orders that, among

other things, required the functional unbundling of transmission

and generation services, required public utilities’ transmission

facilities to guarantee nondiscriminatory access for all market

participants, and encouraged utilities to place transmission

assets under the control of umbrella entities called “regional

transmission organizations” (“RTOs”) or “independent system

operators” (“ISOs”). See generally MISO II, 388 F.3d at 906;

Midwest ISO Transmission Owners v. FERC (“MISO I”), 373

F.3d 1361, 1363-65 (D.C. Cir. 2004). Regarding the last feature,

the Commission envisioned that an ISO, like MISO, “would

assume operational control — but not ownership — of the

transmission facilities owned by its member utilities, thereby

‘separat[ing] operation of the transmission grid and access to it

from economic interests in generation.’” MISO I, 373 F.3d at

1364 (quoting Order No. 888, FERC Stats. & Regs. ¶ 31,036, at

31,654, 61 Fed. Reg. at 21,551).

Under Order No. 641, the Commission assesses annual

charges to each public utility that provides transmission service.

Order No. 641, FERC Stats. & Regs. ¶ 31,109, at 31,855, 65

Fed. Reg. at 65,758. Specifically, Order No. 641 states:

If an ISO or RTO public utility has taken over from

individual public utilities the function of providing

transmission service and has, accordingly, a tariff or rate

schedule (and thus rates) on file for such service, then it is

the ISO or RTO public utility that will be responsible for

paying annual charges, and it will be assessed annual

charges based on all transmission that it provides pursuant

to its tariff or rate schedule. If an individual public utility

continues to provide transmission service, however, and

still has, accordingly, a tariff or rate schedule (and thus

rates) on file for such service, then that individual public

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utility will continue to be responsible for paying annual

charges.

Id. (footnotes omitted). The Commission also stated in Order

No. 641 that it would “continue its existing policy that

municipal utility systems . . . will not be required to pay annual

charges.” Id. at 31,485, 65 Fed. Reg. at 65,760.

MISO provides transmission service, see generally MISO

I, 373 F.3d at 1365, and therefore the Commission directly

assesses annual charges to MISO rather than to METC or other

transmission owners in the region that MISO serves. The

transmission owners first report their transmissions in

megawatts to MISO, which converts them to megawatt hours

and reports that figure to the Commission. See Mich. Elec.

Transmission Co., 104 F.E.R.C. ¶ 61,236, at 61,806 n.9. (2003)

(“Initial Order”). The Commission then calculates MISO’s

annual charges based on the proportion of its megawatt hours

compared to all other public utilities operating in interstate

commerce. See Order No. 641, FERC Stats. & Regs. ¶ 31,109,

at 31,841-42, 65 Fed. Reg. at 65,758 (codified at 18 C.F.R. §

382.201(b)). The Commission bills MISO, which, in turn, may

pass through a proportionate share of the annual charges to

various transmission owners, like METC, through its rates. See

id. at 31,855-57, 65 Fed. Reg. at 65,765-67. These transmission

owners, in turn, may pass through the charges to their

customers, regardless of whether the customers are jurisdictional

utilities. See id. at 31,845 n.34, 65 Fed. Reg. at 65,760 n.34. As

Order No. 641 makes clear, and the Commission reiterated here,

while annual charges may not be directly assessed to nonjurisdictional utilities, like the Michigan Agencies, see id. at

31,845, 65 Fed. Reg. at 65,760; see also 16 U.S.C. § 824(f),

“[a]s transmission customers they may, of course, be charged

rates by the transmission provider that reflect annual charges

assessed to the transmission provider,” Order No. 641, FERC

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Stats. & Regs. ¶ 31,109, at 31,845 n.34, 65 Fed. Reg. at 65,760

n.34. 

The petition for review arises from METC’s June 30, 2003

filing pursuant to 16 U.S.C. § 824d to amend the Operating

Agreements so that, as relevant, it could pass through a share of

the Commission’s annual charges to the Michigan Agencies.

Noting that the Operating Agreements gave it the right to apply

unilaterally to the Commission for an amendment, METC stated

that it sought to recover “its prudently incurred costs associated

with service to the Customers,” which are “municipal power

agencies that purchase transmission service for their members

within the METC pricing zone.” Filing of Mich. Elec.

Transmission Co., Docket No. ER03-1003-00, at 2, 4 (June 30,

2003). METC’s amendment states, in relevant part:

If the Capacity Entitlement of [the Michigan Agencies]

served hereunder is treated under the [MISO] Open Access

Transmission Tariff . . . as [the Michigan Agencies] load

served by the METC system such that the MISO imposes

charges on METC in connection with such entitlement, [the

Michigan Agencies] shall reimburse METC for the full

amount of [their] share of any charges paid by METC for .

. . annual charges assessed to public utilities pursuant to 18

CFR [§] 382.201 imposed on METC in connection with the

[Michigan Agencies’] Capacity Entitlement.

Id. at Exhibit A. 

The Michigan Agencies intervened and protested the

amendment on the ground that it would be unlawful to pass

through annual charges to them. They argued that as municipal

agencies, they are not “public utilities” subject to the

Commission’s jurisdiction under 18 C.F.R. § 382.201, and that

as co-owners of the METC transmission system, they have not

USCA Case #04-1111 Document #889433 Filed: 04/15/2005 Page 6 of 16
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previously been subject to annual charges, an exemption they

noted is reflected in Order No. 641, FERC Stats. & Regs. ¶

31,109, at 31,845, 65 Fed. Reg. at 65,760. The Commission,

while acknowledging that the Michigan Agencies “acquired an

interest in and use rights over the METC transmission system,”

approved METC’s amendment to the Operating Agreements.

Initial Order, 104 F.E.R.C. ¶ 61,236, at 61,805. It concluded

that “whether [the] Michigan Agencies are considered customers

or co-owners of the METC transmission system, the

Commission’s annual charges may be allocated to them by

METC for service provided by METC.” Id. at 61,806. The

Commission explained that METC could pass through the

annual charges to the Michigan Agencies because “METC is

being assessed these costs based on the Michigan Agencies’

capacity entitlement being transmitted by [MISO] over the

[MISO] transmission system, under the [MISO open access

transmission tariff], within the METC pricing zone.” Id.

Denying rehearing, the Commission acknowledged its “existing

policy” under Order No. 641 exempting municipal systems from

paying annual charges, but reasoned that as “transmission

customers,” municipal utilities “may, of course, be charged rates

by the transmission provider that reflect annual charges assessed

to the transmission provider. . . . ‘How the [annual charge] is

recovered is a matter of the public utility’s ratemaking.’” Mich.

Elec. Transmission Co., 106 F.E.R.C. ¶ 61,064, at 61,206 (2004)

(“Rehearing Order”) (alteration in original) (quoting Midwest

Indep. Transmission Sys. Operator, Inc., 103 F.E.R.C. ¶ 61,048,

at 61,180 n.25 (2003)). This petition followed.

II.

The Michigan Agencies make only a limited challenge to

the pass-through of charges to them. They do not object to the

pass-through of MISO’s administrative costs in Schedule 10 of

its open access transmission tariff. See generally MISO I, 373

F.3d at 1366. Nor do they object to the pass-through of annual

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charges when they take transmission in excess of their

ownership interests and thus take transmission as METC’s

customers at its “tariff use” rates. They do object, however, to

METC’s pass-through of annual charges for the portion of the

transmission that they take pursuant to their ownership interests.

The Commission is responsible for regulating public

utilities’ rates and charges to ensure that they are just and

reasonable and not unduly discriminatory. 16 U.S.C. §§ 824d,

824e. The court reviews the Commission’s approval of METC’s

amendment to the Operating Agreements to determine whether

the Commission has acted in an arbitrary and capricious manner,

see 5 U.S.C. § 706(2)(A) (2000); MISO I, 373 F.3d at 1368, and

affords particular deference to the Commission’s expertise when

ratemaking is at issue, Ass’n of Oil Pipe Lines v. FERC, 83 F.3d

1424, 1431 (D.C. Cir. 1996). The Commission, however, may

change its policy only if it provides “a reasoned analysis

indicating that prior policies and standards are being deliberately

changed, not casually ignored.” Greater Boston Television

Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970); see also

Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 41-42 (1983).

Despite the similarity of the issues involved, the court’s

recent decisions in MISO I and MISO II do not control our

decision here. In MISO I, the court denied a petition for review

of the Commission’s orders that non-jurisdictional utilities could

be charged a share of MISO’s administrative costs. 373 F.3d at

1372. The court reasoned that because the charges passed

through to transmission owners reflected the “administrative

costs of having an ISO,” id. at 1371, those charges should be

shared by all loads — even those not subject to MISO’s openaccess tariff transmission rates, id. at 1369. Here, however, the

issue involves recouping the Commission’s annual costs of

regulating public utilities and not MISO’s costs as an ISO. In

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MISO II, the court simply held that the petitioner had presented

insufficient evidence of changed circumstances to warrant

ordering a new rulemaking on the methodology for calculating

annual charges, MISO II, 388 F.3d at 911-13, and it did not

involve an application of that methodology. 

As a threshold matter, we reject the Michigan Agencies’

contention that, because they are not public utilities, the

Commission acted beyond its statutory authority when it

included the transmission capacity they take pursuant to their

ownership interest when calculating annual charges. Although

the Michigan Agencies are non-jurisdictional municipal utilities

that may not be assessed annual charges directly, see 16 U.S.C.

§ 824(f); 18 C.F.R. § 382.201; Order No. 641, FERC Stats. &

Regs. ¶ 31,109, at 31,855, 65 Fed. Reg. at 65,765, they point to

nothing that would show that there is a jurisdictional bar either

to including that transmission capacity when calculating annual

charges or to passing through a share of those charges to the

Michigan Agencies. The Michigan Agencies make no

contention that they are exempt from such charges because they

operate only in intrastate commerce. They use MISO’s

transmission system when they take transmission pursuant to

their Operating Agreements, see Initial Order, 104 F.E.R.C. ¶

61,236, at 61,806; cf. MISO I, 373 F.3d at 1369, and the

Commission’s annual charges seek to recover its costs of

regulating public utilities, which include MISO and its

transmission system, see Order No. 641, FERC Stats. & Regs. ¶

31,109, at 31,841, 65 Fed. Reg. at 65,757. Because the Michigan

Agencies use a public utility’s transmission system when they

take transmission pursuant to their ownership interests, and the

Commission regulates that system and incurs costs for such

regulation that it seeks to recoup through its annual charges, the

Michigan Agencies fail to show that, by reason of their not being

public utilities, the Commission is not empowered to include

their transmission taken pursuant to their ownership interests

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when calculating annual charges and to permit a public utility to

pass through a proportionate share of its annual charge to them.

Cf. MISO I, 373 F.3d at 1369.

We are concerned, however, with the Commission’s failure

to explain its apparent departure from past practice. The

Michigan Agencies argued to the Commission that this is the

first time that a public utility has sought to pass through annual

charges to them based on the transmission they take pursuant to

their ownership interests. They contend that including that

transmission when calculating annual charges, and thus making

no distinction between their use as owners and their use as

customers, is an unreasoned departure from the Commission’s

past practice. Although counsel for the Commission suggested

at oral argument that the transmission taken pursuant to the

Michigan Agencies’ ownership interests had always been

included in calculating annual charges and that METC’s

predecessor, Consumers Power Company, had simply failed to

pass through the charges, METC’s submissions to the

Commission refute that characterization. According to METC,

“energy delivered under the Operating Agreements . . . [was]

excluded from the energy used to determine [its predecessor’s]

annual charge assessment each year.” Answer of Mich. Elec.

Transmission Co. at 9. METC claimed that “under the current

reporting regulations, this exclusion has been eliminated.” Id.

The Commission seemingly agreed, for it included that

transmission capacity when calculating MISO’s annual charges

that were passed through to METC. See Initial Order, 104

F.E.R.C. ¶ 61,236, at 61,806 & n.9. But it is unclear from the

Orders on review what justified this result, and nothing in the

record identifies the “reporting regulations” that purportedly

eliminated the exclusion of the Michigan Agencies’ transmission

taken pursuant to their ownership interests. 

The Michigan Agencies’ ownership interests come from the

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Operating Agreements that were executed in the late 1970s and

early 1980s and therefore long pre-date Order No. 888 and the

creation of MISO. The Commission acknowledges that the

Operating Agreements have been grandfathered into MISO’s

open access transmission tariff and are not subject to its rates,

terms, and conditions. See Initial Order, 104 F.E.R.C. ¶ 61,236

at 61,805; see also MISO OATT at § 1.19, cited in Br. of Pet’rs

at 22 n.54. Order No. 641, however, states that annual charges

will be “based on all transmission that [an ISO] provides

pursuant to its tariff or rate schedule.” FERC Stats. & Regs. ¶

31,109 at 31,855 (emphasis added). Yet, so far as the record

before the court reveals, when the Michigan Agencies take

transmission pursuant to their ownership interests, MISO is not

providing transmission service “pursuant to its tariff or rate

schedule” because the grandfathered Operating Agreements are

exempt from that schedule. 

Counsel for the Commission stated at oral argument that in

Order No. 641 the Commission sought to avoid double-recovery

by assessing annual charges only on transmission providers, such

as RTOs and ISOs where applicable. See id. at 31,850, 31,852.

Even so, this assertion is nonresponsive to Order No. 641’s

textual limitation on the calculation of a transmission provider’s

annual charges to transmission provided “pursuant to its tariff or

rate schedule.” Id. at 31,855. The Commission does not discuss

this language in the Orders on review. While “language in the

preamble of a regulation is not controlling over the language of

the regulation itself,” Entergy Servs., Inc. v. FERC, 375 F.3d

1204, 1209 (D.C. Cir. 2004) (quoting Wyo. Outdoor Council v.

U.S. Forest Serv., 165 F.3d 43, 53 (D.C. Cir. 1999)) (internal

quotation marks omitted), and the annual charge regulations

provide for calculation of annual charges based on “the sum of

the megawatt-hours of all unbundled transmission . . . and the

megawatt-hours of all bundled wholesale power sales,” 18

C.F.R. § 382.201(c)(1) (emphasis added), the Commission does

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not rely on its regulation to justify the apparent change in

treatment of the transmission in question.

In any event, in the Orders on review, the Commission

declined to recognize any distinction regarding the assessment of

annual charges when the Michigan Agencies act as co-owners by

taking transmission pursuant to their ownership interests and

when they act as customers by taking transmission in excess of

those interests. In the Initial Order, the Commission stated,

“[W]hether [the] Michigan Agencies are considered customers

or co-owners of the METC transmission system, the

Commission’s annual charges may be allocated to them by

METC for service provided by METC.” 104 F.E.R.C. ¶ 61,236

at 61,806. In its brief to this court, the Commission maintains it

acted reasonably in applying a basic cost causation principle in

approving METC’s cost allocation proposal. It explained that

“[w]hat does matter, for ratemaking purposes, is that METC is

incurring costs (a share of the annual charges assessed to [MISO]

and passed along to METC) that are based on the Michigan

Agencies’ entitlement to capacity on the [MISO] system under

the Operating Agreements.” Br. of Resp’t at 20. But, in Order

No. 641, although the Commission expressly continued its policy

of not directly assessing annual charges to municipal power

utilities, see Order No. 641, FERC Stats. & Regs. ¶ 31,109, at

31,845, 65 Fed. Reg. at 65,760, it stated that public utilities could

pass through the annual charges to municipal utilities that are

“transmission customers,” id. at 31,845 n.34, 65 Fed. Reg. at

65,760 n.34. Thus, contrary to the Commission’s assertions that

the Michigan Agencies’ status as customers or co-owners is

irrelevant, see Initial Order, 104 F.E.R.C. ¶ 61,236 at 61,806,

nothing else appearing, Order No. 641 seems to contemplate the

indirect assessment of annual charges to municipal utilities only

when they are “transmission customers.” If so, the record does

not reveal whether the Michigan Agencies could be considered

“transmission customers” even when they take transmission

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pursuant to their ownership interests. 

Similarly, the Commission failed to address the Michigan

Agencies’ argument that they are not paying a filed tariff rate to

MISO or METC when they take transmission pursuant to their

ownership interests. Rather, the Commission concluded: “How

the [annual charge] is recovered is a matter of the public utility’s

ratemaking. Just as a public utility recovers its other

transmission-related costs in its rates, so a public utility’s annual

charges may be recovered in its rates.” Rehearing Order, 106

F.E.R.C. ¶ 61,064, at 61,206 (quoting Midwest Indep.

Transmission Sys. Operator, Inc., 103 F.E.R.C. ¶ 61,048, at

61,180 n.25) (internal quotation marks omitted). But the

Michigan Agencies argued that, when taking transmission as coowners of the METC transmission system, they are not subject

to the ratemaking of METC or MISO. Thus, the discussion

about recovering costs through ratemaking appears not to support

the pass-through of annual charges here.

Counsel for the Commission, at oral argument, focused on

the fact that the amendment to the Operating Agreements

contains conditional language that permits METC to pass

through annual charges to the Michigan Agencies only if METC

received such charges from MISO. This characterization

presupposes that it is proper to include the Michigan Agencies’

transmission taken pursuant to their ownership interests in the

calculations for annual charges. If it is improper under Order

No. 641 to assess annual charges directly to MISO and indirectly

to METC based on that transmission, then this explanation falls

apart. Undoubtedly, METC will incur trapped costs if the annual

charges that are passed through to METC include the Michigan

Agencies’ transmission taken pursuant to their ownership

interests and METC is then unable to pass through those charges

to the Michigan Agencies (or its other customers). But avoidance

of trapped costs and reliance on the maxim that “cost allocation

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follows cost responsibility,” Br. of Resp’t at 13, are insufficient

reasons to justify the amendment absent a showing that the

transmission that the Michigan Agencies take pursuant to their

ownership interests may be included in the transmission capacity

used to calculate the annual charges. 

The Commission may readily be able to explain its

acceptance of METC’s amendment to the Michigan Agencies’

Operating Agreements in light of the concerns we have

identified. It may turn on a simple explanation of what it means

to be a “transmission customer.” Order No. 641, FERC Stats. &

Regs. ¶ 31,109, at 31,845 n.34, 65 Fed. Reg. at 65,760 n.34. Or

the Commission may be able to explain that Order No. 641

authorizes the amendment, and, if so, that the Michigan Agencies

cannot mount a collateral attack on that Order absent unforeseen

circumstances or special factors. See, e.g., Transwestern

Pipeline Co. v. FERC, 988 F.2d 169, 174 (D.C. Cir. 1993). Or

the Commission may be able to explain that it always has

included the transmission taken pursuant to ownership interests

in calculating annual charges such that it did not depart from past

practice. However, because the Orders on review do not address

adequately the legitimacy of the pass-through of the

Commission’s annual charges in light of the Michigan Agencies’

status as co-owners of the METC transmission facilities and as

municipal power utilities, and do not address at all the Michigan

Agencies’ contention that the Commission’s action is a departure

from past practice, the court is not in a position to defer to the

Commission’s expertise. 

Accordingly, we grant the petition for review and remand

the case to the Commission for further explanation.

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KAREN LECRAFT HENDERSON, Circuit Judge, concurring: 

While I agree with the remand to the Commission, I am

apparently more concerned about the threshold jurisdictional

question than my colleagues. I, at least, would like the

Commission to explain how, as the petitioners say, it can do

indirectly what it cannot do directly. Reply Br. of Pet’r at 4–5.

The FERC’s jurisdiction does not extend to “facilities used in

local distribution or only for the transmission of electric energy

in intrastate commerce.” 16 U.S.C. § 824(b)(1). Nor does its

jurisdiction extend to entities that are not “public utilities,” id.

at § 824(e)–(f), which both parties agree the petitioners are not.

The regulation providing for the annual charges authorizes the

imposition of such costs only with respect to “public utilities.”

18 C.F.R. § 382.201(a). In response to the petitioners’ argument

below that their transmission capacity entitlements as nonjurisdictional owners of part of the METC generation system

should not be included in the calculation of the FERC’s annual

charge, the Commission stated: 

[W]hether [petitioners] are considered customers

or co-owners of the METC transmission system,

the Commission’s annual charges may be

allocated to them by METC for service provided

by METC. METC is being assessed these costs

based on the [petitioners] capacity entitlement

being transmitted by the Midwest ISO over the

Midwest ISO transmission system, under the

Midwest ISO OATT, within the METC pricing

zone.

104 F.E.R.C. ¶ 61,236 at 61,806 (2003). This “explanation,” to

me, is less than compelling. It is the FERC’s responsibility to

assert an adequate basis in law for its exercise of jurisdiction.

City of Ft. Morgan v. FERC, 181 F.3d 1155, 1159 (10th Cir.

1999); see also Oklahoma Natural Gas Co. v. FERC, 906 F.2d

708, 709 (D.C. Cir. 1990) (“[W]e do not think the Commission’s

terse explanation of the basis for its exercise of jurisdiction is

adequate to permit judicial review.”). The FERC may be able

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to rest its jurisdictional claim on the foundation built in Order

No. 888,see 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, 61 Fed. Reg. 21,540 (final

May10, 1996), on reh’g, Order No. 888-A, 62 Fed. Reg. 12,274

(March14, 1997), order on reh’g, Order No. 888-B, 81 F.E.R.C.

¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 F.E.R.C.

¶ 61,046 (1998), or our earlier declaration in Midwest ISO

Transmission Owners v. FERC, 373 F.3d 1361 (D.C. Cir. 2004),

that MISO’s operational authority over transmission loads on the

system “reaches even the bundled and grandfathered loads that

are not subject to MISO’s open-access tariff transmission rates.”

Id. at 1369. In any event, I believe that it is the FERC, rather

than this court, that must first, and adequately, explain the basis

of its jurisdiction.

USCA Case #04-1111 Document #889433 Filed: 04/15/2005 Page 16 of 16