United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 10, 2006 Decided June 23, 2006

No. 04-1227

NIAGARA MOHAWK POWER CORPORATION,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

RELIANT ENERGY, INC., ET AL.,

INTERVENORS

Consolidated with

04-1229, 05-1033, 05-1043, 05-1044, 

05-1046, 05-1047, 05-1144

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

Elias G. Farrah argued the cause for petitioners and

intervenors in support of petitioners. With him on the briefs

were Michael F. McBride, Rebecca J. Michael, Kenneth Jaffe,

Donald J. Stauber, Jennifer L. Key, Donald K. Dankner, and
2

Raymond B. Wuslich. Robert V. Zener and Phyllis E. Lemell

entered appearances.

Diane T. Dean, Assistant Counsel, Public Service

Commission of New York, argued the cause and filed the briefs

for petitioner Public Service Commission of New York.

Robert H. Solomon, Solicitor, Federal Energy Regulatory

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

brief was John S. Moot, General Counsel.

Kenneth M. Simon argued the cause for Competitive

Generators in support of respondent. With him on the brief were

Michael J. Rustum, Robert C. Fallon, Deborah A. Carpentier,

David E. Blabey, Edgar K. Byham, David Blake Johnson, Steven

L. Miller, Steven A. Weiler, Kenneth Richard Carretta,

Randolph Q. McManus, and Betsy R. Carr. Melissa E. Maxwell

entered an appearance.

Arnold H. Quint was on the brief for intervenor New York

Independent System Operator, Inc.

Before: GRIFFITH, Circuit Judge, and EDWARDS and

SILBERMAN, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

SILBERMAN.

SILBERMAN, Senior Circuit Judge: New York electric

power utilities and the New York State Public Service

Commission petition for review of FERC orders approving and

enforcing a tariff filed by the New York Independent System

Operator (NYISO), the manager of New York’s electric power

transmission facilities. The tariff allows electricity generators

that provide power to the transmission grid to avoid
3

transmission and local distribution charges for the power these

generators take from the grid for such purposes as heating, air

conditioning, lighting, and powering office equipment (called

“station power”), so long as the power the generators produce in

any month exceeds the power taken. Petitioners assert, inter

alia, that FERC’s approval of monthly netting for NYISO was

unlawful and unreasonable, and that the netting formula

imposed in the NYISO tariff should be supplanted with a

one-hour netting period. We deny the petition. 

I

This case has its genesis in the unbundling of the New York

electric energy market. The provision of electric energy to end

users traditionally involves three components: electricity

generation; high voltage, long-distance power transmission

(transmission services); and finally lower voltage, local

distribution of electricity from the transmission facilities to end

users (distribution services). Prior to 1996, vertically integrated

utilities in New York owned facilities covering all three

components of this service. Subsequently, however, utilities

began divesting their generation facilities, and the vast majority

of electricity generation in the state of New York is now

performed by independent wholesale generators. While the

traditional utilities maintain ownership of the transmission and

local distribution facilities, New York state’s transmission grid

today is operated and controlled by the not-for-profit New York

Independent System Operator, or NYISO. Thus, as we

understand it, in the typical situation an independent wholesale

generator produces the electricity, it is transmitted across the

state over NYISO’s transmission facilities (or grid), and it is

then stepped-down and delivered to a retail user over a utility’s

local distribution lines.
4

1

Promoting Wholesale Competition Through Open Access

Non-Discriminatory Transmission Services by Public Utilities, Order

No. 888, F.E.R.C. Stats. & Regs. ¶ 31,036, 61 Fed. Reg. 21,540,

clarified, 76 F.E.R.C. ¶ 61,009, and 76 F.E.R.C. ¶ 61,347 (1996), on

reh’g, Order No. 888-A, F.E.R.C. Stats. & Regs. ¶ 31,048, 62 Fed.

Reg. 12,274, clarified, 79 F.E.R.C. ¶ 61,182, on reh’g, Order No.

888-B, 81 F.E.R.C. ¶ 61,248, 62 Fed. Reg. 64,688 (1997), on reh’g,

Order No. 888-C, 82 F.E.R.C. ¶ 61,046 (1998), aff’d sub nom.

Transmission Access Policy Study Group v. FERC, 225 F.3d 667

(D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1

(2002).

Jurisdiction over this sale and delivery of electricity is split

between the federal government and the states on the basis of

the type of service being provided and the nature of the energy

sale. Under section 201(b)(1) of the Federal Power Act, 16

U.S.C. § 824(b)(1), FERC has jurisdiction over both the

interstate transmission of electricity and the sale of electricity at

wholesale in interstate commerce. States retain jurisdiction over

retail sales of electricity and over local distribution facilities.

Thus transmission occurs pursuant to FERC-approved tariffs;

local distribution occurs under rates set by a state’s public

service commission.

The actual unbundling of the New York electric energy

market after 1996 was made possible by FERC’s Order 888,1

which required, among other things, the functional unbundling

of wholesale generation and transmission services. Under the

order, integrated utilities were required to file with FERC open

access non-discriminatory transmission tariffs, which applied to

both transmission services offered to third-party generators and

to the utility’s own electricity transmissions. The order also

encouraged the creation of independent system operators, such

as NYISO, to ensure competitive pricing of transmission

services and further reduce utilities’ market power. 
5

In addition to addressing open access, Order 888 reaffirmed

states’ jurisdiction over local distribution services. Order 888

stated that even when FERC’s test for identifying local

distribution facilities concluded that no such facilities were

utilized in a given transaction, states still had authority over the

service of delivering electric energy to end users. This

determination was crucial, as it directly affected utilities’ ability

to assess end users for “stranded costs.” These are costs, such

as those associated with long-term contractual commitments or

large capital expenditures, that utilities had incurred with the

expectation that the industry would remain bundled and that

have now become “stranded” with the utilities. By establishing

that states have jurisdiction over local delivery services and not

just local distribution facilities, Order 888 allows utilities to

assess stranded costs on all retail users. This prevents large

industrial customers, for example, from avoiding stranded costs

assessments by connecting their plants directly to transmission

facilities and stepping down the voltage of the power

themselves. See, e.g., Detroit Edison Co. v. FERC, 334 F.3d 48,

51 (D.C. Cir. 2003). Order 888 therefore allows states to

“assign stranded costs and benefits based on usage (kWh),

demand (kW), or any combination or method they find

appropriate.”

With this statutory and regulatory background in mind, we

turn to the subject matter of this consolidated petition – the

treatment of station power in New York. FERC describes

station power as the electricity used at a generating facility’s site

to power things such as heating, air conditioning, lighting, and

office equipment. When a generator is operational, it might well

be capable of redirecting some of its outbound generated

electricity to its station power needs, thus “self-supplying” its

station power “behind the meter.” Certain generators, however,

are physically incapable of supplying their station power behind

the meter – for example, if produced power goes out to the grid
6

2

See PJM Interconnection, LLC, 93 F.E.R.C. ¶ 61,061 (2000);

PJM Interconnection, LLC, 94 F.E.R.C. ¶ 61,251, reh’g denied, 95

F.E.R.C. ¶ 61,333 (2001); PJM Interconnection, LLC, 95 F.E.R.C. ¶

61,470 (2001). 

on one set of power lines, and the facility’s offices and electrical

equipment are connected to a separate set of lines coming in

from the grid. And even for those capable of self-supplying

behind the meter, there may be periods when a generator is nonoperational or only partially operational and thus incapable of

meeting its station power demand. In such instances, generators

– who at least in this case, as we understand it, are connected

directly to transmission facilities – must look to the grid for their

station power supply.

In a series of orders that preceded those here on review,

FERC addressed the treatment of station power in the

Pennsylvania-New Jersey-Maryland (PJM) electricity market.2

The independent operator of that system’s grid filed with FERC

an amendment to its open-access transmission tariff proposing

that generators be able to net, on an hourly basis, the station

power pulled off the grid as “negative generation” against

energy supplied to the grid during that hour. So a generator that

pulled station power off the grid for fifty minutes of an hour, for

example, but then supplied well in excess of that amount during

the final ten minutes, would be deemed to have supplied the

netted amount to the grid and consumed nothing. Over

objections that the provision of station power to a generator

constituted retail sales outside FERC’s jurisdiction, FERC

approved the hourly netting and held that when a generator is

net positive over the period, no sale has taken place. 

FERC also acknowledged that a generator could engage in

“remote self-supply” if its station power requirements over the

netting period exceeded its gross output, but there was another
7

off-site generator owned by the same entity that was producing

sufficient excess electricity over that period to make up for the

deficit. According to FERC, in such a case there likewise would

be no “sale.” But if a generator’s station power requirements

over the netting period exceeded its gross output, and the source

of the power was a third party (i.e., there was no remote facility

with sufficient excess supply), such a provision of station power

would in fact be a sale for end-use outside FERC’s jurisdiction.

It would be a retail sale subject to both retail transmission rates

and state-jurisdictional local distribution charges. 

Among FERC’s reasons for approving station power netting

was that it would ensure that wholesale generators “do not bear

a cost that has no relationship to any ‘service’ purportedly being

provided by another party.” Netting would therefore further

reduce the disparities between wholesale generators and

vertically-integrated utilities. FERC added that it would look

favorably upon the use of a longer netting period, such as a day

or a week; indeed in a fourth PJM order, FERC accepted a

modification of the station power tariff that changed the netting

period from one hour to one month. 

Not long after the final FERC order in the PJM matter, New

York wholesale generator KeySpan-Ravenswood filed a

complaint with FERC challenging NYISO’s treatment of station

power. On the basis of the PJM orders, KeySpan alleged that

NYISO’s treatment of station power was unjust and

unreasonable because it left the matter to the “vagaries of local

utilities.” FERC agreed and directed NYISO to file a proposed

revised tariff covering the provision of station power and

allowing self-supplying wholesale generators to net station

power over some reasonable period. FERC explained, however,

that it was not necessary for NYISO’s proposal to incorporate
8

3

See KeySpan-Ravenswood, Inc. v. New York Indep. Sys.

Operator, Inc., 99 F.E.R.C. ¶ 61,167 (KeySpan I), on reh’g, 100

F.E.R.C. ¶ 61,201 (2002) (KeySpan II).

4

The four pairs of orders under review are: KeySpanRavenswood, Inc. v. New York Indep. Sys. Operator, Inc., 101

F.E.R.C. ¶ 61,230 (2002) (KeySpan III), reh’g denied, 107 F.E.R.C.

¶ 61,142 (2004) (KeySpan IV); Nine Mile Point Nuclear Station, LLC

v. Niagara Mohawk Power Corp., 105 F.E.R.C. ¶ 61,336 (2003),

reh’g denied, 110 F.E.R.C. ¶ 61,033 (2005); AES Somerset, LLC v.

Niagara Mohawk Power Corp., 105 F.E.R.C. ¶ 61,337 (2003), reh’g

denied, 110 F.E.R.C. ¶ 61,032 (2005); Niagara Mohawk Power Corp.

v. Huntley Power LLC, 109 F.E.R.C. ¶ 61,169 (2004), reh’g denied,

111 F.E.R.C. ¶ 61,120 (2005). The latter three pairs of orders involve

failed attempts by utility Niagara Mohawk to charge generators for

delivery of netted-out station power, contrary to the KeySpan orders.

In all instances, the generators were not physically connected to

Niagara’s local distribution facilities.

5

The record does not indicate why NYISO chose one month over

alternative netting periods. NYISO is an independent entity and is

governed by a board of directors, none of whom is affiliated with

market participants.

aspects of the PJM tariff that would be inappropriate for New

York.3

II

The four pairs of orders under review are follow-ons to the

initial KeySpan-Ravenswood proceedings.4 In a tariff approved

by FERC in the first pair of these orders, NYISO determined

that the appropriate station power netting period for New York

was one month.5

 The utilities challenged that proposed tariff on

a number of grounds, which they reiterate before us. It is their

contention that monthly netting violates the Federal Power Act
9

because, as a practical matter, it encroaches upon state

jurisdiction over local distribution services and retail sales.

Although we are not told how much retail sale of station power

(and therefore local distribution charges) is left under a monthly

netting regimen, we are given to understand that it would not be

significant. Although FERC has acknowledged jurisdiction over

the transmission of power over the grid, according to petitioners

the monthly netting policy unlawfully extends federal

jurisdiction over local distribution services and retail sales

because it allows generators to avoid transmission and local

distribution charges altogether.

Petitioners also assert that in the seminal Order 888, in

which FERC laid the legal groundwork for the unbundling of the

electric power market, FERC explicitly recognized that delivery

services to end users remained under state jurisdiction and drew

no distinction between the typical industrial end user and a

power generator taking power from the grid. Assuming

arguendo that FERC has jurisdiction to approve the tariff,

petitioners’ remaining significant argument is that the one

month netting period is so long as to be unreasonable (arbitrary

and capricious).

The Commission responds first by asserting that we lack

jurisdiction over petitioners’ arguments based on the Act and

Order 888 because they did not, in a timely manner, petition for

review of the earlier PJM orders and KeySpan I, in which the

netting principle was adopted. See 16 U.S.C. § 825l(b).

Petitioners claim that not all of them were parties to those earlier

proceedings, and that in any event they were not aggrieved until

FERC approved monthly netting in New York in KeySpan III

and so had no right to seek review of the earlier orders. It is

clear that petitioners were not dissatisfied with the prospect of

there being some sort of station power netting in New York;

indeed, as we emphasize below, petitioners have no quarrel with
10

6

Suppose the federal government decided to preempt state

regulation of a highway, and the federal agency promulgated a rule

reducing the speed limit from the state’s seventy miles per hour to

sixty-five. While a common carrier utilizing the highway might

technically be aggrieved by such a move and even doubt the legality

of the exercise of federal power, it might not deem such slight harm

worthy of a suit in federal court. Nonetheless, if the federal

government later reduced the speed limit to forty-five – now causing

significant harm to the carrier – nothing would bar the carrier from

then challenging the government’s preemption of state authority. 

an hourly netting tariff. This, however, does not necessarily

mean that they had no standing to challenge the earlier orders.

But even had petitioners all been parties to the earlier

proceedings and been aggrieved by the PJM orders or KeySpan

I, they would not have forfeited their right to challenge the

principle of netting by not petitioning for review earlier. Even

if a party technically can establish standing (aggrievement), it

need not seek review if it is satisfied with the practical impact of

the order; and that does not foreclose its ability to challenge the

principle as beyond the agency’s statutory authority when the

agency later utilizes it to cause substantial injury.6

See Sacramento Mun. Util. Dist. v. FERC, 428 F.3d 294, 299

(D.C. Cir. 2005) (identifying an objection “to the Commission’s

. . . statutory authority” as a typical situation in which “agency

rules can . . . be challenged on substantive grounds when they

are applied, even though the statutory period for judicial review

has expired”).

III

Petitioners’ statutory argument is not insubstantial; the

Commission’s jurisdictional rationale is a bit confusing. It
11

7

At oral argument, counsel for FERC was asked, “But even if it

was a sale it would be a wholesale sale in FERC’s jurisdiction?”

Counsel replied, “Yes, that is our jurisdictional hook”; but neither in

its brief nor in the orders below has FERC asserted that its jurisdiction

to order station power netting is founded on its statutory jurisdiction

over wholesale sales.

insists that no sale of any kind takes place when a generator

takes power from the grid for station power service, so long as

its netting is positive for the month. So FERC does not appear

to rely on its wholesale jurisdiction (although the generator’s

delivery of power to the grid is a wholesale sale and the

deduction made for station power taken is valued at the same

wholesale price).7

 To be sure, FERC does have undoubted

jurisdiction over interstate transmission (the grid), and the

generators at issue in this case take station power directly from

the grid. But it has not clearly articulated why that jurisdiction

permits it to determine that no sale of any kind – including a

retail sale – takes place when the generator takes station power

from the grid.

The difficulty we see in petitioners’ jurisdictional argument,

however, is their clear concession that an hourly netting tariff

would not violate the Act – which is a recognition that, in

drawing the jurisdictional lines in this area, some practical

accommodation is necessary. Thus, utility petitioners argued for

hourly netting below, see, e.g., KeySpan III, 101 F.E.R.C. at ¶

62,001, and in its initial brief, petitioner Public Service

Commission clarified that it “does not disagree with netting per

se.” Counsel for the utilities reaffirmed this shared sentiment at

oral argument. In response to a question from the panel as to

whether the utilities had any objection to hourly netting, counsel

said, “No, we were, in fact, proposing that [before the

Commission].” Counsel elaborated that, “I have to speak for my

clients which are the utility petitioners and they have no problem
12

with the hour[ly netting,] but the State, who has the legal

authority to regulate that retail sale and determine the

measurement period[,] may feel differently.” But then counsel

for the “state” – the New York Public Service Commission –

also conceded that hourly netting would be permissible.

Questioned further by the panel, counsel agreed that it would be

a valid policy judgment on the part of FERC to determine that

no retail sale occurred and that no local distribution service was

utilized if a generator was net positive over an hour. According

to counsel, the real issue is that “an hour . . . recognizes more

reasonably the fluctuations which FERC says in its decisions, it

wants to recognize.” And “[o]ne month does not recognize

fluctuations.” 

Petitioners object to monthly netting because it eliminates

many – perhaps virtually all – of the station power transactions,

and a shorter netting period would eliminate fewer. But if we

were to accept petitioners’ logic, any netting out of what it

deems “retail sales” over any period would amount to a statutory

violation. It is possible to measure the power taken from the

grid over a shorter period than an hour. Indeed, it apparently

could be done in real time. If the Federal Power Act, as

petitioners contend, prevents NYISO from exerting authority

over state-jurisdictional transactions by netting them out, then

any such exertion must be a violation. And, on the other hand,

if hourly netting is perfectly consistent with the statute, we see

no principled reason why monthly netting violates the Act.

Nor do we see anything in Order 888 that buttresses

petitioners’ jurisdictional argument. Although the Commission

used the term “end users” in that order without qualification –

and it might well have been open to FERC to interpret the order

as treating generators like typical end users – FERC has made it

clear that the Order’s purpose was to prevent large industrial and

commercial users from avoiding their share of a utility’s
13

8

Paradoxically, FERC’s reasoning that the generators should not

have to pay for local distribution services they do not take is exactly

what it rejected in Order 888 when presented with industrial users who

wished to bypass the local utilities’ distribution facilities and connect

directly to transmission lines.

stranded costs. Generators who purchased their facilities from

utilities, according to FERC, are deemed to have paid a premium

to cover some part of these stranded costs, and thus are in a quite

different position from a retail user. It is, therefore, certainly a

reasonable interpretation of Order 888 to carve out an exception

from the term “end user” for wholesale generators. Petitioners

would hang their hat on Order 888’s recognition that an end user

takes local distribution service even if, in fact, it does not

physically use a utility’s local distribution facilities – which is

really a fiction, if a reasonable one8 – but FERC is not required

to extend this fiction to the new creature in the market, the

wholesale generator.

In any event, petitioners’ concession equally undermines

their argument based on Order 888. If generators must be

thought of as equivalent to industrial end users, then hourly

netting would be equally illegitimate; and if not, we do not see

how the language of that order would permit netting over one

hour but not one month.

IV

Petitioners’ argument, based on the APA – that the

Commission’s approval of monthly netting is unreasonable – is,

of course, not affected by their concession. But it will be

recalled that FERC did not mandate a one month netting period;

it only approved NYISO’s choice. And it had cautioned that its

approval of an hourly netting tariff in the adjacent Pennsylvania-
14

New Jersey-Maryland market did not establish a required

approach. Indeed, as we noted, FERC subsequently approved a

modification to that tariff providing for monthly netting. FERC

observed, in later approving the NYISO tariff, that a monthly

netting period in New York would have the benefit of creating

uniformity with the adjacent PJM energy market to the south.

Petitioners respond that the New England market operates with

hourly netting, but that does not rebut FERC’s position that both

might be reasonable.

As should be apparent, the monthly netting tariff will result

in less revenue – a good deal less, according to petitioners –

flowing from the generators to the utilities. FERC’s concern

seems to be only that some version of netting is necessary in

order to put wholesale generators in roughly the competitive

position integrated utilities enjoy and that monthly netting

presumably puts the generator closer to a competitor who might

never need to take power from the grid. Petitioners claim that

this competitive concern is really irrelevant in the New York

market because there are few integrated utilities left. FERC

responds that there are some remaining and that other utilities

purchase power for resale and are, therefore, continuing to

compete with wholesale generators. Of course, the New York

wholesale generators are also competing with generators and

integrated utilities in the PJM market. In sum, we simply do not

see, on these arguments, how we could determine that a onehour, a one-month, or for that matter a one-week netting period

is unreasonable.

The strongest point petitioners make is that one month is

inconsistent with the hourly method by which actual power, as

opposed to transmission costs, is priced. Pricing of electricity

in New York is performed on an hourly basis. Any time a

generator pulls electricity off the grid, that withdrawal is

accounted for at what is called a locational-based marginal price
15

9

Petitioners make a series of additional arguments, which we need

only mention briefly. They argue that the FERC orders violate both

the filed rate doctrine and the rule against retroactive ratemaking. The

“filed rate,” petitioners contend, is Part IV of the NYISO tariff, which

applies to retail service. This is but a variation on petitioners’ other

arguments, as it relies on the proposition that the provision of station

power service within the netting period is a state-jurisdictional retail

sale. As explained above, this argument cannot withstand petitioners’

concession that hourly netting is appropriate. Petitioners also argue

that the Huntley and AES Somerset orders violate the rule against

retroactive ratemaking because they allow the generators to net station

power beginning in July 1999, well before the April 1, 2003 effective

date of the NYISO station power netting tariff. But without there

(LBMP). Injections of electricity into the grid by generators are

likewise accounted for at the appropriate LBMP. Thus even if

a wholesale generator has positive net output over the month and

is treated as having made no “purchase” of station power over

that period – and thus treated as having used no transmission or

local delivery facilities in connection with that netted out station

power – the wholesale generator still is held accountable for the

actual electricity consumed. This, according to petitioners, is an

indication that the parties recognize that a sale took place (and,

according to petitioners, a retail sale), and so for transmission

and distribution purposes hourly netting is similarly required.

But FERC reasonably regards that hourly charge as an

accounting entry rather than an actual sale of power, and it does

not follow that hourly netting of power necessarily dictates

hourly netting for transmission and distribution costs. As FERC

also notes, NYISO’s billing and accounting practices are monthbased.

* * * 

Accordingly, for the reasons stated, we deny the petition.9
16

having been a preexisting relevant filed rate, there can be no

retroactive alteration of it. See Ark. La. Gas Co. v. Hall, 453 U.S. 571,

578 (1981). 

The Public Service Commission argues that FERC’s orders have

the effect of discriminating against cogeneration facilities, who do not

have the benefit of netting station power; but this argument is

foreclosed because it was not raised below. See 16 U.S.C. § 825l(b).

Finally, utility petitioners argue that the station power tariff violates

NYISO’s governance structure because NYISO’s management

committee did not approve the tariff filing. We find this argument

meritless since NYISO was required to make such a filing to comply

with the Commission’s order in KeySpan I.