United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 18, 2019 Decided December 20, 2019 

No. 17-1262 

NORTHERN VIRGINIA ELECTRIC COOPERATIVE, INC., 

PETITIONER

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

Consolidated with 17-1265, 18-1230, 18-1234 

On Petitions for Review of Orders of the 

Federal Energy Regulatory Commission 

Adrienne E. Clair argued the cause for petitioners. With 

her on the briefs were Rebecca L. Shelton, Alan I. Robbins, and 

Debra D. Roby. 

Elizabeth E. Rylander, Attorney, Federal Energy 

Regulatory Commission, argued the cause for respondent. 

With her on the brief were Robert H. Solomon, Solicitor, and 

Lona T. Perry, Deputy Solicitor. Anand Viswanathan, 

Attorney, entered an appearance. 
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Christopher R. Jones argued the cause for intervenor 

Virginia Electric and Power Company. With him on the brief 

was Miles H. Kiger. 

Sean T. Beeny, Denise C. Goulet, and Phyllis G. Kimmel

were on the brief for intervenor North Carolina Electric 

Membership Corporation in support of respondent. 

Before: GARLAND, Chief Judge, WILKINS, Circuit Judge, 

and WILLIAMS, Senior Circuit Judge. 

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS. 

WILLIAMS, Senior Circuit Judge: In the mid to late 2000s, 

the Virginia Electric and Power Company (known in this case 

by its trade name, “Dominion”) sought to construct three 

projects to upgrade its electricity transmission grid. The state 

of Virginia required Dominion to place the new transmission 

wires underground rather than use cheaper overhead wiring, 

thereby increasing the cost of the three projects from about $84 

million to $233 million in total. Dominion serves customers in 

both Virginia and North Carolina. This case involves a simple 

question: How should the cost of undergrounding be allocated 

among Dominion’s customers? 

In a series of proceedings, the Federal Energy Regulatory 

Commission concluded that Dominion’s Virginia customers, 

but not its North Carolina customers, should bear those costs; 

the evidence showed that Virginia customers benefited from 

the undergrounding, while no evidence showed that North 

Carolina customers benefited. In the Commission’s words, this 

decision represented “a limited exception” to a general 

principle that all of a utility’s customers should share the costs 

of upgrading the grid. Old Dominion Elec. Coop., 146 FERC 

61,200 ¶ 52 (2014) (“Allocation Order”), reh’g denied, 161 
3

FERC 61,055 (2017) (“First Order on Rehearing”); see also 

Old Dominion Elec. Coop., 161 FERC 61,054 (2016), reh’g 

denied, 164 FERC 61,006 (2018) (“Second Order on 

Rehearing”).

In this petition, Virginia power wholesalers who buy 

electricity from Dominion challenge the Commission’s 

decision on procedural and substantive grounds. None of them 

persuades us. We tackle first the procedural theories, then the 

substantive ones. 

I. 

The petitioners argue: (1) that the Commission did not 

properly invoke its power under § 206 of the Federal Power 

Act, 16 U.S.C. § 824e; (2) that the Commission failed to 

provide adequate notice of its intent to modify Dominion’s filed 

rate; and (3) that the Commission’s administrative law judge 

misinterpreted a Commission order and thereby improperly 

cabined the scope of an evidentiary hearing. 

1. The claim that a proper § 206 proceeding was missing 

turns on special rules relating to Commission supervision of 

formula rates—the sort used by Dominion. The formula rate, 

filed as a tariff with the Commission, identifies the categories 

into which Dominion’s costs fall. With the formula in place, 

Dominion files an annual update informing the Commission 

and its customers of the projected costs for each category in the 

formula. Unless modified by the Commission, Dominion 

recovers the costs under the formula rate, subject to a later trueup procedure. See Virginia Elec. & Power Co., 123 FERC 

61,098 ¶ 6 (2008) (“Order Approving Formula”). 

At least in Dominion’s case, the tariff creates a procedure, 

known as a “Formal Challenge,” through which a customer can 

challenge the legitimacy of inputs. See id. ¶ 16 (describing the 
4

Formal Challenge process). (We use initial capitals for the 

name, to emphasize that it is a word of art and not, so far as we 

can determine, based on any especially high level of formality.) 

Although the parties here have spoken and written as if such a 

Formal Challenge were located under § 206, see, e.g., Oral 

Argument at 8:23, it seems more accurately akin to a 

continuation of the § 205 proceeding in which the utility files 

its formula rate. See 16 U.S.C. § 824d. That’s because the 

annual update supplements the utility’s initial § 205 filing, 

which is simply a formula without the necessary inputs. 

Consequently, in a Formal Challenge, the utility not the 

complainant bears the burden of proving the justness and 

reasonableness of its inputs, just as the utility does when it first 

files the formula rate under § 205. See Order Approving 

Formula, 123 FERC 61,098 ¶ 47 (noting that those who launch 

a Formal Challenge to Dominion’s annual update do not bear 

the burden of proof); cf. Midwest Indep. Transmission Sys. 

Operator, Inc., 143 FERC 61,149 ¶ 120 n.199 (2013) (citing 

§ 205 on this point regarding a different tariff). In contrast, in 

a conventional § 206 proceeding, the complainants or the 

Commission must prove the unjustness and unreasonableness 

of the utility’s rate. See 16 U.S.C. § 824e(b) (placing the 

burden of proof “upon the Commission or the complainant”). 

For purposes of this case, there is a further key distinction 

between a Formal Challenge and a § 206 proceeding: In a 

Formal Challenge proceeding, a party cannot advance “attacks 

on the formula rate itself” and cannot advocate “that expenses 

should be treated differently from how the formula prescribes.” 

Delmarva Power & Light Co., 160 FERC 61,102 ¶ 19 (2017); 

see also Ameren Ill. Co., 156 FERC 61,209 ¶ 71 (2016). 

 When Dominion filed its formula rate in 2008, it did not 

distinguish between its Virginia and North Carolina customers. 

In its 2010 annual update, Dominion proposed including the 

undergrounding costs at issue here as inputs into the formula 
5

rate for all its customers. On March 17, 2010, Dominion’s 

customers in both Virginia and North Carolina objected and 

instituted a Formal Challenge to the undergrounding costs’ 

inclusion. By its own terms, their complaint did not “seek [] to 

challenge the formula rate, but rather [to] challenge only the 

inputs into the formula rate for the 2010 Annual Update.” J.A. 

52. 

The Virginia customers now argue that because they 

launched a Formal Challenge to the annual update’s inputs—

and not a standard § 206 proceeding—the Commission lacked 

the statutory authority to modify the formula rate itself so as to 

saddle the Virginia but not North Carolina customers with 

costs. 

But in fact the Commission broadened the scope of the 

complaint proceedings. On March 24, 2010, a week after 

Dominion’s customers filed their Formal Challenge, Dominion 

responded by filing its own proposal under § 205 to assign 

those costs directly to its customers in case the Commission 

determined that Dominion could not include the costs in its 

existing formula rate. See Virginia Elec. & Power Co., 131 

FERC 61,171 ¶¶ 1, 4, 18 (2010) (“May 20, 2010 Order”). To 

make sure that there was no meaningful gap between any grant 

of relief to the customers and its proposed recovery system, 

Dominion asked the Commission to waive the usual 60-day 

notice requirement (see § 205(d)) and establish a refund 

effective date that would allow it to collect a revised rate (if 

needed) as of March 25, 2010. On May 20, 2010, the 

Commission “reject[ed] Dominion’s [proposal] as 

unnecessary,” May 20, 2010 Order ¶ 18, explaining: 

The effective date for a change in the allocation of 

costs, i.e., ordering a different allocation of costs 

among customers as compared to the current 

allocation of costs, if required at all, will be 
6

determined in the Complaint proceeding [the Formal 

Challenge] based on the requirements of section 206 

of the FPA as applicable to these circumstances. 

Id. (emphasis added). 

 In announcing that these proceedings would determine a 

refund effective date for “a different allocation of costs among 

customers as compared to the current allocation of costs,” the 

Commission said that it considered the Formal Challenge 

procedures too limited and sought, on its own initiative, to 

invoke the broader powers of a conventional § 206 proceeding. 

See 16 U.S.C. § 824e (permitting the Commission to initiate a 

§ 206 proceeding “upon its own motion”). Tellingly, the 

petitioners’ briefs never grapple with the language of the May 

20, 2010 Order. See Appellant Br. 44 (alluding to the First 

Order on Rehearing’s reference to the Commission’s rejection 

of Dominion’s § 205 filing but making no mention of the 

Commission’s initiation of its own proceeding under § 206 in 

the May 20, 2010 Order). 

 At oral argument, petitioners’ counsel argued that the 

Commission could not possibly have acted to initiate a § 206 

proceeding, because the Commission eventually set the refund 

effective date as March 17, 2010, the day that the complainants 

filed their Formal Challenge, see Old Dominion Elec. Coop., 

133 FERC 61,009 ¶ 36 (2010) (“October 2010 Order”). Where 

the Commission files its own § 206 proceeding, the refund 

effective date may “not be earlier than the date of the 

publication by the Commission of notice of its intention to 

initiate such proceeding.” 16 U.S.C. § 824e(b). By contrast, in 

a proceeding on a party’s complaint, the refund effective date 

may be as early as the date of the complaint’s filing. See id. 

Here, the Commission’s May 20, 2010 Order post-dated the 

complaint by about three months, and the Commission chose 

the earlier date of the complaint as the refund effective date. 
7

From the Commission’s use of this earlier date, the petitioners 

would have us infer that the Commission never initiated its own 

§ 206 proceeding. 

 Whatever merit may lie in this argument, the petitioners 

advanced it far too late. It does not appear in their briefs before 

us. See Davis v. District of Columbia, 793 F.3d 120, 127 (D.C. 

Cir. 2015) (“Generally, arguments raised for the first time at 

oral argument are forfeited.”). Nor, as far as we can tell, does 

it appear in an application for rehearing before the 

Commission. See 16 U.S.C. § 825l(b) (limiting judicial review, 

absent “reasonable ground,” to objections “urged before the 

Commission in the application for rehearing”); Save Our 

Sebasticook v. FERC, 431 F.3d 379, 382 (D.C. Cir. 2005) 

(noting that 16 U.S.C. § 825l(b)’s exhaustion requirement 

ensures that “a reviewing court” gains “the benefit of the 

agency’s expert view of why it thought the petitioner’s 

arguments failed”). We thus decline to address it. 

2. Petitioners next advance a related objection: As they 

see it, the Commission failed to provide the parties and the 

public adequate notice that it would consider requiring some, 

but not all, of Dominion’s customers to pay for the 

undergrounding. See Pub. Serv. Comm’n v. FERC, 397 F.3d 

1004, 1012 (D.C. Cir. 2005) (noting that the Due Process 

Clause, the Administrative Procedures Act, and the Federal 

Power Act all require the Commission to provide notice). But 

the Commission’s May 20, 2010 Order placed everyone on 

notice from the very beginning that the Commission might 

allocate the costs differently between Dominion’s customers. 

See supra. That makes this case very different from Public 

Service Commission, the case on which petitioners principally 

rely. See Appellant Br. 40; Reply Br. 11–13. There, the 

Commission actively disclaimed its intention to adopt a 

particular policy, refused to develop a necessary factual record 

about the policy, but later reversed course and adopted the 
8

policy anyway. See id. at 1012. Here, by contrast, from May 

20, 2010 onward the Commission consistently contemplated 

ordering an allocation of costs different from the allocation in 

the filed formula rate. 

 What’s more, the petitioners not only had notice but took 

advantage of the opportunity to litigate the cost allocation issue 

before the Commission. Consider the course of proceedings 

after the May 20, 2010 Order. In October 2010, the 

Commission issued an order concluding that the 

undergrounding costs “[do] not raise material issues of disputed 

fact.” October 2010 Order, 133 FERC 61,009 ¶ 35. As a result, 

the Commission “reserved” the “determination” for itself and 

directed the parties to brief the issue if they could not settle. Id. 

They couldn’t. 

 At this point, Dominion’s North Carolina customers 

argued they should not bear any of the costs of undergrounding, 

because the state of Virginia mandated undergrounding for 

“local aesthetic reasons” which did not benefit anyone in North 

Carolina. J.A. 659; see infra Part II. The Virginia customers 

responded, urging the Commission to reject the North Carolina 

proposal. The Commission concluded that it would not be just 

and reasonable to stick the North Carolina customers with the 

costs and sent the matter to an administrative law judge to 

determine the appropriate amount of costs for the Virginia 

customers to bear. See Allocation Order, 146 FERC 61,200 

¶¶ 48–52. 

This sequence of events provided the petitioners adequate 

notice and process. 

3. This leads us to the third and final procedural objection. 

The petitioners argue that the Commission’s order instructed 

the ALJ to decide whether Dominion’s Virginia and North 

Carolina customers should bear the costs and to select a method 
9

for assigning percentages of those costs to whoever would 

ultimately bear them. Thus, they say, it was error for the ALJ, 

approved by the Commission, to read the order as merely 

empowering the ALJ to determine the precise amount of costs 

to be born. See Old Dominion Elec. Coop., 154 FERC 63,014 

¶ 36 (concluding “that the Commission has already decided the 

allocation issue”); Second Order on Rehearing, 164 FERC 

61,006 ¶¶ 45, 63 (affirming the ALJ’s interpretation of the 

order). 

The Commission’s order clearly refutes the claim. It stated 

that the North Carolina customers “have shown that it is not 

just and reasonable for wholesale transmission customers 

outside the Commonwealth of Virginia . . . to be allocated the 

incremental costs of undergrounding the Projects,” and 

provided three pages of explanation. Allocation Order, 146 

FERC 61,200 ¶¶ 48, 49–59. At the end of this discussion, the 

Commission then announced that “[t]he determination of the 

appropriate amount of undergrounding costs to be allocated to 

each [] customer for their Virginia loads in the Dominion Zone 

is a factual matter that cannot be properly calculated based on 

the filings made to date. The Commission will therefore 

establish a hearing, before an [ALJ], for the limited purpose of 

determining the appropriate assignment of those costs.” Id. 

¶ 56. The ALJ proceeded in full accord with this mandate. 

II. 

Finally, petitioners claim that the Commission acted 

arbitrarily by requiring Dominion’s Virginia customers to bear 

the costs of undergrounding. We see nothing arbitrary in its 

conclusion. 

 The Commission has long adhered to the cost causation 

principle, under which a utility should assign costs to those 

customers who caused them or benefit from them. But “[w]hen 
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a system is integrated, any system enhancements are presumed 

to benefit the entire system.” W. Mass. Elec. Co. v. FERC, 165 

F.3d 922, 927 (D.C. Cir. 1999). Thus, in the mine run of cases, 

all customers on a grid benefit from—and share in—the costs 

of upgrading the grid. See id. 

 Here the Commission concluded that only Dominion’s 

Virginia customers benefited from the incremental cost of 

undergrounding the three projects. As a result, only the 

Virginia customers should bear those costs. This created “a 

limited exception to [the Commission’s] general policy that 

utilities do not directly assign individual cost items that are 

included in projects that have system-wide benefits.” 

Allocation Order, 146 FERC 61,200 ¶ 52; Second Order on 

Rehearing, 164 FERC 61,006 ¶ 17 (affirming, a second time on 

rehearing, the “narrowly-crafted exception”). 

 Indeed, as the Commission recognized, its departure from 

its policy of having all customers pay for upgrading a grid here 

maintained consistency with the broader cost causation 

principle: Though the benefits of conventional grid 

enhancement are shared throughout the grid, here Virginians 

uniquely caused and benefited from the undergrounding. See 

Second Order on Rehearing, 164 FERC 61,006 ¶ 28. 

Under § 206, the Commission of course bore the burden of 

proving that the existing cost allocation was unjust and 

unreasonable, see 16 U.S.C. § 824e(b), as it expressly 

acknowledged, see First Order on Rehearing, 161 FERC 61,055 

¶ 30 n.75. Indeed, more than substantial evidence in the record 

supports the Commission’s conclusion that Virginians but not 

North Carolinians benefited from undergrounding the three 

projects—all located in Virginia. For instance, according to a 

report by a hearing officer for a Virginia body which heard 

testimony regarding undergrounding, “one hundred sixty-seven 

public witnesses” testified at a hearing in Leesburg, Virginia, 
11

“the overwhelming majority” speaking in favor of 

undergrounding one of the three projects. J.A. 226. The 

witnesses pointed to benefits they believed undergrounding 

would afford them, including better aesthetics and avoidance of 

electromagnetic radiation. A second report recounted similar 

testimony regarding a different project from dozens of Virginia 

residents and public officials, including their statements of 

belief that undergrounding would lessen the negative impact on 

local property values and the tax base. 

The Commission also rested on the insistence of the 

Virginia legislature that Dominion underground all three 

projects. It noted that the costs were “a direct result of 

legislation [adopted by the Commonwealth of Virginia]. . . 

intended to benefit citizens of the Commonwealth of Virginia.” 

Allocation Order, 146 FERC 61,200 ¶ 50. 

 The petitioners mainly contend that the Commission 

lacked affirmative evidence that North Carolinians didn’t 

benefit from the undergrounding. See, e.g., Reply Br. 22. But 

this ignores (1) the mountain of evidence that Virginians 

clamored for the undergrounding; (2) the Virginia legislature’s 

apparent intent to act for the benefit of its citizens; (3) the 

absence of any evidence that North Carolina customers caused 

or benefited from the undergrounding. Put it all together, and 

it adds up to substantial evidence that Virginians benefited from 

the undergrounding but North Carolinians did not. 

Finally, the petitioners—Dominion’s wholesale power 

customers—also complain that the Commission should have 

placed the cost on Dominion’s retail customers and not on the 

wholesale power companies who purchase service from 

Dominion. See Appellant Br. 62. But they offer no evidence 

that their Virginia retail customers benefit any less than 

Dominion’s Virginia retail customers, nor is there any obvious 

reason to think so. 
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* * * 

The petitions for review are 

 Denied.