United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 5, 2010 Decided May 4, 2010

No. 05-1327

SOUTHERN CALIFORNIA EDISON COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

NORTHERN CALIFORNIA POWER AGENCY, ET AL.,

INTERVENORS

Consolidated with 08-1384

On Petitions for Review of Orders 

of the Federal Energy Regulatory Commission

Jennifer L. Key argued the cause for petitioner. With her on

the briefs were Charles G. Cole, Alice E. Loughran, Jennifer

Hasbrouck, and Anna J. Valdberg.

Robert M. Kennedy, Attorney, Federal Energy Regulatory

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

brief were Thomas R. Sheets, General Counsel, and Robert H.

Solomon, Solicitor.
2

Ashley C. Parrish argued the cause for intervenors Dynegy

Moss Landing, LLC, et al. in support of respondent. With him

on the brief were Neil L. Levy, David G. Tewksbury, Michael J.

Rustum, Woody N. Peterson, David C. Dickey, and Christopher

C. O'Hara. Betsy R. Carr, Gretchen Schott, and Robert C.

Fallon entered appearances.

Before: SENTELLE, Chief Judge, GARLAND, Circuit Judge,

and SILBERMAN, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

SILBERMAN.

SILBERMAN, Senior Circuit Judge: FERC approved a tariff

filed by the California Independent System Operator

(“CAISO”), manager of California’s electric power transmission

grid. Southern California Edison petitions for review of that

FERC order because the tariff permitted generators of electricity

to avoid paying significant retail charges for the energy they

used – whether self-generated or not – for their own heating,

lighting, air conditioning and office equipment needs, called

“station power.” Petitioners assert that FERC, which has

undoubted jurisdiction to regulate wholesale sales and

transmission charges, has exceeded its authority by insisting that

the same method used for calculating transmission charges for

station power be used to calculate retail charges. 

I

As we explained once before in Niagara Mohawk Power

Corp. v. FERC, 452 F.3d 822 (D.C. Cir. 2006), involving the

New York market, the Commission ordered the unbundling of

electric energy markets in Order 888, whereby vertically

integrated utilities that owned generation, transmission and

distribution facilities and sold them as a package were obliged
3

to sell transmission services separately. They were required to

file open access transmission tariffs applicable to both their own

electrical transmissions and those provided to independent

generators. The order also encouraged the creation of non-profit

independent system operators (ISOs) to ensure competitive

pricing of transmission services and reduce the market power of

the utilities. CASIO is one those ISOs.

Just as in New York, unbundling caused a sea change in

California. The three largest investor-owned utilities divested

most – but not all – of their generating facilities and now operate

primarily as owners of transmission facilities and providers of

retail services. The companies that purchased generating

facilities from the utilities, by contrast, sell wholesale power. 

FERC has jurisdiction over wholesale sales and transmission,

whereas the states maintain jurisdiction over retail distribution. 

Under this new regimen, the generators’ use of “station

power” became a contentious issue. Prior to unbundling,

utilities which owned and operated the generators would not, of

course, charge themselves for the use of station power; they

simply subtracted (“netted”) their own use against their gross

output. But now, when the generating facilities use station

power – even when they get it from their own facilities – it is

arguably functionally equivalent to a retail sale falling within the

jurisdiction of the states, not FERC. That raises the question of

how to calculate properly the charges the utilities can impose on

the generators for their use of station power. In other words,

what is the appropriate netting period by which it should be

determined how much power a generator took for its own station

power needs? FERC has the undeniable right to approve the

netting methodology to determine how much electricity

generators deliver to and take from the grid for transmission

purposes, but in both Niagara Mohawk and this case, the FERC-
4

approved tariff required the same methodology for both

transmission and local use. 

In a series of orders involving the Pennsylvania-New

Jersey-Maryland electricity market and the New York electricity

market, FERC set forth its policies relating to station power

procurement and delivery. FERC first approved a tariff filed by

the independent operator of the Pennsylvania-New JerseyMaryland market allowing generators to net the station power it

consumed against the station power it supplied on an hourly

basis.

1

 As we explained in Niagara Mohawk, 452 F.3d at 825,

under that tariff, generators that pulled station power off the grid

for fifty minutes but supplied in excess of that amount in the

next ten minutes would be deemed to have supplied the net

amount to the grid and consumed nothing. FERC later accepted

a modification of the tariff that changed the netting period from

one hour to one month. As should be apparent, if a generator is

permitted to net its power use against its power output on a

monthly basis, as opposed to an hourly basis, its costs will be

lower – we are led to believe considerably lower – because a

generator could often produce enough power in a month to

totally avoid any retail charges, but that is more difficult if the

netting period is only an hour. FERC rejected arguments that

the provision of station power constituted retail sales outside its

jurisdiction on the ground that when a generator is net positive

over a month no sale has taken place. FERC later approved a

one-month netting period in a tariff filed by the New York ISO.2

1 See PJM Interconnection, LLC, 94 FERC ¶ 61,251 at 61,891-92

(2001), reh’g denied, 95 FERC ¶ 61,333 (2001).

2

 See Nine Mile Point Nuclear Station LLC v. Niagara Mohawk

Power Corp., 105 FERC ¶ 61,336 (2003).
5

In 2004, shortly after FERC issued its orders in the

Pennyslvania-New Jersey-Maryland and New York markets,

Duke Energy, an independent generator in California filed a

complaint asking FERC to compel the CAISO to switch from a

one-hour netting interval to a monthly interval. The generator

also asked that FERC preempt any state-authorized retail

charges for generators that are net positive for a month. Edison,

the petitioner here, objected, arguing that FERC lacked

jurisdiction over retail energy sales. FERC, however,

determined that the CAISO tariff did not conform to its station

power policies as set forth in the Pennsylvania-New JerseyMaryland and New York orders. It ordered CAISO to revise its

tariff and added that because a one month netting interval had

become a standard, FERC would require strong justification for

any other netting interval.3

 Edison unsuccessfully sought

rehearing and then sought review in this court. We held that

petition in abeyance pending FERC approval of a revised

CAISO tariff, which it later did. 

Edison again sought rehearing of FERC’s approval of the

revised tariff, but in the interim, proposed to alter its retail tariff

on file with the California Public Utilities Commission. This

time Edison proposed to assess stranded cost or consumption

charges rather than retail delivery charges on what it regarded as

net positive generators. Edison contended that the state could

allow it to assess such charges even if FERC determines that no

sale had taken place. But the generators asked FERC to reject

that approach as well in its response to Edison’s rehearing

petition. 

3 Duke Energy Moss Landing LLC v. Cal. Indep. Sys. Operator

Corp., 109 FERC ¶ 61,170 (2004).
6

FERC again denied rehearing, relying on its jurisdiction

over the transmission of station power. It also rejected Edison’s

alternative argument that it could charge generators even though

they were net positive for a month for stranded costs or

consumption charges. According to the Commission, such

charges would impair the ability of generators to utilize the

netting provisions of CAISO’s tariff and would force them to

pay “for fictitious energy purchases, when they are, in fact, selfsupplying.” FERC relied on our decision in Niagara Mohawk

– which was issued while the rehearing request was pending

before the Commission – in which we denied a challenge to the

one-month netting period approved by FERC for the New York

market.4

 When petitioners sought review of this order, it was

consolidated with the first petition initially held in abeyance.

II

The issue before us is stark. Petitioners assert that FERC,

by insisting that the netting period it approved to calculate

energy delivered to and taken from the grid by generators for

transmission charges must also govern charges the utilities seek

to impose for the generator’s own use of power, has exceeded its

jurisdiction.

It should be noted that although FERC insists that it can

determine that no retail sale has taken place (or that a

consumption charge is legitimate) it does not rest on its

4 See Cal. Indep. Sys. Operator Corp., 125 FERC ¶ 61,072

(2008).
7

wholesale jurisdiction5

 but rather only on its jurisdiction over

transmission. Its primary justification in both its order and

before us is our own opinion in Niagara Mohawk where, to be

sure, we rejected a similar argument presented by New York

utilities and the New York State Public Service Commission. 

But we think FERC overreads that case. We noted then that

“[p]etitioner’s statutory argument is not insubstantial,” that the

Commission’s rationale is “a bit confusing,” and, perhaps even

more skeptically, “that the Commission has not clearly

articulated why [its jurisdiction over interstate transmission]

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

retail sale – takes place.” 452 F.3d at 828. Indeed that troubling

case was resolved based on a concession petitioners made – not

made by petitioners here. In Niagara Mohawk, it was conceded

that FERC could, within its authority, dictate an hourly netting

period for retail sales; petitioners only objected to the tariff’s

monthly netting period. We could discern no principled basis

for distinguishing those two periods as it related to FERC’s

jurisdiction. If the Commission could legally require an hourly

netting period for retail sales it seemed analytically impossible

to challenge a monthly netting period on jurisdictional grounds.

The Commission contends that elsewhere in our opinion we

rested on more than petitioner’s concession, but that is not so. 

We did say that Order 888 “did not buttress petitioner’s

jurisdictional argument,” just because FERC interpreted it as

treating large industrial consumers who took their power directly

from generators as subject to retail sales charges. Id. at 829. 

But that is the opposite situation from the case before us. By

allowing the states to impose retail charges on end users who

5

 That is not to suggest that we see any stronger basis for FERC

to rest on that ground.
8

were ostensibly taking wholesale purchases, FERC was allowing

states to prevent the bypassing of utilities (in order to permit

utilities to recover stranded costs) by regulating in an area that

FERC arguably could have reserved for itself.6

Still FERC (and the intervenor) assert that whatever we said

in Niagara Mohawk, we could not have rested on petitioner’s

concession because we were under an independent obligation to

determine FERC’s jurisdiction. In support of that rather

extraordinary claim – it is not the more familiar argument that

a court has an independent duty to determine its jurisdiction –

the Commission relies on Columbia Gas Transmission Corp. v.

FERC, 404 F.3d 459 (D.C. Cir. 2005). That is quite a reach. In

that case FERC argued that it had jurisdiction to enforce a tariff

filing covering “gathering facilities,” over which FERC

ostensibly lacked jurisdiction, because no one had objected to

the filing. We rejected that argument pointing out that FERC

could not obtain jurisdiction merely because a party had failed

to raise a jurisdictional objection at the time of the filing. Id. at

462-63. The parties’ “waiver” could not confer jurisdiction on

FERC. The petitioner in that case did ultimately object to

FERC’s jurisdiction before the Commission and, more

importantly, did so in our court. A party can and does waive

any argument not presented in our court except those going to

our own jurisdiction or similar structural issues and a concession

is analogous to a waiver. The Columbia Gas case is, thus,

obviously inapposite. 

In this case, by contrast to Niagara Mohawk, petitioners

have consistently maintained that FERC has no authority to set

6

 We also concluded that FERC’s refusal to extend that fiction to

New York’s generators was not unreasonable. Id. at 829. 
9

any netting period to determine whether a retail sale occurs or to

determine whether the utilities are otherwise permitted to

impose consumption charges. We therefore must consider

FERC’s (and intervenor’s) arguments independent of Niagara

Mohawk. The Commission claims that it is not encroaching on

California’s jurisdiction over retail sales because no retail sale

has taken place if in a month a generator delivers more

electricity to the grid than it takes. But it might be asked why a

month, rather than a longer period, during which it would be

even less likely for a generator to be regarded as net negative. 

Ironically, FERC’s one month netting period to determine

whether a retail sale took place implicitly concedes (somewhat

analogous to petitioner’s concession in Niagara Mohawk)

7

whether a retail sale occurs depends, in its view, on the length

of the netting period, which seems rather arbitrary and

unprincipled – certainly as a jurisdictional standard. 

Perhaps of even greater difficulty, we do not understand

why FERC is empowered to conclude that a retail sale has not

taken place unless it can claim the transaction is, instead, a

wholesale sale or a transmission. To simply declare that the

state lacks jurisdiction because FERC believes no retail sale has

taken place really begs the jurisdictional question. Unless a

transaction falls within FERC’s wholesale or transmission

authority, it doesn’t matter how FERC characterizes it. And, of

course, FERC’s assertion doesn’t ever purport to answer

7

 FERC argues that the petitioners in this case made the same

concession as the Niagara Mohawk petitioners by failing to object to

a portion of the tariff allowing “Permitted Netting.” But the

“Permitted Netting” provision does not impose a netting period for

retail sales and so is unlike the issue conceded by the Niagara

Mohawk petitioners. 
10

petitioner’s argument that the utilities are, in any event, entitled

to impose a consumption charge. 

The Commission appears to alternatively assert that to

recognize the utilities’ right to use a different netting period for

generators use of station power as a retail sale under state law

would cause a conflict with FERC’s different netting period for

transmission. That is a familiar sort of preemption argument,

but we do not see the conflict. After all FERC has succeeded

through its unbundling initiative in creating separate markets for

wholesale sales, transmission, and retail sales and distribution. 

Why should different pricing techniques cause a conflict? The

Commission relies on Conn. Dep’t of Pub. Util. Control v.

FERC, 569 F.3d 477 (D.C. Cir. 2009) and Nat’l Ass’n of

Regulatory Util. Comm’rs v. FERC, 475 F.3d 1277 (D.C. Cir.

2007), but we think those cases do not support FERC because

the impact on state jurisdiction in both cases was indirect and

incidental.

In the Connecticut case, petitioners challenged the

Commission’s authority to approve the “installed capacity

requirement,” under its wholesale and transmission jurisdiction,

a mechanism in the New England independent service operator’s

tariff that sets the amount of capacity that must be maintained to

ensure reliable operation of the bulk power system. The

petitioners in that case argued that this constituted a de facto

regulation of generation facilities, a matter exempted from the

Commission’s jurisdiction. We rejected the argument,

explaining that even though a higher “installed capacity

requirement” may provide a market incentive for the

construction of additional generation facilities, it was not an

impermissible direct regulation of generation facilities. 569

F.3d at 481-82 (emphasis added). And in Nat’l Ass’n of

Regulatory Util. Comm’rs, petitioners argued that the
11

Commission could not regulate facilities that were jointly owned

by private firms and states because the Federal Power Act

exempts states from federal regulation. We easily rejected that

challenge noting that the argument offered by petitioners could

allow utilities to escape regulation by simply partnering with a

nonjurisdictional co-owner. We approved FERC’s conclusion

that it could regulate “notwithstanding incidental effects on

nonjurisdictional entities.” 475 F.3d at 1281 (emphasis added). 

Here by contrast FERC’s order does not just sideswipe state

jurisdiction; it attacks it frontally. 

Intervenors, a group of independent generators asserting a

conflict theory not advanced by FERC, claim that inconsistent

methods of netting will result in generator’s costs being

“trapped.” They draw upon a Supreme Court case, Nantahala

Power and Light Co. v. Thornburg, 476 U.S. 953 (1986). There

a utility bought power wholesale from the TVA and sold it at

retail in North Carolina. The North Carlina PUC calculated the

utilities costs differently (lower) than did FERC in setting the

wholesale rate with the result that the utility could not recover

its wholesale costs at retail – power would have to have sold at

a loss. It was in that sense that the Supreme Court held utilities

costs were “trapped” and FERC’s wholesale rate regulation

would be undermined; therefore the state’s cost calculation was

preempted. We do not see any such claim in this case, but, in

any event, FERC did not rely on this rationale in any of the

orders under review, so we could not affirm on this basis under

SEC v. Chenery Corp., 318 U.S. 80, 87-88 (1943), even if we

thought it meritorious.

It is, of course, true that under differing netting periods

FERC can conclude that no transmission for station power took

place in a month in which California would recognize retail

sales of that power, but that is hardly a conflict. As we have
12

noted, in an unbundled market, transmission and power are

procured through separate transactions. And, as we recognized

in Niagara Mohawk, the netting periods for power and

transmission need not be the same. 452 F.3d at 830. In that

regard, petitioners point out that CAISO’s tariff uses an hourly

netting period for certain “transmission-related services.” It is

thus possible for a generator to incur “transmission-related

service” charges while not having to pay for transmission itself,

which under FERC’s logic, would also seem to be a conflict, yet

FERC did not object to that portion of the tariff.

The Commission is rather obviously concerned about the

competitive position of the independent generators vis-a-vis

those utilities who still maintain their own generator capacity. 

Indeed, that appears to be the underlying policy reason that

drives FERC’s opinions. But FERC has yet to explain why that

general concern can be grounds to preempt the state’s authority

to set the netting period for station power – i.e., the pricing

mechanism – in the retail market or to allow utilities to impose

consumption charges.

Accordingly we vacate and remand for further proceedings

consistent with this opinion. 

 So ordered.