Opinion ID: 185540
Heading Depth: 2
Heading Rank: 3

Heading: Wabash's claims

Text: 42 Wabash claims that FERC's approval was arbitrary and capricious because: FERC improperly conditioned the merger on the future participation of New AEP in an RTO; FERC completely ignored crucial evidence of New AEP's ability to manipulate imperfections in the pertinent markets to their advantage; the merger is inconsistent with a recent FERC staff report; and the merger does nothing to eliminate rate pancaking, a type of rate inefficiency. These claims all fail. 43 First FERC did not condition the merger solely on future participation in an RTO. Rather, FERC also required interim measures that emulated the information-sharing features of an RTO to limit New AEP's ability to exercise its market power. See Am. Elec. Power Co., 90 F.E.R.C. p 62,171, at 61,789. These measures market monitoring and calculation of ATC by independent parties do not have any enforcement mechanisms attached. FERC can use its regulatory powers, however, to penalize noncompliance. Under § 205 of the Federal Power Act, FERC reviews all electricity transmission and sales to ensure that the rates are just and reasonable. 16 U.S.C. § 824d(a). FERC, in some circumstances, allows electric utilities to engage in market-based pricing in lieu of the traditional cost plus reasonable rate of return rate calculation. See, e.g., Cajun Elec. Power Coop., Inc. v. FERC, 28 F.3d 173, 176. (D.C. Cir. 1994). If, however, FERC finds that a rate charged is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate ... and shall fix the same by order. 16 U.S.C. § 824e(a). Thus, if the information disclosed by New AEP under the interim mitigation measures indicates a violation of the antitrust laws or the Federal Power Act, New AEP faces antitrust liability and the possibility of FERC setting its rates. These safeguards render the requirement of disclosure effective to limit New AEP's exercise of strategic behavior to circumvent FERC's merger conditions. 44 Wabash is also wrong in its claim that FERC completely ignored crucial evidence of New AEP's ability to manipulate imperfections in the pertinent markets to their advantage. As noted above, Wabash's petition for rehearing to FERC expressly acknowledges that the Commission did not ignore the problem of the potential for market manipulation. Therefore, the only question here is whether FERC's action was arbitrary and capricious for lack of consideration of some crucial evidence related to the issue. The crucial evidence to which Wabash refers is the merging parties' intent to improperly exert their market power. Petitioner's Br. at 37. This is a specious claim. First, it is clear that FERC understood that it was too easy for parties to engage in market manipulation under the Orders that preceded Order No. 2000 indeed, that was a principal reason for the adoption of Order No. 2000. Second, FERC addressed the problem of possible manipulations by imposing conditions on the merger. It is unclear what other crucial evidence was before FERC that warranted consideration. Maybe Wabash means to suggest that officials in charge of New AEP had devious, albeit unannounced, intentions to defy the law without regard to FERC's regulatory requirements. If so, this surely is no basis upon which to grant the petition for review. If New AEP acts in violation of the law in the future it will face regulatory sanctions. 45 Wabash next claims that FERC's decision does nothing to eliminate rate pancaking. Pancaked rates arise when a transmission travels over the transmission systems of more than one system that each charge separate fees, much like the total tolls paid when driving on a route that includes both the Pennsylvania and New Jersey turnpikes. Though the mere existence of different owners of different parts of a transmission system does not necessarily lead to inefficient transmission, FERC found that one of the main benefits offered by RTOs would be increased efficiency through regional transmission pricing and the elimination of rate pancaking. Order No. 2000, 65 Fed. Reg. at 829. Whether the AEP-CSW merger eliminated rate pancaking was not a discrete issue under consideration by FERC, because § 203 of the Federal Power Act merely mandates the determination of whether the merger is consistent with the public interest. By forcing New AEP to transfer its transmission assets to a RTO, FERC, in fact, significantly reduced rate pancaking. Absent a mechanism creating national transmission pricing, it is hard to understand how any merger could, by itself, eliminate all rate pancaking. In any event, that other changes to FERC policy might also improve the public interest is simply irrelevant to the validity of the merger decision. And it certainly was not arbitrary and capricious for FERC to find that a merger that did not fully eliminate rate pancaking was nonetheless in the public interest. 46 Finally, Wabash claims that the decision to approve the merger is arbitrary and capricious because it is inconsistent with a staff report produced by FERC on November 1, 2000. This claim fails under the holding of Union Pac. Fuels, Inc. v FERC, 129 F.3d 157, 164 (D.C. Cir. 1997). Only when FERC has formally altered its policy after issuing an order challenged before us does this court consider the change. Id. A staff report following the issuance of a Commission order is not a superceding order; therefore, the issuance of such a report play[s] no role in our determination of the order['s] legality. Id.