Opinion ID: 3048937
Heading Depth: 4
Heading Rank: 1

Heading: FERC Permissibly Classified the Facilities as

Text: “Transmission” Because They Performed Some Transmission Function. FERC classified all of the facilities at issue as “transmission” despite the fact that the bulk of the facilities serve generation functions in addition to transmission functions. Specifically, the loops connect plants to the grid, and many of the transformer banks step up the voltage of generated power to make the voltage compatible with grid levels. According to Opinion No. 466-B, “any degree of integration is sufficient to establish that the costs of the facilities should be treated as transmission.” 108 F.E.R.C. ¶ 61,297, at 62,511. The presiding judge called this benchmark the “exclusive use” test because it classified facilities as “generation” for costing purposes (i.e., excluded from rolled-in pricing) only if the facilities were used exclusively to generate power, step up power, or transmit power from the generator to the grid. He initially rejected this benchmark when it was proposed by PG&E because he believed that the “exclusive use” test unfairly conflated the transmission and generation functions. [1] We hold that the exclusive use test comports with FERC’s treatment of other facilities serving dual purposes. For example, in American Electric Power Service Corp., 80 F.E.R.C. ¶ 63,006 (1997), rev’d in part on other grounds, Opinion No. 440, 88 F.E.R.C. ¶ 61,141 (1999), a utility sought to include in its transmission tariff the costs associated with two 765 kV lines which supported both generation and transmission functions. Id. at 65,057. The extra-high voltage lines connected an isolated generation facility with the rest of the grid, but their configuration also provided an east-west 765 kV link across the state of Indiana, providing back-up and CAL DEP’T OF WATER v. FERC 6915 reliability functions to the grid. Id. The presiding judge found that the lines were properly included in the tariff. Id.; see Opinion No. 311, Am. Elec. Power Serv. Corp., 44 F.E.R.C. ¶ 61,206, at 61,748 (1988) (noting in earlier proceeding that the same lines serve a transmission function); Northeast Tex. Elec. Coop., Inc., 108 F.E.R.C. ¶ 61,084, at 61,426, 61,433 & n.66 (2004) Opinion No. 474) (classifying as “transmission” facilities that primarily served to connect and protect points of delivery, where the facilities also maintained reliability of service over the network transmission lines); Otter Tail Power Co., 12 F.E.R.C. ¶ 61,169, 61,419-20 (1980) (Opinion No. 93). Thus, although FERC has never explicitly referred to an exclusive use test, it appears that it does apply such a test to determine whether facilities should be classified as “transmission.”8 [2] Like the lines in American Electric Power Service Corp., PG&E’s loop facilities and dual function facilities serve a network transmission function in addition to benefitting PG&E’s generation. For example, the Diablo Canyon and Morro Bay Loops both function as parallel paths to Path 15. In addition, the Morro Bay Loop carries over 540 MW of local area load. The Moss Landing Loop carries approximately 740 MW of local area load and is one of two 500 kV lines feeding a substation that serves Silicon Valley. Further, the transformer banks within the group of “dual function facilities” both transform power at the generating station (supporting PG&E generation) and transform power that passes through the banks between various levels of voltage (a transmission function).9 Finally, the network-only facilities serve 8 This test was applied both before and after Order No. 888 was adopted in 1996. See, e.g., 80 F.E.R.C. ¶ 63,006, at 63,057; 12 F.E.R.C. ¶ 61,169, at 61,420. Although DWR emphasizes repeatedly that Order No. 888 required the unbundling of transmission and generation, it points to no specific directive in that Order or elsewhere that conflicts with FERC’s method of classifying facilities. 9 The GSUs in Kentucky Utilities Co., 85 F.E.R.C. ¶ 61,274 (1998) (Opinion No. 432), are thus distinguishable from the transformer banks in 6916 CAL DEP’T OF WATER v. FERC no generation function, only a transmission function, because the generators they previously supported have been decommissioned. [3] The facilities were all shown to perform some transmission function. Consequently, FERC’s sub silentio application of an exclusive use test in order to classify the facilities as “transmission” affords consistent treatment to regulated utilities across rate proceedings, and was not arbitrary or capricious.