Opinion ID: 185758
Heading Depth: 2
Heading Rank: 2

Heading: FERC Jurisdiction Under Section 203

Text: 23 The utility petitioners argue that FERC erred in directing them to modify their ISO agreements to require Commission approval prior to a utility's withdrawal from the ISO under section 203 of the Act. Section 203 provides: No public utility shall sell, lease, or otherwise dispose of jurisdictional facilities whose value exceeds $50,000 without first having secured an order of the Commission authorizing it to do so. 16 U.S.C. § 824b(a) (emphasis added). FERC contends that the formation of the ISO is a dispos[ition] of facilities within the meaning of section 203, thus giving the Commission jurisdiction under that section. We disagree. A utility does not sell, lease, or otherwise dispose of its facilities when it agrees to the changes in operational control necessary to initially join or to withdraw from an ISO. Therefore FERC exceeded its jurisdiction by directing the utility petitioners to modify their agreement to state that any notice of withdrawal from the ISO shall become effective only upon FERC approval. 24 When the utilities joined the PJM ISO there was no transfer of ownership or even physical operation of their facilities. Pursuant to the operating agreement, each of the utilities retained both ownership and physical control of their facilities, but gave to the PJM ISO certain operational responsibilities relating to the provision of transmission services using their jurisdictional facilities. Thus, when a PJM member withdraws, there is again, no change in ownership, and no grounds for FERC to require preapproval under section 203. FERC contends that the word dispose in section 203 can be construed broadly to include the transfer of supervisory operational responsibility over facilities to the ISO. We find such an interpretation to be inconsistent with a logical reading of the statute and an unexplained departure from past FERC practice. 25 First, the terms sell and lease in section 203 clearly contemplate a transfer of ownership or proprietary interests. Id. The expression otherwise dispose requires a similar interpretation under the principle noscitur a sociis. See Dole v. United Steelworkers of America, 494 U.S. 26, 36, 110 S.Ct. 929, 108 L.Ed.2d 23 (1990) (words grouped in a list should be given a related meaning); Neal v. Clark, 95 U.S. 704, 708-09, 24 L.Ed. 586 (1877) (the coupling of words together shows that they are to be understood in the same sense). Thus, the term dispose in section 203 can only reasonably be read to refer to changes or transfers in proprietary interests or something akin thereto. 26 Second, FERC's expansive reading of its section 203 jurisdiction cannot be reconciled with section 202, which has been definitively interpreted to make clear that Congress intended coordination and interconnection arrangements be left to the voluntary action of the utilities. See 16 U.S.C. § 824a(a). Section 202 provides that the Commission is empowered and directed to divide the country into regional districts for the voluntary interconnection and coordination of facilities for the generation, transmission, and sale of electric energy. Id. (emphasis added). That provision does not provide FERC with any substantive powers to compel any particular interconnection or technique of coordination. Duke Power Co. v. Federal Power Comm'n, 401 F.2d 930, 943 (D.C.Cir.1968) (emphasis in original); see Central Iowa Power Coop. v. FERC, 606 F.2d 1156, 1167-68 (D.C.Cir.1979) (Given the expressly voluntary nature of coordination under section 202(a), the Commission could not have mandated adoption of the [coordination] Agreement). Thus, it would be anomalous for FERC to have jurisdiction under section 203 to prohibit the utility petitioners from ending their voluntary coordination and interconnection through the PJM ISO. This does not mean that FERC is prohibited from reviewing entry to or exit from an ISO. The petitioners are not disputing FERC's authority to review their agreements at the outset and to decide, based on the evidence in the record, whether the entrance and exit rights specified therein are just and reasonable within the meaning of section 205. Nor do petitioners contest FERC's authority to review a specific withdrawal under section 205. Rather it is only FERC's assertion of jurisdiction under section 203 that is at issue. 27 Third, prior to this case this Commission held a similar view of the limits of its own jurisdiction under section 203. It observed that Section 203 was ... designed to insure that transfers of utility property to, as well as from, the companies subject to our jurisdiction would be in the public interest. Duke Power Co., 36 F.P.C. 399, 402 (1966) (emphasis added), rev'd on other grounds, Duke Power Co. v. Federal Power Comm'n, 401 F.2d 930 (D.C.Cir.1968). Indeed, prior to this case, FERC had never applied section 203 where only operational control was transferred. Cases such as Central Vermont Public Service Corp., 39 F.E.R.C. ¶ 61,295, 1987 WL 257899 (1987), and Savannah Electric & Power Co., 42 F.E.R.C. ¶ 61,240, 1988 WL 243907 (1988), cited by FERC, are not helpful to the Commission's position because they involved changes in corporate ownership and direct control. Central Vermont involved a transfer of ownership and control of jurisdictional facilities through a transfer of common stock from existing shareholders to a newly created holding company. Savannah Electric involved the transfer of all of a public utility's stock to a registered public utility holding company. Indeed these cases note that there was a change in proprietary interest contemplated in the disputed transaction. See Central Vermont, 39 F.E.R.C. at 61,960 (Although the current stockholders of the public utility will own stock in the holding company after the reorganization is completed, they will no longer have a proprietary interest in, or direct control over, the jurisdictional facilities) (emphasis added); Savannah Electric, 42 F.E.R.C. at 61,778. Similarly the sale/leaseback cases cited by FERC are not relevant because they all involve transfers of proprietary interests through an actual sale of facilities, which are then leased back to the original owner. See Baltimore Refuse Energy Systems Co., 40 F.E.R.C. ¶ 61,366, 1987 WL 118202 (1987). In those cases there was no change in operational control at all — there section 203 approval was required solely because of a change in the legal ownership of the facilities. Thus, if these cases show anything, it is that FERC's jurisdiction under section 203 turns on changes in ownership. 28 FERC's supporting intervenors argue that the transfer of operational control over jurisdictional facilities to the ISO is a disposition within the meaning of section 203. Similarly, in the Jurisdictional Order, FERC noted that the creation of an ISO requires the transfer of control of the operation of the PJM transmission facilities from the transmission owners ... to the ISO and is a disposition of jurisdictional facilities requiring prior Commission authorization under section 203. 76 F.E.R.C. at 62,513. Yet, FERC did not rely on this analysis in its brief before this Court, and with good reason. In the proceedings below, the Commission found that the PJM power pool was already operated on a coordinated basis, with a central dispatch, by an independent staff referred to as the PJM Office of Interconnection (PJM-OI). PJM Restructuring Order, 81 F.E.R.C. at 62,234 n.1. Prior to the attempt to create an ISO, FERC never asserted section 203 jurisdiction over the PJM tight power pool. The operational control exercised by the ISO is no different from that of its predecessor power pool. The distinction suggested by the intervenors, that the PJM utilities are transferring control to an independent ISO rather than a member-controlled tight power pool, is a very thin reed. Moreover, although the ISO would exercise supervision over the daily scheduling and dispatching activities of the network facilities, the participating members would retain physical control and ownership of the transmission facilities and be responsible for their maintenance. The transmission owners would merely transmit energy in accordance with the directives of the ISO. Public utilities make decisions about the operational control of their facilities on a regular basis. They give customers the right to demand capacity, they enter into coordination agreements, and they join together in cooperative ventures that require common management. Yet, for more than half a century, section 203 has never been construed to give the Commission control over every such agreement. Its focus is plainly upon the disposition of the facilities themselves. As [a]gency authority may not be lightly presumed, Michigan, 268 F.3d at 1082, we find that FERC's attempted reach under section 203 exceeds its statutorily defined grasp. No disposition within the meaning of section 203 is contemplated by the ISO agreements, and thus FERC has no jurisdiction to require preapproval under that provision.