Opinion ID: 2790973
Heading Depth: 3
Heading Rank: 5

Heading: Cost Causation

Text: The final issue we must address is Utility Petitioners’ argument that the Lower Hudson Valley Zone unfairly apportions charges arising from the transmission constraint on which NYISO premised the creation of the new zone. Rates approved by FERC must “reflect to some degree the costs actually caused by the customer who must pay them.” Black Oak Energy, LLC v. FERC, 725 F.3d 230, 237 (D.C. Cir. 2013) (quoting E. Ky. Power Coop., Inc. v. FERC, 489 F.3d 1299, 1303 (D.C. Cir. 2007) (internal quotation mark omitted)). Utility Petitioners contend that the Lower Hudson Valley Zone unfairly apportions capacity charges because NYISO’s calculation of the LCR for the new zone is flawed, causing some customers in the Lower Hudson Valley Zone to pay more than their share of capacity charges. Utility Petitioners made this argument to FERC in a protest in FERC’s Zone proceeding, and raised it again in their request for rehearing of the Zone Order. However, FERC explained in the Zone Order that NYISO’s calculation of the Lower Hudson Valley Zone’s LCR was outside the scope of the Zone proceeding because the new zone’s LCR “is not used to determine whether a new capacity zone should be created or to establish the new capacity zone boundary; it is used solely for establishing an [installed capacity] Demand Curve for the new capacity zone.” 55 Zone Order at P 66; see also Zone Rehearing Order at P 27. FERC explained that the Zone proceeding, as opposed to the parallel Demand Curve proceeding, was “narrowly focused on determining whether NYISO followed its tariff in determining that a new capacity zone should be created.” Zone Order at P 66; see also Zone Rehearing Order at P 27. It is true that NYISO discussed the LCR for the Lower Hudson Valley Zone in its tariff filing in the Zone proceeding, providing an affidavit in which its experts explained how the LCR for the Lower Hudson Valley Zone was calculated and specifying that under their planned method of calculation, the resulting LCR for the new zone would be 88 percent. J.A. 561‐62. But NYISO also specifically noted that its filing would only briefly address the LCR determination for the Lower Hudson Valley Zone because—as FERC explained in addressing Utility Petitioners’ protest—LCRs “are used solely for establishing revised [installed capacity] Demand Curves.” J.A. 127 (internal quotation mark omitted). NYISO’s filing thus stated that “[t]he actual [LCR] that will be used to administer market rules for the [Lower Hudson Valley Zone] will be established in the same manner as, and concurrent with, the LCRs for existing” capacity zones, and that the Lower Hudson Valley Zone’s LCR would therefore be an element of NYISO’s filing in the Demand Curve 56 proceeding. J.A. 127 & n.17; see Zone Order at P 64 & n.67. Given FERC’s broad discretion to address related issues in discrete proceedings, see TC Ravenswood, 705 F.3d at 478‐79, it was permissible for FERC to determine that the method by which the LCR was calculated was outside the scope of the Zone proceeding because it would be addressed in the Demand Curve proceeding. Utility Petitioners argue that FERC was required to review the LCR in the Zone proceeding because it had the burden of showing that the creation of the new zone would result in just and reasonable rates. While it was clear, however, that the Zone proceeding’s authorization of the Lower Hudson Valley Zone would result in new rates for that zone, FERC explained that in the Zone proceeding, it only had to show that the creation of the new zone—and not the LCR for the zone—was just and reasonable; the specific LCR that would actually affect the apportionment of rates among different zones’ customers would be used only to construct the demand curve, and not to set up the zone itself. See Zone Order at P 66; Zone Rehearing Order at P 27. Whether the demand curve for the Lower Hudson Valley Zone was just and reasonable (and whether the rates imposed on the new zone complied with cost‐causation principles) would be addressed in the Demand Curve proceeding. 57 As we have noted, FERC was not free to “slice and dice issues to the prejudice of a party.” TC Ravenswood, 705 F.3d at 478; see La. Pub. Serv. Comm’n, 482 F.3d at 521. But we are not persuaded by Utility Petitioners’ arguments that FERC abused its discretion here. Utility Petitioners claim that FERC’s failure to address the LCR in its Zone proceeding was contrary to the New Zone Criteria Compliance Order’s guarantee that the LCR for the new zone would be reviewable. But while the New Zone Criteria Compliance Order did state that NYISO’s tariff provides for review and comment of an LCR for a new zone, it did not imply that this review and comment could not take place in a proceeding separate from the one in which the creation of the new zone was evaluated. See New Zone Criteria Compliance Order at P 50. Thus, FERC did not contradict this order by specifying that the LCR would be reviewed in the Demand Curve proceeding rather than the Zone proceeding. Nor were Utility Petitioners prejudiced: FERC stated on August 13, 2013 (in the Zone Order) that it would address the new zone’s LCR in the Demand Curve proceeding, and NYISO did not file its proposal in the Demand Curve proceeding until November 29, 2013. Utility Petitioners also suggest that the Demand Curve proceeding was not the appropriate venue for challenging NYISO’s LCR calculation because NYISO 58 failed to submit any evidence in that proceeding explaining how the LCR was calculated. NYISO, however, specifically stated in its Zone proceeding filing that the LCR for the Lower Hudson Valley Zone would be part of its Demand Curve proceeding filing, and indeed, its latter filing included proposed LCRs for each capacity zone calculated as set forth in its tariff. FERC also acknowledged in its Demand Curve Order that NYISO had “propose[d] an additional locational [installed capacity] requirement”—in other words, an LCR—“for the new capacity zone.” Demand Curve Order at P 3. The LCR for the new zone was therefore plainly at issue in the Demand Curve proceeding. Utility Petitioners, however, failed to challenge NYISO’s calculation or methodology in the Demand Curve proceeding, either prior to FERC’s first Demand Curve Order or in their request for rehearing. And while FERC now claims—seemingly at odds with its contention that Utility Petitioners’ cost‐causation argument would have received a hearing in the Demand Curve proceeding—that its review of NYISO’s LCR calculation was limited to determining whether NYISO properly followed its pre‐existing methodology because that methodology was prescribed in NYISO’s tariff,10 the question whether 10 FERC claims that the only way for Utility Petitioners to raise their cost‐causation argument would be in a proceeding challenging NYISO’s tariff under § 206 of the FPA, 59 Utility Petitioners would have persuaded FERC to consider its arguments is irrelevant to whether those arguments were properly raised in the Zone proceeding. Had Utility Petitioners raised their arguments in the Demand Curve proceeding, and had FERC in fact refused to hear them, Utility Petitioners might well be on stronger ground in claiming prejudice from FERC’s “slic[ing] and dic[ing].” TC Ravenswood, 705 F.3d at 478. But because NYISO and FERC both made it clear well before the Demand Curve proceeding was initiated that challenges to the LCR calculation should be brought in that proceeding, Utility Petitioners’ failure to present any such challenges to FERC in the first instance bars them from raising those challenges before this Court. See 16 U.S.C. § 825l(b).