Court Opinion

ID: 185214
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:29:07+00
Date Added: 2024-06-11T09:29:34.658748
License: Public Domain

218 F.3d 750 (D.C. Cir. 2000)
East Texas Electric Cooperative, Inc., et al.,Petitionersv.Federal Energy Regulatory Commission, RespondentCentral Power and Light Company, et al., Intervenors
No. 99-1222
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 10, 2000Decided July 25, 2000

On Petition for Review of Orders of theFederal Energy Regulatory Commission
A. Hewitt Rose, III argued the cause for the petitioners.
David H. Coffman, Attorney, Federal Energy Regulatory  Commission, argued the cause for the respondent.  John H.  Conway, Acting Solicitor, Federal Energy Regulatory Commission, was on brief.  Jay L. Witkin, Solicitor, and Susan J. Court, Counsel, Federal Energy Regulatory Commission, entered appearances.
Clark Evans Downs argued the cause for the Intervenors. Martin V. Kirkwood was on brief.
Before:  Edwards, Chief Judge, Henderson and Rogers,  Circuit Judges.
Opinion for the court filed by Circuit Judge Henderson.
Karen LeCraft Henderson, Circuit Judge:

1
Petitioners  East Texas Electric Cooperative, Inc., Northeast Texas Electric Cooperative, Inc. and Tex-La Electric Cooperative of  Texas, Inc. (collectively, Texas Electric) seek review of three  orders of the Federal Energy Regulatory Commission  (FERC, Commission) ultimately approving the open access  transmission tariff the CSW Operating Companies (CSW)1  proposed for their provision of electric power to Texas Electric, inter alia.  Texas Electric argues that the Commission,  in its Tariff Order, Central Power & Light Co., 81 F.E.R.C.  p 61,311 (1997), accepted certain rates included in CSW's  proposed rates but rejected and ordered modification of  another.  CSW not only responded to the Commission's directive regarding modification of the specified rate, they also  eliminated a different rate which, Texas Electric argues, had  been accepted and was therefore not supposed to be eliminated.  The Commission accepted CSW's compliance filing in  relevant part in its Compliance Order, Central Power & Light  Co., 85 F.E.R.C. p 61,224 (1998), including the alleged rate  change resulting from the elimination of the rate earlier  accepted.  Finally, in its Rehearing Order, Central Power &  Light Co., 87 F.E.R.C. p 61,073 (1999), the Commission rejected Texas Electric's arguments and concluded CSW had complied with the Tariff Order directives.

2
Texas Electric argues, citing 16 U.S.C. § 824d, that CSW  failed to justify the rate change as the Federal Power Act  (Act) requires and that the Commission's acceptance, without  explanation, of CSW's compliance filing and its resulting  approval of CSW's elimination of the previously accepted  charge (thereby effecting a rate change) also failed to satisfy  the Commission's duty under the Administrative Procedure  Act, 5 U.S.C. § 706(2).  Texas Electric further contends the  new rates unduly discriminate against it (and other CSW  customers) and that the Commission violated its duty under  the Act, 16 U.S.C. § 824e, to assure that rates are not unduly  discriminatory.

3
The Commission on the other hand claims it did not accept  the proposed rates in the Tariff Order and that nothing  therein prohibited CSW from eliminating the rate at issue. Rather, the Commission claims that its Tariff Order makes  clear the decision was left to CSW's discretion.  We defer to  FERC's interpretation of its Tariff Order as not limiting  CSW's revised transmission tariff.  We conclude, however,  that the Tariff Order did not sufficiently notify Texas Electric  of CSW's discretion to modify the original proposal, particularly in light of the Tariff Order's language approving the  rates at issue.  Hence Texas Electric's failure to seek rehearing does not bar it from raising this issue before us.  Moreover, the Commission failed to explain why the revised tariff  was lawful, that is, just and reasonable.  Given that the  revision at issue could not fairly have been anticipated by  Texas Electric, the Commission erred in summarily approving that part of the Compliance Tariff without explaining  whether the new rates were just and reasonable;  accordingly,  we remand for FERC to make that determination.

I.

4
The CSW System operates in two power districts:  the  Southwest Power Pool (SPP) and the Electric Reliability  Council of Texas (ERCOT).  Of the four operating companies  in the CSW System, two are entirely within SPP and the other two areentirely within ERCOT.2  CSW's facilities are  interconnected, however, forming a single, integrated system.

5
In 1996 FERC addressed the rate systems of public utilities, like those comprising CSW, who are members of registered public utilities holding companies.  In Order No. 888  (filed May 10, 1996), Promoting Wholesale Competition  Through Open Access Non-discriminatory Transmission  Services by Public Utilities, FERC Stats. & Regs. p 31,035,  61 Fed. Reg. 21,540 (1996), codified as revised at 18 C.F.R.  Pts. 35 & 385 (1999),3 which resulted from a rule-making  proceeding designed to remedy undue discrimination in the  transmission of electric power, FERC required all such utilities to file a tariff permitting transmission service across the  holding company's entire system at a single price.  See  Transmission Access Policy Study Group, 2000 WL 762706,  at *3, *5 (D.C. Cir. June 30, 2000);  see also Tariff Order, 81  F.E.R.C. at 62,430 (discussing Order No. 888).  Thus, individual member utilities within a holding company could no longer  charge separate, "pancaked" rates4 for what is a single transmission over the holding company's system.  Id. at 62,432.Instead, the utilities must provide the transmission under a  single rate, resulting in a de facto reduction of the overall  charge.  FERC addressed the CSW System specifically, directing the utilities therein to file "a system tariff that will  provide comparable service to all wholesale users on the CSW  System, regardless of whether they take transmission service  wholly within ERCOT or the SPP, or take transmission  service between the reliability councils over the North and  East Interconnections."  Order No. 888, 61 Fed. Reg. at  21,595.  Furthermore, FERC noted that "[i]t may be appropriate to have different rates for transmission service wholly  within ERCOT or the SPP, and for service between [them]."Id. at 21,595 n.422.

6
CSW filed a proposed transmission tariff that provided  separate rates for wholly intra-ERCOT service and wholly  intra-SPP service but did not provide a single CSW System wide rate for transmissions through both ERCOT and SPP.Thus, customers requiring service traversing the SPP ERCOT boundary would pay pancaked rates.  In its Tariff  Order the Commission analyzed CSW's separate rates for the  two service areas (ERCOT and SPP) and determined that the  rate structures were reasonable.

7
Assessing different rates for service in the different regions is reasonable....  [I]t is appropriate to allow CSW to adopt the Texas Commission's regional network pricing structure for services wholly in ERCOT.  As acorollary, it is also reasonable for CSW to assess a single postage stamp rate for service wholly within SPP.

8
Tariff Order, 81 F.E.R.C. at 62,432-33.  The Commission,  however, then rejected the pancaked rates for service traversing both areas.  See id. at 62,433.  It "require[d] CSW to  revise its tariff to propose a single rate for use of the entire  CSW system" and added that, "[w]hile CSW may continue to  propose multiple charges, their total sum may not exceed CSW's average system cost." Id.  In closing the Commission  further described its action:

The Commission orders:

9
(A) CSW is hereby directed to make the changes discussed in the body of this order within 30 days of the date of this order.

10
(B) The proposed CSW Tariff is hereby accepted for filing, as modified as directed in Ordering Paragraph (A)above, effective January 1, 1997....

11
Id. at 62,440.

12
CSW filed a Compliance Tariff proposing a single four company, system-wide rate applicable both to customers  served by transmissions through ERCOT and SPP and to  customers accessing only SPP service.5  The tariff also set a  rate applicable to customers using only ERCOT but eliminated the comparable rate for "SPP-only" customers it had  originally proposed.  Texas Electric protested the Compliance Tariff's elimination of the intra-SPP rate.  It argued  that the Tariff Order had approved the intra-SPP rate and,  therefore, CSW must justify elimination of the rate as the Act  requires.  In addition, Texas Electric argued that the intraSPP rate was necessary to prevent undue discrimination in  light of the intra-ERCOT rate which remained in effect and  was less expensive than the system-wide rate to which  SPP-only customers had become subject.  In the Compliance  Order the Commission focused on whether CSW had complied with the Tariff Order.  The Commission found that it  had:  "In the [Tariff Order], we directed [CSW] to submit a  single, system-wide rate, and they have done so."  Compliance Order, 85 F.E.R.C. at 61,924.  Accordingly, the Commission approved elimination of the intra-SPP rate.

13
Texas Electric requested rehearing challenging FERC's  approval of the elimination of the intra-SPP rate in the Compliance Tariff.  It argued that elimination of the rate was  not consistent with the Tariff Order and lacked adequate  justification by CSW and adequate consideration by the Commission.  In the Rehearing Order, the Commission again  rejected Texas Electric's challenges because it found CSW  had complied with its directive in the Tariff Order (that is, to  propose a single rate for use of the entire CSW system) when  it eliminated the intra-SPP rate in favor of a single-system  rate.  See Rehearing Order, 87 F.E.R.C. at 61,300.  The  Commission added that, if Texas Electric wished to challenge  the directive, it could have done so on rehearing of the Tariff  Order but not on rehearing of the Compliance Order.  See id.

II.

14
"As a general matter, we will uphold FERC's factual  findings if supported by substantial evidence and will endorse  its orders so long as they are based on reasoned decision  making."  Texaco, Inc. v. FERC, 148 F.3d 1091, 1095 (D.C.  Cir. 1999) (citing Koch Gateway Pipeline Co. v. FERC, 136  F.3d 810, 814 (D.C. Cir. 1998)).  And if FERC interprets its  own orders reasonably, we will sustain its interpretations.See Natural Gas Clearinghouse v. FERC, 108 F.3d 397, 399  (D.C. Cir. 1997).

15
Arguing that the Tariff Order left CSW free to eliminate  the multiple charges they had proposed, FERC relies on the  permissive "may" in the statement that "CSW may continue  to propose multiple charges," Tariff Order, 81 F.E.R.C. at  62,433 (emphasis added).  Although FERC precedent generally confines the scope of modifications in compliance filings  to the Commission's particular directives, see Entergy Power  Mktg. Corp., 75 F.E.R.C. p 61,282 at 61,903 (1996);  Southern  Co. Servs., 63 F.E.R.C. p 61,217 at 62,595-96 (1993), here the  Commission specifically left to CSW the decision whether to  "continue to propose multiple charges."  81 F.E.R.C. at  62,433.  Thus, CSW's subsequent elimination of the intra-SPP  rate was contemplated and in fact authorized, albeit not  ordered, in the Tariff Order.  FERC points to specific language supporting its interpretation of its Tariff Order as nonprescriptive with regard to proposing multiple charges, see  Brief of Commission at 21,6 and, finding FERC's interpretation of its own order reasonable, we must sustain it against  Texas Electric's challenge.  See Natural Gas Clearinghouse,  108 F.3d at 399.

16
Nevertheless the Tariff Order did not provide sufficient  notice to Texas Electric that CSW could eliminate the approved intra-SPP rate.  See McElroy Elecs. Corp. v. FCC,  990 F.2d 1351, 1358 (D.C. Cir. 1993) ("[W]e look not at the  reasonableness of the Commission's intended interpretation,  but at the clarity with which the agency made that intent  known.").  Much of the Tariff Order indicated acceptance of  CSW's proposed tariff, including the declarations in the introductory paragraph:  "In this order, the Commission directs  modifications to and accepts for filing, as modified, a joint  system-wide open access transmission tariff."  Tariff Order,  81 F.E.R.C. at 62,430 (emphasis added).  In the Commission's  concluding list of orders, it also accepted the tariff for filing  conditioned on the modifications CSW were directed to make.7See id. at 62,440.  The Commission approved the separate  intra-SPP and intra-ERCOT rates so long as their sum did  not exceed CSW's average system cost.  See id. at 62,432-33.In fact, FERC deemed the methodology used to determine  separate rates "appropriate" and "reasonable."  Id. at 62,433.One reasonable interpretation of the phrase granting CSW  discretion is an indication of FERC policy toward future rate changes, as "may continue" implies future action.  This interpretation is all the more reasonable if, given FERC's discussion in approving the separate, regional rates, the reader  interpreted the order as accepting the proposed rates that  were not subject to the directed modification.  On the whole  it was not unreasonable for Texas Electric to have overlooked  or misread the permissive language of the Tariff Order so as  to relieve it of the obligation to petition for clarification or  rehearing.  It is for this reason we disagree with the Commission's statement in the Rehearing Order that Texas Electric failed to preserve its challenge (thus precluding our  exercise of jurisdiction) because it did not raise the objection  in its petition for rehearing of the Tariff Order. As for any requirement that [CSW] must retain their intra-SPP rates, the Tariff Order spoke to that as well.  The Tariff Order specifically stated that "[w]hile CSW may continue topropose multiple charges, their total sum may not exceed CSW's average system cost."  By using the permissive "may,"FERC made clear that [CSW] had the discretion to keep oreliminate multiple charges including the SPP-only rates. Brief of Commission at 21 (citations omitted) (emphasis in original).

17
The judicial review portion of the Act provides that "[n]o  objection to the order of the Commission shall be considered  by the court unless such objection shall have been urged  before the Commission in the application for rehearing unless  there is reasonable ground for failure so to do."  16 U.S.C.  § 825l(b).  We have consistently rejected agency efforts to  bind parties "by what the agency intended, but failed to  communicate."  McElroy Elecs. Corp. v. FCC, 990 F.2d 1351  (D.C. Cir. 1993).  Rather, an agency order must provide  reasonable notice of its import:The policy requiring timely filing of motions for reconsideration is one of fairness to [FERC8] and to partiesaffected by its order;  only a perversion of that policycould be used to cut off the rights of a party that filed itsapplication in good faith, as soon as it could reasonablyhave become aware of the import of an [FERC] order. Endorsement of the position that the [FERC] takes would permit an administrative agency to enter an am-biguous or obscure order, wilfully or otherwise, wait outthe required time, then enter an "explanatory" order that would extinguish the review rights of parties prejudicially affected.

18
Sam Rayburn Dam Elec. Coop. v. Federal Power Comm'n,  515 F.2d 998, 1007 (D.C. Cir. 1975).  As earlier discussed, it  was not clear that the Commission could allow elimination of  the intra-SPP rate (absent statutorily mandated procedures)  until it did so in the Compliance Order.  Texas Electric's  challenge made in its request for rehearing of the Compliance  Order, therefore, was not untimely.  See MCI Telecomms.  Corp. v. FCC, 765 F.2d 1186, 1190-91 (D.C. Cir. 1985) (because implication of policy did not follow from earlier order,  request for rehearing of subsequent order enunciating policy  was timely);  Sam Rayburn Dam, 515 F.2d at 1007-08 (not  clear until further clarification order that purchaser of electric power was "aggrieved" so application for rehearing was  timely filed);  see also RCA Global Communications, Inc. v.  FCC, 758 F.2d 722, 730-31 (D.C. Cir. 1985) ("We simply  cannot agree that a fair reading of the Prescription Order ...  permits the conclusion that [petitioner] did know or should  have known that the Commission had confronted, much less  resolved, the issue [petitioner] now petitions us to review.");cf. ANR Pipeline Co. v. FERC, 988 F.2d 1229, 1230 (D.C. Cir.  1993) ("[W]e believe that an ordinary reader familiar with the  industry background would have recognized a very substantial likelihood that the order meant what the Commission  ultimately said it meant.").

19
Having concluded that Texas Electric's challenge to the  Compliance Order was timely, we look at its merits.  The  Commission's summary approval of the Compliance Tariff  cannot be regarded as a finding that a modification beyond  the modifications directed, that is, the new rate to which  SPP-only customers were subjected, was just and reasonable.9  Ultimately, the Commission failed to offer anything from which the court can "discern a reasoned path ... to the  decision [the Commission] reached."  K N Energy, Inc. v.  FERC, 968 F.2d 1295, 1303-04 (D.C. Cir. 1992).  Accordingly,  we conclude the Commission's approval of the rates proposed  in the Compliance Tariff was arbitrary and capricious and  remand for reconsideration.  See AT&T v. FCC, 974 F.2d  1351, 1355 (D.C. Cir. 1992) ("We conclude that the Reconsideration Order is arbitrary and capricious for want of an  adequate explanation and remand it for further consideration.").

20
For the foregoing reasons, we remand to FERC for further  proceedings consistent with this opinion.

21
So ordered.

Notes:

1
  The Central and South West Corporation, a registered public  utility holding company, is comprised of four operating companies  (CSW):  Southwestern Electric Power Company;  Public Service  Company of Oklahoma;  Central Power and Light Company;  and  West Texas Utilities Company.  CSW filed a brief as intervenors in  support of the Commission.

2
  ERCOT operates entirely in Texas and, to a large extent, is  governed by the Public Utility Commission of Texas.  Although the  ERCOT companies became subject to FERC jurisdiction as a result  of their interconnection with the SPP companies, FERC commonly  defers to the Texas transmission ratemaking methodologies within  ERCOT.  See Brief of Commission at 7;  Brief of Petitioners at 5.

3
  For the revisions and clarifications of Order No. 888, see 76  F.E.R.C. p 61,009 (1996), 76 F.E.R.C. p 61,347 (1996), and 79  F.E.R.C. p 61,182 (1997), on reh'g, Order No. 888-A, FERC Stats.  & Regs. p 31,048, 62 Fed. Reg. 12,274 (1997), on reh'g, Order No.  888-B, 81 F.E.R.C. p 61,248, 62 Fed. Reg. 64,688 (1997), on reh'g,  Order No. 888-C, 82 F.E.R.C. p 61,046 (1998), aff'd in part and  remanded sub nom. Transmission Access Policy Study Group v.  FERC, 2000 WL 762706 (D.C. Cir. June 30, 2000).

4
  A "pancaked" rate is equal to the sum of the rates for a single  transmission of two or more utilities within a holding company's  system.  In other words, the customer must pay each utility's  separate charge for a single transmission:  here, the customer would  pay both SPP and ERCOT rates for a transmission through their separate service areas but within the CSW System.  See Brief of  Commission at 11.

5
  Although Texas Electric requested rehearing on "the Commission's approval of direct assignment of the costs of transmission  facility upgrades," Joint Appendix 42, it did not challenge the  system-wide rates or CSW's authority to establish multiple charges.

6
  In brief the Commission argued:
As for any requirement that [CSW] must retain their intra-SPP rates, the Tariff Order spoke to that as well. The Tariff Order specifically stated that "[w]hile CSW may continue to propose multiple charges, their total sum may not exceed CSW's average system cost." By using the permissive "may," FERC made clear that [CSW] had the discretion to keep or eliminate multiple charges including the SPP-only rates.
Brief of Commission at 21 (citations omitted)
(emphasis in original).

7
  As noted earlier, proposed tariff modifications are ordinarily  limited to what the Commission directs but the Commission did not  direct CSW to eliminate the intra-SPP rate.

8
  Instead of referring to FERC, the opinion refers to "FPC,"  the former Federal Power Commission and the predecessor of  FERC.  See, e.g., Elizabeth town Gas Co. v. FERC, 575 F.2d 885,  886 (D.C. Cir. 1978).

9
  While it might be argued that the mere reference to the Tariff  Order was sufficient to establish that the rates accepted in the  Compliance Order were reasonable because no multiple rates would  be summed and yield a rate exceeding CSW's average system cost  in violation of the condition the Commission had set, see Tariff  Order, 81 F.E.R.C. at 62,433, nonetheless we cannot agree that the  Commission determined the rates reflected in the Compliance Tariff  were just.  For example, the Commission did not respond to Texas  Electric's challenge that the elimination of the separate, intra-SPP  rate constituted undue discrimination in light of the continued  existence of a separate, intra-ERCOT rate.