Court Opinion

ID: 9412734
Source: CourtListenerOpinion
Date Created: 2023-08-01 15:02:25.543323+00
Date Added: 2024-06-11T16:41:39.783592
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 4, 2023                   Decided August 1, 2023

                         No. 22-1221

           EVERGY KANSAS CENTRAL, INC., ET AL.,
                     PETITIONERS

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION,
                     RESPONDENT

      OKLAHOMA GAS AND ELECTRIC COMPANY, ET AL.,
                    INTERVENORS

            Consolidated with 22-1252, 22-1291

          On Petitions for Review of Orders of the
          Federal Energy Regulatory Commission

    John Lee Shepherd, Jr. argued the cause for petitioners.
With him on the briefs were C. Dixon Wallace III and Ted J.
Murphy.

    Charlotte H. Taylor argued the cause for intervenor in
support of petitioners. With her on the brief was James C. Beh.
                               2
     Matthew W.S. Estes, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Matthew R. Christiansen, General Counsel, and
Robert H. Solomon, Solicitor.

     Matthew J. Binette argued the cause for respondent-
intervenor American Electric Power Service Corporation, et al.
With him on the brief were Christopher R. Jones, Miles H.
Kiger, Heather H. Starnes, Ashley M. Bond, Elizabeth P.
Trinkle, Craig W. Silverstein, Phyllis G. Kimmel, and F. Alvin
Taylor.

   Before: WILKINS and WALKER, Circuit Judges, and
SENTELLE, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge WALKER.

     WALKER, Circuit Judge: The Federal Energy Regulatory
Commission must ensure that the rules for funding new
transmission facilities are just and reasonable. A funding
regime is not just and reasonable if it makes one party foot the
bill for a project with broad benefits. Old Dominion Electric
Cooperative v. FERC, 898 F.3d 1254, 1255 (D.C. Cir. 2018).

     Here, two transmission owners and a utility company say
FERC approved an unjust and unreasonable change to the
transmission-funding regime in a region managed by
Southwest Power Pool. The new regime, the Petitioners say,
will likely force transmission owners to pay for projects that
benefit the entire power grid. So they petitioned for judicial
review.

     But the Petitioners oversell the risk that the new regime
will foist the costs of new projects on individual owners. For
that to happen, the regime’s primary mechanisms for allocating
                               3
costs would have to fail. In any case, FERC may balance the
need to ensure that transmission owners bear perfectly
proportional costs and benefits with other policy goals.
Consolidated Edison Co. v. FERC, 45 F.4th 265, 286 (D.C. Cir.
2022). It did that here by approving a regime that allows
participants in regional transmission zones to collaborate on
selecting and funding new projects.

    We thus deny the petitions for judicial review.

                               I

                               A

     The transmission grid takes electricity from power plants
to end users. Regional Transmission Organizations help
manage the grid by coordinating the “planning, operation, and
use” of electricity transmission within a given area. South
Carolina Public Service Authority v. FERC, 762 F.3d 41, 50
(D.C. Cir. 2014). Among other things, RTOs set the rules for
“transmission planning and operation,” including planning and
funding new transmission facilities.            Midwest ISO
Transmission Owners v. FERC, 373 F.3d 1361, 1364 (D.C. Cir.
2004) (cleaned up); see also Order No. 1000, 136 FERC ¶
61,051 (2011).

     But RTOs do not have a free hand setting the rules.
Instead, FERC reviews RTOs’ rules (called “rates”) to ensure
that they are “just and reasonable.” 16 U.S.C. § 824d(a). A
rate is not just and reasonable if it violates the cost-causation
principle, which mandates that “the rates charged for electricity
should reflect the costs of providing it.” Old Dominion Electric
Cooperative v. FERC, 898 F.3d 1254, 1255 (D.C. Cir. 2018).
                               4
                               B

      Here, transmission owners and a utility company in a
region managed by an RTO called Southwest Power Pool say
its funding rules violate the cost-causation principle.

     Southwest’s region covers seventeen states in the center of
the country. Its territory is divided into zones, ten of which
have multiple transmission owners. For years, Southwest
applied the same cost-allocation rules in those ten zones with
multiple transmission owners.

     Under those rules, each transmission owner could
unilaterally decide to build new transmission facilities. The
costs would then be paid by zone customers (companies using
the transmission grid) in proportion to how much they used the
grid. But that let transmission owners thrust the costs of new
facilities onto customers, regardless of how much the
customers benefited.

     To give customers more say, Southwest proposed a new
way to fund transmission projects in its region. Its proposal
works like this. The largest customer in a zone selects a
transmission owner as the Facilitating Transmission Owner for
that zone. With input from other owners and customers, the
Facilitating Transmission Owner proposes Zonal Planning
Criteria — selecting new transmission facilities to build and
choosing how to fund them. The criteria are then put to a two-
step vote.
    •    Step 1: The zone’s customers vote, with each
         customer’s vote weighted according to its use of
         the transmission facilities in the zone. To pass
         step one, the criteria must be approved by a
         percentage of votes greater than or equal to the
                                5
         largest customer’s load plus one half of the
         zone’s remaining load.
    •    Step 2: All the zone’s transmission customers and
         transmission owners vote on the criteria, with
         each receiving one vote. A simple majority is
         enough to pass step two.

    Southwest’s proposal also puts in place three backup
plans.
    •    Backup Plan A: If the proposed Zonal Planning
         Criteria do not get enough votes under the two-
         step voting process, the last approved Zonal
         Planning Criteria apply. If there are no approved
         Zonal Planning Criteria, Backup Plan B applies.
    •    Backup Plan B: Southwest’s Regional Planning
         Criteria apply.
    •    Backup Plan C: At any time, any transmission
         owner in the zone can create its own Local
         Planning Criteria, regardless of the Zonal or
         Regional Planning Criteria in place. That lets the
         owner build any facility it likes, even though the
         project does not satisfy the Zonal or Regional
         Planning Criteria, but it must foot the bill itself.

     To put its proposal into action, Southwest first had to prove
to FERC that its new funding regime was “just and
reasonable.” 16 U.S.C. § 824d(a). Several members of the
region objected, including petitioners Evergy and GridLiance,
and intervenor Oklahoma Gas and Electric Company (we’ll
refer to these three parties as the “Petitioners”).

     The Petitioners claimed that Southwest’s plan violated the
cost-causation principle, which generally prohibits FERC from
                                 6
“singl[ing] out a party for the full cost of a project, or even most
of it, when the benefits of the project are diffuse.” Old
Dominion Electric Cooperative v. FERC, 898 F.3d 1254, 1255
(D.C. Cir. 2018) (cleaned up). The Petitioners claimed that
Backup Plan C runs afoul of that rule because it can force one
transmission owner to pay for a new facility with widespread
benefits.

     FERC rejected the Petitioners’ argument in its initial order
and on rehearing. So Evergy and GridLiance petitioned for
judicial review. Oklahoma Gas later intervened.

                                II

    Before getting to the merits, we briefly explain why we
have jurisdiction.

     Any party “aggrieved by” a FERC order may seek judicial
review. 16 U.S.C. § 825l(b). But that party must first file an
application for rehearing with the Commission. Id. § 825l(a).
Once FERC decides the rehearing application, the aggrieved
party has sixty days to petition for judicial review. Id.
§ 825l(b). If FERC does not act on a rehearing application
within thirty days, it is “deemed to have been denied” and an
aggrieved party may seek review of FERC’s initial order. Id.
§ 825l(a).

     Here, Petitioners filed applications for rehearing of
FERC’s initial order. FERC did not respond to those
applications within thirty days, so Evergy’s application was
“deemed to have been denied.” Id. Evergy then petitioned for
review of FERC’s order. Id. Later, FERC issued a notice of
denial of rehearing by operation of law, and GridLiance filed
its own petition for judicial review.
                                7
     So far, so ordinary. But after the Petitioners filed their
judicial-review petitions, FERC issued a rehearing order
addressing arguments the transmission owners had raised in
their rehearing applications. A day later, Evergy and
GridLiance moved to amend their judicial-review petitions to
include FERC’s new order.

     FERC says those amendments may not be enough to give
this Court jurisdiction over “arguments” in Evergy’s brief
“addressing issues raised” in FERC’s rehearing order. Resp.
Br. 30. That’s because Rule 15(a)(2) of the Federal Rules of
Appellate Procedure — which is jurisdictional — mandates
that a petition for review “must . . . specify the order or part
thereof to be reviewed.” Fed. R. App. Proc. 15(a)(2)(C); see
Sinclair Broadcast Group, Inc. v. FCC, 284 F.3d 148, 156
(D.C. Cir. 2002). And the petition specified FERC’s first
order, but not its second.

     We need not decide today whether FERC is correct.
Unlike some rehearing orders — which are separate from and
supersede the agency’s original order — FERC’s second order
in this case merely modified its initial order. JA 439 (“In
response to the requests for rehearing, the [Initial] Order is
hereby modified and the result sustained.”). That means that
FERC’s initial order — as modified — is still the operative
order approving Southwest’s proposal. And the Petitioners
adequately “specif[ied]” that order in their petitions for judicial
review. Fed. R. App. Proc. 15(a)(2)(C). See Sierra Club v.
FERC, 68 F. 4th 630, 646 (D.C. Cir. 2023) (“Petitioners were
under no obligation to file a new petition for review” after
FERC issued “an amendment to” its original order, because
“their petitions adequately specif[ied] the orders to be
reviewed.”).
                                8
    We thus have jurisdiction over the Petitioners’ arguments
addressing FERC’s second order. To review those arguments,
we grant the Petitioners’ motion to amend.

                               III

    On review, we uphold FERC’s orders unless they are
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A). FERC’s
orders must be supported by substantial evidence, reasonable,
and reasonably explained. Long Island Power Authority v.
FERC, 27 F.4th 705, 712 (D.C. Cir. 2022).

    Here, FERC’s order approving Southwest’s funding
proposal meets those standards.

                                A

    The Petitioners contend that Southwest’s revised funding
proposal violates the cost-causation principle. We disagree.

     Recall that Backup Plan C can leave a single transmission
owner to foot the bill for a new transmission facility even if it
will benefit an entire zone. See supra, Section I.B. The
Petitioners claim that Backup Plan C will be the norm under
Southwest’s proposal. They fear that customers will routinely
vote down beneficial projects, forcing owners to pay for them
under Backup Plan C. And that, they say, does not fit the cost-
causation principle.

     The cost-causation principle means that FERC “may not
single out a party for the full cost of a project, or even most of
it, when the benefits of the project are diffuse.” Old Dominion
Electric Cooperative v. FERC, 898 F.3d 1254, 1255 (D.C. Cir.
2018) (cleaned up). But that rule is not rigid. “FERC may
                               9
permissibly approve a rate that does not perfectly track cost
causation,” particularly if it is “balanc[ing] competing goals.”
Consolidated Edison Co. v. FERC, 45 F.4th 265, 286, 288
(D.C. Cir. 2022) (cleaned up); see also Carnegie Natural Gas
Co. v. FERC, 968 F.2d 1291, 1294 (D.C. Cir. 1992) (FERC
“may rationally emphasize other, competing policies and
approve measures that do not best match cost . . . causation.”).

    That is what FERC did here. Southwest’s old funding
regime let transmission owners unilaterally thrust the costs of
new transmission facilities onto customers — whether it
benefited them or not. When FERC approved Southwest’s new
proposal, it balanced the benefit of eliminating that unfairness
against the risk that transmission owners might pay for some
upgrades alone. Balancing those “competing policy goals on a
ratemaking matter” is left to FERC’s “considered judgment.”
Consolidated Edison, 45 F.4th at 288.

     To be sure, in Old Dominion we set aside FERC’s approval
of a rate that “categorically prohibit[ed] any cost sharing for
high-voltage projects,” leaving transmission owners to pay.
898 F.3d at 1260. But here, Southwest’s proposal does not
“categorically” prohibit cost sharing. Id. Indeed, cost sharing
is routine if new transmission projects get approval from a
zone’s customers. Only Backup Plan C leaves a transmission
owner to pay the whole cost of its own project. And for Backup
Plan C to apply, the proposed project must fail to satisfy the
relevant criteria adopted in the initial two-step voting process
or through Backup Plans A or B. See supra, Section I.B.

     Pushing back, the Petitioners say that Backup Plan C will
be the rule, not the exception, because free-riding customers
will vote down beneficial projects to avoid paying for them.
But on the record before us, it is too soon to tell if they are
correct. And even if they are correct and Backup Plan C
                              10
someday forces a transmission owner to fund a project with
significant regional benefits, that owner can seek a tariff
change or make another challenge to Southwest’s funding
regime. See Coalition of MISO Transmission Customers v.
FERC, 45 F.4th 1004, 1022 (D.C. Cir. 2022).

     For now, the Petitioners have not demonstrated a violation
of the cost-causation principle.

                              B

    The Petitioners make five additional challenges to FERC’s
order. None persuades.

     First, the Petitioners say FERC improperly shifted the
burden of proof. Where, as here, a party moves to suspend a
rate, that party bears the burden of showing that the change is
“just and reasonable.” In re NTE Connecticut, LLC, 26 F.4th
980, 989-90 (D.C. Cir. 2022) (cleaned up). If that party — here
Southwest — makes a prima facie showing that the rate should
be suspended, the burden shifts to the opposing party to rebut
it. Southwest Power Pool, Inc., 180 FERC ¶ 61,192, at P 52-
53 (2022). FERC followed that procedure here. It first found
that Southwest had “shown that the proposed Tariff revisions
are just and reasonable” and then it explained why it disagreed
with the Petitioners’ rebuttal evidence. JA 259.

     Second, the Petitioners argue that FERC violated the
Federal Power Act by treating one zone in Southwest’s region
differently from the others. True, FERC may not charge
“similarly situated entities . . . different rates for no good
reason.” Consolidated Edison Co. v. FERC, 45 F.4th 265, 282
(D.C. Cir. 2022). Also true, FERC treated Zone 19 differently
by exempting it from the 2022 Plan. But Zone 19 is not
“similarly situated” to the other zones. Id. That’s because it
                               11
has long had its own two-step voting process and was not
subject to Southwest’s old funding regime. So unlike the other
zones, there was no need to implement a new regime in Zone
19.

     Third, the Petitioners contend that FERC departed from its
precedent without “provid[ing] a reasoned analysis” explaining
that change. CBS Corp. v. FCC, 785 F.3d 699, 708 (D.C. Cir.
2015) (cleaned up). In one of its prior decisions, PSEG, FERC
approved a tariff amendment designed to eliminate a holdout
problem. Public Service Electric and Gas Co., 179 FERC ¶
61,001 (2022). The tariff at issue in that decision allowed small
transmission owners to easily block large owners’
transmission-planning and cost-allocation proposals. Id. at P
7-8, 24-32. Here, the Petitioners say PSEG compels FERC to
reject Southwest’s proposal because it generates a similar
holdout problem — a zone’s customers can vote down
transmission upgrades, forcing transmission owners to bear the
costs under Backup Plan C. But as FERC explained, PSEG
doesn’t mean “a voting structure allowing smaller entities to
cast a deciding vote is de facto unjust and unreasonable.” JA
263. In any case, it is too soon to tell whether Southwest’s
proposal will in fact cause holdouts.

     Fourth, the Petitioners argue that FERC has allowed
Southwest to abdicate its planning responsibilities. We
disagree. While RTOs like Southwest are responsible for
regional planning, they need not see to every detail. See Order
No. 1000, 136 FERC ¶ 61,051, at P 19, 157 (2011). Southwest
satisfied its responsibility by creating a detailed voting
framework to let transmission owners and customers
collaborate on planning upgrades in each zone.

    Finally, Petitioners argue that FERC ignored substantial
evidence that Southwest’s proposal will have adverse effects
                              12
on grid reliability. But in approving Southwest’s proposal,
FERC adequately considered this concern and reasonably
concluded that any adverse impacts to grid reliability were
“speculative” at best. 181 FERC ¶ 61,053, at P 44.

                          *   *    *

     FERC’s approval of Southwest’s tariff amendment did not
violate the cost-causation principle, the Federal Power Act, or
the Administrative Procedure Act. So we deny the petitions for
review.

                                                   So ordered.