Court Opinion

ID: 9914532
Source: CourtListenerOpinion
Date Created: 2024-01-02 16:01:07.810531+00
Date Added: 2024-06-11T13:14:10.132217
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 17, 2023               Decided January 2, 2024

                         No. 22-1205

    CITY OF LINCOLN, D/B/A LINCOLN ELECTRIC SYSTEM,
                       PETITIONER

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION,
                     RESPONDENT

           SOUTHWEST POWER POOL, INC., ET AL.,
                     INTERVENORS

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

     Debra D. Roby argued the cause for petitioner. With her
on the briefs were Alan I. Robbins and Thomas B. Steiger III.

     Matthew J. Binette and Elizabeth P. Trinkle were on the
briefs for intervenor for petitioner Southwest Power Pool, Inc.

    Robert M. Kennedy, Senior 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.
                                2
    Sean R. Janda, Attorney, U.S. Department of Justice,
argued the cause for intervenor for respondent Western Area
Power Administration. With him on the brief were Brian M.
Boynton, Principal Deputy Assistant Attorney General, and
Melissa N. Patterson, Attorney.

    Jesse Halpern, Rebecca L. Shelton, and Jecoliah R.
Williams were on the brief for intervenor for respondent Basin
Electric Power Cooperative.

   Before: HENDERSON and CHILDS, Circuit Judges, and
EDWARDS, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge HENDERSON

      KAREN LECRAFT HENDERSON, Circuit Judge: Petitioner
City of Lincoln d/b/a Lincoln Electric (Lincoln) is a public
utility providing electricity to the Lincoln, Nebraska area.
Despite serving electric load to Lincoln area customers only,
Lincoln long ago invested in the Laramie River Station
facilities (LRS) in eastern Wyoming as a source of generation
and transmission. Lincoln joined the Southwest Power Pool
(SPP) in 2009, giving the SPP control of all its facilities in the
Lincoln area (Zone 16). Lincoln began recovering its costs
from customers in SPP’s Zone 16. Lincoln did not give the SPP
control of its interest in the LRS facilities, however, and
continued recovering these costs through electricity rates
charged to its Zone 16 customers. In 2021, the SPP proposed
that Lincoln recover its LRS costs from Zone 19 customers,
where LRS is physically located. Other co-owners of the LRS
facilities recover their costs from Zone 19 customers. But Basin
Electric Power Cooperative (Basin Electric) and other Zone 19
transmission providers protested the proposal because the SPP
does not control Lincoln’s LRS interest and the proposal would
illegitimately shift costs to Zone 19 customers. The Federal
                               3
Energy Regulatory Commission (FERC or the Commission)
rejected the SPP proposal as unjust and unreasonable; because
Zone 19 customers neither caused Lincoln’s LRS investment
nor benefit from it, FERC concluded, the SPP’s proposal
violates the cost-causation principle.

     Lincoln petitions for review of the relevant FERC orders
and the SPP (together with Lincoln, Petitioners) intervenes on
Lincoln’s behalf. Respondent FERC defends the orders, as do
Intervenors Basin Electric and Western Area Power
Administration (WAPA). As discussed infra, FERC
reasonably concluded that Lincoln failed to show the proposed
rates are just and reasonable. Accordingly, we deny the petition
for review.

                       I.    BACKGROUND

         A. LRS Facilities and Southwest Power Pool

     The Federal Power Act (FPA), 16 U.S.C. §§ 791–828c,
gives FERC exclusive jurisdiction over all facilities for
transmission of electric energy in interstate commerce. 16
U.S.C. § 824(b). Public utilities must file transmission rates
and charges with the Commission and demonstrate that the
rates and charges are “just and reasonable.” Id. § 824d(a), (c),
(e).

     Electric utilities historically formed vertically integrated
monopolies covering large geographic areas. See Morgan
Stanley Cap. Grp., Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527,
535 (2008). Technological advances at the end of the twentieth
century lowered the cost of long-distance transmission and
FERC responded by promoting “open access” in the electricity
market. Id. at 535–36. Under FERC Order No. 888, each
transmission provider must offer service to all customers on an
equal basis by posting an “open access transmission tariff.” Id.
                                 4
at 536 (quotation omitted); see Promoting Wholesale
Competition Through Open Access Nondiscriminatory
Transmission Services by Public Utilities, 61 Fed. Reg. 21540
(May 10, 1996) (Order No. 888). FERC then encouraged
transmission providers across the country to establish
individual Regional Transmission Organizations (RTOs):
nonprofit entities that operate transmission facilities on behalf
of transmission providers to ensure efficient coordination
across multi-state regions. Morgan Stanley, 554 U.S. at 536;
Regional Transmission Organizations, 65 Fed. Reg. 810, 811–
12 (Jan. 6, 2000) (Order No. 2000). FERC also encouraged the
creation of non-profit, nondiscriminatory Independent System
Operators (ISOs) to operate RTOs. Morgan Stanley, 554 U.S.
at 536–37.

     In 2004, FERC authorized the SPP to form a RTO
providing electric transmission services across a multi-state
region in the central United States. 1 See Neb. Pub. Power Dist.
(NPPD) v. FERC, 957 F.3d 932, 935 (8th Cir. 2020). The SPP
uses a “license-plate” rate design that charges customers
located in a specific zone rates based on the cost of the
transmission facilities located in that zone. 2 Id. Within a multi-
member zone, the SPP totals the cost of service (costs)—

    1
         Following a major 2015 expansion, the SPP now covers
portions of fourteen states: Arkansas, Iowa, Kansas, Louisiana,
Minnesota, Missouri, Montana, Nebraska, New Mexico, North
Dakota, Oklahoma, South Dakota, Texas and Wyoming. Electric
Power Markets: Southwest Power Pool, FEDERAL ENERGY
REGULATORY COMMISSION, https://perma.cc/PG4B-2DBX (last
visited Dec. 20, 2023).
     2
       FERC has also considered an alternative “postage stamp” rate
design that would total the transmission costs of all facilities
throughout the RTO and allocate those costs to all customers therein.
See, e.g., PJM Interconnection, LLC, Opinion No. 494, 119 FERC ¶
61063 at P 2 n.2 (2007).
                               5
including operating costs and profit—of all transmission
providers and then divides it among all customers taking load
in the zone.3 Sw. Power Pool, Inc. (April Order), 179 FERC ¶
61045 at P 2 (2022). If the SPP expands its geographic
footprint, it establishes new rate zones for larger transmission
providers and places smaller providers into existing zones.
NPPD, 957 F.3d at 935. Placing a transmission provider into
an existing zone results in a new rate for the zone’s existing
customers. Id. A transmission provider must “transfer
functional control” of transmission facilities to the SPP to take
full advantage of SPP membership according to § 3.0(a) of the
SPP Membership Agreement. 4

     Long before the RTO/open-access regime, Lincoln
invested in a 12.76% interest in the LRS facilities. 5 The LRS
facilities were constructed in the 1980s in eastern Wyoming
and four transmission providers currently co-own them:
Lincoln Electric, Basin Electric, Missouri River Energy
Services (Missouri River) and Tri-State Generation and
Transmission Association (Tri-State). April Order, P 4.
Lincoln invested in LRS “as a reliable source of capacity and
energy needed to serve load”—load entirely located in Lincoln,
Nebraska at the time of its investment and to this day. J.A. 538;
see April Order, P 33. Before the RTO/open-access regime,
Lincoln delivered LRS power to the Nebraska Public Power
District’s (NPPD’s) transmission system, which then

    3
         See Formula Rates in Electric Transmission Proceedings:
Key Concepts and How to Participate, FEDERAL ENERGY
REGULATORY COMMISSION, https://perma.cc/K5GP-YYUE (last
visited Dec. 20, 2023).
      4
        See SPP Documents: Current Bylaws and Membership
Agreement Tariff, SOUTHWEST POWER POOL (Nov. 10, 2014), at
*99, https://perma.cc/S7C3-SC55.
      5
        Lincoln now has around a 10% interest in LRS, having sold
2.28% interest to other parties. J.A. 537.
                                 6
transmitted electricity across Nebraska to Lincoln’s Zone 16
facilities and customers.

     Lincoln joined the SPP as a transmission provider in 2009,
transferring functional control of all facilities in the Lincoln,
Nebraska area to the SPP. Id. P 5. The SPP in turn created a
new Zone 16 covering Lincoln’s service area and Lincoln
began recovering costs from Zone 16 customers according to
the SPP Tariff. Id. The SPP did not extend to eastern Wyoming
at that time and so Lincoln continued to deliver LRS electricity
to the SPP border and then use the SPP network to deliver
power to Zone 16.

     The SPP underwent a major expansion in 2015 and created
a new multi-member Zone 19 that encompasses the LRS
facilities’ physical location. Id. P 6. Basin Electric, which
operated and maintained the LRS facilities on behalf of the
other co-owners, joined the SPP in 2015 together with other
local transmission providers, including the WAPA. Id.; Sw.
Power Pool Inc., 149 FERC ¶ 61113 (2014). Basin Electric
transferred functional control of its transmission facilities to the
SPP and began recovering its costs through rates charged to
Zone 19 customers. April Order, P 6. Missouri River joined the
SPP shortly after Basin Electric, also transferred functional
control to the SPP and began recovering its costs through Zone
19 rates. Id.; Sw. Power Pool, Inc., 152 FERC ¶ 61247 (2015).
The final LRS co-owner, Tri-State, applied to join the SPP in
2015 and the SPP placed Tri-State into neighboring Zone 17
for cost recovery purposes. NPPD, 957 F.3d at 934, 936. Tri-
State does not recover its costs from Zone 19. April Order, P 6.
Lincoln continues to recover its costs from Zone 16 customers
only. April Order, P 33.
                               7
                      B. Lincoln’s Proposal

     In 2021, the SPP filed a tariff revision on Lincoln’s behalf
that would allow Lincoln to recover its LRS costs from Zone
19 customers. As part of the proposal, Lincoln offered to
transfer functional control of its 10.46% interest in the LRS
facilities to the SPP. April Order, P 22. Basin Electric and
WAPA—which both recover their costs from Zone 19
customers—protested Lincoln’s proposal. They alleged that
Lincoln’s recovery from Zone 19 customers would present an
inappropriate cost shift because Zone 19 customers do not
benefit from, and the SPP has no functional control over,
Lincoln’s LRS interest. Id. P 15. The SPP responded that it has
had functional control of all LRS facilities since Basin Electric
transferred control to it in 2015 because no co-owner owns any
discrete physical portion of the “jointly owned” facilities. J.A.
451; see April Order, P 17.

      The Commission concluded that Petitioners failed to
satisfy their burden to demonstrate the proposal is just and
reasonable. April Order, P 32; see 16 U.S.C. § 824d(e). The
FPA’s “just and reasonable” standard incorporates a “cost-
causation principle.” Old Dominion Electric Coop. v. FERC,
898 F.3d 1254, 1255 (D.C. Cir. 2018). All approved rates must
“reflect to some degree the costs actually caused by the
customer who must pay them.” K N Energy Inc., v. FERC, 968
F.2d 1295, 1300 (D.C. Cir. 1992). The Commission classified
Lincoln’s LRS interest as a “legacy facility,” see April Order,
P 33, meaning a facility developed by individual utilities to
“benefit their own systems and their own customers.” PJM
Interconnection, L.L.C., Opinion No. 494, 119 FERC ¶ 61063
at P 42, aff’d, Ill. Com. Comm’n v. FERC, 576 F.3d 470, 474
(7th Cir. 2009). Because Lincoln invested in LRS for Zone 16
customers only, allocating Lincoln’s LRS costs to Zone 19
would violate the cost-causation principle by imposing costs on
                                8
customers who do not benefit from Lincoln’s LRS investment.
April Order, P 33. Although the SPP has a formal zonal
placement process for new facilities, FERC declined to apply
that process because Lincoln had not newly joined the SPP. Id.
P 31. It also disagreed with Lincoln’s interpretation of FERC
precedent. Id. PP 34–38. Finally, FERC rejected Lincoln’s
undue discrimination claim because Lincoln is not similarly
situated to Basin Electric and Missouri River—LRS co-owners
that do serve load in Zone 19, recover their costs from Zone 19
customers and have transferred functional control of their LRS
interests to the SPP. Id. P 39.

     Lincoln timely filed a request for rehearing. Because
FERC failed to act within 30 days, the request was deemed
denied in June 2022. 16 U.S.C. § 825l(a); 18 C.F.R.
§ 385.713(f); see Sw. Power Pool, Inc., 179 FERC ¶ 62147
(2022) (citing Allegheny Def. Project v. FERC, 964 F.3d 1
(D.C. Cir. 2020) (en banc)). In September 2022, FERC issued
an order “modifying the discussion” of the April order and
reached the same result. Sw. Power Pool, Inc. (Sept. Order),
180 FERC ¶ 61211 at P 2 & n.5 (2022). The Commission
retained its classification of Lincoln’s LRS interest as a legacy
facility and rejected Lincoln’s interpretation of its precedent.
Id. PP 27, 32–36.

     Lincoln timely petitioned our Court for review of the two
FERC orders and the SPP intervened in support of Lincoln. We
have jurisdiction of the petitions pursuant to section 313(b) of
the FPA. 16 U.S.C. § 825l(b).

                         II.    ANALYSIS

    Applying the Administrative Procedure Act, we “hold
unlawful and set aside agency action, findings, and conclusions
found to be . . . arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
                               9
We need not find “whether a regulatory decision is the best one
possible or even whether it is better than the alternatives.”
FERC v. Elec. Power Supply Ass’n, 577 U.S. 260, 292 (2016).
Instead, we uphold FERC’s action so long as it examined
relevant considerations and articulated a reasoned explanation
for it. Id. “[N]owhere is that more true than in a technical area
like electricity rate design: ‘[W]e afford great deference to the
Commission in its rate decisions.’” Id. (quoting Morgan
Stanley, 554 U.S. at 532 (first alteration added)). Rate design
often involves policy judgments at the core of FERC’s
regulatory function. Md. Pub. Serv. Comm’n v. FERC, 632
F.3d 1283, 1286 (D.C. Cir. 2011) (per curiam). We accept
FERC’s factual findings if supported by substantial evidence.
16 U.S.C. § 825l(b). We also defer to FERC’s interpretation of
its precedent and, if it departs therefrom, we nevertheless defer
so long as FERC provides a reasoned explanation for the
departure. Mo. Pub. Serv. Comm’n v. FERC, 783 F.3d 310, 316
(D.C. Cir. 2015).

     Petitioners contend that FERC (A) misapplied the cost-
causation principle; (B) ignored the importance placed on
physical location in FERC precedent; and (C) unduly
discriminated against Lincoln when compared to fellow LRS
co-owners. We disagree.

                  A. Cost-Causation Principle

     As noted earlier, the FPA’s just and reasonable standard
incorporates the cost-causation principle. Old Dominion
Electric Coop., 898 F.3d at 1255. FERC-approved rates must
“reflect to some degree the costs actually caused by the
customer who must pay them.” K N Energy, Inc., 968 F.2d at
1300. Petitioners claim that Lincoln’s LRS interest in fact
serves Zone 19 customers, the SPP has functional control of
Lincoln’s LRS ownership interest and Zone 19 customers will
                               10
benefit from the extra capacity provided by Lincoln’s LRS
interest. FERC reasonably rejected each of these claims under
the cost-causation principle.

     First, Petitioners failed to provide evidence that Lincoln in
fact serves Zone 19 customers. Lincoln explained that it
invested in LRS “as a reliable source of capacity and energy
needed to serve load” in the Lincoln, Nebraska area, that is,
Zone 16, and FERC found no evidence of any other purpose
for Lincoln’s investment. J.A. 538; Sept. Order, P 28. It also
concluded that the 300-mile distance between the LRS
facilities and Lincoln’s Zone 16 load does not change Lincoln’s
investment purpose: serving its existing customers. Sept.
Order, P 28. Petitioners argue that the initial purpose of
investment should not control because Lincoln has now joined
the SPP and sources electricity from the SPP’s network service.
But Lincoln still has a pre-open access “grandfathered
agreement” with NPPD to transmit electricity from LRS to its
Zone 16 facilities without using SPP network service. 6 Id. P 29;
see Sw. Power Pool, Inc., 160 FERC ¶ 61115 at P 3 (2017).
FERC reasonably concluded that Lincoln does not serve Zone
19 customers but can continue to transmit electricity from LRS
directly to its Zone 16 customers.

    Petitioners also failed to show the SPP’s functional control
of Lincoln’s LRS interest. They suggest that the SPP took
functional control of the entire LRS facilities when Basin
Electric transferred control of its majority LRS interest to the
SPP in 2015. FERC inquired about the SPP’s functional control
of Lincoln’s LRS interest and Lincoln responded that it “will
make available to SPP capacity associated with [its] interest in
the LRS Transmission Facilities.” J.A. 537 (emphasis added).
    6
       Lincoln argued to FERC that its proposal would have “no
impact on GFA #496,” the grandfathered agreement with NPPD. J.A.
545.
                               11
FERC rightly concluded that the SPP has not yet taken control
of Lincoln’s LRS interest. Sept. Order, P 21. Both Missouri
River and Tri-State transferred functional control of their LRS
interests to the SPP after Basin Electric joined. See supra
Section I.A. Lincoln has not yet done so.

     FERC decided that Lincoln’s offer to transfer control of its
LRS interest as part of its proposal does not alter the cost-
causation analysis. Sept. Order, P 30. It explained that it treats
Lincoln’s LRS interest as a “legacy facility”—essentially a
sunk cost, built by individual utilities to serve their own
systems and customers—just as it treated existing facilities in
the PJM Interconnection region (PJM) in Opinion No. 494.7
Id.; Opinion No. 494, P 50. The Seventh Circuit upheld
Opinion No. 494, explaining that “no economic basis”
supported shifting the costs of legacy facilities to anyone other
than the originally intended customers. Ill. Com. Comm’n, 576
F.3d at 474. Thus, even if the SPP takes functional control of
Lincoln’s LRS interest, the cost-causation principle requires
cost allocation “to the customers for whom those facilities were
constructed.” Opinion 494, P 51. Lincoln invested in the LRS
facilities to benefit its Zone 16 customers only. FERC
reasonably explained how Lincoln’s LRS legacy facility status
prevents allocating cost of service recovery to Zone 19, even if
the SPP has functional control.

     Petitioners claim that Zone 19 customers will benefit from
Lincoln’s LRS interest because it will provide additional
transmission capacity. But the SPP admits that the LRS
interests already under its control provide excess transmission
capacity to serve Zone 19 customers. J.A. 453–54. If the SPP

    7
        PJM Interconnection is an RTO that serves the northeast
United States. Electric Power Markets: PJM, FEDERAL ENERGY
REGULATORY COMMISSION, https://perma.cc/BY6W-Z9TG (last
visited Dec. 20, 2023).
                                12
has access to excess capacity from the LRS facilities already,
Lincoln’s interest will not provide needed additional capacity,
as FERC reasonably concluded: Lincoln’s “capacity share is
neither used nor needed to serve Zone 19 load.” April Order,
P 38 (emphasis added).

                       B.   FERC Precedent

     We defer to FERC’s reasonable interpretations of its
precedent and reject Petitioners’ strained reading. They claim
that several FERC decisions emphasize the importance of a
facility’s physical location. But FERC did not depart from
these decisions and indeed applied them faithfully. See Mo.
Pub. Serv. Comm’n, 783 F.3d at 316.

     Petitioners criticize FERC’s interpretation and application
of Opinion No. 494. 119 FERC ¶ 61063. Lincoln interprets a
“legacy facility” to require physical proximity to a utility’s load
center. But Opinion No. 494 does not opine on the physical
distance between the transmission facility and its load. See
Opinion No. 494, P 45 (focusing instead on “who benefits from
the facilities”). Lincoln’s LRS interest may be an unusual
legacy facility because of its distance from Lincoln’s Zone 16
customers but the cost-causation principle nonetheless requires
FERC to consider “for whom [the facilities] were constructed
and whom they continue to serve.” Id. P 42. As noted supra,
Lincoln’s LRS interest was built for and continues to serve
Zone 16 customers.

    Petitioners also challenge FERC’s application of Opinion
No. 494 because the Opinion addressed cost allocation across
an entire region, instead of the sub-regional zones in play here.
The Eighth Circuit recognized this distinction when, in a case
involving allocation of costs across sub-regional zones, it
considered the SPP’s placement of Tri-State into Zone 17.
NPPD, 957 F.3d at 940–41. Nevertheless, that Circuit found
                                13
Tri-State’s proposal satisfied Illinois Commerce’s cost-
causation principle. Id. at 941. 8 FERC thus reasonably applied
Opinion No. 494’s cost-causation principle to Lincoln’s
proposal here notwithstanding the proposal involves allocating
costs across sub-regional zones only.

      Lincoln next alleges that FERC’s Allegheny I and II
decisions support basing cost allocation on a facility’s physical
location but Lincoln’s cost allocation is significantly
distinguishable. In its Allegheny orders, FERC considered how
to allocate Allegheny’s pre-open access investment in a 42-
mile transmission line in the PPL Zone of PJM. 9 PJM
Interconnection, L.L.C., 94 FERC ¶ 61295, 62074 (2001)
(Allegheny I); PJM Interconnection, L.L.C., 95 FERC ¶ 61217,
61720 (2001) (Allegheny II). Allegheny served only a tiny
portion of its load within the PPL Zone. Allegheny I, at 62074–
75. The transmission line enabled Allegheny to transmit power
to its load in another zone but it “primarily support[ed] load
within the PPL Group Zone.” Id. at 62078. If Allegheny had
not agreed to pay for the transmission line, PPL—a public
utility in the PPL Zone—would have built the same line and
recovered its costs from PPL customers. Id. FERC reasonably
distinguished Lincoln’s proposal: no Zone 19 customers use
Lincoln’s LRS interest but PPL relied on Allegheny’s
transmission line to serve its customers; Lincoln invested in
LRS to serve its own customers but Allegheny invested to
partially serve its own load and primarily support PPL’s load;

    8
         This Court has also approved the legacy facility cost-
allocation principle described in Opinion No. 494 and Illinois
Commerce. See State Corp. Comm’n v. FERC, 876 F.3d 332, 334
(D.C. Cir. 2017).
      9
        PPL Electric Utilities Corporation (PPL) is a public utility
serving Pennsylvania. See Allegheny I, at 62074 & n.1; About Us,
PPL ELECTRIC UTILITIES, https://perma.cc/G7UY-TA4G (last
visited Dec. 20, 2023).
                              14
and PPL would have built the same facilities if Allegheny had
not but it is unclear that another transmission provider would
have invested in Lincoln’s LRS interest to serve Zone 19. April
Order, P 37; Sept. Order, P 33; see supra Section II.A.

     FERC’s Westar decision is also distinguishable. Westar
purchased the Spring Creek switchyard transmission facility
located in the SPP’s Oklahoma Gas & Electric (OG&E) Zone.
Sw. Power Pool, Inc. (Westar), 120 FERC ¶ 61297 at P 4
(2007). OG&E Zone customers already used the Spring Creek
facilities and Westar assumed a contractual obligation to
continue serving them. Id.; April Order, P 35. FERC thus
approved Westar’s cost recovery from OG&E Zone customers
as just and reasonable. Westar, P 22. As explained earlier,
Zone 19 customers have not used—and have no need to use—
Lincoln’s LRS interest.

     Petitioners also point to FERC’s Rochester order as
upholding a scheme closely analogous to Lincoln’s proposal
but FERC reasonably distinguished Rochester. The Rochester
Public Utilities Board (Rochester) invested in a transmission
line in Zone 16 of the Midcontinent Independent System
Operator RTO (MISO).10 MISO, Inc., Opinion No. 564, 164
FERC ¶ 61194 at PP 1, 5 (2017) (Rochester). Rochester served
load in Zone 20 only, not in Zone 16. See id. PP 6, 34, 43.
Rochester sought to allocate its transmission line costs to Zone
16 and MISO approved. Id. PP 1, 136. Petitioners point to
Rochester as an example of FERC’s use of physical location to
guide an allocation decision, even if the transmission owner
serves no load in the zone. But FERC reached this result only
because it interpreted the MISO Tariff to require allocation “to

    10
         MISO is an RTO that serves the central United States.
Electric Power Markets: MISO, FEDERAL ENERGY REGULATORY
COMMISSION, https://perma.cc/Y55Z-NVLB (last visited Dec. 20,
2023).
                                15
the zone in which the facility is physically located.” Id. P 134.
The MISO Tariff described “facilities located in/within that
pricing zone” and FERC emphasized that—based on their
physical nature—facilities are “fixtures” and “located” must
mean “existing in a particular place.” Id. PP 119–21. FERC
reasonably distinguished Rochester because the SPP’s Tariff
has no default provision comparable to the MISO Tariff
provision discussed in Rochester. April Order, P 34; Sept.
Order, P 35. Without a default Tariff provision dictating cost
allocation, FERC must apply the just and reasonable standard
and its cost-causation principle to the proposed cost
allocation. 11 Sept. Order, P 35.

     In its briefing, the SPP alleges that a facility’s integration
with the existing SPP transmission system informs zonal
placement and cost recovery. In Opinion No. 562, FERC
considered a proposal to allocate Tri-State’s costs to Zone 17.
Sw. Power Pool, Inc., Opinion No. 562, 163 FERC ¶ 61109 at
P 1 (2018), aff’d, NPPD, 957 F.3d at 938. NPPD, the dominant
transmission owner in Zone 17, challenged the resulting rate as
unjust and unreasonable. Id. FERC applied the SPP’s zonal
placement process because Tri-State had then only recently
joined the SPP. Id. PP 1, 32. Because Tri-State built its
facilities partly to serve customers in today’s Zone 17, Tri-State
had a long history of joint planning and use with NPPD and
NPPD relied on Tri-State’s facilities to serve its load, FERC
found Tri-State’s proposal just and reasonable. Id. PP 192–94,
196. We fail to see how Opinion No. 562 makes FERC’s orders
here unreasonable. Unlike Opinion No. 562, FERC did not
apply the SPP’s zonal placement process because Lincoln is
not a new SPP member, nor did it purchase an existing facility.

    11
         Because Rochester turned on a default Tariff provision, the
just and reasonable ratemaking standard did not apply. Rochester, PP
140, 180.
                                16
April Order, P 31. Tri-State—through its history of joint
planning with NPPD and NPPD’s reliance on Tri-State
facilities—long benefitted Zone 17 customers. Opinion No.
562, PP 196–97. As explained supra, Lincoln’s LRS interest
has no history of serving or benefitting Zone 19 customers.
And Opinion No. 562 found Tri-State’s cost allocation, unlike
Lincoln’s proposal, consistent with Opinion No. 494’s cost-
causation principle. Id. P 197.

                     C. Undue Discrimination

     The FPA bars a public utility from giving “any undue
preference or advantage to any person” or “maintain[ing] any
unreasonable difference in rates, charges, service, facilities, or
in any other respect.” 16 U.S.C. § 824d(b). But mere
differential treatment of two entities does not violate the
statute. Mo. River Energy Servs. v. FERC, 918 F.3d 954, 958
(D.C. Cir. 2019). Instead, “undue discrimination occurs only if
the entities are ‘similarly situated,’ such that ‘there is no reason
for the difference.’” Id. (first quoting State Corp. Comm’n, 876
F.3d at 335 and then Transmission Access Pol’y Study Grp. v.
FERC, 225 F.3d 667, 721 (D.C. Cir. 2000) (per curiam)
(internal citations omitted)). FERC has “wide discretion” to
determine what constitutes undue discrimination. Id.
(quotation omitted). Co-owners of a single facility may be
dissimilar under FERC precedent. See, e.g., Sw. Power Pool,
Inc., 160 FERC ¶ 61115 at PP 61–62.

     We uphold FERC’s well-reasoned conclusion that Lincoln
is not similarly situated to the LRS co-owners that do recover
costs from Zone 19: namely, Basin Electric and Missouri
River. See April Order, P 39; Sept. Order, P 41. The record
manifests that Lincoln serves no load in Zone 19, invested in
LRS to serve customers in today’s Zone 16 and has not
transferred functional control to the SPP. Basin Electric has
                               17
long served, and continues to serve, load in what is now Zone
19. April Order, P 6. Basin Electric invested in LRS to serve
customers in today’s Zone 19 and transferred functional control
to the SPP in 2015. Id. Similarly, Missouri River has served
and continues to serve load in Zone 19. Id. Missouri River also
invested in LRS to serve customers in today’s Zone 19 and
transferred functional control to the SPP in 2015. Id. The record
thus demonstrates significant differences between Lincoln and
the LRS co-owners who recover costs from Zone 19;
accordingly, FERC reasonably determined that Lincoln is not
similarly situated to these LRS co-owners and no undue
discrimination occurred.

    In sum, we deny City of Lincoln’s petition for review.
Lincoln’s proposal violates the cost-causation principle
because Lincoln invested in LRS to serve its Zone 16
customers only. That principle does not support Lincoln’s
recovery of any of its LRS investment from Zone 19 customers,
who did not cause Lincoln to incur these costs. FERC
reasonably found Lincoln’s proposal unjust and unreasonable
and it correctly interpreted its precedent and rejected Lincoln’s
undue discrimination claim.

    Accordingly, the City of Lincoln’s petition for review is
denied.

                                                    So ordered.