Court Opinion

ID: 9553010
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:20:28.374585+00
Date Added: 2024-06-11T15:29:29.895681
License: Public Domain

CUDAHY, Circuit Judge,
concurring in part and dissenting in part.
I concur fully in the majority’s approval of FERC’s rate design for existing facilities’ transmission costs. I write separately to express my concerns over the majority’s disapproval of the proposed rate design for new transmission lines operating at voltages at or in excess of 500,000 volts.
The United States is now engaged in an urgent project to upgrade its electric transmission grid, which for years has been generally regarded as inadequate,1 and may become more deficient with the addition of major new anticipated loads.2 The existing transmission system originally served vertically integrated utilities that built their own generation relatively close to their customers. The system was not designed for long-distance power transfers between different parts of the country. The inadequacy of the present network and the urgency of the need for its improvement has only been exacerbated by the additional burdens imposed by deregulation (or restructuring), which “unbundled” generation and transmission and created a need to bring power from distant generators.3 Additional challenges have been posed by the demand for power from renewable generation sources (such as wind farms) that are often located in places remote from centers of electric consumption.4
Long-distance transmission, which inherently presents challenges to reliability, is accomplished most efficiently by the highest levels of voltage — 500 kV and above. According to FERC, “500 kV and above circuits ... [are] 70 percent more reliable than 138 kV circuits and 60 percent more than 230 kV circuits on a per mile basis.” PJM Interconnection LLC, 122 FERC ¶ 61,082, 2008 WL 276596, at *479*16 (Jan. 31, 2008) (order on rehearing). Further, because power transfer capability-increases with the square of voltage,5 extra-high voltage transmission also facilitates enormous transfers of power: “the maximum transfer capability at 500 kV and above is approximately 6 times greater than a similar transmission line operated at 230 kV and more than twice that at 345 kV....” Id. In light of its unique contributions to reliability and transfer capability, extra-high voltage transmission is especially fitted to be financed equally by all utilities that benefit from its role as the “backbone” of the system.6 Pro rata rates for extra-high voltage transmission, through their simplicity of application, also provide a strong incentive to build transmission undeterred by fruitless controversy over the allocation of costs.
It is significant that FERC’s conclusion that the costs of extra-high voltage transmission facilities should be shared is consistent with the proposals of fifteen of PJM’s seventeen members. In the course of this proceeding, various parties proposed voltages lower than 500 kV as the threshold above which proportional cost-sharing should apply. Although PJM’s members were unable to agree on a specific voltage cutoff, they were broadly in agreement that the rate structure should be designed to share the costs of facilities providing general systemic benefits. There was thus an effort by many parties to broaden the area of rate-simplification by enlarging the- set of new transmission facilities to be governed by cost-sharing, not to narrow or eliminate it. I think these efforts illustrate the value of simplification and the difficulties in the design of a transmission rate structure that attempts rigidly and in all circumstances to trace benefits to specific utilities.
However theoretically attractive may be the principle of “beneficiary pays,” an unbending devotion to this rule in every instance can only ignite controversy, sustain arguments and discourage construction while the nation suffers from inadequate and unreliable transmission. Unsurprisingly, it is not possible to realistically determine for each utility and with reference to each major project the likelihood that rate-simplification .will reduce litigation, or to calculate the precise value of not having to cover the costs of power failures and of not paying costs associated with congestion, and all this over the next forty to fifty years. Concerns about the real value to individual utilities of the stability and efficiency provided by improvements to the backbone grid are answered by their voluntary participation in the power pool and its collaborative “RTEP” (or regional transmission expansion planning) process. Rate-making based on cost causation is assured by this process, since universal cost-sharing is recommended only when developments are found to benefit the integrated system as a whole.7
*480Contrary to the majority’s suggestion, FERC did not violate principles of “cost causation” by failing to propose a number that would represent the specific monetary benefits to each utility of a more reliable network. Cost causation requires that “approved rates reflect to some degree the costs actually caused by the customer who must pay them.” Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1368 (D.C.Cir.2004) (Roberts, J.) (quoting KN Energy, Inc. v. FERC, 968 F.2d 1295, 1300 (D.C.Cir.1992)) (internal quotation marks omitted). However, until today, no court has found that cost causation requires FERC to monetize the benefits of reliability improvements in order to share the costs. Indeed, the cases the majority cites support the opposite conclusion. Most notably, in Midwest ISO, the panel was quite clear that utilities that draw benefits from being a part of a power pool should share the cost of having a power pool. Id. at 1371. As then-Judge Roberts explained, “upgrades designed to preserve the grid’s reliability constitute system enhancements that are presumed to benefit the entire system.” Id. at 1369 (internal quotation marks, citations and alterations omitted, and emphasis added); see also Entergy Servs., Inc. v. FERC, 319 F.3d 536, 543 (D.C.Cir.2003); Western Massachusetts Elec. Co. v. FERC, 165 F.3d 922, 927 (D.C.Cir.1999). Since there is a presumption that enhanced reliability benefits all of the systems members, Commonwealth Edison (ComEd) can be required to bear a proportional share of an improvement’s costs even where it is not possible to determine precisely how much it benefits. Put otherwise, the burden is on ComEd to show that it would not benefit from the newly planned transmission facilities; the burden is not on FERC to estimate how much ComEd would benefit from a more reliable grid.
Indeed, in Midwest ISO, the panel rejected the objecting utility’s argument that it could not be made to pay sixty to seventy percent of an investment’s costs because it would obtain only five percent of the benefits. 373 F.3d at 1370. As the majority notes, the panel found no record support for the utility’s claim that its benefits would be so low. (Maj. Op. at 477.) However, the panel also held that cost causation principles do not require the costs of a new facility to be apportioned based on the objecting utility’s actual use of that facility. To the contrary, the “benefits” of system enhancements must be understood more broadly than this. Again, then-Judge Roberts:
even if they are not in some sense using the ISO [roughly a term for a power pool], the MISO Owners still benefit from having an ISO. In this sense, MISO is somewhat like the federal court system. It costs a considerable amount to set up and maintain a court system, and these costs — the costs of having a court system — are borne by the taxpayers, even though the vast majority of them will have no contact with that system (will not use that system) in any given year ... The MISO Owners’ position is tantamount to saying that if *481they are not a litigant, they should not be made to pay for any of the costs of having a court system. Since the MISO Owners do, in fact, draw benefits from being a part of the MISO regional transmission system, FERC correctly determined that they should share the cost of having an ISO.
Id. at 1371. I fear that the majority has lost sight of this basic principle.8
Because the majority’s decision is based on an unusually narrow conception of cost-causation, its characterizations of FERC’s and the intervenor’s arguments as “insouciant” (Maj. Op. at 475) and “desperate” (Maj. Op. at 477) strike me as conspicuously misplaced. FERC responded to ComEd’s objections by indicating that the proposed projects would improve reliability and reduce congestion. See PJM Interconnection, 2008 WL 276596, at *16. It did not explain how PJM’s members benefit from a reliable network because no court had hitherto required it to do so. Until now, it went without saying that, network reliability benefits the network’s members. This is not insouciance; “[explanations come to an end somewhere.” Ludwig Wittgenstein, Philosophical Investigations § 1 (G.E.M. Anscombe trans., 1968).
The big picture here is that FERC’s proposal to spread the cost of very high voltage transmission on a uniform basis seems to me in the interest of efficient, high-capacity transfer capability and of the closely linked improvement of reliability, which affects the system generally.9 Deregulation created a demand for competitive sources of power, often at a distance. Because 500 kV and above lines satisfy these new systemic needs, their separate *482treatment for rate-making purposes is both sensible and innovative. While an effort to identify specific benefits to specific utilities is a traditional rate design approach and may be appropriate for most electric plant facilities, it may miss the forest and focus on the trees when applied to very high voltage “backbone” facilities having a generalized role in supporting reliability and high capacity power transfer. Perhaps as important in this picture is the urgency of the need to build transmission and the need for incentives to that end. Pro rata assignment of costs eliminates not only lawsuits but nitpicking controversies of every sort and delays standing in the path of action. From that point of view, I think FERC may be in a better position to implement a policy leading to prompt improvement in a deficient transmission grid than this court, focused as it is on the inevitable complaints of utilities demanding more for their money. I therefore respectfully dissent from the majority’s unfortunate rejection of FERC’s rate scheme for new transmission lines carrying 500 kV or higher.

. E.g., House Report on the Energy Policy Act of 2005, H.R.Rep. No. 109-215(1), at 171 ("Investment in electric transmission expansion has not kept pace with electricity demand. Moreover, transmission system reliability is suspect as demonstrated by the blackout that hit the Northeast and Midwest in August of 2003. Legislation is needed to address the issues of transmission capacity, operation, and reliability. In addition, state regulatory approval delays siting of new transmission lines by many years. Even if a project is completed, there is uncertainty as to whether utilities will be able to recover all of their investment, which hinders new transmission construction.”).

. See, e.g., Argorme, Impact of Plug-in Hybrid Electric Vehicles on the Electricity Market in Illinois, available at http://www.dis.anl.gov/ news/Illinois_PluginHybrids.html (visited 7/27/09).

. See Mark Cooper, Electricity Deregulation Puts Pressure on the Transmission Network and Increases its Cost, available at http:// www.consumersunion.org/Transmission% 20brief% 208.27.pdf (visited 7/27/09).

. See Matthew L. Wald, Debate on Clean Energy Leads to Regional Divide, N.Y. Times, July 14, 2009, at A13.

. See generally Peter W. Sauer, Reactive Power and Voltage Control Issues in Electric Power Systems, Applied Mathematics for Restructured Electric Power Systems: Optimization, Control, and Computational Intelligence (Joe H. Chow, Felix F. Wu & James A. Momoh, eds.) (2005).

. These are "backbone” facilities because they "integrate major system resources,” Pacific Gas & Elec. Co., 53 FERC ¶ 61146, 61520-21 & n. 65, 1990 WL 319356, at *10 (Oct. 31, 1990), by facilitating major transfers of power between and among regions. To my knowledge, no court prior to ours has objected to the metaphor. See Public Serv. Co. of Ind., Inc. v. FERC, 575 F.2d 1204, 1217 (7th Cir.1978); see also Cal. Dep’t of Water Res. v. FERC, 489 F.3d 1029, 1035 (9th Cir.2007); Boston Edison Co. v. FERC, 441 F.3d 10, 11 (1st Cir.2006); Cajun Elec. Power Coop., Inc. v. FERC, 924 F.2d 1132, 1134 (D.C.Cir.1991).

. “Project Mountaineer,” with which the majority seems particularly concerned, is no exception. Project Mountaineer is a plan to *480construct hundreds of miles of 500 and 765 kV linkages between eastern and western PJM. The PJM literature, to which Commonwealth Edison could have objected but did not, indicates that Project Mountaineer was a response to the nearly 200% increase in congestion costs from 2004 to 2005. Ventyx, Major Transmission Constraints in PJM, at *3 n. 4 (2007), available at http://www.ventyx. conVpdl7wp07-transinission-constramts.pdf (visited 7/14/09). These increased congestion costs were partly due to the expansion of PJM’s footprint. Id. As part of its cost allocation process, PJM determined that Project Mountaineer "would bring about substantial congestion relief and reliability improvements increasing Midwest-to-east transfers by 5,000 MW.” Id. at *3.

. The other cases on which the majority relies also do not hold that FERC is required to explain the benefits of reliability. For instance, in Algonquin Gas Transmission Co. v. FERC, 948 F.2d 1305 (D.C.Cir.1991), the court rejected FERC’s proposal to share the costs of a new gas pipeline because FERC had not provided any evidence that the pipeline would provide systemwide benefits. Id. at 1313. In the present case, by contrast, there is no dispute that the transmission facilities at issue would increase network transfer capacity and improve network reliability.
Along the same lines, Alcoa Inc. v. FERC, 564 F.3d 1342 (D.C.Cir.2009), provides no support at all for the majority’s robust understanding of the requirements of cost causation. In that case, the D.C. Circuit rejected Alcoa's claim that it was being asked to pay more than its fair share of the costs of maintaining network reliability, holding instead that because rate design rests on technical issues and policy judgments that lie at the core of the regulatory mission, FERC's explanation for its rate scheme "although admittedly spare, is nonetheless adequate.” Id. at 1347-48.

. Indeed, the majority concedes that reliability problems affect all of the system's users when it acknowledges that failures in one part of an integrated network can affect the supply of electricity in other parts of the network. (Maj. Op. at 476). So-called “cascading outages” have occurred on a number of occasions in the recent past. Most notably, in 2003 a power failure that started in Ohio spread through eight states, including parts of PJM’s footprint, leaving 50 million people without power and causing an estimated $12 billion in economic losses. E.g., Peter FoxPenner, A Year Later, Lessons From the Blackout, N.Y. Times, Aug. 15, 2004, at 14WC. As the majority notes, FERC has not estimated the probability that degraded reliability in Eastern PJM could affect Midwestern PJM. However, even if this probability is vanishingly small, a very low number multiplied by billions of dollars may still yield a very high number. Further, there is no reason to suppose that ComEd's customers are unaffected by problems with the reliability of the PJM grid. By one estimate, power outages and disturbances cause $4 to $7 billion in damages per year in Illinois alone. See Primen, The Cost of Power Disturbances to Industrial & Digital Economy Companies (June 29, 2001), at D-l, available at http://www. onpower.com/pdi/EPRICostOfPower Problems.pdf (visited 7/8/09).