Court Opinion

ID: 186551
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:53:07+00
Date Added: 2024-06-11T12:37:29.447014
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 8, 2005            Decided November 4, 2005
                                   Reissued December 23, 2005

                        No. 03-1403

              CONSUMERS ENERGY COMPANY,
                     PETITIONER

                              v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

      WISCONSIN ELECTRIC POWER COMPANY, ET AL.,
                    INTERVENORS

                     Consolidated with
                         04-1252

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

     Deborah A. Moss argued the cause and filed the briefs for
petitioner.

     Patrick Y. Lee, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief were Cynthia A. Marlette, General Counsel, and Dennis
Lane, Solicitor.
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    Before: GINSBURG, Chief Judge, and TATEL and BROWN,
Circuit Judges.

    Opinion of the Court filed by Circuit Judge TATEL.

     TATEL, Circuit Judge: In these consolidated cases,
petitioner, a public utility, challenges two Federal Energy
Regulatory Commission orders denying reimbursement for
certain costs incurred in connection with the establishment of a
now-defunct regional transmission organization. Finding
FERC’s decisions neither arbitrary nor capricious, we deny the
petitions for review.

                               I.

     In the late 1990s, FERC began encouraging transmission-
owning utilities to place their transmission facilities under the
control of Regional Transmission Organizations (RTOs). In
response, petitioner Consumers Energy Company (CECo),
joined several other transmission-owning utilities to develop the
Alliance RTO. Although FERC initially approved the Alliance
companies’ development plan, it eventually rejected the plan,
finding that the Alliance RTO lacked sufficient geographic
scope to exist as a stand-alone entity. See Alliance Cos., 97
F.E.R.C. ¶ 61,327, 62,529-30 (2001). In that same December
2001 order, FERC found that the public interest would be better
served if the Alliance companies placed their transmission
facilities under the control of an already existing RTO, the
Midwest Independent System Operator (MISO). See id. at
62,531. Acknowledging that the Alliance companies had
incurred significant expenses in developing the Alliance RTO,
FERC stated that it would consider proposals for recovery of all
prudently incurred Alliance start-up costs. See id. In a later
order, issued April 25, 2002, FERC clarified that it would
“allow recovery of all costs prudently incurred by any Alliance
                                3

GridCo participant to establish an RTO once it is a member of
an RTO.” Alliance Cos., 99 F.E.R.C. ¶ 61,105, 61,442 (2002).
Critical to the issues before us, FERC has interpreted this “April
25 order” as imposing two requirements for recovery of
“prudently incurred” Alliance costs: parties seeking
reimbursement must have (1) been an Alliance GridCo
participant, and (2) joined an RTO.

     After FERC announced that Alliance RTO members could
recover their costs, CECo sold its transmission facilities to
another utility, Michigan Transco. FERC officially authorized
that transaction on February 13, 2002, see Trans-Elect, Inc., 98
F.E.R.C. ¶ 61,142 (2002), but the parties subsequently amended
the sales contract to account for the later-issued April 25 order.
The amended contract provided that only CECo could recover
the Alliance RTO costs that it incurred in connection with the
transmission facilities, and that if FERC decided to reimburse
Michigan Transco instead of CECo, Michigan Transco must
remit the recovered funds to CECo. Michigan Transco also
agreed to make reasonable efforts to help CECo obtain
reimbursement. On May 1, six days after the April 25 order,
CECo and Michigan Transco closed the sale. As required by the
sales contract, Michigan Transco immediately transferred
control of the transmission facilities to MISO.

     Setting the stage for the issues now before us, MISO then
requested FERC authorization to reimburse CECo
approximately $8.3 million for its Alliance-related costs. FERC
denied MISO’s request, explaining that because CECo had sold
its transmission facilities to Michigan Transco, it had never
joined an RTO as required for recovery by the April 25 order.
FERC also asserted that, through the sale to Michigan Transco,
CECo had received adequate compensation for its Alliance
development costs. See Midwest Indep. Transmission Sys.
Operator, Inc., 103 F.E.R.C. ¶ 61,219, 61,838 (2003) (the
                                4

“CECo order”); Midwest Indep. Transmission Sys. Operator,
Inc., 104 F.E.R.C. ¶ 61,298, 62,121 (2003) (denying rehearing).

     Having failed in its efforts to reimburse CECo directly,
MISO asked FERC for permission to give the $8.3 million to
Michigan Transco, which had a contractual obligation to pass
the money along to CECo. FERC denied MISO’s request,
explaining that it amounted to a collateral attack on the
Commission’s earlier order denying MISO’s request to
reimburse CECo, and in any event, that Michigan Transco was
ineligible to recover the costs because it had never been an
Alliance participant as required by the April 25 order. See
Midwest Indep. Transmission Sys. Operator, Inc., 107 F.E.R.C.
¶ 61,131 (2004) (the “Michigan Transco order”); Midwest Indep.
Transmission Sys. Operator, Inc., 108 F.E.R.C. ¶ 61,010 (2004)
(denying rehearing).

    CECo filed petitions for review of the CECo and the
Michigan Transco orders. We consider both petitions in these
consolidated proceedings. See Consumers Energy Co. v. FERC,
No. 04-1252 (D.C. Cir. Aug. 5, 2004).

                              II.

    We will set aside FERC’s orders only if we find them
“arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). In evaluating
FERC’s interpretation of its own orders, we afford the
Commission substantial deference, upholding the agency’s
decision “unless its interpretation is plainly erroneous or
inconsistent” with the order. Bluestone Energy Design, Inc. v.
FERC, 74 F.3d 1288, 1292 (D.C. Cir. 1996) (internal quotations
omitted); see also CMC Real Estate Corp. v. ICC, 807 F.2d
1025, 1034 (D.C. Cir. 1986) (“It is well established that an
agency’s interpretation of the intended effect of its own orders
                               5

is controlling unless clearly erroneous.”). Applying this highly
deferential standard of review, we consider each order in turn.

                       The CECo Order

      Although we agree with CECo that FERC provided no
evidence for its assertion that CECo was “adequately
compensated” for its Alliance-related costs through the sale of
its transmission facilities to Michigan Transco, FERC gave an
additional explanation for its decision—that CECo failed to
comply with the express terms of the April 25 order—which is
both well-reasoned and independent from the compensation
rationale. See Greater Boston Television Corp. v. FCC, 444
F.2d 841, 851 (D.C. Cir. 1970) (stating that the court would not
vacate an agency decision “because of errors that are not
material”). Recall that the April 25 order states that FERC will
“allow recovery of all costs prudently incurred by any Alliance
GridCo participant to establish an RTO once it is a member of
an RTO.” Alliance Cos., 99 F.E.R.C. at 61,442 (emphasis
added). As FERC explained, because CECo had sold its
transmission facilities, it had no way of becoming a member of
an RTO—a prerequisite for recovery under the April 25 order.

     Acknowledging that FERC’s decision comports with the
April 25 order’s plain language, CECo argues that denying
recovery “elevates form over substance and is contrary to
[FERC’s] policy goal.” Petitioner’s Br. at 32. According to
CECo, FERC authorized Alliance participants to recover their
Alliance costs in order to encourage them to place their
transmission systems under MISO’s control. Emphasizing that
it did just that by contractually requiring Michigan Transco to
transfer control of the transmission facilities to MISO, CECo
argues that FERC had no justifiable policy basis for denying
reimbursement. Although we assume that CECo correctly
describes FERC’s policy objectives and its own advancement of
                                6

those objectives, CECo’s argument faces an insurmountable
obstacle, i.e., nothing in the April 25 order entitles CECo to
recover its costs simply because it facilitated the transfer of its
transmission facilities to MISO. To the contrary, the April 25
order speaks quite clearly about the conditions for
reimbursement, and CECo simply failed to satisfy them. To the
extent that CECo believes the April 25 order’s requirements are
arbitrary and capricious, it should have challenged that order
directly. In the case before us, however, CECo challenges only
the order denying it recovery.

     CECo insists it is “inequitable” for FERC, having never
questioned the prudence of CECo’s Alliance expenses, to deny
it recovery “merely because CECo sold it[s] transmission
facilities to Michigan Transco prior to the date that functional
control of these transmission facilities was transferred to
MISO.” Petitioner’s Br. at 33. As FERC pointed out in the
CECo order, however, “[t]he April 25 Order was issued before
[CECo] closed on the deal it proposed . . . . [CECo] nevertheless
closed, and also did not seek clarification of the April 25 Order.”
Alliance Cos., 103 F.E.R.C. at 61,838. CECo argues that
because the closing date for the sale was only five days after
FERC issued the April 25 order, any request for clarification
would have been futile because FERC would have had
insufficient time to answer before the sale was completed. But
again, FERC has a persuasive answer: CECo provides no
explanation for why “the closing date could not have been
extended for some period while clarification was sought, or that
CECo could not have requested an expedited FERC ruling to
meet the scheduled closing date.” Reply Br. at 24.

    Finally, CECo insists it had no need to seek clarification
because, according to the company, the April 25 order cannot
reasonably be read to preclude recovery by both CECo and
Michigan Transco. As CECo sees it, the order introduced
                                7

ambiguity only as to which company—CECo or Michigan
Transco—could, following the sale, recover CECo’s start-up
costs, an ambiguity the company says it addressed by amending
the contract to require Michigan Transco to remit to CECo any
costs recovered on CECo’s behalf. But again, the April 25
order’s plain language precludes this argument. Not only does
that order disqualify CECo from recovering its Alliance costs
(because CECo never became an RTO member) but nothing in
the order even hints that it may nevertheless recover those costs
simply because the company to which it sold its transmission
facilities (Michigan Transco) likewise failed to satisfy one of the
order’s requirements—though, as we shall explain below, a
different requirement than the one that doomed CECo’s
recovery effort. CECo wrongly assumed that the April 25 order
means something other than what it says—a mistake for which
it has no one to blame but itself.

                 The Michigan Transco Order

     Before addressing the merits of CECo’s challenge to the
Michigan Transco order, we must consider FERC’s argument
that CECo lacks standing to challenge that order. To meet the
constitutional requirements for standing, a plaintiff must show
“an injury to himself that is likely to be redressed by a favorable
decision.” Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 38
(1976).

     FERC argues that because the Michigan Transco order
rejected payment to Michigan Transco, the purported injury was
to Michigan Transco, not CECo, and that only Michigan
Transco would receive any redress were we to order FERC to
reconsider its decision. CECo responds that Michigan Transco
has a contractual obligation to remit to it any Alliance RTO
start-up costs it recovers, and that this contractual relationship
sufficiently connects CECo’s injury and redress to FERC’s
                               8

order. We agree with CECo. The company altered its contract
with Michigan Transco to ensure that were CECo unable to
recover its Alliance costs on its own, it could do so through
Michigan Transco, and Michigan Transco pursued
reimbursement on CECo’s behalf only because the contract
required it to do so. CECo therefore has a “concrete personal
stake” in the issue before us. APPC Servs., Inc. v. Spring
Commc’ns, 418 F.3d 1238, 1242 (D.C. Cir. 2005). Although
FERC points out that Michigan Transco could breach its
contractual duty to remit any recovered costs to CECo, we think
that possibility far too speculative to sever the connection
between FERC’s order and CECo’s injury and redress. See
Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)
(stating that for Article III standing purposes, it need only be
“likely” that a favorable court decision will redress the
plaintiff’s injury).

     On the merits, FERC gave two reasons for rejecting MISO’s
request to reimburse Michigan Transco. First, it ruled that the
request amounted to a collateral attack on the earlier order
denying CECo’s reimbursement petition. According to FERC,
because Michigan Transco would remit any recovered costs to
CECo, MISO’s request to reimburse Michigan Transco involved
the same question as the earlier order, i.e., whether CECo was
eligible to recover its Alliance costs. Setting aside that this
argument conflicts with FERC’s insistence that CECo lacks
standing—Michigan Transco is either likely to remit any
recovered funds to CECo or it’s not—we see no merit in the
Commission’s argument. FERC denied MISO’s request to
reimburse CECo because the company failed the April 25
order’s second recovery condition (membership in an RTO),
whereas Michigan Transco’s eligibility turns on the order’s first
condition (participation in Alliance RTO development efforts).
Accordingly, the request to reimburse Michigan Transco does
not “present[ ] the same issue” that the Commission resolved in
                               9

denying recovery to CECo. Midwest Indep. Transmission Sys.
Operator, Inc., 107 F.E.R.C. at 61,438.

     Fortunately for FERC, the order includes a second,
independent, and completely persuasive rationale for denying
Michigan Transco’s reimbursement request: that because
Michigan Transco had in fact never been a member of the
Alliance RTO, it failed to satisfy the April 25 order’s first
condition, which limits recovery of costs to those “incurred by
any Alliance GridCo participant.” Alliance Cos., 99 F.E.R.C. at
61,442. CECo’s effort to avoid the consequences of the order’s
plain language—it argues that by effectuating the transfer of its
transmission facilities to MISO, it accomplished FERC’s policy
goals—fails for the reasons given above.

                              III.

     In sum, FERC provided a satisfactory explanation for
denying CECo and Michigan Transco reimbursement for
CECo’s Alliance costs. Simply put, neither company met the
conditions for reimbursement set forth in the April 25 order. To
be sure, this means CECo will be unable to recover its prudently
incurred Alliance costs. But that loss flows not from any
arbitrary action by FERC, but rather from CECo’s failure to
challenge the April 25 order and its decision to consummate the
sale to Michigan Transco notwithstanding the April 25 order’s
unambiguous statement that only those transmission owners
which were Alliance participants and that are now RTO
members may recover their Alliance costs. Michigan Transco
cannot satisfy the order’s first requirement (participation in
Alliance RTO efforts) and CECo, which had been an Alliance
participant, cannot satisfy the second (RTO membership)
because it sold its transmission facilities to Michigan Transco
                             10

prior to transferring them to MISO. We deny the petitions for
review.
                                                So ordered.