Court Opinion

ID: 9365556
Source: CourtListenerOpinion
Date Created: 2023-01-24 15:12:32.979205+00
Date Added: 2024-06-11T17:15:46.130694
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 26, 2022             Decided January 24, 2023

                        No. 20-1277

AMEREN ILLINOIS COMPANY, D/B/A AMEREN ILLINOIS, ET AL.,
                    PETITIONERS

                              v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

      SOUTHWESTERN ELECTRIC COOPERATIVE, ET AL.,
                    INTERVENORS

       Consolidated with 20-1450, 21-1154, 21-1254

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

     Misha Tseytlin argued the cause for petitioners. With him
on the briefs were Kevin M. LeRoy, Christopher R. Jones,
Justin T. Golart, and Katherine J. O'Konski.

     Susanna Y. Chu, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were Matthew R. Christiansen, General Counsel, and
                              2
Robert H. Solomon, Solicitor. Anand Viswanathan, Attorney,
entered an appearance.

     Michael Postar and Bhaveeta K. Mody were on the brief
for intervenors Southwestern Electric Cooperative, et al. in
support of respondent.

   Before: PILLARD and KATSAS, Circuit Judges, and
ROGERS, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
ROGERS.

     ROGERS, Senior Circuit Judge: The petitions for review
seek reversal of a refund order by the Federal Energy
Regulatory Commission upon finding a discrepancy in
petitioner Ameren Illinois’s self-reported operational costs.
Instead of reporting construction-related materials and supplies
costs on line 5 of page 227 of Form 1, Ameren Illinois reported
these costs on line 8 with the result that it over-collected for
transmission costs. Ameren Ill. Co., 174 FERC ¶ 61,209, at ¶
49 (Mar. 18, 2021) (“Refund Order”); Ameren Ill. Co., 177
FERC ¶ 61,107, at ¶ 6 (Nov. 18, 2021) (“Reh’g Order”). The
Commission found that this reporting error was contrary to
Ameren Illinois’s filed rate, which, prior to June 1, 2020, did
not allow it to recover costs recorded to line 5 of page 227.
Reh’g Order ¶ 8. For the following reasons, the Commission’s
decision that Ameren lacked discretion to report construction-
related costs on line 8 was not unreasonable, arbitrary and
capricious, or otherwise contrary to law. Accordingly, the court
affirms the Orders denying review and reconsideration.
                                3
                                I.

     Section 201 of the Federal Power Act (“FPA”), 16 U.S.C.
§ 824, vests the Commission with comprehensive and
exclusive jurisdiction over the rates, terms, and conditions of
service for the transmission and sale of wholesale electric
energy in interstate commerce. New York v. FERC, 535 U.S. 1,
7-8 (2002); Towns of Concord, Norwood, and Wellesley v.
FERC, 955 F.2d 67, 68 (D.C. Cir. 1992). The Commission is
authorized to issue consumer refunds for rates charged in
excess of the “just and reasonable rate.” 16 U.S.C. § 824e(b).
Public utilities are required under Section 205(c) to “file with
the Commission,” and keep open for public inspection,
“schedules showing all rates and charges for any transmission
or sale subject to the jurisdiction of the Commission.” 16
U.S.C. § 824d(c). The “filed rate doctrine” adopted by the
Commission “prohibit[s] ‘a regulated seller of [power] from
collecting a rate other than the one filed with the Commission.’”
Towns of Concord, 955 F.2d at 72-73 (quoting Ark. La. Gas Co.
v. Hall, 453 U.S. 571, 578 (1981)).

     Section 309(h) vests the Commission with “broad
remedial power” to perform “‘any and all acts’ ‘necessary or
appropriate’ to carry out the FPA’s statutory ends.” Verso
Corp. v. FERC, 898 F.3d 1, 11-12 (D.C. Cir. 2018) (quoting 16
U.S.C. § 825h). The Commission has “authority to order
refunds if it finds violations of the filed tariff.” Consol. Edison
Co. of N.Y., Inc. v. FERC, 347 F.3d 964, 967 (D.C. Cir. 2003).

     Regulated utilities are required to file rate schedule and
tariff information, subject to Commission oversight. 18 C.F.R.
§ 35.1(a); id. § 141.1. Page 227 of FERC Form 1 directs a
regulated utility to report annually its “[p]lant materials and
operating supplies” costs incurred in its “Account 154,” which
                                4
is part of the Commission’s Uniform System of Accounts. See
id. pt. 101.

      In the Uniform System of Accounts, the Commission
defines those records as showing “the cost of materials
purchased primarily for use in the utility business for
construction, operation and maintenance purposes.” Id. Such
costs are to be “functionalize[d],” or categorized as production-
related, transmission-related, or distribution-related, according
to the purchased materials’ “primary functions.” Final Rule to
Revise FERC Form No. 1, 47 Fed. Reg. 1267, 1274-75 (Feb. 5,
1982) (codified at 18 C.F.R. pt. 141). This enables the
Commission as well as the reporting utility to determine which
materials and supplies costs can be recovered from certain
customer classes. See FERC Form No. 1, page 227, lines 7-9.
The particular method used to functionalize costs is within the
utility’s discretion. 47 Fed. Reg. at 1275.

     Since the 1970s, electric utilities have been allowed to file
annual tariffs establishing the rates to charge their customers as
“formula rates.” Newman v. FERC, 27 F.4th 690, 693 (D.C. Cir.
2022) (citing Pub. Utils. Comm’n of Cal. v. FERC, 254 F.3d
250, 254 (D.C. Cir. 2001)). “Rather than stating specific prices,
a formula rate ‘specifies the cost of components that form the
basis of the rates.’” Id. (quoting Pub. Utils. Comm’n of Cal.,
254 F.3d at 254). An electric utility that has a formula rate
approved by the Commission need not file new tariffs every
year, see Pub. Utils. Comm’n of Cal., 254 F.3d at 254, and
typically files an “annual report of its categorized expenditures,
which in turn act as the inputs to the approved formula that
generates prices customers pay.” Newman, 27 F.4th at 693. “A
formula rate built on the Uniform System identifies by account
which expenditures are passed on to ratepayers, and which fall
outside the formula rate [and] so must be absorbed by the utility
itself.” Id.
                                5
     Prior to June 1, 2020, petitioner Ameren Corporation
subsidiaries Ameren Illinois, Ameren Transmission Company
of Illinois, and Ameren Missouri were subject to formula rates
that did not allow for recovery of costs recorded on line 5 of
page 227 of Form 1. Ameren Illinois’s formula rate included as
an input materials and supplies expenditures recorded at line 8
as transmission-plant costs, but did not include materials and
supplies expenditures recorded at line 5 as construction costs.
See Refund Order ¶¶ 34, 51. The 2020 Informational Filing
Ameren Illinois submitted to the Commission included cost
projections and the annual revenue required to recover them in
the 2020 rate year. It did not report any costs on line 5, despite
having incurred construction-related materials and supplies
costs, but instead reported otherwise unrecoverable line 5 costs
on line 8, thereby inflating the amounts charged to ratepayers.
See Ameren Ill. Co., Informational Filing of Annual Formula
Rate Update and True-Up attach. O at 2 (Mar. 10, 2020);
Refund Order ¶¶ 34, 51.

      After the Commission’s decision in Duke Energy
Progress, LLC, 163 FERC ¶ 61,051 (2018), ordering the utility
to pay refunds when it failed to comply with Form 1
instructions in reporting materials and supplies costs, Ameren
Illinois and other utilities proposed revisions to their formula
rates to incorporate materials and supplies costs assigned to line
5. See Am. Ill. Co., Order Accepting Formula Rate Revisions,
171 FERC ¶ 61,141, at ¶¶ 1-3 (May 1, 2020). The Commission
accepted Ameren Illinois’s formula rate revisions effective
June 1, 2020. See id. ¶ 1. As of that date Ameren Illinois could
recover construction-related materials and supplies costs under
its filed rate.
                               6
                               II.

     Intervenor Southwestern Electric Cooperative, Inc.
(“Southwestern”), an electric distribution cooperative serving
rural customers in Illinois and an Ameren customer, challenged
Ameren Illinois’s 2020 filing. Refund Order ¶¶ 1, 34-48; Reh’g
Order ¶ 5; Formal Challenge of the Southwestern Electric
Cooperative, Inc. 2, 15-18 (Apr. 15, 2020). Alleging that
Ameren Illinois had misreported its materials and supplies costs
on Form 1, resulting in overcharges to its transmission
customers over multiple years, Southwestern requested that
Ameren Illinois be directed to resubmit its Form 1 filings and
pay refunds for over-collections resulting from its “historical
misreporting.” Refund Order ¶¶ 36-37. Like the utility in Duke
Energy Progress, Ameren Illinois had “inappropriately
lump[ed] . . . two types of [materials and supplies] together” in
its Form 1 filings, by including construction-related materials
and supplies in its report of transmission-plant materials and
supplies costs on line 8 of page 227 of Form 1, when such
construction-related materials and supplies should instead have
been reported at line 5 and not recovered as part of its then-
effective formula rate. Id. ¶ 34.

      The Commission found that Ameren Illinois had
misreported materials and supplies costs on Form 1 and ordered
Ameren Illinois to pay approximately $11.5 million in refunds
to its customers, based on ten years of misreporting. Id. ¶¶ 49-
52; Reh’g Order ¶¶ 22, 36; see also Ameren Ill. Co.,
Compliance Filing 2-3 (May 17, 2020). It denied Ameren
Illinois’s request for rehearing, rejecting arguments against the
issuance of refunds and finding the refund directive to be
consistent with Duke Energy Progress, the filed-rate doctrine,
and principles of fairness. Reh’g Order ¶¶ 22-34.
                                7
     The court reviews Commission orders under the “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law” standard. Hoopa Valley Tribe v. FERC,
913 F.3d 1099, 1102 (D.C. Cir. 2019); see 5 U.S.C.
§ 706(2)(A). The “scope of review under the ‘arbitrary and
capricious’ standard is narrow,” and the Court “may not
substitute [its] own judgment for that of the Commission.”
FERC v. Elec. Power Supply Ass’n, 577 U.S. 260, 292 (2016)
(citing Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983)). The court shall, however, set aside
any Commission action taken “[i]n the absence of statutory
authorization.” Atl. City Elec. Co. v. FERC, 295 F.3d 1, 8 (D.C.
Cir. 2002).

    Notably, “great deference” is accorded to the Commission
in “technical area[s] like electricity rate design.” FERC v. Elec.
Power Supply Ass’n, 577 U.S. at 292 (quoting Morgan Stanley
Cap. Grp. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 532 (2008)).
And, “in rate-related matters, the court’s review of the
Commission’s determinations is particularly deferential
because such matters are either fairly technical or ‘involve
policy judgments that lie at the core of the regulatory mission.’”
S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 54-55 (D.C. Cir.
2014) (quoting Alcoa Inc. v. FERC, 564 F.3d 1342, 1347 (D.C.
Cir. 2009)). “[B]ecause the statutory requirement that rates be
‘just and reasonable’ is obviously incapable of precise judicial
definition,” the Commission “must have considerable latitude
in developing a methodology responsive to its regulatory
challenge.” Id. (internal quotation marks and citations omitted).

    Contrary to Ameren Illinois’s contentions, the Commission
has broad statutory authority to grant refunds. Upon finding that
Ameren Illinois failed to correctly record certain materials and
supplies costs in the annual Form 1 report, the
Commission reasonably determined, based on a balancing of
                                8
the equities, that refunds were warranted. Ameren Illinois’s
arguments that the Commission abused its discretion by issuing
customers a disproportionate “windfall” and unreasonably
failed to perform the required balancing-of-equities test in
issuing its refund order, see Petitioner Br. 47-55, are
unpersuasive.

     Essentially, Ameren Illinois contends that because
reporting construction-related costs at line 8 rather than line 5
was a common industry-wide practice prior to Duke Energy
Progress, it should not be bound by its formula rate.
No justification is offered for that position. The utility’s view
that the misreporting was a mere technicality ignores the fact
that such costs, if properly reported at line 5, could not have
been passed on to customers under Ameren Illinois’s formula
rate. Rather than serving as a “windfall” to its customers, see
Koch Gateway Pipeline Co. v. FERC, 136 F.3d 810, 817 (D.C.
Cir. 1998), then, Ameren Illinois’s error resulted in a windfall
to itself, to the tune of $11.5 million. That is not a “ministerial
error that harmed no one.” Reply Br. 13.

       Form 1 instructions are part of the Commission’s scheme
for carrying out its responsibilities under the FPA. That other
utilities may have made the same Form 1 allocation error as
Ameren Illinois and have not been subjected to refund orders
does not demonstrate that the Commission’s issuance of the
refund order here was unreasonable. Nor does the
Commission’s clarification of Form 1 after Duke Energy
Progress to specify that construction-related costs must be
functionalized     as    “production,”      “transmission,”  or
“distribution” costs create a prior ambiguity that relieves
Ameren Illinois of its obligation to charge customers according
to its filed formula rate. See Reh’g Order ¶¶ 23, 28. Ameren
Illinois does not suggest, much less demonstrate in the
administrative record, that it was unaware of the limited types
                                 9
of costs that it was allowed to recover from its customers under
its filed rate prior to June 1, 2020; Form 1 was unambiguous
that line 5 is intended to, and does, account for estimated
construction materials and operating supplies. Although
historically its affiliates understood these instructions and
reported accordingly, see Reh’g Order ¶ 29, Ameren Illinois
reported such costs at line 8 instead of line 5 despite having
incurred them for construction-related materials and costs. See
Ameren Ill. Co., Informational Filing of Annual Formula Rate
Update and True-Up attach. O at 2 (Mar. 10, 2020).

     Ameren Illinois argued to the Commission that the refund
order reflected the Commission’s “fail[ure of] its basic duty to
balance investor and customer interests” because the amounts
in question were its “prudently-incurred Materials and Supplies
costs that are recoverable in rates as a matter of policy.”
Request for Rehearing of Ameren Illinois Company 5 (Apr. 19,
2021). Even assuming that as a matter of policy that may be
true, as a matter of law Ameren Illinois cannot deny that it was
required to charge customers in accordance with its filed
formula rate. See Towns of Concord, 955 F.2d at 72-73. That
rate, prior to 2020, did not include the materials and supplies
costs at issue. Consequently, the utility’s failure to adhere to the
Commission’s system for accountability is not a minor error,
especially when knowingly done for a number of years. See
Reh’g Order ¶ 29. That Ameren Illinois later changed its
formula rate hardly demonstrates that the Commission’s refund
order denying retroactive application of the revised formula
rate requires reversal. In ordering refunds for charges not
authorized by Ameren Illinois’s then-current rate, the
Commission reasonably “[b]alanc[ed] the equities and the
competing interests of [Ameren Illinois] and its customers.”
Respondent’s Br. 15, 40-42; see Refund Order ¶¶ 49-52; Reh’g
Order ¶ 31.
                               10
    The touchstone for a public utility’s rate schedule — and
for the Commission’s rules and regulations — is the
requirement that rates, rules, and regulations be “just and
reasonable.” 16 U.S.C. § 824d(a). Although the Commission
“may not retroactively alter a filed rate to compensate for prior
over- or underpayments,” Exxon Mobil Corp. v. FERC, 571
F.3d 1208, 1211 (D.C. Cir. 2009), that is not what occurred
here. All the Commission has done is require Ameren Illinois
to correct a reporting error that resulted in overcharging
customers for expenses not allowed under Ameren Illinois’s
then-registered formula rate. Its contrary arguments fail to
demonstrate that the refund order was unjust or contrary to law.

     Accordingly, the court denies the petitions for review and
affirms the challenged orders.