Court Opinion

ID: 185163
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:28:34+00
Date Added: 2024-06-11T09:42:46.632433
License: Public Domain

214 F.3d 1366 (D.C. Cir. 2000)
Central Vermont Public Service Corporation, Petitionerv.Federal Energy Regulatory Commission, RespondentVermont Department of Public Service, Intervenor
No. 98-1532
United States Court of AppealsFOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 2, 1999Decided June 30, 2000

On Petition for Review of Orders of the Federal Energy Regulatory Commission
Carmen L. Gentile argued the cause for petitioner. With  him on the briefs were David E. Goroff and James H. McGrew.
Larry D. Gasteiger, Attorney, Federal Energy Regulatory  Commission, argued the cause for respondent. With him on  the brief were Jay L. Witkin, Solicitor, and John H. Conway,  Deputy Solicitor.
Before:  Edwards, Chief Judge, Henderson and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Tatel.
Tatel, Circuit Judge:

1
For years Central Vermont Public  Service Corporation has sold electricity to its wholly owned  subsidiary, Connecticut Valley Electric Company, which has  resold the electricity to retail customers in New Hampshire.  After ordering Connecticut Valley to terminate its power  purchase agreement with Central Vermont, the New Hampshire Public Utility Commission denied Connecticut Valley's  request to recover stranded costs from its own retail customers.  Central Vermont then petitioned the Federal Energy  Regulatory Commission for approval of a transmission rate  surcharge that would permit Central Vermont to recover  stranded costs from Connecticut Valley's retail customers. Finding the proposed surcharge inconsistent with its stranded cost policy, FERC rejected the surcharge.  Because we  find FERC's decision neither arbitrary nor capricious, we  deny the petition for review.

2
* In order to stop utilities from discriminatorily denying  other power suppliers access to their transmission lines, the  Federal Energy Regulatory Commission, acting through what  is known as Order 888, required public utilities that own,  control, or operate transmission facilities to file open access  tariffs under which they agree to provide transmission service  according to certain minimum terms and conditions.  See  Promoting Wholesale Competition Through Open Access  Non-Discriminatory Transmission Services by Public Utilities;  Recovery of Stranded Costs by Public Utilities and  Transmitting Utilities, Order No. 888, FERC Stats. & Regs.p 31,036, 61 Fed. Reg. 21,540 (1996), clarified, 76 FERC p 61,009 and 76 FERC p 61,347 (1996), modified, Order No.  888-A, FERC Stats. & Regs. p 31,048, 62 Fed. Reg. 12,274  (1997), order on reh'g, Order No. 888-B, 81 FERC p 61,248,  62 Fed. Reg. 64,688 (1997), order on reh'g, Order No. 888-C,  82 FERC p 61,046 (1998).  Recognizing that utilities might  incur transition costs--so-called "stranded costs"--as a result  of former customers' new ability to reach alternate power  suppliers through FERC-mandated open access, as well as  through parallel actions on the state level, Order 888 provides  for both wholesale and retail stranded cost recovery.

3
Wholesale stranded costs result when wholesale utility  customers (customers who purchase power for resale) take  advantage of Order 888's open access requirement to purchase power from another supplier using their former utility's  transmission lines.  Under the pre-open access regulatory  regime, the Commission explained, utilities entered into long term contracts for the wholesale sale of power to requirements customers.  Because wholesale customers had no  source of power supply other than their historic utility, these  contracts were normally extended at the end of their term. Relying on the expectation of continued service to historic  customers, utilities invested money, built facilities, and entered into long-term fuel purchase contracts.  See Notice of  Proposed Rulemaking, Recovery of Stranded Costs by Public  Utilities and Transmitting Utilities, FERC Stats. & Regs.  p 32,507 at 32,863-64, 59 Fed. Reg. 35274 (1994).  These costs will become "stranded" if, before utilities have recovered  them, their long-term requirements customers take advantage of open access and cease purchasing the utilities' power. Recognizing that FERC "cannot change the rules of the game without providing a mechanismfor recovery of the costs  caused by such regulatory-mandated change," Order 888-A,  p 31,048 at 30,346, Order 888 provides a mechanism for  utilities to recover stranded costs caused by the departure of  wholesale customers.

4
Retail stranded costs occur when retail customers take  advantage of state-ordered retail "wheeling" (i.e., state ordered transmission of power by utilities for other power  suppliers) to purchase power from suppliers other than their historic utilities.  Because these costs result from state regulation, FERC agreed to consider utility proposals to recover  stranded costs from retail customers only if the appropriate  state regulatory commission lacks authority to do so under  state law.  See Order 888, p 31,036 at 31,824-26.

5
In Transmission Access Policy Study Group v. FERC, No.  97-1715 (D.C. Cir. 2000), also issued today, we uphold Order  888's stranded cost policy in all respects relevant to this case.

6
In this case, Central Vermont seeks to use Order 888 to  recover stranded costs from the retail customers of its wholesale requirements customer, Connecticut Valley.  A wholly  owned subsidiary of Central Vermont, Connecticut Valley  purchases power from Central Vermont pursuant to a wholesale requirements contract (the "RS-2 contract") and then  resells the power to retail customers in New Hampshire.  As  part of state-wide electric utility restructuring, the New  Hampshire Public Utility Commission ("NHPUC") ordered  Connecticut Valley to terminate the RS-2 contract so that its  customers could take advantage of state-ordered retail wheeling to reach other power suppliers.  In response, Connecticut  Valley petitioned the NHPUC to recover its stranded costs  from its retail customers in New Hampshire.  Concluding  that Connecticut Valley was in part responsible for these  costs because it had imprudently declined to terminate the  RS-2 contract when the retail restructuring program was  enacted into law in 1996, the NHPUC denied its request.

7
Central Vermont then filed with FERC a notice of cancellation of the RS-2 contract.  Claiming that cancellation of the  contract would produce $44.9 million of stranded costs, and  relying on Order 888, Central Vermont sought to recover  those costs through a surcharge to the transmission rate  charged to customers who use Central Vermont's transmission system to deliver power to customers in Connecticut  Valley's service area.  In other words, the surcharge collected  by Central Vermont would be paid by Connecticut Valley's  retail customers and the entities transmitting power to them. Central Vermont explained:  "In this way, the stranded costs  would be paid by the same persons who caused the cost stranding to occur by displacing, through use of Central  Vermont's transmission system, Central Vermont power with  power acquired from a different supplier."

8
Without holding a hearing, FERC rejected Central Vermont's proposed transmission surcharge, explaining that Order 888 permits utilities to recover stranded costs only from  wholesale customers--in this case Connecticut Valley--not  from retail customers of their wholesale customers.  Central  Vermont Public Service Corp., 81 FERC p 61,336 at 62,54142 (1997).  FERC recommended that Central Vermont seek  recovery of its stranded costs directly from Connecticut Valley through an exit fee amendment to the RS-2 contract.  See  id. at 62,542.  Although Central Vermont followed that advice  and filed a proposed exit fee amendment--a hearing on that  proposal is pending, see Central Vermont Public Service  Corp., 82 FERC p 61,237 (1998)--it also sought rehearing,  claiming that an exit fee would be unsatisfactory and challenging FERC's rejection of its surcharge proposal.  See  Central Vermont Public Service Corp., 84 FERC p 61,295  (1998).  In the alternative, asserting that FERC's rejection of  the surcharge rendered its transmission rates confiscatory, it  argued that FERC should have either treated its surcharge  proposalas a section 205 rate increase filing or waived its  stranded cost regulations altogether.  FERC rejected Central Vermont's challenges, finding the last two unripe in light  of the pendency of Central Vermont's exit fee proposal.  See id.

9
Central Vermont now petitions for review.  It argues that  its transmission surcharge proposal fits within three situations in which FERC agreed to consider proposals for stranded cost recovery on a case-by-case basis.  First, it claims that  its proposal is analogous to the "retail-turned-wholesale" scenario, in which Order 888 permits utilities to recover stranded  costs from newly formed municipalities who serve the utilities' former retail customers.  See Order 888, p 31,036 at  31,818.  Second, asserting that the RS-2 contract contains a reserve equalization formula, Central Vermont argues that  FERC should have permitted it to recover stranded costs  pursuant to Order 888's provisions concerning situations where costs are shifted across state lines.  See id. at 31,826.Finally, it invokes Order 888's provisions for the recovery of  stranded costs that result from restructuring, see id. at  31,845-46;  according to Central Vermont, it is voluntarily  restructuring in response to NHPUC-ordered retail wheeling.  Central Vermont also claims that FERC's refusal to treat its filing as a section 205 rate increase filing or to waive its  regulations was arbitrary and capricious.

II

10
We review FERC's orders under the APA's familiar arbitrary and capricious standard.  See 5 U.S.C.  706(2)(A);Williams Field Services Group, Inc. v. FERC, 194 F.3d 110,  115 (D.C. Cir. 1999).  Of particular importance to this case,  we "afford substantial deference to the Commission's interpretations of its own regulations, deferring to the agency  unless its interpretation is plainly erroneous or inconsistent  with the regulation."  Bluestone Energy Design, Inc. v.  FERC, 74 F.3d 1288, 1292 (D.C. Cir. 1996) (internal quotation  marks omitted).

11
At oral argument, counsel for Central Vermont emphasized  that Central Vermont relies not on Order 888's implementing  regulations, see 18 C.F.R.  35.26, but rather on Order 888  itself, which identifies certain situations not covered by the  regulations in which FERC will consider proposals for  stranded cost recovery on a case-by-case basis.  This was a  wise strategy, for Central Vermont's transmission surcharge  proposal does not conform to the Order 888 regulations,  which authorize recovery of stranded costs from wholesale  requirements customers (in this case, Connecticut Valley), not  those customers' retail customers.  The regulations provide  that FERC will consider proposals for recovery of stranded  costs from a utility's retail customers, but only when the state  regulatory commission lacks authority to do so.  See id.   35.26(d)(1).  Not only does the NHPUC have authority to  address stranded costs (and did in fact do so), but the retail  customers from whom Central Vermont seeks recovery are  not its customers--they're Connecticut Valley's.

12
Central Vermont's attempts to fit its transmission surcharge proposal into Order 888 rest on a misunderstanding of  the order.  Take, for example, Central Vermont's effort to  analogize its plight to situations where a municipality condemns a utility's distribution plant, becomes a wholesale  customer of the utility, and utilizes open access transmission  to purchase power on the competitive market.  In that scenario, known as retail-turned-wholesale, FERC reasoned that  the municipality, as a new wholesale customer, stands in the  shoes of former retail customers for purposes of obtaining  transmission access and new power supplies.  Because of this  direct link between former retail customers and the municipality, FERC agreed to consider utility proposals for recovery of stranded costs from the municipality itself.  Order  888-A, p 31,048 at 30,408-10.

13
According to Central Vermont, Connecticut Valley's former  retail customers, like newly created municipalities, are not  technically former wholesale customers, but are using Central  Vermont's transmission system to supply the very loads for  which Central Vermont incurred the now-stranded costs.  That analogy doesn't work.  In the retail-turned-wholesale  situation, retail customers were former customers of the  utility seeking recovery.  Here, the retail customers from  whom Central Vermont seeks recovery are former customers  of Connecticut Valley.  Under the retail-turned-wholesale  analogy, Connecticut Valley, not Central Vermont, would be  seeking recovery from these customers.  Moreover, because  Connecticut Valley's customers remain retail customers, the  proper forum for stranded cost recovery is, as Connecticut  Valley seems to have recognized, the NHPUC, not FERC.  Not until the NHPUC denied Connecticut Valley's original  request for stranded cost recovery did Central Vermont turn  to FERC.

14
Equally unsuccessful is Central Vermont's effort to fit itself  into Order 888's stranded cost provisions for multi-state and  restructuring situations.  Its arguments amount to little more  than attempts to fit square pegs into round holes, for in  neither circumstance did FERC agree to consider proposals to recover stranded costs from retail customers of a utility's  wholesale customer.

15
We begin with the multi-state exception.  Concerned that  the "denial of retail stranded cost recovery by a state regulatory authority could, through operation of the reserve equalization formula in a Commission-jurisdictional intra-system  agreement, inappropriately shift the disallowed costs to affiliated operating companies in other states," FERC agreed to  consider stranded cost recovery in such situations on a case-by-case basis.  Order 888, p 31,036 at 31,826.  Claiming that its RS-2 contract with Connecticut Valley contains just such a  "reserve equalization formula," Central Vermont argues that  its inability to recover stranded costs from Connecticut Valley's New Hampshire retail customers will, through the formula's operation, shift costs to its Vermont customers. FERC rejected this claim, concluding that the RS-2 contract  in fact contains no reserve equalization formula.

16
At oral argument, the parties continued to disagree about  whether the RS-2 contract actually contains a reserve equalization formula.  Insisting that it does, counsel for Central  Vermont pointed us to the contract's "capacity charge formula."  Counsel for FERC told us that the capacity charge  formula is not the same as a reserve equalization formula;  to  illustrate his point, he simply referred us to an inter-system  agreement (not in the record of this proceeding) that he says  contains such a formula.

17
Fortunately, we can decide this case without resolving this  debate, for even if the RS-2 contract contains a reserve  equalization formula, FERC did not err in concluding that  Central Vermont's surcharge proposal did not fit within the  multi-state exception.  Order 888's sole method for avoiding  the automatic shifting of costs across state lines is a contract  amendment.  See Order 888, p 31,036 at 31,826;  Order 888-A,  p 31,048 at 30,420.  See also Central Vermont, 84 FERC at  62,371 ("[T]he remedy for preventing automatic shifting of  retail stranded costs was to amend the jurisdictional contract  on file with the Commission.").  Central Vermont seeks not to amend the RS-2 contract, but rather to recover stranded  costs from its customer's customers.

18
For its final effort to fit its surcharge proposal into Order  888, Central Vermont relies on provisions permitting recovery  of stranded costs resulting from voluntary restructuring. Order 888 said little more than this about voluntary restructuring:

19
[T]he functional unbundling of wholesale services does not require corporate unbundling (such as disposition of assets to a non-affiliate, or establishing a separatecorporate affiliate to manage a utility's transmission assets).  At the same time, we indicated that some utilities may ultimately choose some form of corporate unbundling.  We reaffirm in this Final Rule that we are willing to consider case-specific proposals for dealing with stranded costs in the context of any restructuring proceedings that may be instituted by individual utilities.

20
Order 888, p 31,036 at 31,845-46 (footnote omitted).

21
Citing New Hampshire's restructuring of the retail electricity market and its own "inevitable" need to divest generation  assets, Central Vermont claims that FERC should have approved its surcharge proposal as arising in connection with a  voluntary restructuring.  FERC refused to do so, finding that  Central Vermont had not demonstrated that it was pursuing  corporate unbundling of the type contemplated by Order 888.Participation in state-wide restructuring, FERC reasoned,  was insufficient to constitute a "voluntary restructuring."See Central Vermont, 84 FERC at 62,372.  Indeed, in the  only two proceedings cited by the parties in which FERC has  set hearings to consider stranded cost proposals in the restructuring context, utilities had proposed to sell off specific  assets and to modify their contracts with wholesale requirements customers.  See Montaup Electric Co., 79 FERC  p 61,386 (1997);  New England Power Co., 78 FERC p 61,080  (1997).  Central Vermont has said only that it will "inevitably" divest assets.  More fundamentally, the stranded cost  proposals at issue in the two cited cases required recovery  from wholesale customers, not from retail customers of wholesale customers.  Were we to accept Central Vermont's  claim, then every utility denied stranded cost recovery in  connection with state-ordered restructuring could seek relief  from FERC.  Yet Order 888 emphatically and repeatedly  states that "[t]he only circumstance in which we will entertain  requests to recover stranded costs caused by retail wheeling  is when the state regulatory authority does not have authority  under state law to address stranded costs when the retail  wheeling is required."  Order 888, p 31,036 at 31,825 (footnote  omitted).

22
To sum up, we see no basis for questioning FERC's  rejection of Central Vermont's surcharge proposal, much less  for finding the agency's action arbitrary or capricious.  As we  read the record in this case, Central Vermont simply did not  like the consequence of Order 888's deference to state agencies--the NHPUC's denial of Connecticut Valley's retail  stranded cost recovery proposal--and now seeks from FERC  what the state agency denied.  Nothing in Order 888 permits  such an end run around FERC's decision to defer to state  agencies' assessments of retail stranded cost recovery.  Order 888 allows Central Vermont to recover stranded costs  only from a wholesale requirements customer--here, its wholly owned subsidiary Connecticut Valley--just the course it is  now pursuing in another proceeding.

III

23
This brings us finally to Central Vermont's alternative  claim that without stranded cost recovery, its current transmission rates are confiscatory and that FERC should therefore have either treated its transmission surcharge filing as a  section 205 rate increase filing or waived its stranded cost  regulations and approved the proposed surcharge.  Citing the  pendency of the exit fee amendment hearing, FERC rejected  both claims.  See Central Vermont, 84 FERC at 62,369 & n.7.

24
FERC now contends that Central Vermont's claims are  unripe, relying on the familiar two-part test of ripeness: courts must "evaluate both the fitness of the issues for  judicial decision and the hardship to the parties of withholding court consideration."  Abbott Laboratories v. Gardner,  387 U.S. 136, 149 (1967).  "A claim is not ripe for adjudication," the Supreme Court recently explained, "if it rests upon  contingent future events that may not occur as anticipated, or  indeed may not occur at all."  Texas v. United States, 523 U.S. 296,118 S. Ct. 1257, 1259 (1998) (internal quotation  marks and citations omitted).  Central Vermont's challenge to  FERC's refusal to treat its filing as a section 205 rate  increase filing or to waive its regulations depends on no  future events, contingent or otherwise.  To resolve its challenge, we need only examine the record before us and assess  FERC's rationale.  To be sure, FERC's own decision may  have rested in part on the existence of contingent events-namely, the resolution of the pending exit fee amendment  proposal--but that does not make Central Vermont's challenge unripe in this court.

25
On the merits, we can easily dispose of Central Vermont's  arguments.  We see no basis for questioning FERC's judgment that whether and to what extent to permit Central  Vermont to increase its rates in a section 205 proceeding  depend on the outcome of the exit fee proposal.  After all, if  Central Vermont recovers its full stranded costs through the  exit fee, it will have no need to increase its rates.  Moreover,  FERC made its decision "without prejudice to Central Vermont making a filing in the future seeking recovery of non-open-access-related costs."  Central Vermont, 84 FERC at  62,369 n.8.  If Central Vermont is unhappy with the outcome  of the exit fee hearing, it may renew its claim.

26
We have the same reaction to Central Vermont's argument  that FERC should have waived the Order 888 regulations.  Given the possibility that Central Vermont may recover its  full stranded costs through an exit fee--a method perfectly  consistent with the regulations--FERC's refusal to waive its  regulations is hardly arbitrary or capricious.

IV

27
The petition for review is denied.

28
So ordered.