Court Opinion

ID: 8206954
Source: CourtListenerOpinion
Date Created: 2022-09-16 15:00:41.638412+00
Date Added: 2024-06-11T16:41:21.123288
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 30, 2022              Decided September 16, 2022

                        No. 20-1256

                    UNITED POWER, INC.,
                        PETITIONER

                              v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

       LA PLATA ELECTRIC ASSOCIATION, INC., ET AL.,
                     INTERVENORS

                 Consolidated with 20-1502

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

     Charles A. Patrizia argued the cause and filed the briefs
for petitioner.

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

    Simon A. Steel argued the cause for respondent-intervenors
Tri-State Generation and Transmission Association, Inc., et al.
With him on the brief were Clinton A. Vince, Jason T. Gray,
and Richard M. Lorenzo. Kathleen L. Mazure entered an
appearance.

    Before: TATEL* and RAO, Circuit Judges, and GINSBURG,
Senior Circuit Judge.

    Opinion for the Court filed by Senior Circuit Judge
GINSBURG.

     GINSBURG, Senior Circuit Judge: Tri-State Generation
and Transmission Association, Inc., a generation and
transmission cooperative, admitted Mieco, Inc., a natural gas
supplier, as a member. The Federal Energy Regulatory
Commission concluded that owing to the admission of Mieco
(1) Tri-State was subject to its jurisdiction and (2) the
Commission has exclusive jurisdiction over the exit charge
levied by Tri-State upon a member that leaves the cooperative.
United Power, Inc., a utility and member of Tri-State, opposed
the admission of Mieco and wants United’s exit charge
adjudicated in a state forum.

     In these consolidated petitions for review, United
challenges the FERC’s conclusions as ultra vires and arbitrary
and capricious. We dismiss the petitions for review insofar as
they raise objections that have not properly been exhausted

    *
      Judge Tatel assumed senior status after this case was argued
and before the date of this opinion.
                                3
before the agency, and we deny the petitions in all other
respects.

                      I.     Background

     Under the Federal Power Act (FPA), 16 U.S.C. § 791a et
seq., the FERC is authorized to regulate “the transmission of
electric energy” and “the sale of electric energy at wholesale”
in interstate commerce. 16 U.S.C. § 824(b)(1). The FPA
requires that “[a]ll rates and charges made, demanded, or
received by any public utility for or in connection with the
transmission or [jurisdictional] sale of electric energy” be “just
and reasonable.” Id. § 824d(a). The same goes for “rules and
regulations affecting or pertaining to such rates or charges.” Id.
The Act also provides that “any such rate or charge that is not
just and reasonable” is unlawful. Id.

     Therefore, if the FERC “find[s] that any rate, charge, or
classification . . . is unjust [or] unreasonable,” then it “shall
determine the just and reasonable rate, charge, classification”
and “fix the same by order.” Id. § 824e(a). Again, the same
applies to “any rule, regulation, practice, or contract affecting
[a] rate, charge, or classification.” Id. In short, the FERC is
responsible for regulating not only wholesale rates but also “the
panoply of rules and practices affecting them.” FERC v.
Electric Power Supply Ass’n, 577 U.S. 260, 277 (2016).

     Not every entity that sells electric energy at wholesale in
interstate commerce is subject to the jurisdiction of the FERC.
Excluded are “a State or any political subdivision of a State,”
certain electric cooperatives, and “any corporation which is
wholly owned” by those entities. 16 U.S.C. § 824(f).

    Respondent-Intervenor       Tri-State Generation          and
Transmission Association,       Inc. is a generation          and
                                4
transmission cooperative based in Colorado.              Tri-State
provides electricity at wholesale to more than 40 utilities in
four states. The Utility Members resell the electricity to local
end-users. None of those utilities is subject to the jurisdiction
of the FERC; the great majority are cooperatives exempted by
the Act, and the rest are political subdivisions of states. When
a Utility Member buys electricity from a cooperative such as
Tri-State, it earns an ownership interest, known as patronage
capital, in the cooperative.          According to Tri-State,
“cooperative members acquire patronage capital through
transactions that they make with the cooperative that benefit
the cooperative financially.”

     Each Utility Member entered into a long-term
requirements contract, known as a Wholesale Electric Service
Contract (WESC), with Tri-State. By pledging those WESCs,
Tri-State earns revenue to finance its generation and
transmission facilities. Under the bylaws of the cooperative, a
member that wishes to leave the cooperative and thereby be
released from its contractual obligation to purchase energy
must pay “an exit charge to compensate Tri-State and the
remaining Members for the loss of the long-term revenue
stream the withdrawing Member had committed to contribute.”
Tri-State Generation and Transmission Ass’n, Inc., 170 FERC
¶ 61,224, ¶ 5 (Mar. 20, 2020) (Declaratory Order).

     For more than 60 years, Tri-State had been wholly owned
by non-jurisdictional entities and therefore exempt from the
jurisdiction of the FERC. In September 2019, after the
cooperative’s bylaws were amended to allow new classes of
membership, Tri-State admitted its first non-utility member:
Mieco, Inc., a supplier of natural gas. Mieco is not in any
category the FPA exempts from the jurisdiction of the FERC.
In contrast to the Utility Members, Mieco earns patronage
                               5
capital not by buying electricity from Tri-State above cost but
by selling natural gas to the cooperative below cost.

     Both the Petitioner, United, and La Plata Electric
Association, Inc., an Intervenor-Petitioner, are Utility
Members of Tri-State that voted against admitting Mieco as a
member of the cooperative. A few months after Mieco was
admitted, they filed complaints with the Colorado Public
Utilities Commission, seeking to compel Tri-State to set
reasonable exit charges for them. Tri-State then petitioned the
FERC for issuance of a declaratory order, see 18 C.F.R.
§ 385.207(a)(2), stating that (1) Tri-State was now subject to
the FERC’s jurisdiction because it was no longer “wholly
owned” by non-jurisdictional entities, and (2) the FERC has
exclusive jurisdiction over any exit charge levied by Tri-State
against a member that leaves the cooperative. Protestors
argued, among other things, that the FERC should not assert
jurisdiction over Tri-State as long as there were unresolved
state law questions regarding the lawfulness of Mieco
membership in Tri-State.

     On March 20, 2020 the FERC granted in part and denied
in part Tri-State’s petition. Declaratory Order, 170 FERC at
¶ 61,224. Despite the open state law questions, the FERC
concluded that Tri-State was no longer “wholly owned” by
non-jurisdictional entities and was therefore subject to the
jurisdiction of the Commission. The FERC further concluded
that its jurisdiction over an exit charge is concurrent with that
of state authorities, such as the Colorado PUC; therefore, the
proceedings before the Colorado authorities were not
automatically preempted. Id. at ¶ 121.

    After the parties’ request for rehearing was deemed denied
by virtue of the FERC’s inaction, see Allegheny Defense
Project v. FERC, 964 F.3d 1, 19 (D.C. Cir. 2020), United
                               6
petitioned this court for review of the Declaratory Order. As
permitted by Section 313(a) of the FPA, 16 U.S.C. § 825l(a),
the FERC subsequently issued an order setting aside the
Declaratory Order in part.           Tri-State Generation and
Transmission Ass’n, Inc., 172 FERC ¶ 61,173 (Aug. 28, 2020)
(First Rehearing Order). The FERC reaffirmed its jurisdiction
over Tri-State but, in contrast to the Declaratory Order,
concluded that it has exclusive jurisdiction over an exit charge
as a rate or charge for a jurisdictional service.

     United and La Plata requested rehearing of the exit charge
issue. The FERC denied the request. Tri-State Generation and
Transmission Ass’n, Inc., 173 FERC ¶ 61,097 (Oct. 28, 2020)
(Second Rehearing Order).

     United then petitioned this court for review of the
Rehearing Orders, and that petition was consolidated with its
earlier petition for review of the Declaratory Order. La Plata
and the Colorado PUC have intervened in support of the
petitioner; Tri-State and two Utility Members (Wheat Belt
Public Power District and Northwest Rural Public Power
District) have intervened in support of the FERC.

                       II.     Analysis

    Recall the FERC determined that admitting Mieco as a
member brought Tri-State within its jurisdiction and that it has
exclusive jurisdiction over the exit charge Tri-State levies upon
any member that leaves the cooperative. United challenges
both these determinations on various grounds.
                               7
A. Challenges to the Assertion of Jurisdiction Over Tri-
   State

     The FERC concluded that because Tri-State is no longer
wholly owned by non-jurisdictional entities, it is subject to the
Commission’s jurisdiction. This it did despite the unresolved
state law questions regarding the validity of Mieco’s
membership. Citing Michigan v. EPA, 268 F.3d 1075, 1084
(D.C. Cir. 2001), United contends the Commission exceeded
its statutory authority by asserting jurisdiction over Tri-State
before it was established that Mieco could lawfully be a
member of the cooperative under state law.

     As the FERC correctly points out, however, United did not
exhaust this argument before the Commission, so we have no
authority to consider it. 16 U.S.C. § 825l(b) (“No objection to
the order of the Commission shall be considered by the court
unless such objection shall have been urged before the
Commission in the application for rehearing unless there is
reasonable ground for failure so to do.”). An application for
rehearing, moreover, must “set forth specifically the ground or
grounds upon which such application is based.” Id. § 825l(a).
We therefore have no jurisdiction over an objection the
petitioner fails to raise with specificity. Indiana Util. Regul.
Comm’n v. FERC, 668 F.3d 735, 738–39 (D.C. Cir. 2012).
Because we construe these statutory limitations upon our
jurisdiction strictly, see Kelley v. FERC, 96 F.3d 1482, 1487
(D.C. Cir. 1996), a “single opaque sentence” does not suffice,
Public Serv. Elec. & Gas Co. v. FERC, 485 F.3d 1164, 1170
(D.C. Cir. 2007), nor does raising a particular argument only
“in a general way.” Conn. Dep’t of Pub. Util. Control v. FERC,
593 F.3d 30, 36 (D.C. Cir. 2010).
                                8
     The closest United came to raising this argument before
the FERC is in a footnote to the Introduction in its first Request
for Rehearing:

       United Power notes that the Commission
       recognized that there are significant state law
       issues related to the purported admission of
       Mieco to membership, and that those issues are
       before the Colorado Public Utility Commission,
       which is better suited to determine the state law
       issues. The [FERC]’s determination of Tri-
       State’s jurisdictional status while the state law
       issues remain to be fully determined by the
       better-qualified state utility commission is
       premature as well as inefficient, given the
       Commission’s specific recognition that its
       jurisdictional     decision    might      require
       reconsideration in the event a Colorado tribunal
       concluded the Mieco transaction was invalid.
       Under such circumstances, at a minimum, the
       Commission should have concluded that Tri-
       State was exempt from the Commission’s
       jurisdiction until a Colorado tribunal
       determined the addition of Mieco was legally
       valid.

That will not do. United did not describe the FERC’s action as
“ultra vires” or “beyond the agency’s statutory authority,” as it
now argues, but as “premature” and “inefficient.” The
adjective “premature,” though not inconsistent with an ultra
vires argument, is just as consistent with an argument about the
unreasonable exercise of agency discretion. And “inefficient,”
the other adjective used to describe the FERC’s action,
certainly connotes the latter type of argument. Neither did
United’s description of what the FERC should have done —
                                9
wait for a state tribunal to resolve the state law issues —
suggest an ultra vires challenge rather than a challenge to the
way in which the FERC exercised its discretion. If the
specificity requirement means anything, it means that we will
not “espy [a] specific [ultra vires] objection from such vague
and formless assertions.” Shafer & Freeman Lakes Env’t
Conservation Corp. v. FERC, 992 F.3d 1071, 1089 (D.C. Cir.
2021).

     Another of United’s arguments faces the same
jurisdictional bar. United contends the FERC’s assertion of
jurisdiction was arbitrary and capricious because it was based
upon an erroneous understanding of cooperative ownership.
As the FERC points out, however, United never raised this
argument even generally, let alone with “specificity.”

    United also argues that it was arbitrary and capricious for
the FERC to assert jurisdiction before resolution of state law
questions about Mieco’s ownership. Moreover, United asserts,
the FERC’s explanation of its action is unreasonable and
insufficient. At the threshold, the FERC argues that this
argument, too, was not properly exhausted.

     We disagree. After describing the FERC’s assertion of
jurisdiction as “premature” and “inefficient,” the footnote cited
above went on to say that “at a minimum, the Commission
should have concluded that Tri-State was exempt from the
Commission’s jurisdiction until a Colorado tribunal
determined the addition of Mieco was legally valid.” The
adjectives used to describe what the FERC did (“premature”
and “inefficient”) and the description of what the FERC ought
to have done (wait for resolution by a state tribunal) are specific
enough for us to make out an arbitrary and capricious argument
without squinting.
                                10
     Because United properly exhausted this argument, we turn
to its merits. As framed by United in its brief, the argument
“necessarily assumes . . . that FERC’s assertion of jurisdiction
was not ultra vires.” In other words, it assumes that the FERC
is statutorily authorized to make a jurisdictional determination
while potentially dispositive state law questions remain
unresolved, but that FERC acted unreasonably in doing so. For
its part, the Commission contends it acted well within its broad
discretion to manage its docket as it sees fit and to decide issues
presented to it.

      Just so. “An agency has broad discretion to determine
when and how to hear and decide the matters that come before
it.” Tennessee Valley Mun. Gas Ass’n v. FERC, 140 F.3d 1085,
1088 (D.C. Cir. 1998). Under the Commission’s Rules of
Practice and Procedure, the agency may issue a declaratory
order “to terminate controversy or remove uncertainty,” 18
C.F.R. § 355.207(a)(2). As with other agencies, use of this tool
is committed to the FERC’s “sound discretion.” 5 U.S.C.
§ 554(e). The FERC explained in its Declaratory Order that it
acted while proceedings were ongoing at the Colorado public
utility commission because “the [FERC] has a statutory
obligation to act on [rate filings submitted by Tri-State], and
. . . action on the Petition [would] provide needed clarity to all
parties involved in these proceedings.” 170 FERC ¶ 61,224,
¶ 74. Especially with Section 205 rate filings pending before
the agency, it was reasonable for it to decide the issues
presented and to leave resolution of state law issues for a state
tribunal. It matters not that the FERC might have to revisit its
determination at some later, indefinite time. Providing even
temporary clarity to the parties is useful, and it was reasonable
for the FERC to conclude that providing such clarity was a
prudent and efficient use of a declaratory order.
                                11
B. The Exit Charge Determination

     In the Declaratory Order, the FERC determined that an
exit charge levied by Tri-State against a withdrawing member
is within its jurisdiction as “a rule or practice directly affecting
Tri-State’s jurisdictional wholesale rates.” 170 FERC ¶ 61,224
at ¶ 119. Noting, however, that no federal court has stated that
the Commission’s “directly affecting” jurisdiction is exclusive,
the FERC concluded its jurisdiction over the exit charge is
concurrent with that of state authorities.             Thus, state
proceedings were not automatically preempted. Id. at ¶ 121.

     In the First Rehearing Order, the Commission set aside
that determination and concluded instead that it has exclusive
jurisdiction over an exit charge, because it is considered a rate
or charge for a jurisdictional service. Per the agency’s updated
reasoning:

        The payment of an exit charge upon termination
        of the contract affects the timing of Tri-State’s
        recovery of the costs[] but does not change the
        nature of the charge as a jurisdictional rate paid
        by the member to Tri-State to cover the costs
        that Tri-State incurred to provide full
        requirements service to the member.

172 FERC ¶ 61,173 at ¶ 32.

    In the Second Rehearing Order, the Commission stuck
with its conclusion that it has exclusive jurisdiction over an exit
charge, but arguably tweaked the rationale. The FERC now
explained that “Section 205(a) refers to ‘all rates and charges
made, demanded, or received by any public utility for or in
connection with the transmission or sale of electric energy
subject to the jurisdiction of the Commission’” and “Tri-State’s
                               12
exit charge falls within this provision.” 173 FERC ¶ 61,097 at
¶ 5 (quoting 16 U.S.C. § 824d(a) (emphasis added)). By
emphasizing the words “for or in connection with,” the
Commission appears to have retreated from its earlier,
unequivocal characterization of the exit charge as the
functional equivalent of a charge for a jurisdictional service.

     United argues that an exit charge is not a rate “for” a
jurisdictional service because it is “payment made to avoid
purchasing [the] service.” Nor is the exit charge a rate charged
“in connection with” the transmission or sale of electric energy,
says United. An exit charge is paid to avoid purchasing
electricity, so it is made not in connection with the sale of
electricity, but in connection with the non-sale of electricity.
Continuing, United argues an exit charge is at most a rule or
regulation or contract “directly affecting” wholesale or
transmission prices, over which the FERC does not have
exclusive jurisdiction.

     It is a stretch, we think, for the Commission to say an exit
charge is a rate or charge for a jurisdictional service. That both
the rate charged for electricity under a WESC and an exit
charge help a cooperative recover similar costs is insufficient
to make it the functional equivalent of a rate charged for a
jurisdictional service.

     We do, however, find the FERC’s description of an exit
charge to be a persuasive explanation of why an exit charge is
made “in connection with the . . . sale of electric energy.” An
exit charge, which protects members of a cooperative against
rate increases caused by the exit of a member, while also
increasing membership commitment and stability, is an
important part of the integrated bargain to which a firm agrees
when it becomes part of a generation and transmission
cooperative. If there were no obligation to pay an equitable
                               13
exit charge “to cover the costs that [a cooperative] incur[s] to
provide full requirements service to the member,” 172 FERC
¶ 61,173 at ¶ 32, then the cost of electricity under the
requirements contract surely would be higher. Therefore, we
agree that an exit charge is a rate charged “in connection with”
the provision of wholesale electricity.

     Having determined that an exit charge is a charge made “in
connection with the . . . sale of electric energy,” we have no
trouble concluding that the FERC was correct that its
jurisdiction over an exit charge is exclusive. The FPA
“allocates to FERC exclusive jurisdiction over ‘rates and
charges . . . received . . . for or in connection with’ interstate
wholesale sales.” Hughes v. Talen Energy Mktg., LLC, 578
U.S. 150, 163 (2016) (quoting 16 U.S.C. § 824d(a)). Just as
the FERC “has exclusive authority to determine the
reasonableness of wholesale rates,” Mississippi Power & Light
Co. v. Mississippi ex rel. Moore, 487 U.S. 354, 371 (1988), so
does the FERC have exclusive authority to determine the
reasonableness of an exit charge.*

     United devotes much of its brief to the Supreme Court’s
preemption jurisprudence and how the distinction between
conflict preemption and field preemption makes a difference
here. That discussion obscures far more than it illuminates. As
we have explained, the FERC has exclusive jurisdiction over
an exit charge. A state proceeding adjudicating whether an exit
charge is just and reasonable is therefore preempted because it
is “unmistakably and unambiguously directed” at something

    *
       Because we decide the case on this ground, we have no
occasion to consider Respondent-Intervenors’ intriguing textual
argument that even the FERC’s “directly affecting” jurisdiction is
exclusive.
                            14
that is in “the [FERC’s] exclusive domain.” Oneok, Inc. v.
Learjet, Inc., 575 U.S. 373, 386 (2015) (cleaned up).

                    III.   Conclusion

     For the foregoing reasons, we dismiss the petitions for
review insofar as they raise arguments not presented to the
agency, and we deny them in all other respects.
                                                So ordered.