United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 4, 2009 Decided August 10, 2010
No. 08-1201
TNA MERCHANT PROJECTS, INC.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
BONNEVILLE POWER ADMINISTRATION,
INTERVENOR
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
Brian R. Gish argued the cause for petitioner. With him on
the briefs was John Cameron.
Samuel Soopper, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief were Cynthia A. Marlette, General Counsel, and Robert H.
Solomon, Solicitor. Barbara C. Biddle and Jeffrey A. Clair,
Attorneys, U.S. Department of Justice, entered appearances.
Elizabeth K. Loebach argued the cause for intervenor
2
Bonneville Power Administration. With her on the brief was
Mary K. Jensen.
Before: SENTELLE, Chief Judge, and HENDERSON and
GARLAND, Circuit Judges.
Opinion for the Court filed by Circuit Judge GARLAND.
GARLAND, Circuit Judge: Chehalis Power Generating,
L.L.C., petitions for review of two orders of the Federal Energy
Regulatory Commission (FERC).1 The orders held that the rate
schedule Chehalis proposed for supplying reactive power to the
Bonneville Power Administration (BPA) constituted a “changed
rate” that was subject to the suspension and refund provisions of
§ 205(e) of the Federal Power Act (FPA), 16 U.S.C. § 824d(e).
Chehalis contends that its proposal was for an “initial rate,” not
a “changed rate,” and hence was not subject to suspension or
refund. Because the Commission failed to respond to Chehalis’
argument that its rate cannot be classified as “changed” since it
was not previously filed, we vacate the Commission’s orders
and remand the case.
1
By order dated January 14, 2009, this court granted a motion to
substitute TNA Merchant Projects, Inc., as petitioner in place of
Chehalis. TNA owned all the equity interests in Chehalis at the time
Chehalis filed the petition for review, but subsequently sold those
interests while retaining the rights to the claims made in this
proceeding. Hence, TNA and not Chehalis is the entity with an
interest in the outcome. Pet’r Br. i. For consistency with FERC’s
orders and the parties’ pleadings, however, we will refer here to the
petitioner as “Chehalis.”
3
I
The Chehalis facility is a 520 megawatt electric generating
plant located in Chehalis, Washington. The plant is
interconnected with the BPA electric transmission system. In
February 2005, Chehalis and other independent generators
entered into a settlement agreement with BPA laying out a
process through which they could seek compensation for
supplying BPA with reactive power.2 Pursuant to the settlement,
Chehalis submitted a proposed rate schedule to FERC “set[ting]
forth Chehalis’ rates for the provision of Reactive Power
Service” to BPA. Rate Schedule at 1 (May 31, 2005) (J.A. 10).
The letter accompanying the schedule characterized the
submitted rates as “initial rates,” stating: “[T]he subject of the
submitted rates is a new service offered by Chehalis in that it has
never sought to charge for this service before. In addition, BPA
is not an existing customer of Chehalis for any purpose.” Letter
from Davis Wright Tremaine LLP to FERC at 6 (May 31, 2005)
(J.A. 6).
On July 27, 2005, FERC found that Chehalis’ proposed
tariff was not an initial rate schedule. “An initial rate schedule,”
the Commission said, “must involve a new customer and a new
service.” Chehalis Power Generating, L.P., 112 F.E.R.C.
¶ 61,144, at 61,806 (2005) (hereinafter Suspension Order).
2
The Commission describes reactive power as follows:
Electric power consists of two components. The first
component, “real” power . . . , is the active force that causes
electrical equipment to perform work. The second component,
“reactive” power, . . . is necessary to maintain adequate
voltages so that “real” power can be transmitted.
Southern Co. Servs., Inc., 80 F.E.R.C. ¶ 61,318, at 62,080 (1997).
4
“Chehalis,” however, “has been providing reactive power to
BPA pursuant to an interconnection agreement, albeit without
charge. Thus, the proposed rates for reactive power . . . are not
initial rates, but are changed rates.” Id. at 61,807. This finding
was significant because § 205(e) of the FPA authorizes FERC to
suspend changed rates and make them effective subject to
refund, but does not permit it to do the same for initial rates. 16
U.S.C. § 824d(e); see Southwestern Elec. Power Co. v. FERC,
810 F.2d 289, 291 (D.C. Cir. 1987) (holding that § 205
“empowers the Commission to exercise suspension and refund
authority only over filings legitimately characterized as changed
rates; as to initial rates, the Commission’s ratemaking powers
are purely prospective” (citing Middle South Energy, Inc. v.
FERC, 747 F.2d 763, 772 (D.C. Cir. 1984))). Exercising its
authority under § 205(e), FERC accepted Chehalis’ filing,
“suspend[ed] it for a nominal period, to become effective
August 1, 2005 . . . subject to refund,” and established “hearing
and settlement judge procedures.” Suspension Order, 112
F.E.R.C. at 61,807.
On August 26, 2005, Chehalis moved for rehearing, arguing
that FERC had wrongly characterized the rate schedule as
“changed” rather than “initial.” Req. for Reh’g at 4-6. Of
particular pertinence to this appeal, Chehalis argued (among
other things) that FERC’s § 205(e) authority extends only to
rates described in § 205(d), which, in turn, only encompasses
changes to rates described in § 205(c). Id. at 5. And § 205(c),
Chehalis contended, only covers rates that have been filed with
the Commission. Id. Because Chehalis had not previously filed
any rates with FERC for providing reactive power to BPA, it
contended that the proposed rates fell outside FERC’s authority
under § 205(e).
On December 15, 2005, FERC denied Chehalis’ request for
rehearing, Chehalis Power Generating, L.P., 113 F.E.R.C.
5
¶ 61,259 (2005) (hereinafter Rehearing Order), once again ruling
that the proposed rate schedule contained changed rates. Id. at
62,025. Emphasizing the “latitude that the Commission has to
interpret what constitutes a changed rate versus what constitutes
an initial rate,” FERC held that its “well-settled precedent
[established] that an initial rate is one that provides for a new
service to a new customer.” Id. Applying this definition, FERC
determined that, because “prior to [submitting its proposed rate
schedule] . . . Chehalis had been providing reactive power to
BPA pursuant to its interconnection agreement[,] . . . it is not
now providing a new service nor is it now providing service to
a new customer.” Id.
This petition for review followed.
II
We have jurisdiction to review FERC’s orders pursuant to
§ 313(b) of the FPA. 16 U.S.C. § 825l(b). The orders are
subject to reversal if they are “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A); see ExxonMobil Gas Mktg. Co. v. FERC, 297 F.3d
1071, 1083 (D.C. Cir. 2002). To the extent Chehalis is
challenging FERC’s interpretation of the meaning of FPA
§ 205(e), we review that interpretation under the familiar two-
step framework of Chevron U.S.A. Inc. v. Natural Res. Def.
Council, Inc., 467 U.S. 837 (1984); see ExxonMobil Gas Mktg.,
297 F.3d at 1083. Under that framework, “[i]f the intent of
Congress is clear, . . . [a court] must give effect to the
unambiguously expressed intent of Congress.” Chevron, 467
U.S. at 842-43. But “if the statute is silent or ambiguous with
respect to the specific issue,” the court must uphold the agency’s
interpretation as long as it is reasonable. Id. at 843.
6
Chehalis advances a host of grounds for reversing the
Commission’s orders. First, it contends that there is “no
evidence in the record as to whether Chehalis had been
providing any reactive power prior to filing its rate schedule,”
and hence no support for regarding the schedule as anything
other than “initial.” Pet’r Br. 20. Second, it argues that,
regardless of whether it had previously supplied reactive power
to BPA, it had “never before charged or collected one cent of
revenue for the provision of reactive power,” and “BPA had
never been [its] customer . . . for any power service.” Id. at 17.
Thus, its rate filing fits FERC’s definition of an initial rate as a
“new service to a new customer.” Id. Third, Chehalis maintains
that, to the extent consumer protection concerns drove FERC to
expand its interpretation of what constitutes an initial rate under
FPA § 205, amendments to FPA § 206 now provide “virtually
the same refund protection . . . for an initial rate . . . as there is
for a changed rate,” thus giving FERC no reason “to try to
stretch the definition of changed rates.” Id. at 26-27 (citing the
Energy Policy Act of 2005, Pub L. No. 109-58, 119 Stat. 594,
and the Regulatory Fairness Act, Pub. L. No. 100-473, 102 Stat.
2299 (1988)). Fourth, Chehalis argues that FERC’s Suspension
Order was not supported by the precedents upon which it relied.
Id. at 24-25 (contending that Calpine Oneta Power, L.P., 103
F.E.R.C. ¶ 61,338 (2003), was wrongly decided, and that WPS
Canada Generation, Inc., 103 F.E.R.C. ¶ 61,193 (2003), Florida
Power & Light Co., 65 F.E.R.C. ¶ 61,411 (1993), and Florida
Power & Light Co. v. FERC, 617 F.2d 809 (D.C. Cir. 1980), are
inapposite).
In the proceedings below, FERC responded to these
arguments. First, the Commission found that “Chehalis ha[d]
been providing reactive power to BPA pursuant to an
interconnection agreement,” Suspension Order, 112 F.E.R.C. at
61,807, a point it now contends is made plain by the text of
Chehalis’ proposed rate schedule, Resp’t Br. 13. Second, the
7
Commission answered Chehalis’ claim that a service being
provided at no cost cannot qualify as an initial rate by noting
that its precedents define initial rates as requiring both “a new
customer and a new service.” Suspension Order, 112 F.E.R.C.
at 61,806-07 & n.9. Consistent with its decision in Calpine
Oneta Power, L.P., 103 F.E.R.C. at 62,282-83, the Commission
held that Chehalis’ prior provision of reactive power to BPA --
even at no cost -- means that it was not proposing to provide a
new service. Third, the Commission noted that, notwithstanding
the amendments to FPA § 206, “a fundamental difference still
exists” between § 205 and § 206. Rehearing Order, 113
F.E.R.C. at 62,025 n.18. On appeal, FERC further argued that
its decision to proceed under § 205 made the petitioner’s
arguments concerning § 206 irrelevant. Resp’t Br. 17. Finally,
FERC maintained that none of the precedents Chehalis cited
were in conflict with the orders at issue here. To the contrary,
it argued -- as it did below -- that Calpine Oneta Power was
directly on point. Id. at 18-19.
We need not determine who has the better of any of these
four arguments because Chehalis also advanced a fifth,
substantial argument that the Commission entirely failed to
address. FERC’s Rehearing Order described this argument as
follows: “[B]ecause [Chehalis] did not file a rate schedule
pursuant to section 205(c) for the reactive power it previously
provided for no charge under the BPA interconnection
agreement, it maintains that there can be no rate change under
the FPA.” Rehearing Order, 113 F.E.R.C. at 62,024. Chehalis’
argument began with the text of § 205(e), which limits FERC’s
power to suspend rates and order refunds to “any such new
schedule.” 16 U.S.C. § 824d(e). As we recognized in Middle
South Energy, “the use of the iterative adjective ‘such’ indicates
that this language is understandable only by reference to the sole
prior reference in section 205 to ‘new schedule:’ this reference
is contained in section 205(d).” 747 F.2d at 768. Section 205(d)
8
declares that “no change[s] shall be made . . . in any such rate”
except after filing “new schedules.” 16 U.S.C. § 824d(d).
Chehalis argued that the “such rate[s]” referred to in § 205(d)
are, in turn, the “rates” discussed in the preceding section,
§ 205(c). 16 U.S.C. § 824d(c). And that section states:
“[E]very public utility shall file with the
Commission . . . schedules showing all rates and charges for any
transmission or sale subject to the jurisdiction of the
Commission.” Id. Connecting the dots back from § 205(e) to
§ 205(d) to § 205(c), Chehalis argued that the only rates that are
subject to § 205(e)’s suspension and refund provisions are those
that change a rate already on file with FERC. See Req. for
Reh’g at 4-6.
It is undisputed that Chehalis did not file a rate schedule for
reactive power before it filed the one at issue in this case. In
particular, the parties agree that neither Chehalis nor BPA filed
the interconnection agreement between the two entities. See
Pet’r Br. 19; Oral Arg. Recording 17:16-17:20. There is dispute,
however, as to whether the interconnection agreement should
have been filed. Chehalis maintains that it was not required to
file the agreement. Pet’r Br. 19, 21; see Rehearing Order, 113
F.E.R.C. at 62,024 (noting Chehalis’ argument that “the
interconnection agreement is a BPA interconnection agreement
and is not a Chehalis rate schedule”). FERC’s counsel argues
that the agreement should have been filed and, further, that that
is sufficient reason for regarding the proposed rate as a change
from a previous rate. See Oral Arg. Recording at 17:17-17:23.
A fatal flaw in this argument is that it was not the rationale
the Commission gave in its orders. We, of course, “cannot
‘accept appellate counsel’s post hoc rationalizations for agency
action’; for an agency’s order must be upheld, if at all, ‘on the
same basis articulated in the order by the agency itself.’” Fed.
Power Comm’n v. Texaco, Inc., 417 U.S. 380, 397 (1974)
9
(quoting Burlington Truck Lines, Inc. v. United States, 371 U.S.
156, 168-69 (1962) (citing SEC v. Chenery Corp., 332 U.S. 194,
196 (1947))). In the Rehearing Order, FERC acknowledged
Chehalis’ argument that a rate cannot be classified as “changed”
unless it was previously filed and that Chehalis had never filed
a rate for the provision of reactive power to BPA. See
Rehearing Order, 113 F.E.R.C. at 62,024. But it did not respond
by saying that the interconnection agreement should have been
filed and that “should have been” filed is sufficient. See Oral
Arg. Recording at 17:35-17:47 (concession by FERC counsel).
Indeed, FERC did not respond to Chehalis’ argument at all.
Instead, it merely noted that this Circuit has “agreed to defer to
the Commission’s technical expertise to determine what rates
are changed rates and what rates are initial rates, ‘unless the
Commission’s judgment is unreasonable or cannot be rationally
reconciled with the terms of the Act.’” Rehearing Order, 113
F.E.R.C. at 62,025 (quoting Florida Power & Light, 617 F.2d at
814-15).
The FPA does not define initial or changed rates. Florida
Power & Light, 617 F.2d at 814. Thus, although we will defer
to a reasonable definition by the Commission, we cannot defer
to one that is unexplained. See Southeast Alabama Med. Ctr. v.
Sebelius, 572 F.3d 912, 920 (D.C. Cir. 2009). “Until [FERC]
provides such an explanation,” this court “cannot evaluate
whether the [Commission’s] interpretation of the statute is
reasonable within the meaning of Chevron step two.” Id.
(quoting Kidney Ctr. of Hollywood v. Shalala, 133 F.3d 78, 88
(D.C. Cir. 1998)). Accordingly, we vacate FERC’s orders and
remand the case for the Commission to provide an explanation
if it can. See Kidney Ctr., 133 F.3d at 88.
10
III
For the foregoing reasons, the petition for review is granted,
and FERC’s orders are
Vacated and remanded.