United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 17, 1998 Decided January 29, 1999
No. 97-1723
Sithe/Independence Power Partners, L.P.,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
Niagara Mohawk Power Corporation,
Intervenor
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Richard P. Bress argued the cause for petitioner. With
him on the briefs was David L. Schwartz.
David H. Coffman, 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.
Edward Berlin argued the cause for intervenor. With him
on the brief were Kenneth G. Jaffe and Michael E. Ward.
Before: Edwards, Chief Judge, Williams and Ginsburg,
Circuit Judges.
Opinion for the Court filed by Chief Judge Edwards.
Edwards, Chief Judge: Petitioner Sithe/Independence Pow-
er Partners ("Sithe") challenges two orders of the Federal
Energy Regulatory Commission ("FERC" or "Commission"),
dismissing Sithe's complaint against Niagara Mohawk Power
Corporation ("Niagara") and denying rehearing of that dis-
missal. Pursuant to a 1991 agreement, Sithe, an independent
power producer, receives transmission services from Niagara,
an electric utility. The challenge in this case centers on the
loss component of the overall rate that Sithe pays Niagara for
this service. Sithe argues that, in computing loss rates on an
incremental basis, Niagara is violating established Commis-
sion policy, which requires that base and loss rates be com-
puted using a consistent methodology. Sithe also argues that
Niagara's method of assigning loss calculation priorities un-
fairly discriminates on the basis of a customer's contract date.
In the orders on review, FERC dismissed Sithe's challenge,
finding that Niagara's rate methodology was not inconsistent
with Commission policy, and that the rates charged were not
unduly discriminatory. Because we are unable to ascertain
the basis for the Commission's ruling, we remand this matter
to the Commission for further proceedings.
I. Background
A.Transmission Services Agreement
Sithe owns and operates a cogeneration facility in New
York state. Pursuant to a 1991 power purchase agreement,
Sithe sells the bulk of the electric energy produced at this
facility to Consolidated Edison Company of New York ("Con
Ed"). Niagara, in turn, owns and operates electric genera-
tion, distribution, and transmission facilities in New York. In
order to enable the transmission of energy from the cogener-
ation facility to Con Ed, Sithe entered into a Transmission
Services Agreement ("TSA") with Niagara on November 5,
1991. Under the agreement, which extends for a twenty year
period from the initiation of service, Niagara provides Sithe
with roughly 805 megawatts ("MW") of firm transmission
service and up to 250 MW of interruptible transmission
service. In exchange, Sithe pays Niagara a base transmis-
sion rate and also compensates Niagara with in-kind energy
for transmission line losses. FERC accepted the TSA for
filing on February 5, 1992, and accepted a revised version for
filing on July 6, 1994. Service under the TSA commenced on
November 15, 1994.
Under the TSA, the total charge for transmission service
consists of a base charge for Niagara's embedded costs--i.e.,
construction and operation expenses and a reasonable return
on its investment--plus an additional charge for Niagara's
transmission loss costs--i.e., the costs to the utility of making
up the power loss that inevitably occurs during transmission.
There are at least two basic methodologies that a utility may
use to compute its base and loss rates: the "rolled-in" rate
method and the incremental rate method. The rolled-in rate
methodology charges a rate based on the average cost to the
utility of serving all of its customers on an integrated system.
"[E]ach transmission customer [is treated] not as using a
single transmission path but rather as using the entire trans-
mission system," and, accordingly, "each transmission cus-
tomer pays its share of the capital costs of the entire system"
based on the amount of electricity it has transmitted over the
system. Northern States Power Co. v. FERC, 30 F.3d 177,
179 (D.C. Cir. 1994). On the other hand, the incremental rate
methodology charges a rate based on how a given customer's
individual use affects the system. Each transmission custom-
er pays an amount that compensates the utility for the
marginal costs that its use imposes, which is a function of
such factors as distance and direction.
The methodology for computing rates in this case was not
clearly specified in the TSA. With respect to the base
transmission rate, the rate schedule that is part of the TSA
identified a firm service rate of $1.49 per kilowatt ("kW") per
month, which was later modified to $1.76 per kW per month.
By agreement, this rate was based on the formula that had
governed Niagara's earlier arrangements with New York
State Electric & Gas Corporation ("NYSEG") and Central
Hudson Gas & Electric Corporation ("CHGE"). Yet, the
parties' characterizations of this underlying formula are at
odds. It appears from the record that the $1.76 figure
represents an average of the costs associated with a substan-
tial portion--but not the entirety--of Niagara's transmission
system. In other words, the starting point from which aver-
ages are taken excludes investment in a particular substation,
a flat sum of $43.5 million, and various other expenses. In
Sithe's view, then, the formula reflects an average, rolled-in
methodology, even if it does not produce a fully embedded
rate. In Niagara's view, however, the formula reflects a
"hybrid," modified cost-of-service approach that is not "fully
rolled-in."
With respect to the transmission loss rate, the TSA ex-
pressly provides for compensation, in the form of in-kind
energy, for losses resulting from Niagara's service to Sithe.
Section 9.1 of the agreement states that:
[Sithe] shall compensate NIAGARA MOHAWK for
losses incurred by NIAGARA MOHAWK in its control
area and NIAGARA MOHAWK shall compensate [Sithe]
for losses avoided by NIAGARA MOHAWK in its control
area as a result of NIAGARA MOHAWK's provision of
transmission services hereunder. The determination of
such losses and the procedure for compensation thereof
shall be determined by NIAGARA MOHAWK's Power
Control Department in accordance with NIAGARA MO-
HAWK's practices relating to other similar transactions
and in accordance with GOOD UTILITY PRACTICE.
Transmission Services Agreement s 9.1, reprinted in Joint
Appendix ("J.A.") 57. There is a dispute among the parties
as to whether this provision explicitly identifies an incremen-
tal loss methodology. Before the Commission, Niagara ar-
gued that this conclusion was dictated by the language of the
agreement, and that Sithe was fully aware of this when it
entered into the agreement. Sithe, for its part, contended
that the provision did not specify any methodology, and that
it was unaware that Niagara employed an incremental ap-
proach until Niagara eventually supplied it with information
underlying the rates it was charging, well after execution of
the TSA. The Commission did not make an express finding
on this point.
In any event, there is little dispute that Niagara does, in
fact, compute Sithe's transmission loss charge on an incre-
mental, rather than average, basis. Niagara's approach can
be roughly summarized as follows. First, using a load flow
model, Niagara takes two "snapshots" of its system each
month, one during peak use and one during off-peak use, in
order to determine the amount of energy being transmitted
over the system and the amount of energy lost in transmis-
sion. Niagara then extrapolates from this data to calculate
the total transmission losses incurred for each month. Next,
Niagara removes its customers from the model one at a time
and re-calculates losses at each step, thereby arriving at a
marginal loss figure for each customer. To establish the
order of removal, Niagara assigns its customers "priorities"
based on the dates of their firm transmission contracts.
Because transmission losses are a function of the current
flowing over the system, incremental losses decrease expo-
nentially as each load is removed from the calculation--i.e.,
the assigned priority substantially affects the amount of the
loss for which a given customer will be charged. According
to Sithe, "Niagara's use of an incremental loss factor to
assign losses to Sithe instead of using an average, rolled-in
loss factor costs Sithe approximately $10,000 per day."
Amended Brief of Petitioner at 9.
B.Commission Proceedings
On March 29, 1995, Sithe filed a complaint with the Com-
mission pursuant to s 206 of the Federal Power Act ("FPA"),
16 U.S.C. s 824e (1994), challenging Niagara's method of
computing transmission losses under the TSA as unjust,
unreasonable, and unduly discriminatory. Sithe contended,
inter alia, that Niagara was violating the Commission's long-
standing "matching policy" by using an incremental method
to calculate Sithe's transmission loss charges, while at the
same time using an average rolled-in method to calculate
Sithe's base transmission rate. Sithe also contended that
Niagara's method for determining incremental losses discrim-
inated unfairly among its transmission customers by prioritiz-
ing transactions based on contract dates, and by reserving the
highest priority for its own uses of the system. Sithe sought
an order from the Commission finding Niagara's calculation
of transmission losses to be unlawful and directing Niagara to
calculate transmission losses on an average, system-wide
basis.
In its answer, Niagara raised multiple arguments in sup-
port of its current method of computing Sithe's rates. First,
Niagara suggested that Commission policy recognizes the
benefits of flexibility in rate structuring and does not strictly
require the use of matching methodologies. Next, Niagara
represented that it does not use a rolled-in methodology to
compute Sithe's base transmission rate, but rather a hybrid
methodology that includes only a portion of Niagara's fixed
costs. On this basis, Niagara argued that it was not required
to compute losses using system-wide averages even if the
matching policy applied. Finally, Niagara attempted to dem-
onstrate that the total rate it charges Sithe is lower than the
total rate it could charge Sithe if it computed both base and
loss rates using a fully rolled-in methodology, and that Sithe
had bargained for this benefit. On this alternative basis,
Niagara asserted that its rates were just and reasonable and,
accordingly, that Sithe had not been harmed.
On September 16, 1996, FERC summarily dismissed
Sithe's complaint. See Sithe/Independence Power Partners,
L.P. v. Niagara Mohawk Power Corp., 76 F.E.R.C. p 61,285
(1996) ("Initial Order"). After acknowledging that "Commis-
sion policy requires consistency in pricing a utility's transmis-
sion capacity charge and transmission losses," the Commis-
sion found Niagara's "computation of Sithe's transmission
losses to be consistent with this directive." Id. at 62,458.
The Commission agreed with Niagara's characterization of
the base transmission rate as reflecting a "hybrid" methodol-
ogy. See id. The Commission also found that Niagara
charges Sithe a base transmission rate that is "discounted
below its average system cost," and that "[t]he amount of
discount each customer receives is based on the incremental
transmission losses it imposes on [Niagara's] transmission
system." Id. Finally, the Commission reasoned that Niaga-
ra's system "allows customers that impose lower variable
costs than other customers to receive a commensurately
larger discount," and, therefore, that Niagara's methodology
does not produce unduly discriminatory or preferential re-
sults. Id. at 62,458-59. Although it found Sithe's complaint
to be "without merit," id. at 62,457, the Commission ordered
Niagara to provide Sithe with "sufficient information for Sithe
to verify [Niagara's] calculations of Sithe's transmission loss-
es." Id. at 62,459.
On October 21, 1997, the Commission denied Sithe's re-
quest for rehearing. See Sithe/Independence Power Part-
ners, L.P. v. Niagara Mohawk Power Corp., 81 F.E.R.C.
p 61,071 (1997) ("Rehearing Order"). In this order, FERC
affirmed its earlier conclusion that Sithe "enjoys a discount
from the maximum legal rate [Niagara] could impose for the
transmission service it provides," id. at 61,301, purporting to
base this conclusion on an "independent analysis" by which it
confirmed that "Sithe's overall transmission rate under its
agreement with [Niagara] is less than it would be if both the
transmission rate and the loss rate were calculated to include
a full allocation of embedded average costs." Id. at 61,301
n.1. FERC also reiterated that, "because [Niagara] reduces
the price to a greater extent for those customers imposing
lower losses, any price disparity that results from using
incremental cost ratemaking to calculate the loss factor por-
tion of the rate does not amount to undue discrimination. All
customers are treated comparably." Id. at 61,301. After
finding that Sithe enjoys a discount, the Commission went on
to deem Sithe's arguments on this score "irrelevant," as
FERC's "ratemaking practices allow [Niagara], because it
used a hybrid method to compute Sithe's transmission rates,
to consider incremental costs in computing transmission loss-
es" without violating the "matching" rule. Id. at 61,302. As
additional support for its finding of no undue discrimination,
the Commission noted that Sithe had "freely negotiated" its
rates, and that FERC does not consider rate disparities
inappropriate where they result from arm's-length negotia-
tions. Id. Finally, the Commission concluded that Sithe's
argument concerning a violation of the matching policy failed
because Sithe incorrectly presumed that its base rate incorpo-
rated Niagara's full average costs. See id.
This petition for review followed.
II. Analysis
A.Standard of Review
We review FERC orders under the Administrative Proce-
dure Act's ("APA") arbitrary and capricious standard. See
Union Pac. Fuels, Inc. v. FERC, 129 F.3d 157, 161 (D.C. Cir.
1997); 5 U.S.C. s 706(2)(A) (1994). Because " '[i]ssues of
rate design are fairly technical and, insofar as they are not
technical, involve policy judgments that lie at the core of the
regulatory mission,' our review of whether a particular rate
design is 'just and reasonable' is highly deferential." North-
ern States, 30 F.3d at 180 (quoting Town of Norwood v.
FERC, 962 F.2d 20, 22 (D.C. Cir. 1992)). Nonetheless, such
review is not an "empty gesture." Id. "[T]he Commission
must be able to demonstrate that it has 'made a reasoned
decision based upon substantial evidence in the record,' " id.
(quoting Town of Norwood, 962 F.2d at 22), and the "path of
[its] reasoning" must be clear. Id. at 182.
B.Review of Commission Orders
Because Sithe is challenging Niagara's existing rates, its
claim must be brought pursuant to s 206, rather than s 205,
of the FPA. Section 206(a) provides, in relevant part, that:
[w]henever the Commission, after a hearing had upon its
own motion or upon complaint, shall find that any rate,
charge, or classification, demanded, observed, charged,
or collected by any public utility for any transmission or
sale subject to the jurisdiction of the Commission, or that
any rule, regulation, practice, or contract affecting such
rate, charge, or classification is unjust, unreasonable,
unduly discriminatory or preferential, the Commission
shall determine the just and reasonable rate, charge,
classification, rule, regulation, practice, or contract to be
thereafter observed and in force, and shall fix the same
by order.
16 U.S.C. s 824e(a). As complainant, Sithe bore the burden
in this proceeding of demonstrating that Niagara breached
the statutory just and reasonable standard. See id.
s 824e(b); Alabama Power Co. v. FERC, 993 F.2d 1557, 1571
(D.C. Cir. 1993). By dismissing Sithe's complaint in the
orders on review, then, the Commission implicitly found that
Sithe did not satisfy its burden--either that it failed to
establish its prima facie case, or that Niagara had effectively
rebutted that case.
The core of Sithe's complaint in this case is that the
transmission loss component of Niagara's rate violates the
Commission's long-standing policy requiring that the base
and loss elements of an overall rate be computed using
consistent methodologies. Sithe's position rests on its conten-
tion that Niagara's rate components do not "match," because
its base rate is calculated on a rolled-in basis, while its loss
rate is calculated on an incremental basis. In its brief to this
court, Sithe goes so far as to suggest that these characteriza-
tions are "undisputed", see Amended Brief of Petitioner at 16,
but that is a stretch. To be sure, there does not appear to be
much dispute that Niagara computes Sithe's loss rate on an
incremental basis. See 81 F.E.R.C. at 61,301. As noted
earlier, however, there is considerable disagreement concern-
ing the appropriate characterization of the methodology by
which Niagara computes Sithe's base rate: Sithe argues that
it is an "average, rolled-in" approach, whereas Niagara ar-
gues that it is a "modified cost-of-service" approach that is
not "fully rolled-in." The record, as far as we can tell,
suggests that this calculation makes use of an average formu-
la, but does not incorporate the full complement of Niagara's
costs, as it excludes investment in certain facilities, a flat sum,
and various expenses.
Whatever the appropriate description of this disputed
methodology (fully rolled-in, partially rolled-in, or not rolled-
in at all), it is clear that Niagara does not use the same
approach to calculate both the base and loss components of its
rate. This would appear to defy FERC's well-established
policy of requiring utilities to compute the base and loss
components of their transmission rates using consistent meth-
odologies. See, e.g., Northern States Power Co., 59 F.E.R.C.
p 61,100, at 61,369, reh'g denied, 60 F.E.R.C. p 61,076, at
61,252-53 & n.25 (1992), clarification denied, 64 F.E.R.C.
p 61,111, at 61,920 (1993), aff'd sub nom. Northern States
Power Co. v. FERC, 30 F.3d 177 (D.C. Cir. 1994). In the
Northern States proceeding, FERC stated that it "does not
allow the use of incremental loss factors when the transmis-
sion charge is developed on a rolled-in basis." 59 F.E.R.C. at
61,369. It further explained that:
[t]his policy flows directly from the Commission's long-
standing practice of requiring that the demand and ener-
gy components of a rate be calculated on the same basis.
Where, as here, the customer pays for average fixed
costs rather than the fixed costs of only certain incre-
mental facilities, logic dictates that the customer pay for
average variable costs in the energy charge.
Id. In upholding the Commission's application of this
"matching" policy, this court recognized that, because rolled-
in costing assumes that each customer in an integrated
system "enjoys the benefits of the transmission system as an
integrated whole," it makes sense to hold "each customer ...
responsible for an indivisible portion of the transmission
system losses imposed upon the system by the configuration
of the group of customers using it at any one time." North-
ern States, 30 F.3d at 182. Where, then, is the Commission's
explanation for not requiring "matching" methodologies in
this case?
The Commission purported to re-affirm its "matching"
policy in the orders on review, see 76 F.E.R.C. at 62,458, but
concluded that Sithe had failed to establish a violation there-
of. In so holding, however, FERC neither provided a clear
explanation of its rationale nor revealed the data and assump-
tions underlying its findings. On the record before us, there-
fore, we are unable to satisfy ourselves that the Commission
engaged in reasoned decision making and reached conclusions
supported by the record. Indeed, we are unable to penetrate
the logic of FERC's orders to ascertain whether FERC in
fact departed from established policy and precedent and, if so,
whether it justified that departure. Cf. Northern States, 30
F.3d at 180 ("[T]he Commission must be able to demonstrate
that it has 'made a reasoned decision based upon substantial
evidence in the record.' ") (quoting Town of Norwood, 962
F.2d at 22); Hatch v. FERC, 654 F.2d 825, 834 (D.C. Cir.
1981) ("[A]n agency must provide a reasoned explanation for
any failure to adhere to its own precedents.").
The Commission's position could be, as both FERC's appel-
late counsel and Niagara urge before this court, that the
"matching policy" is not implicated in this case, because
Niagara does not compute its base transmission rate on a
fully rolled-in basis. See Brief for Respondent at 19; Brief of
Intervenor at 9. Indeed, if we stretch our imagination, we
might even conclude that a single sentence in the Rehearing
Order, indicating that Sithe's "matching" argument failed
because it "incorrectly presumes that [Niagara] developed
Sithe's transmission rates using full average costs while
Sithe's transmission losses were based on incremental costs,"
81 F.E.R.C. at 61,302 (emphasis in original), lends some
support to the view pressed by FERC's appellate counsel and
Niagara. And this argument is tempting, for it avoids the
absurdities that are faced in any attempt to employ a "match-
ing" rule in this case--the notion of "matching" is utterly
baffling when the methodologies themselves are impure, as
with Niagara's base rate in this case. What, we wonder,
would "match" this rate, which apparently resulted from a
negotiated compromise?
The problem, however, is that FERC did not articulate the
rationale that appellate counsel and Niagara now propound.
Thus, we cannot accept this articulation of the agency's
judgment. As we explained in Hatch:
Without any explicit recognition by the Commission that
the standard has been changed, or any attempt to forth-
rightly distinguish or outrightly reject apparently incon-
sistent precedent, we are left with no guideposts for
determining the consistency of administrative action in
similar cases, or for accurately predicting future action
by the Commission. The failure to admit or explain such
a basic change in the interpretation of a statutory stan-
dard to be applied to conduct of the public undermines
the integrity of the administrative process.
654 F.2d at 834-35 (footnote omitted).
The bottom line is that, if the asserted conclusion were so
obvious, it would have been a simple task for FERC to clearly
state and support the view that its matching rule does not, or
even should not, apply unless the base rate is fully rolled-in.
FERC did not do this, so we cannot rely on the theory now
advanced by its appellate counsel. See SEC v. Chenery
Corp., 318 U.S. 80, 87 (1943). The simple fact here is that
FERC purported to apply the "matching rule" in a situation
in which the disputed rate methodologies concededly do not
match.
Alternatively, the Commission's ruling arguably could rest
on the finding that the rate paid by Sithe to Niagara reflects
a discount below Niagara's average system costs. See 76
F.E.R.C. at 62,458; 81 F.E.R.C. at 61,301 & n.1. Yet, FERC
did not elaborate on what significance, if any, it ascribed to
this purported discount. Compare 76 F.E.R.C. at 62,458
(apparently relying on the existence of the discount in deem-
ing Niagara's methodology consistent with the matching rule),
with 81 F.E.R.C. at 61,302 (describing as "irrelevant" Sithe's
argument that it did not receive a discount from Niagara).
For instance, FERC may have considered this discount in
deciding that Niagara's base rate was hybrid, rather than
purely rolled-in. Or, FERC may have accepted an inference
that Sithe pays an overall rate--both cost and loss compo-
nents--that is less than it would pay if Niagara computed
both costs and losses using a fully rolled-in method and,
accordingly, that the rate is reasonable notwithstanding any
noncompliance with the matching policy.
Niagara urges this second view, stating that "[b]y requiring
consistent application of rolled-in or incremental methodolo-
gies, the Commission has created a short-hand means for
preventing excessive rates." Brief of Intervenor at 9. In
other words, "[i]f the 'end result' of the combined rate is less
than the just and reasonable rate produced by consistent
methodologies, then the rate is ipso facto just and reason-
able." Id. at 11. Lending some support to this view, we
have, in the past, suggested that the use of a so-called
"comparison rate"--comparing the rate charged to the rate
that could lawfully have been charged--seems "eminently
reasonable." City of Holyoke Gas & Elec. Dep't v. FERC,
954 F.2d 740, 742 (D.C. Cir. 1992). FERC, however, did not
state this rationale in the orders below.
It is also noteworthy that the Commission itself has, in the
past, interpreted the s 206 burden scheme to require a
customer seeking an investigation into existing rates to "pro-
vide some basis to question the reasonableness of the overall
rate level, taking into account changes in all cost components
and not just [the challenged component]." Houlton Water
Co., 55 F.E.R.C. p 61,037, at 61,110 (1991); see also City of
Hamilton, Ohio and Am. Mun. Power-Ohio, Inc. v. Ken-
tucky Power Co. and Ohio Power Co., 72 F.E.R.C. p 61,158, at
61,785-86 (1995) (dismissing, without prejudice to re-filing, a
customer's s 206 complaint because it failed to satisfy the
threshold of providing a basis to question the overall reason-
ableness of the utility's rates). Although it appears that
Sithe never made a proffer to show net harm under Niagara's
existing scheme, FERC did not articulate this as its basis for
dismissing Sithe's complaint. In short, we cannot uphold
FERC's reliance on the discount without a clearer explana-
tion of the basis for that reliance.
We find, moreover, that the Commission's reasoning was
cryptic with respect to its finding that Sithe receives a
discount. The Commission offered no indication of what
exactly its "independent analysis" entailed or what issues it
considered. Cf. Maine Pub. Serv. Co. v. FERC, 964 F.2d 5, 9
(D.C. Cir. 1992) (remanding in part because "the Commis-
sion's analysis ... contains no explanation of how it derived
the [relevant] figure"); City of Holyoke, 954 F.2d at 743
("The Commission must support its decision with enough data
to enable an adversely affected party and by extension a
reviewing court, to understand its calculation of the compari-
son rate upon which it would rely, as well as the underlying
assumptions."). Because the Commission in this case failed
to disclose its calculations, we do not know whether it simply
adopted Niagara's figures and, if so, why. We also have no
basis to confirm FERC's assumptions--for instance, we are
left to wonder if it considered whether Niagara's variable
costs, such as transmission line losses, would remain constant
and, therefore, whether the alleged discount would actually
exist over the long term. If the Commission does, in fact,
intend to rely on the existence of a discount to support its
disposition of this case, it must clarify its reasoning and
support its findings in this regard.
As a final matter, we note that Sithe also raised an undue
discrimination claim in this case, based on Niagara's method
of prioritizing its customers for the purpose of assigning
transmission losses. Under Niagara's system for calculating
losses, the order in which customers are removed from the
model substantially affects the losses for which they are
charged. Sithe argued, on rehearing and before this court,
that the Commission failed to address this argument. We are
not so sure. Throughout both orders, FERC made reference
to the issue of undue discrimination, apparently rejecting
Sithe's claim because Niagara's customers are treated "com-
parably," and because Sithe "freely negotiated" its rates. See
81 F.E.R.C. at 61,301-02. FERC did not, however, explicitly
discuss contract dates per se, leaving us simply to infer that a
customer with a later contract date imposes greater losses on
Niagara's system by the sheer fact of added volume. On
remand, FERC should clarify its ruling on this point. In so
doing, FERC must be careful to eschew any assumption that,
where aggregation of load increases average costs, the costs a
customer "imposes" on a system depend on the sequence in
which the customers are added. As we noted in Town of
Norwood,
Each customer's contribution to the coincident peak load
"causes" the costs associated with the peak, regardless of
whether that contribution comes from the customer's
increasing, or its failing to diminish, its historic con-
sumption.
962 F.2d at 24 n.1 (emphasis added). In the meantime, we
express no view on the merits of Sithe's undue discrimination
claim.
III. Conclusion
In sum, although the Commission's dismissal of Sithe's
complaint may be justifiable, we cannot find "the path of
[FERC's] reasoning" in the orders on review. Northern
States, 30 F.3d at 182. FERC did not discuss the precedent,
if any, upon which it relied or chose not to rely; nor did it
disclose in any meaningful way the underlying data and
assumptions that supported its factual findings. Because we
are unable to ascertain whether the Commission's basic con-
clusion is that Niagara complied with the matching policy,
that the matching policy does not apply in this case, or that
for some other reason Sithe has failed to satisfy its burden
under FPA s 206, we remand to the agency for further
proceedings.
So ordered.