United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 2, 1998 Decided January 15, 1999
No. 92-1665
Western Massachusetts Electric Company,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
Pittsfield Generating Company, L.P.,
and Masspower,
Intervenors
Consolidated with
Nos. 94-1290 & 97-1726
On Petitions for Review of Orders of the Federal
Energy Regulatory Commission
David B. Raskin argued the cause for petitioner. With
him on the briefs was Frederic Lee Klein.
Samuel Soopper, 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 S. Geldermann, Attorney, entered
an appearance.
Before: Henderson, Randolph, and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Randolph.
Randolph, Circuit Judge: Western Massachusetts Electric
Company--WMECO--petitions for review of six orders of
the Federal Energy Regulatory Commission asserting juris-
diction over certain interconnection agreements and ordering
the cost of grid upgrades associated with the interconnections
to be rolled into WMECO's rate base rather than be borne
exclusively by the interconnecting facilities. For the reasons
that follow, we deny the petitions for review.
I
The Altresco Agreements
Altresco-Pittsfield Limited Partnership1 operates a 165
MW cogeneration plant located adjacent to a General Electric
facility in Pittsfield, Massachusetts. In 1988, the Altresco
plant was certified as a "qualifying facility" under the Public
Utility Regulatory Policies Act of 1978 (PURPA). See 16
U.S.C. ss 824a-3(j) and 796(17) & (18). Altresco's certifica-
tion as a qualifying facility allows it to compel electric utilities
to purchase the power it generates and to require intercon-
nection with those purchasing utilities in order to facilitate
such sales. See 18 C.F.R. s 292.303(a) & (c).
Beginning in 1989, Altresco entered into a series of con-
tracts with WMECO under which Altresco would intercon-
nect with WMECO's transmission grid. The purpose of the
__________
1 Altresco-Pittsfield is now known as Pittsfield Generating Com-
pany, L.P. For the sake of consistency with the Commission's
orders in this case, we will continue to refer to it as Altresco.
interconnection was to enable WMECO to transmit Altresco-
generated power across its grid to the New England Power
Company (NEPCO); WMECO would not itself purchase any
of Altresco's output. The agreements set out the terms and
conditions under which WMECO was to construct, operate,
and maintain the interconnection. The interconnection itself
was to be accomplished by means of a radial line from
Altresco's generating facility to a point on WMECO's grid.
According to studies performed by WMECO, the Altresco
interconnection required certain lines and substations on the
grid to be upgraded in order to preserve the grid's reliability.
Altresco was to bear the $3.9 million2 cost of the interconnec-
tion, including the cost of the upgrades to WMECO's grid.
Believing that the Altresco interconnection agreements
would be subject to state rather than federal regulatory
authority, WMECO filed the agreements with the Massachu-
setts Department of Public Utilities rather than with the
Commission. In 1989 and 1990, WMECO negotiated trans-
mission service agreements with NEPCO under which
WMECO would wheel Altresco-generated power to NEPCO.
These transmission agreements were filed with the Commis-
sion. The Commission responded on April 24, 1992, with an
order setting the transmission rates for hearing and also
asserting jurisdiction over the interconnection agreements
themselves. See Western Massachusetts Elec. Co., 59
F.E.R.C. p 61,091, at 61,343 (1992).
WMECO requested a rehearing on the question of the
Commission's jurisdiction over the interconnection agree-
ments, arguing that PURPA gives state authorities jurisdic-
tion over interconnections between utilities and qualifying
facilities. It further argued that the agreements did not fall
within the Commission's jurisdiction because they involved
facilities rather than services, because they were all pre-
operational, and because they did not involve the interstate
transmission of power.
__________
2 This figure includes $2.98 million for grid upgrades, $510,000 for
the radial line connecting Altresco to the WMECO grid, and
$450,000 for feasibility and engineering studies.
In a November 1992 order, the Commission rejected
WMECO's arguments and denied its request for rehearing on
the question of jurisdiction. See Western Massachusetts
Elec. Co., 61 F.E.R.C. p 61,182 (1992). The Commission
relied on s 205(c) of the Federal Power Act, 16 U.S.C.
s 824d(c), and on 18 C.F.R. s 292.303, the regulation setting
out the obligation to interconnect. Section 205(c) provides for
Commission jurisdiction over "all contracts which in any
manner affect or relate to [transmission] rates, charges,
classifications, and services, [which are subject to the jurisdic-
tion of the Commission]." 16 U.S.C. s 824d(c). The agree-
ments "relate to" transmission rates, the Commission held,
because the purpose of the interconnection was to facilitate
transmission of Altresco-generated power to NEPCO.
Therefore the agreements fell within the Commission's juris-
diction under s 205(c).
The Commission also held that the regulation assigning
jurisdiction over interconnections to state authorities did not
apply in this case because WMECO had no obligation to
interconnect under s 292.303. WMECO was providing only
transmission service; it was not purchasing any of Altresco's
output. As the Commission saw it, s 292.303 does not extend
the obligation to interconnect "to utilities located between the
buyer and the seller that provide transmission service." 61
F.E.R.C. at 61,662. When there is no obligation to intercon-
nect, the regulation providing for state regulatory authority
over interconnections, 18 C.F.R. s 292.306(a), does not apply.
The Commission concluded, therefore, that these agreements
were fully within its jurisdiction.
The Commission's orders of April and November 1992
asserting jurisdiction and denying rehearing are the subject
of WMECO's December 1992 petition for review in this
Court, No. 92-1665.
The Commission ordered an evidentiary hearing before an
administrative law judge to determine the "justness and
reasonableness" of assigning to Altresco all costs associated
with the interconnection agreements. Western Massachu-
setts Elec. Co., 63 F.E.R.C. p 61,039, at 61,197 (1993). In the
hearing, WMECO argued that the entire cost, including the
cost of the grid upgrades, was directly related to the intercon-
nection and therefore could properly be assigned to Altresco.
The Commission staff countered that only the $510,000 cost of
the radial line from Altresco's plant to the WMECO grid was
assignable to the interconnection itself. The remaining
amount, in the staff's view, should be allocated to system
upgrades, upgrades that should be rolled into the rate base
and recovered from all WMECO customers.
The ALJ ruled that the statute did not support the Com-
mission's interpretation of what constitutes interconnection
costs. See Western Massachusetts Elec. Co., 64 F.E.R.C.
p 63,028, at 65,127 (1993). According to the ALJ, nothing in
PURPA or in the Commission's regulations implementing
PURPA limits interconnection costs to the cost of radial lines.
Because the local grid upgrades were directly related to the
interconnection, the ALJ concluded that it was just and
reasonable for WMECO to assign to Altresco the entire cost
incurred under the interconnection agreements, including the
cost of the grid upgrades.
In a December 1996 order, the Commission reversed the
ALJ's initial decision with regard to the cost of the grid
upgrades. It agreed with the testimony of staff witness
Tekumalla that the upgrades provided a system-wide benefit
and concluded that, because "the cost of the reinforcements
must be treated as grid-related costs rather than as intercon-
nection costs," it was proper for WMECO to recover the cost
of the upgrades from all customers on the grid through
rolled-in rates. See Western Massachusetts Elec. Co., 77
F.E.R.C. p 61,268, at 62,120 (1996). The Commission denied
a request for rehearing. See Western Massachusetts Elec.
Co., 81 F.E.R.C. p 61,152, at 61,692 (1997). The orders
reversing the ALJ and denying rehearing are the subject of
WMECO's December 1997 petition for review, No. 97-1726.
The Masspower Agreements
Masspower owns a natural-gas-fired cogeneration plant in
Springfield, Massachusetts. The plant is a qualifying facility
under PURPA. In 1991, WMECO agreed to interconnect
Masspower's plant with the WMECO transmission grid. The
interconnection was intended to allow WMECO to purchase a
portion of Masspower's output and to wheel the rest of it
across its transmission grid to other purchasers. As with the
Altresco agreements, the Masspower agreements included
upgrades to the transmission grid and required the qualifying
facility to bear all the costs associated with the interconnec-
tion, including the cost of the upgrades. Because, in the
Altresco proceedings, the Commission had already asserted
jurisdiction over agreements similarly involving the transmis-
sion of qualifying-facility energy to other producers, WMECO
filed the Masspower agreements and proposed transmission
rates with the Commission, rather than with the state regula-
tory authority.
In support of its cost assignment to Masspower, WMECO
argued that the grid upgrades were necessitated by the
interconnection and that they were actually less expensive
than a radial line would have been. The agreements assigned
all interconnection and grid reinforcement costs to Masspow-
er, and the proposed transmission rates included additional
charges for customers receiving Masspower energy. Such a
plan, the Commission held, would result in the over-collection
of costs, contrary to the Commission's transmission pricing
guidelines. Accordingly, the Commission ordered WMECO
to file revised charges assigning the costs of the interconnec-
tion--but not of the grid upgrades--to Masspower. The
Commission denied WMECO's request for rehearing in Feb-
ruary 1994. See Western Massachusetts Elec. Co., 66
F.E.R.C. p 61,167 (1994). The order to file revised charges
and the order denying rehearing are the subject of
WMECO's April 1994 petition for review, No. 94-1290.
II
The consolidated petitions present two central questions.
The first is whether the Commission's assertion of jurisdiction
over the Altresco and Masspower interconnection agreements
was "inconsistent with the regulation" or was a "plainly
erroneous" interpretation of the Commission's regulations.3
See Auer v. Robbins, 117 S. Ct. 905, 911 (1997) (citing Bowles
v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)); see
also Robertson v. Methow Valley Citizens Council, 490 U.S.
332, 359 (1989); United States v. Larionoff, 431 U.S. 864,
872-73 (1977). The second is whether the Commission prop-
erly determined that WMECO may not assign the cost of the
grid upgrades to the qualifying facilities.
A
As to the jurisdictional question, three regulatory provi-
sions must be considered: the provision governing a utility's
obligation to purchase power from a qualifying facility; the
provision governing indirect purchases from a qualifying facil-
ity; and the provision governing a utility's obligation to
interconnect with a qualifying facility.
The purchase obligation, as contained in s 292.303(a),
states that "Each electric utility shall purchase ... any
energy and capacity which is made available from a qualifying
facility: (1) Directly to the electric utility; or (2) Indirectly to
the electric utility in accordance with paragraph (d) of this
section." 18 C.F.R. s 292.303(a).
Paragraph (d) of s 292.303 governs indirect purchases from
a qualifying facility. It states:
__________
3 WMECO challenges not only the Commission's jurisdiction over
the Altresco agreements, but also its jurisdiction over the Masspow-
er agreements. Although WMECO "reserve[d] its rights to contest
jurisdiction as may be necessary and appropriate," the orders in the
Masspower proceedings do not indicate that the company actually
contested the Commission's jurisdiction. See, e.g., Western Massa-
chusetts Elec. Co., 63 F.E.R.C. p 61,222, at 62,612 n.4 (1993);
Western Massachusetts Elec. Co., 66 F.E.R.C. p 61,167, at 61,333
(1994). Whether WMECO thereby waived the jurisdictional argu-
ment is, however, unnecessary to decide. Because the interconnec-
tions facilitate WMECO's wheeling of qualifying-facility output, the
analysis is the same for the Altresco and the Masspower agree-
ments. If the Commission had jurisdiction over the Altresco agree-
ments, it also had jurisdiction over the Masspower agreements.
If a qualifying facility agrees, an electric utility which
would otherwise be obligated to purchase energy or
capacity from such qualifying facility may transmit the
energy or capacity to any other electric utility. Any
electric utility to which such energy or capacity is trans-
mitted shall purchase such energy or capacity under this
subpart as if the qualifying facility were supplying ener-
gy or capacity directly to such electric utility....
18 C.F.R. s 292.303(d).
The obligation to interconnect is contained in paragraph (c)
of s 292.303. This critical provision states: "[A]ny electric
utility shall make such interconnections with any qualifying
facility as may be necessary to accomplish purchases or sales
under this subpart." 18 C.F.R. s 292.303(c) (emphasis add-
ed).
WMECO contends that the Commission ignored the full
significance of the italicized language in paragraph (c) when it
asserted jurisdiction over the Altresco agreements. Accord-
ing to WMECO, the obligation to interconnect applies to all
"purchases or sales under this subpart," which includes indi-
rect sales under paragraph (d)--that is, situations in which
the interconnecting utility only provides transmission service
and does not purchase any of the qualifying facility's output.
Thus, it concludes, the Altresco and Masspower interconnec-
tions should be subject to state, rather than federal, regulato-
ry jurisdiction, even though they involve transmission, rather
than purchase, by the interconnecting utility.
Whatever force one may ascribe to WMECO's reading, it
has not shown the Commission's interpretation to be "plainly
erroneous" or "inconsistent with the regulations." Auer, 117
S. Ct. at 911. In "a competition between possible meanings
of a regulation, the agency's choice receives substantial defer-
ence" so long as it is "logically consistent with the language of
the regulation" and "serves a permissible regulatory pur-
pose." Rollins Envtl. Servs. (NJ), Inc. v. EPA, 937 F.2d 649,
652 (D.C. Cir. 1991). The Commission read the interconnec-
tion obligation in s 292.303(c)(1) to be contingent on the
obligation to purchase in s 292.303(a). The obligation to
interconnect applies to any electric utility that is purchasing
all of the output of a qualifying facility. It does not apply, the
Commission believed, when that utility transmits the energy
to another utility. WMECO is not purchasing energy from
Altresco, and although it is purchasing some of Masspower's
output, it is transmitting the remainder of that output to
other purchasers. The Commission reads s 292.303(c) as if it
read "any electric utility shall make such interconnections
with any qualifying facility as may be necessary to accomplish
purchases or sales [to it] under this subpart." The "to it" is
inferred, but properly so, and the Commission's explanation
offered when it promulgated the regulation demonstrates
why.
The statute--PURPA--did not by its terms impose upon
electric utilities an obligation to interconnect with qualifying
facilities; the explicit obligation imposed by statute was to
purchase their output. See 16 U.S.C. s 824a-3(a). When the
Commission promulgated regulations to implement PURPA,
it derived an obligation to interconnect. Without an intercon-
nection obligation, the Commission reasoned, a qualifying
facility seeking to interconnect with an unwilling utility would
have to obtain an interconnection order from the Commission,
after going through the potentially time-consuming and costly
hearing procedures of s 210 of the Federal Power Act. See
16 U.S.C. s 824i. The Commission designed s 292.303(c) to
avoid this problem and thereby reduce the burden on small
power producers. See Small Power Prod. & Cogeneration
Facilities; Regulations Implementing Section 210 of the
Public Utility Regulatory Policies Act of 1978, Order No. 69,
F.E.R.C. Stats. & Regs. (CCH Transfer Binder, Regulations
Preambles 1977-1981) p 30,128, at 30,873 (1980) ("Order No.
69"). In its order denying rehearing here, the Commission
made note of this history. See 61 F.E.R.C. at 61,662 n.17
(citing Order No. 69, at 30,873). It is therefore not plainly
erroneous or inconsistent with the regulation to infer that
s 292.303(c)(1) applies only to purchasing utilities, as
s 292.303(a) clearly does. The Commission had a solid basis
for its interpretation of the regulations. The Commission's
reading of s 292.303(c) is also consistent with s 205 of the
Federal Power Act. It places the charges for transmission
under the Commission's jurisdiction, rather than under the
jurisdiction of the state agency. The Commission also made
this clear when it promulgated s 292.303(d) in 1980. See
Order No. 69, at 30,872.
WMECO asserts that none of the Altresco agreements
provides for the transmission of energy, that they are all pre-
operational, and that this defeats the Commission's jurisdic-
tion under s 205(c) of the Federal Power Act. The argument
fails to account for the language of s 205(c), which gives the
Commission jurisdiction over any contract that "relates to"
rates and charges for the transmission of electric energy--as
the Altresco and Masspower agreements surely do. Nor do
the Commission orders WMECO cites--Coso Energy Devel-
opers, 48 F.E.R.C. p 61,044, at 61,213 (1989), and Gamma
Mariah, Inc., 44 F.E.R.C. p 61,442, at 62,399 (1988)--provide
any support for its reading of s 205(c). In both of those
proceedings, the Commission declined to assert jurisdiction
because the agreements involved the inclusion of transmission
facilities as part of the qualifying facilities themselves, rather
than as part of the interconnecting public utilities. See 61
F.E.R.C. at 61,664. Those orders therefore do not control
the Commission's jurisdiction over the Altresco and Masspow-
er agreements, in which the disputed line upgrades will be
part of WMECO's grid. Cf. American Municipal Power-
Ohio, Inc., 57 F.E.R.C. p 61,358, at 62,161 (1991).
B
The second question is whether the Commission properly
required WMECO to roll the cost of the Altresco and Mas-
spower grid upgrades into its transmission rates.
With regard to the Altresco agreements, the Commission
accepted the position of staff witness Tekumalla, who testified
that any enhancement of an integrated grid system--such as
the upgrades at issue here--performs a system-wide function
and provides benefits to all customers on the grid. Having
considered all the upgrades planned by WMECO and having
performed a loadflow analysis, Tekumalla provided at least
three reasons why the upgrades would provide a benefit to all
users of the transmission grid and not just Altresco. First,
the physical configuration of the upgrades makes it clear that
their purpose is not merely to provide a power path from the
Altresco facility to the WMECO grid--which would benefit
Altresco alone--but to enhance a system used by many
customers. Second, the loadflow over the upgraded grid
facilities will not remain constant. When the flow from
Altresco is lower than expected, then other grid customers
will be making use of the upgraded grid facilities. Third, it
cannot be determined for sure that the upgrades would
merely restore the transfer capability of the WMECO grid to
the precise level that existed prior to the Altresco intercon-
nection. In addition, Tekumalla considered the testimony of
WMECO's engineer and concluded that the engineer's posi-
tion that only Altresco would benefit from the upgrades relied
upon a level of precision in planning that would have been
difficult to achieve, given the variability of loadflow conditions
and modeling techniques.
One element of reasoned decisionmaking is a demonstrable
link between the facts found and the choice. See Public
Utils. Comm'n of New York v. FERC, 813 F.2d 448, 451 (D.C.
Cir. 1987). Tekumalla's testimony provides the link. Teku-
malla's characterization of the upgrades was based on identi-
fying the beneficiary of the upgrades. The facts he cited
demonstrate that customers other than Altresco will make
use of and benefit from the grid upgrades. The choice made
by the Commission links up with those facts because it
requires the beneficiaries of the upgrades to bear the costs.
The Commission's position with regard to assignment of
costs is, so far as we can tell, part of a consistent policy to
assign the costs of system-wide benefits to all customers on
an integrated transmission grid. We have approved the
underlying rationale of this policy. When a system is inte-
grated, any system enhancements are presumed to benefit
the entire system. See, e.g., Maine Pub. Serv. Co. v. FERC,
964 F.2d 5, 8-9 (D.C. Cir. 1992); City of Holyoke Gas & Elec.
Dep't v. FERC, 954 F.2d 740, 742-43 (D.C. Cir. 1992). Before
the Commission, WMECO did not dispute the fact that its
transmission grid was integrated. Rather, it attempted to
demonstrate why the grid upgrades provided no benefit to
any customer except Altresco. The Commission instead ac-
cepted staff witness Tekumalla's testimony. As we have said,
he testified that WMECO's assumptions about the allocation
of benefits required a level of precision in planning that would
be difficult to achieve. The Commission's presumption of a
system-wide benefit was, in short, based on substantial evi-
dence.
WMECO argues that the Commission failed to consider the
cost-shifting effects of its order to roll in costs of the system
upgrades. It claims that requiring all grid customers to bear
the cost of the upgrades unfairly shifts costs properly borne
by the qualifying facility--which in turn will reap a windfall
as a result. It also claims that the Commission's decision
creates perverse incentives for qualifying facilities to ignore
economic efficiency in locating their plants because they know
that the grid customers will foot the bill.
The Commission did consider the potential for cost shifting,
however, and found it not to be present in this case. As this
court has often noted, "we are obliged to defer to [the
Commission's] technical ratemaking expertise so long as it
has supplied sufficient reasoning backed up by substantial
evidence." Pennsylvania Elec. Co. v. FERC, 11 F.3d 207,
211 (D.C. Cir. 1993) (quoting Alabama Power Co. v. FERC,
993 F.2d 1557, 1560 (D.C. Cir. 1993)) (internal quotation
marks omitted). We think that the Commission's rejection of
WMECO's cost-shifting argument was adequately supported
by logic and evidence. In any event, WMECO's arguments
about cost-shifting and perverse incentives are mistaken. If
a qualifying facility seeking interconnection for transmission
purposes located its plant far from the utility's lines knowing
that the interconnection costs would be spread among the
utility's customers, the utility could simply refuse to transmit
the power. Although the utility would still have an obligation
to purchase the qualifying facility's output, see 18 C.F.R.
s 292.303(a), the qualifying facility, rather than the utility's
customers, would wind up paying for the interconnection. A
qualifying facility could not afford to take that risk and
therefore would do all it could to keep the costs of intercon-
nection to a minimum. Of course, a cogenerator such as
Altresco would not have much of a choice about where to
locate its facility because cogenerators need to be near their
hosts anyway.
As to the question of cost assignment in the Masspower
case, we also view the Commission's order as reasonable.
The Commission found that, in addition to assigning all
interconnection costs to Masspower, WMECO also intended
to charge grid customers an increased rate for transmitting
Masspower's output. The Commission believed that such a
cost-recovery scheme would have resulted in over-collection of
costs, contrary to the Commission's transmission pricing
guidelines. In its request for rehearing, WMECO raised the
same objection to the Commission's order as it did in the
Altresco proceeding: the grid upgrades do not benefit the
entire system but only restore the grid's reliability to the
status quo. The Commission was not persuaded to deviate
from its current policy regarding integrated systems. See
Appalachian Power Co., 63 F.E.R.C. p 61,151, at 61,978,
supplemental order, 64 F.E.R.C. p 61,327 (1993). In light of
our holding with regard to the Altresco agreements, we
cannot say that the Commission erred in applying its policy to
the Masspower agreements.
For the foregoing reasons, the petitions for judicial review
are denied.
So ordered.