United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 7, 2001 Decided November 2, 2001
No. 00-1297
Wabash Valley Power Association, Inc.,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
American Electric Power Company, Inc.,
Intervenor
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
James T. Malysiak argued the cause for petitioner. With
him on the briefs was Lee A. Freeman, Jr.
Andrew K. Soto, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief was Susan J. Court, Associate Solicitor.
J. A. Bouknight, Jr. argued the cause for intervenor. With
him on the brief were Douglas G. Green and Samuel T.
Perkins. Shannen W. Coffin entered an appearance.
Before: Ginsburg, Chief Judge, Edwards and Sentelle,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Edwards.
Edwards, Circuit Judge: American Electric Power Co., Inc.
("AEP") and Central and South West Corp. ("CSW"), two
large regional utility holding companies, jointly petitioned the
Federal Energy Regulatory Commission ("FERC" or "Com-
mission") for merger approval, as required by s 203 of the
Federal Power Act, 16 U.S.C. s 824b(a) (1994). When pre-
sented with a merger or acquisition request, FERC "shall
approve" the request if the merger or acquisition "will be
consistent with the public interest." Id. After lengthy re-
view, FERC conditionally approved the AEP-CSW merger
and required the combined company, referred to as New
AEP, to divest certain generation assets and share transmis-
sion capacity information. See Am. Elec. Power Co. & Cent.
& S. W. Corp., 90 F.E.R.C. p 61,242 (Mar. 15, 2000). Wabash
Valley Power Association, Inc. ("Wabash"), an Indiana com-
petitor and customer of AEP, petitions for review.
Wabash contends that FERC's decision was both procedur-
ally and substantively defective. Many of Wabash's claims
have been forfeited, however, because they were not properly
raised with FERC in the first instance. Therefore, these
claims may not be considered by the court. And we find no
merit in the claims that are properly before this court.
Because AEP and CSW sought merger approval in the
midst of sweeping regulatory changes in the electric industry,
FERC chose to impose "interim" mitigation measures to
limit New AEP's market power. Wabash contends that
FERC's approach is improper under the Federal Power Act,
because the interim measures are deficient. We disagree.
On the record at hand, we find that FERC acted reasonably
in adopting two stages of restrictions to limit New AEP's
market power. Both stages of restrictions adequately limit
New AEP's ability to strategically manipulate electricity gen-
eration to cause transmission bottlenecks. We also reject
Wabash's claims that FERC's merger approval should be
overturned because it is inconsistent with subsequent staff
statements and because it did not fully eliminate rate pancak-
ing. These claims have no bearing on the question of wheth-
er FERC's approval of the merger was arbitrary and capri-
cious. We therefore deny Wabash's petition for review.
I. Background
AEP and CSW sought to merge in the midst of a sea-
change in the regulations governing the electricity industry.
Because many of the issues raised by petitioner relate to the
application of these new regulations, we begin with a brief
summary of the current regulatory landscape and then move
to the procedural history of this case.
A. Current Regulations
By amending portions of the Federal Power Act of 1935,
the Energy Policy Act of 1992 authorized FERC to order
utilities to transmit other sellers' power over their transmis-
sion lines on a case-by-case basis. See Pub. L. No. 102-486,
106 Stat. 2776, 2915-16 (1992) (codified at 16 U.S.C. ss 824j-
k); Transmission Access Policy Study Group v. FERC, 225
F.3d 667 (D.C. Cir. 2000) (hereinafter Transmission Access)
(discussing history), cert. granted sub nom. New York v.
FERC, 121 S. Ct. 1185 (2001). Finding that utilities would
use their market power to deny transmission access to com-
peting generation sources, FERC subsequently used its stat-
utory authority, see 16 U.S.C. ss 824d(b), 824e(a), to require
utilities to provide open access to their transmission lines in a
nondiscriminatory fashion. See Promoting Wholesale Com-
petition Through Open Access Non-Discriminatory Trans-
mission Services by Public Utilities, Order No. 888, 61 Fed.
Reg. 21,540 (May 10, 1996), clarified, 76 F.E.R.C. p 61,009
(July 2, 1996) and 61 Fed. Reg. 51,696 (Oct. 3, 1996), on reh'g,
Order No. 888-A, 62 Fed. Reg. 12,274 (Mar. 14, 1997), clari-
fied, 79 F.E.R.C. p 61,182 (May 16, 1997), on reh'g, Order No.
888-B, 62 Fed. Reg. 64,688 (Dec. 9, 1997), on reh'g, Order No.
888-C, 82 F.E.R.C. p 61,046 (Jan. 20, 1998), aff'd, Transmis-
sion Access, 225 F.3d 667, cert. granted sub nom. New York,
121 S. Ct. 1185. Order No. 888, among other things, set forth
the framework for creating Independent System Operators
("ISOs"), independent companies that manage transmission
facilities owned by utilities. 61 Fed. Reg. at 21,596. ISOs
have no financial stake in any power market participant, have
the ability to halt generation causing transmission system
constraints, and must provide real-time transmission informa-
tion to market participants. Id.
At the same time, FERC also issued Order No. 889 which
required all owners and operators of electricity transmission
systems to participate in an Open Access Same-time Informa-
tion System, or OASIS. Open Access Same-Time Informa-
tion System and Standards of Conduct, Order No. 889, 61
Fed. Reg. 21,737 (May 10, 1996), on reh'g, Order No. 889-A,
62 Fed. Reg. 12,484 (Mar. 14, 1997), on reh'g, Order No. 889-
B, 62 Fed. Reg. 64,715 (Dec. 9, 1997), aff'd, Transmission
Access, 225 F.3d 667, cert. granted sub nom. New York, 121
S. Ct. 1185. One of the main functions of an OASIS is to
calculate Available Transmission Capacity ("ATC"), the dif-
ference between a transmission system's total capacity and
already-committed capacity. Order No. 889, 61 Fed. Reg. at
21,749. Because ATC often limits where electricity can be
sold, this information allows generators to determine addi-
tional potential markets.
In 1999, FERC found that the changes brought by Orders
Nos. 888 and 889 had imposed significant strain on "tradition-
al means of grid management" and that "continued discrimi-
nation in the provision of transmission services by vertically
integrated utilities may also be impeding fully competitive
electricity markets." Regional Transmission Organizations;
Notice of Proposed Rulemaking, 64 Fed. Reg. 31,390, at
31,391 (June 10, 1999). Although Orders Nos. 888 and 889
reduced overt discrimination, transmission-owning utilities re-
sorted to "more subtle means to frustrate their marketing
competitors and favor their own marketing interests." Id. at
31,402. As a consequence, the Orders were ineffective in
completely removing transmission discrimination. Functional
limitations arising from the relatively small size of the ISOs
also limited their ability to provide essential information
accurately, such as ATC: "it is not possible to calculate
accurately the transmission capability of one system without
knowing the flows scheduled by all other interconnected
transmission providers in the region." Id. at 31,403.
In response to the shortcomings of Orders Nos. 888 and
889, FERC issued Order No. 2000, which established the
framework for Regional Transmission Organizations, or
RTOs. See Regional Transmission Organizations, Order
No. 2000, 65 Fed. Reg. 810 (Jan. 6, 2000), on reh'g, Order No.
2000-A, 65 Fed. Reg. 12,088 (Mar. 8, 2000), petitions for
review pending sub nom. Public Utility District No. 1 of
Snohomish County, Washington v. FERC, No. 00-1174 (D.C.
Cir. argued Oct. 17, 2001). RTOs build upon many ISO
features and have four main characteristics: independence,
sufficient size and regional scope, operational authority for all
transmission facilities under their control, and exclusive au-
thority for maintaining short term grid reliability. 65 Fed.
Reg. 810, at 842-75. FERC requires RTOs to be larger,
more independent, and exercise more sophisticated control
over the transmission system than ISOs. In 2001, FERC
further clarified the scope requirements of RTOs, forcing
several parties into mediation with an ultimate goal of creat-
ing four RTOs - one for the Northeast, Southeast, Midwest,
and West. See, e.g., Order Provisionally Granting RTO
Status, 96 F.E.R.C. p 61,061 (July 12, 2001).
B. Procedural History
AEP and CSW jointly applied to FERC for merger approv-
al on April 30, 1998. At that time, AEP, through wholly-
owned subsidiaries, provided power to three million custom-
ers in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virgi-
nia, and West Virginia with over 23,000 megawatts ("MW") of
generating capacity and 22,000 miles of transmission lines.
Am. Elec. Power Co., 90 F.E.R.C. p 61,242, at 61,776. CSW,
also through wholly-owned subsidiaries, served 1.7 million
customers in Arkansas, Louisiana, Oklahoma, and Texas with
over 14,000 MW of generating capacity and 16,000 miles of
transmission lines. See Joint Application of Am. Elec. Power
Co., Inc. & Cent. & S. W. Corp. (Apr. 30, 1998), reprinted in
Joint Appendix ("J.A.") 134, 165 (hereinafter "Joint Applica-
tion").
To determine whether a proposed merger meets the Feder-
al Power Act's s 203 public interest standard, FERC re-
quires applicants to conduct a competitive analysis screen,
referred to as an Appendix A analysis, using the framework
established by the Department of Justice/Federal Trade
Commission Merger Guidelines. See Inquiry Concerning the
Commission's Merger Policy Under the Federal Power Act;
Policy Statement, 61 Fed. Reg. 68,595, at 68,606 (Dec. 30,
1996). The Appendix A analysis requires applicants to:
1) identify the relevant products;
2) identify customers who may be affected by the merg-
er;
3) identify potential competing suppliers to each identi-
fied customer; and
4) analyze market concentration, using the Herfindahl-
Hirschman Index ("HHI") before and after the merg-
er.
Id. at 68,607-08.
In their original application, AEP and CSW proposed con-
necting their two territories using a 250 MW east to west
transmission path, secured by contract from a third party.
Joint Application, reprinted in J.A. 138. Because this con-
nection increased market concentration in several western
markets to a level above that allowed by Appendix A, AEP
and CSW sought to mitigate these impermissible HHI levels
by committing to the sale of 320 MW in the former territory
of CSW. Joint Application, reprinted in J.A. 145. AEP and
CSW also suggested other restrictions, including participation
in an ISO and the waiver of certain priority transmission
rights. Joint Application, reprinted in J.A. 150.
FERC found that the "Applicants' own analysis shows that
the proposed merger fails the screen thresholds in several
markets, ... there are problems concerning the assumptions
and data used in the Applicants' screen analysis, ... [and]
Applicants' analysis may not accurately define relevant geo-
graphic markets." Order Accepting for Filing and Suspend-
ing Proposed Tariffs and Agreements, Consolidating Dock-
ets, and Establishing Hearing Procedures, 85 F.E.R.C.
p 61,201, at 61,818-19 (Nov. 10, 1998). These factors led
FERC to set the matter for a hearing to determine "the
effect of the merger on competition." Id. at 61,809.
Over 30 parties filed objections to the merger, though most
withdrew prior to the hearing. FERC trial staff and the
Applicants entered into two stipulations, one on May 24, 1999,
and the other on July 13, 1999, resolving most of the issues in
contention at the hearing. The three-week hearing finished
on July 19, 1999, and the presiding Administrative Law Judge
("ALJ") issued an initial order on November 23, 1999. The
ALJ's initial order imposed no conditions on the merger,
other than those stipulated by the Applicants. See Am. Elec.
Power Co., 90 F.E.R.C. p 61,242, at 61,776. On May 15, 2000,
FERC approved the merger, but with significant additional
conditions. Id. at 61,799-800.
The Applicants had agreed to divest 550 MW of power,
rather than the initially proposed 320 MW, from the West
Region. Instead of divesting entire plants, the Applicants
proposed selling minority interests in certain generating facil-
ities, leaving New AEP with operational control of generation.
FERC found the amount of capacity to be divested acceptable
but that the divestiture proposal was an ineffective remedy
because the Applicants retained operational control of the
generation. This operational control could have given New
AEP "the ability to withhold capacity from the market and
thus affect electricity prices." Id. at 61,792. FERC there-
fore required New AEP to "divest their entire ownership
interest" in the facilities at issue. Id. Because of the time
necessary to divest this capacity, the Applicants proposed
forced interim power sales equivalent to the to-be-divested
capacity. FERC accepted this proposal, recognizing that the
forced sales would prevent the exercise of market power by
withholding output, but required the sales to begin immedi-
ately rather than shortly after merger, as the Applicants had
proposed. Id. at 61,794.
FERC also addressed market power concerns arising out
of the consolidation of generation and transmission. FERC
recognized the potential for New AEP to exercise vertical
market power, where one entity could affect the availability of
transmission by controlling the generation of electricity, and
found "that Applicants failed to show that the proposed
merger will not adversely affect competition as a result of
combining their generation and transmission." Id. at 61,786.
To remedy this market power, FERC imposed several re-
quirements. First, the Applicants must "transfer operational
control of their transmission facilities to a Commission-
approved RTO." Id. at 61,788. Second, because, under
FERC's newly established framework, RTOs will not exist
prior to December 15, 2001, see Order No. 2000, 65 Fed. Reg.
at 812, FERC imposed interim mitigation measures in the
East Region emulating many of the anticipated functions of
an RTO. Am. Elec. Power Co., 90 F.E.R.C. p 61,242 at
61,789. Thus, in the East Region, New AEP must have ATC
calculated and market monitoring conducted by an indepen-
dent party. This third party would review generation dis-
patch information, steps taken to relieve transmission con-
straints, and the volume and price of energy after relief steps
were taken. FERC stated, "[w]e believe that such data are
necessary to determine whether operations or wholesale
transactions involving Applicants are unduly discriminatory
or preferential or show evidence of the exercise of market
power." Id. Third, although FERC did not expressly identi-
fy the consequences of any transgressions of these require-
ments, the Commission stated that it would use its "authority
under Section 203(b) of the [Federal Power Act] to address
any concerns, and order further procedures as appropriate."
Id. at 61,789-90 (footnote omitted).
Wabash filed a Request for Rehearing on April 14, 2000,
challenging FERC's order approving the merger. The prin-
cipal points raised by Wabash in its petition for rehearing
were, as follows:
. The Commission identified serious problems with the
merger, expressly recognizing that the merger in-
creased Applicants' ability to foreclose competitors by
strategic manipulation of generation, but approved
the merger without conditioning it in a manner that
even purports to address this significant threat to the
public interest.
. The Commission recognized, but failed to address the
potent arguments of Wabash Valley ... that Appli-
cants' participation in the Alliance RTO, even if that
RTO were to satisfy the Commission's general re-
quirements for FERC approval, would be insufficient
to mitigate the Applicants' merger enhanced market
power.
. The Commission erred by failing to insist upon imple-
mentation of Applicants' RTO commitment before
consummation of the merger.
. The Commission failed even to recognize, much less
address, intervenor demonstrations that the merger
would seriously adversely affect transmission avail-
ability to others.
. The Commission accepted as "ratepayer protection"
provisions wholly inadequate to hold ratepayers
harmless from the merger.
Request for Rehearing, reprinted in J.A. 370, 373. FERC
denied the request for rehearing on May 15, 2000, 91
F.E.R.C. p 61,129, and Wabash petitioned this court for re-
view on July 7, 2000.
II. Analysis
A. Jurisdiction and Ripeness
FERC initially argues that judicial review is precluded in
this case, because Wabash is not an aggrieved party, the case
is not ripe, and Wabash failed to raise many of its arguments
below, as required by s 313 of the Federal Power Act. We
conclude that Wabash is aggrieved and the case is ripe, but
that many of Wabash's claims have been forfeited because
they were not properly raised with FERC in the first in-
stance.
1. Standing
The Federal Power Act provides that "[a]ny party to a
proceeding ... aggrieved by an order issued by the Commis-
sion in such proceeding may obtain a review of such order" by
filing suit within 60 days. 16 U.S.C. s 825l(b). Under
FERC regulations, Wabash, as an intervenor, was a party to
the AEP-CSW merger application proceeding. See 18 C.F.R.
s 385.214 (1999). Parties are "aggrieved" under the Federal
Power Act if they satisfy both the constitutional and pruden-
tial requirements for standing. Louisiana Energy & Power
Auth. v. FERC, 141 F.3d 364, 366 (D.C. Cir. 1998) (quoting
Bennett v. Spear, 520 U.S. 154, 167 (1997)). In this case, as a
competitor crying foul, Wabash satisfies prudential standing
requirements. Louisiana Energy, 141 F.3d at 366-67 (stating
"as a competitor and customer [petitioner] comes within the
zone of interests of the Federal Power Act and hence has
prudential standing").
FERC nonetheless argues that Wabash fails to satisfy the
standing requirements imposed by Article III of the Constitu-
tion.
This "irreducible constitutional minimum" of standing
requires: (1) that the plaintiff have suffered an "injury in
fact"--an invasion of a judicially cognizable interest
which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical; (2) that there
be a causal connection between the injury and the con-
duct complained of--the injury must be fairly traceable
to the challenged action of the defendant, and not the
result of the independent action of some third party not
before the court; and (3) that it be likely, as opposed to
merely speculative, that the injury will be redressed by a
favorable decision.
Bennett, 520 U.S. at 167 (citing Lujan v. Defenders of Wild-
life, 504 U.S. 555, 560-61 (1992)). FERC contends in particu-
lar that Wabash lacks standing because the harm that it
alleges is based only on injuries that might arise from New
AEP's exercise of market power in the future. In other
words, according to FERC, the injuries asserted by Wabash
are merely speculative. We disagree.
Parties suffer cognizable injury under Article III when an
agency "lift[s] regulatory restrictions on their competitors or
otherwise allow[s] increased competition." Louisiana Ener-
gy, 141 F.3d at 367. Wabash asserts that it will be injured by
New AEP's market power which FERC has allowed by
approving a merger with inadequate conditions. This claim
satisfies the "injury" prong of Article III standing. See
Associated Gas Distribs. v. FERC, 899 F.2d 1250, 1259 (D.C.
Cir. 1990) (finding standing when "the challenged action
authorizes allegedly illegal transactions that have the clear
and immediate potential to compete with the petitioners' own
sales"). Wabash likewise meets the remaining two prongs of
the constitutional standing inquiry. Its competitive injury is
fairly traceable to FERC's decision to approve the merger.
See America's Cmty. Bankers v. FDIC, 200 F.3d 822, 827
(D.C. Cir. 2000). And a favorable decision by this court could
result in a remand to FERC which, in turn, might impose
conditions that more severely limit New AEP's exercise of
market power. This possibility, even though far from certain,
satisfies the redressability requirement. Northeast Energy
Assocs. v. FERC, 158 F.3d 150, 154 (D.C. Cir. 1998). Wa-
bash, therefore, has Article III standing to seek judicial
review.
2. Ripeness
Ripeness requires the evaluation of "the fitness of the
issues for judicial decision and the hardship to the parties of
withholding court consideration." Whitman v. Am. Trucking
Ass'ns, Inc., 121 S. Ct. 903, 915 (2001) (quoting Abbott Labs.
v. Gardner, 387 U.S. 136, 149 (1967)). A case is ripe "when it
presents a concrete legal dispute and no further factual
development is essential to clarify the issues and there is no
doubt whatever that the challenged agency practice has crys-
tallized sufficiently for purposes of judicial review." Rio
Grande Pipeline Co. v FERC, 178 F.3d 533, 540 (D.C. Cir.
1999) (citations and internal quotation marks omitted). This
dispute meets these criteria.
Wabash seeks review of a specific agency decision to allow
the merger of AEP and CSW. FERC made its decision after
a lengthy hearing before an ALJ in which Wabash and
numerous other intervenors put on extensive evidence chal-
lenging the merger. It does not matter that the merger
occurs at a time when the regulatory regime is changing.
What matters is that the decision approving the merger is
final and the standards for assessing the Commission's judg-
ment are clear and easy to apply.
3. Wabash's Failure to Present Certain Claims to FERC
in the First Instance
Petitioners seeking review of a FERC order must first
"petition for rehearing of those orders and must themselves
raise in that petition all of the objections urged on appeal."
Platte River Whooping Crane v. FERC, 876 F.2d 109, 113
(D.C. Cir. 1989) (citing 16 U.S.C. s 825l(b) and ASARCO, Inc.
v. FERC, 777 F.2d 764, 774 (D.C. Cir. 1985)). Section 825l(b)
commands that "[n]o objection to the order of the Commis-
sion shall be considered ... [unless] urged before the Com-
mission in the application for rehearing." 16 U.S.C.
s 825l(b). This is an unusually strict requirement that will
not be ignored by the courts. Asarco, 777 F.2d at 774. And
"[n]either FERC nor this court has authority to waive these
statutory requirements." Platte River Whooping Crane, 876
F.2d at 113. Therefore, the failure of FERC to challenge a
petitioner's objection on the ground that it was not raised
below does not remove this court's independent obligation to
determine whether, in fact, the argument is properly before
us.
Many of the objections raised by Wabash in its petition for
review were not raised in the first instance in an application
for rehearing to FERC. The court therefore has no jurisdic-
tion to consider these objections. In particular, Wabash did
not seek rehearing on its claims that FERC failed to make
essential findings of fact, adequately explain its decision,
define the relevant markets, account for potential competition
between AEP and CSW, and defer approval of all mergers
until RTO performance could be evaluated.
There is one claim that has been raised by Wabash that
may be considered by the court even though it was not raised
below. Wabash contends that FERC's merger was inconsis-
tent with a subsequently released staff report. Though not
raised in the application for rehearing by Wabash, this argu-
ment may be properly considered by this court because the
Federal Power Act allows consideration of arguments raised
for the first time on appeal if "there is reasonable ground for
failure" to raise objections in the request for rehearing. 16
U.S.C. s 825l(b). Because this report was issued on Novem-
ber 1, 2000, several months after Wabash's rehearing request,
this court has jurisdiction to review this challenge by Wabash.
Finally, there is one argument raised by Wabash on appeal
that is hard to characterize. In its petition for rehearing to
FERC, Wabash argued that, although the Commission had
"expressly recogniz[ed] that the merger increased Applicants'
ability to foreclose competitors by strategic manipulation of
generation," the merger conditions did not "address this
significant threat to the public interest." Request for Rehear-
ing, reprinted in J.A. 374. On appeal, Wabash argues that
"FERC completely ignored ... crucial evidence" of New
AEP's "ability to manipulate 'imperfections' in the pertinent
markets to their advantage." Petitioner's Br. at 37. How
one assesses these two claims depends upon how one con-
strues the reference to "crucial evidence." Wabash's two
claims are not inconsistent if Wabash's argument to the court
is meant to claim that FERC failed adequately to address a
recognized threat to the public interest because it failed to
consider crucial evidence. The claims are inconsistent, how-
ever, if Wabash's argument to this court is meant to say that
FERC completely ignored the fact that the merger increased
Applicants' ability to foreclose competitors by strategic ma-
nipulation of generation. We give Wabash the benefit of the
doubt and accept the issue as raised, because the first con-
struction seems more plausible. We must therefore address
on the merits the staff report claim, the crucial evidence
claim, and two other claims Wabash raised in its petition for
rehearing.
B. Standard of review
We review FERC's order under the familiar arbitrary and
capricious standard. Sithe/Independence Power Partners,
L.P. v. FERC, 165 F.3d 944, 948 (D.C. Cir. 1999). Under
s 203 of the Federal Power Act "FERC may approve a
merger only if it 'will be consistent with the public interest.' "
Envtl. Action, Inc. v. FERC, 939 F.2d 1057, 1061 (D.C. Cir.
1991) (quoting 16 U.S.C. s 824b(a)). "Public interest" encom-
passes "both the preservation of economic competition, as
expressed in the antitrust laws of general application, and the
various policies reflected in the statutes specific to energy
regulation." Envtl. Action, 939 F.2d at 1061 (citations omit-
ted). The principal public interest reflected in the Federal
Power Act is "to encourage the orderly development of
plentiful supplies of electricity and natural gas at reasonable
prices." NAACP v. FPC, 425 U.S. 662, 669-70 (1976) (foot-
note omitted).
C. Wabash's claims
Wabash claims that FERC's approval was arbitrary and
capricious because: FERC improperly conditioned the merg-
er on the future participation of New AEP in an RTO;
FERC completely ignored crucial evidence of New AEP's
ability to manipulate imperfections in the pertinent markets
to their advantage; the merger is inconsistent with a recent
FERC staff report; and the merger does nothing to eliminate
rate pancaking, a type of rate inefficiency. These claims all
fail.
First FERC did not condition the merger solely on future
participation in an RTO. Rather, FERC also required inter-
im measures that emulated the information-sharing features
of an RTO to limit New AEP's ability to exercise its market
power. See Am. Elec. Power Co., 90 F.E.R.C. p 62,171, at
61,789. These measures - market monitoring and calculation
of ATC by independent parties - do not have any enforce-
ment mechanisms attached. FERC can use its regulatory
powers, however, to penalize noncompliance. Under s 205 of
the Federal Power Act, FERC reviews all electricity trans-
mission and sales to ensure that the rates are "just and
reasonable." 16 U.S.C. s 824d(a). FERC, in some circum-
stances, allows electric utilities to engage in market-based
pricing in lieu of the traditional cost plus reasonable rate of
return rate calculation. See, e.g., Cajun Elec. Power Coop.,
Inc. v. FERC, 28 F.3d 173, 176. (D.C. Cir. 1994). If, however,
FERC finds that a rate charged is "unjust, unreasonable,
unduly discriminatory or preferential, the Commission shall
determine the just and reasonable rate ... and shall fix the
same by order." 16 U.S.C. s 824e(a). Thus, if the informa-
tion disclosed by New AEP under the interim mitigation
measures indicates a violation of the antitrust laws or the
Federal Power Act, New AEP faces antitrust liability and the
possibility of FERC setting its rates. These safeguards
render the requirement of disclosure effective to limit New
AEP's exercise of strategic behavior to circumvent FERC's
merger conditions.
Wabash is also wrong in its claim that FERC completely
ignored crucial evidence of New AEP's ability to manipulate
imperfections in the pertinent markets to their advantage.
As noted above, Wabash's petition for rehearing to FERC
expressly acknowledges that the Commission did not ignore
the problem of the potential for market manipulation. There-
fore, the only question here is whether FERC's action was
arbitrary and capricious for lack of consideration of some
"crucial evidence" related to the issue. The "crucial evi-
dence" to which Wabash refers is "the merging parties' intent
to improperly exert their market power." Petitioner's Br. at
37. This is a specious claim. First, it is clear that FERC
understood that it was too easy for parties to engage in
market manipulation under the Orders that preceded Order
No. 2000 - indeed, that was a principal reason for the
adoption of Order No. 2000. Second, FERC addressed the
problem of possible manipulations by imposing conditions on
the merger. It is unclear what other "crucial evidence" was
before FERC that warranted consideration. Maybe Wabash
means to suggest that officials in charge of New AEP had
devious, albeit unannounced, intentions to defy the law with-
out regard to FERC's regulatory requirements. If so, this
surely is no basis upon which to grant the petition for review.
If New AEP acts in violation of the law in the future it will
face regulatory sanctions.
Wabash next claims that FERC's decision does nothing to
eliminate rate pancaking. Pancaked rates arise when a
transmission travels over the transmission systems of more
than one system that each charge separate fees, much like
the total tolls paid when driving on a route that includes both
the Pennsylvania and New Jersey turnpikes. Though the
mere existence of different owners of different parts of a
transmission system does not necessarily lead to inefficient
transmission, FERC found that one of the main benefits
offered by RTOs would be "increased efficiency through
regional transmission pricing and the elimination of rate
pancaking." Order No. 2000, 65 Fed. Reg. at 829. Whether
the AEP-CSW merger eliminated rate pancaking was not a
discrete issue under consideration by FERC, because s 203
of the Federal Power Act merely mandates the determination
of whether the merger is consistent with the public interest.
By forcing New AEP to transfer its transmission assets to a
RTO, FERC, in fact, significantly reduced rate pancaking.
Absent a mechanism creating national transmission pricing, it
is hard to understand how any merger could, by itself,
eliminate all rate pancaking. In any event, that other
changes to FERC policy might also improve the public inter-
est is simply irrelevant to the validity of the merger decision.
And it certainly was not arbitrary and capricious for FERC
to find that a merger that did not fully eliminate rate
pancaking was nonetheless in the public interest.
Finally, Wabash claims that the decision to approve the
merger is arbitrary and capricious because it is inconsistent
with a staff report produced by FERC on November 1, 2000.
This claim fails under the holding of Union Pac. Fuels, Inc. v
FERC, 129 F.3d 157, 164 (D.C. Cir. 1997). Only when
"FERC has formally altered its policy after issuing an order
challenged before us" does this court consider the change.
Id. A staff report following the issuance of a Commission
order is not a superceding order; therefore, the issuance of
such a report "play[s] no role in our determination of the
order['s] legality." Id.
III. Conclusion
For the foregoing reasons, Wabash's petition for review is
denied.
So ordered.