Atl City Elec Co v. FERC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 5, 2002 Decided July 12, 2002

No. 97-1097

Atlantic City Electric Company, et al.,
Petitioners

v.

Federal Energy Regulatory Commission,
Respondent

Duquesne Light Company, et al.,
Intervenors

---------

Consolidated with
00-1459, 00-1460, 00-1503

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

David B. Raskin and Richard L. Roberts argued the cause
for PJM Utility petitioners and supporting intervenor. With

them on the briefs were Charles G. Cole, David Earl Goroff,
Kenneth G. Jaffe, Richard P. Bonnifield, Donald A. Kaplan
and Floyd Ligon Norton IV. Arnold H. Quint and Richard
T. Saas entered appearances.

Robert H. Solomon, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. Dennis Lane,
Solicitor, and Monique Watson, Attorney, were on the brief.

Barry S. Spector argued the cause for intervenors PJM
Interconnection, et al. With him on the brief were Arnold B.
Podgorsky, Denise C. Goulet, Irwin Popowsky and William
F. Fields. Paula M. Carmody entered an appearance.

Before: Ginsburg, Chief Judge, Edwards and Sentelle,
Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: Nine utility members of the
Pennsylvania-New Jersey-Maryland Interconnection (herein-
after "utility petitioners"),1 petition this Court for review of
two final orders issued by the Federal Energy Regulatory
Commission ("FERC" or "the Commission"). These orders
directed the owners of transmission assets entering into an
agreement for an Independent System Operator ("ISO") to
give up their right to file changes in tariff rates, terms, and
conditions under section 205 of the Federal Power Act ("the
Act"), 16 U.S.C. s 824d, and required the owners of transmis-
sion assets to modify their ISO agreements to forbid any
owner from withdrawing without prior FERC approval pur-
suant to section 203 of the Act, 16 U.S.C. s 824b. The utility
petitioners contend that FERC has exceeded its statutory
authority by requiring the owners of transmission assets to
cede their statutory right to file rate changes under section
205 of the Act. They also argue that FERC lacks jurisdiction

__________
1 The nine petitioners are: Atlantic City Electric Co., Baltimore
Gas and Electric Co., Delmarva Power & Light Co., Jersey Central
Power & Light Co., Metropolitan Edison Co., Pennsylvania Electric
Co., PPL Electric Utilities Corp., Potomac Electric Power Co., and
Public Service Electric and Gas Co. Intervenor PECO Energy
Company only joins the utility petitioners' section 205 argument.

under section 203 of the Act to require Commission approval
for withdrawal from an ISO. Finally, petitioner Public Ser-
vice Electric and Gas Company ("PSE&G") challenges
FERC's order requiring the generic reformation of pre-
existing wholesale power contracts to reflect transmission
pricing concepts available under the new regime as failing to
comply with the Mobile-Sierra doctrine. Because we agree
with the petitioners on all three issues, we grant the petitions
for review.

I. Background

A. Statutory and Regulatory Framework

Section 201(b) of the Federal Power Act confers upon
FERC jurisdiction over all rates, terms, and conditions of
electric transmission service provided by public utilities in
interstate commerce, as well as over the sale of electric
energy at wholesale. 16 U.S.C. s 824(b). Under section 205
of the Act, the Commission is obliged to assure that the rates
and charges demanded or received by any public utility in
connection with the interstate transmission or sale of electric
energy are just and reasonable, and that no public utility's
rates will unduly discriminate against any consumers. Id.
s 824d(a), (b); see NAACP v. Federal Power Comm'n, 425
U.S. 662, 669-71 (1976). Section 206 of the Act authorizes
FERC to investigate, on its own motion or upon complaint,
rates and terms of service. See 16 U.S.C. s 824e.

"Historically, electric utilities were vertically integrated,
owning generation, transmission, and distribution facilities
and selling these services as a 'bundled' package to wholesale
and retail customers in a limited geographical service area."
Public Utility Dist. No. 1 of Snohomish Co. v. FERC, 272
F.3d 607, 610 (D.C. Cir. 2001) ("Snohomish Co.") (citation
omitted); see New York v. FERC, 122 S. Ct. 1012, 1016-18
(2002). However, by 1940, significant economic changes and
technological advances made it possible for many new en-
trants in the generating markets to sell energy at a lower
price than many existing generation facilities. See Snohomish
Co., 272 F.3d at 610; New York v. FERC, 122 S. Ct. at 1017-

18. "But barriers to a competitive wholesale power market
remained because if and when the existing vertically integrat-
ed utilities provided regional transmission access to these new
efficient generating plants, they favored their own genera-
tion." Snohomish Co., 272 F.3d at 610. Finding that utilities
would use their market power to deny transmission access to
competing generation sources, FERC issued an order in 1996,
relying upon its statutory authority under sections 205 and
206 of the Act, see 16 U.S.C. ss 824d(b), 824e(a), requiring a
restructuring of the power industry. That order, Order No.
888, required that the wholesale transmission function be
unbundled from the sale of power and required utilities to
provide open access to their transmission lines in a nondis-
criminatory fashion. Promoting Wholesale Competition
Through Open Access Non-Discriminatory Transmission
Services by Public Utilities, Order No. 888, FERC Stats. &
Regs. p 31,036, 61 Fed. Reg. 21,540 (May 10, 1996), clarified,
76 F.E.R.C. p 61,009, and 76 F.E.R.C. p 61,347 (1996), on
reh'g, Order No. 888-A, FERC Stats. & Regs. p 31,048, 62
Fed. Reg. 12,274 (Mar. 14, 1997), clarified, 79 F.E.R.C.
p 61,182 (1997), on reh'g, Order No. 888-B, 81 F.E.R.C.
p 61,248, 62 Fed. Reg. 64,688 (1997), on reh'g, Order No.
888-C, 82 F.E.R.C. p 61,046 (1998), aff'd, Transmission Ac-
cess Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir.
2000), aff'd sub nom. New York v. FERC, 122 S. Ct. 1012
(2002) (hereinafter "Order No. 888").

Order No. 888, among other things, set forth the frame-
work for voluntarily creating Independent System Operators
("ISOs"), independent companies that manage transmission
facilities owned by utilities. 61 Fed. Reg. at 21,595-97. 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. The Commission empha-
sized that an ISO's independence with respect to governance
and financial interests was fundamental to assuring that an
ISO would not favor any class of transmission users. Id. at
21,596. Order No. 888 also specifically required tight power
pools to file open access tariffs and reformed power pool

agreements to establish open, non-discriminatory member-
ship provisions and to modify provisions that were unduly
discriminatory or preferential. Id. at 21,594. Tight power
pools are highly integrated pooling arrangements, involving a
central dispatch, where utilities extensively coordinate their
planning and operations. FERC stated that power pools
could, but were not required to, satisfy Order No. 888's
comparability2 and nondiscrimination requirements by form-
ing a properly constructed ISO. See id. at 21,593-94.

B. The PJM Interconnection

The Pennsylvania-New Jersey-Maryland ("PJM") Inter-
connection is a tight power pool. See Order No. 888, 61 Fed.
Reg. at 21,594. The PJM power pool--the oldest and largest
power pool in the nation--was formed as a voluntary organi-
zation comprised of investor-owned utilities that operate their
generating and transmission facilities in a coordinated man-
ner so that regional power loads can be met reliably and
efficiently. It was formed in 1927, and became a "tight"
power pool by operating as a single control area with free-
flowing transmission ties in 1956. Under the 1956 operating
agreement, the PJM members agreed to place their generat-
ing facilities under the control of a central system dispatcher.
The PJM members formed the PJM Interconnection Associa-
tion in 1993, an unincorporated association which served as
the system dispatcher, responsible for administering the PJM
service center and control center independent of any individu-
al member of PJM. At no point in the power pool's history
did FERC assert jurisdiction over the power pool under
section 203 of the Act, which provides in pertinent part: "No
public utility shall sell, lease, or otherwise dispose of the
whole of its facilities subject to the jurisdiction of the Com-

__________
2 Under the comparability standard, " '[a]n open access tariff that
is not unduly discriminatory or anticompetitive should offer third
parties access on the same or comparable basis, and under the same
or comparable terms and conditions, as the transmission provider's
uses of its [own] system.' " Alliant Energy Corp. v. FERC, 253
F.3d 748, 751 n.3 (D.C. Cir. 2001) (quoting Transmission Pricing
Policy Statement, 59 Fed. Reg. 55,031, 55,034 (1994)).

mission, or any part thereof of a value in excess of $50,000, or
by any means whatsoever, directly or indirectly, merge or
consolidate such facilities or any part thereof with those of
any other person, or purchase, acquire, or take any security
of any other public utility, without first having secured an
order of the Commission authorizing it to do so." 16 U.S.C.
s 824b(a).

In response to Order No. 888 the PJM members submitted
to FERC in 1996 an open access tariff and several negotiated
agreements that proposed to revise the PJM governance
structure to put in place an ISO. The utility petitioners filed
the tariff and ISO agreement under section 205 and, at the
same time, petitioned FERC for a declaratory order disclaim-
ing jurisdiction over the ISO agreement under section 203.
The proposal contemplated that the PJM Interconnection
Association would be transformed into the PJM ISO, a sepa-
rate incorporated entity, which would be responsible for
administering operational aspects of the transmission net-
work, including dispatching generation to customers. PJM
utilities would continue to own and physically operate their
transmission facilities, subject to the ISO's directives.

C. FERC Proceedings

FERC asserted jurisdiction over the PJM restructuring
under section 203, ruling that the proposal to transfer opera-
tional responsibilities to the ISO is a "disposition of jurisdic-
tional facilities" within the meaning of section 203, requiring
FERC authorization. Atlantic City Elec. Co., 76 F.E.R.C.
p 61,306, at 62,513, reh'g denied as moot, 77 F.E.R.C. p 61,298
(1996) ("Jurisdictional Order"). FERC claimed authority to
require preapproval because "the creation of an ISO requires
the transfer of control of the operation of the PJM transmis-
sion facilities from the transmission owners, i.e., the public
utilities that together comprise PJM, to the ISO" and was
thus a disposition under section 203. Id. Utility petitioners
sought rehearing of this order; however, FERC dismissed
the rehearing petition as moot in light of its intervening order

rejecting the restructuring proposal on its merits under sec-
tion 205. See Atlantic City Elec. Co., 77 F.E.R.C. p 61,298
(1996). The utility petitioners sought review of the Jurisdic-
tional Order in this Court, and their petition was held in
abeyance pending the conclusion of the administrative pro-
ceedings on the PJM restructuring.

In its November 13, 1996 order on the merits, FERC
recognized that formulating an acceptable ISO was a difficult
task, but found that the restructuring proposal did not con-
form with the ISO principles set out in Order No. 888. See
Atlantic City Elec. Co., 77 F.E.R.C. p 61,148, at 61,559 (1996).
Following the issuance of several orders by FERC providing
guidance regarding an acceptable restructuring proposal, the
PJM utilities submitted a revised proposal for an ISO on
June 6, 1997. The new governance provisions provided for
the establishment of an independent ISO consisting of the
PJM Office of Interconnection ("PJM-OI") and an indepen-
dent PJM Board of Managers ("PJM Board"). Under the
Operating Agreement, the PJM-OI would administer the
day-to-day operations of the PJM power pool, subject to the
PJM Board's oversight. The PJM Board would be indepen-
dent of all industry segments, thus precluding any group or
members from asserting undue influence over the operation
of the PJM power pool. The ISO would administer certain
operational aspects of the transmission network, without as-
suming physical control over the transmission assets. The
PJM utilities would physically operate their transmission
facilities subject to the ISO's directives.

The Transmission Owners Agreement provided that the
utility owners would offer pool-wide transmission service, and
would transfer the administration of the tariff and regional
transmission planning and operations to the PJM-OI as the
ISO. The Agreement established procedures for changes to
rate design and other tariff terms for transmission services.
It permitted the transmission owners to file changes in
transmission service rate design and non-rate terms and
conditions to the tariff under section 205. However, the
independent PJM Board could reject a proposed change by a

majority vote "as inconsistent with the creation and operation
of a robust, competitive and non-discriminatory electric power
market in the PJM Control Area." If the proposal was not
rejected by the PJM Board's majority, the PJM-OI would file
the proposal with FERC on behalf of the transmission owners
pursuant to section 205. If the proposal were rejected by the
PJM Board, then any PJM party or group of parties could
submit alternative proposals to FERC pursuant to section
206 of the Act. Finally, both the Operating Agreement and
the Transmission Owners Agreement provided that PJM
members had the right to withdraw from the ISO under
certain circumstances after giving 90 days notices to the
PJM-OI. No provision required parties to seek or obtain
FERC approval before withdrawing from the ISO.

FERC found that the revised proposal generally satisfied
its ISO principles, and, subject to certain modifications, condi-
tionally approved the ISO structure. Pennsylvania-New
Jersey-Maryland Interconnection, 81 F.E.R.C. p 61,257
(1997), reh'g denied, 92 F.E.R.C. p 61,282 (2000) ("PJM Re-
structuring Order"). The utility petitioners have sought re-
view of two of these modifications and PSE&G has sought
review of a third. Specifically, FERC directed petitioners to
modify the provision governing changes to rate filings under
sections 205 and 206. Id. at 62,279. The utilities were
required to eliminate a provision allowing them "to unilateral-
ly file to make changes in rate design, terms or conditions of
jurisdictional services," except that they could still unilateral-
ly seek a change in the transmission revenue requirements.
Id. FERC said that all changes in rate design, terms and
conditions of service on the utilities' facilities had to be
developed and modified "in accordance with the governance
process" approved in the order. Id. Rather than permit
unilateral filings by the individual utilities as provided in
section 205, FERC found that PJM-OI had the "right and
responsibility to participate in the development of any such
revisions and to intervene in any proceedings pertaining to
such filings." Id. Thus as FERC would have it, only the
ISO could propose changes in rate design.

 FERC also prohibited the withdrawal of utilities from the
ISO without preclearance from the Commission. Despite
finding that the PJM Board possessed "the requisite indepen-
dence from the transmission owners," id. at 62,263, FERC
suggested that members might exercise "implicit" control
over the Board by terminating membership. FERC directed
the petitioners to modify the restructuring agreements to
clarify that "any notice of termination or withdrawal from the
agreements must be filed with the Commission and may
become effective only upon the Commission's approval." Id.
at 62,265 (emphasis in original). Thus the "90-day withdraw-
al right is effective only upon the Commission's approval."
Id. at 62,279 (emphasis in original).

Finally, the Commission ordered the transmission owners
to modify any agreements under which they provided trans-
mission service to eliminate multiple transmission charges
and to reflect that PJM-OI administers those agreements.
Id. at 62,280-81. Similarly FERC required the modification
of any existing bundled wholesale power sales agreements
that were inconsistent with the restructured PJM transmis-
sion rate arrangements. This modification was to eliminate
charges that the utility owners no longer had to pay. Id. at
62,281-82. One agreement affected by these requirements is
PSE&G's bundled wholesale agreement with the Old Domin-
ion Electric Cooperative ("Old Dominion"). Their agreement,
reached in 1992, provided both parties with long-term capaci-
ty price stability, by placing strict limitations on the parties'
rights to seek changes to the capacity rates. PSE&G chal-
lenged FERC's decision and sought rehearing, but the Com-
mission maintained its position. Pennsylvania-New Jersey-
Maryland Interconnection, 92 F.E.R.C. p 61,282, at 61,962
(2000) (order denying rehearing). PSE&G petitioned this
Court for review of the PJM Restructuring Order as well as
the Compliance Order implementing the modification to its
bundled wholesale power sale agreement with Old Dominion.
Potomac Elec. Power Co., 83 F.E.R.C. p 61,162 (1998), reh'g
denied, 93 F.E.R.C. p 61,111 (2000) ("Compliance Order").

 The Jurisdictional Order, 76 F.E.R.C. p 61,306 (1996), the
PJM Restructuring Order, 81 F.E.R.C. p 61,257 (1997), and
the Compliance Order, 83 F.E.R.C. p 61,162 (1998), are thus
properly before this Court on petition for review.

II. Analysis

As a federal agency, FERC is a "creature of statute,"
having "no constitutional or common law existence or authori-
ty, but only those authorities conferred upon it by Congress."
Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir. 2001)
(emphasis added). Thus, if there is no statute conferring
authority, FERC has none. See id.; Louisiana Public Ser-
vice Comm'n v. FCC, 476 U.S. 355, 374 (1986) (recognizing
that "an agency literally has no power to act ... unless and
until Congress confers power upon it"). In the absence of
statutory authorization for its act, an agency's "action is
plainly contrary to law and cannot stand." 268 F.3d at 1081
(citing American Petroleum Inst. v. EPA, 52 F.3d 1113,
1119-20 (D.C. Cir. 1995) ("API"); Ethyl Corp. v. EPA, 51
F.3d 1053, 1060 (D.C. Cir. 1995)).

"To determine whether the agency's action is contrary to
law, we look first to determine whether Congress has delegat-
ed to the agency the legal authority to take the action that is
under dispute." Michigan, 268 F.3d at 1081 (citing United
States v. Mead Corp., 533 U.S. 218, 226-27 (2000)). Where an
administrative agency is relying on a statute committed to its
administration for authority, we defer to that agency's inter-
pretation of the statute under the familiar two-step approach
of Chevron U.S.A., Inc. v. Natural Resources Defense Coun-
cil, 467 U.S. 837 (1984), "when it appears that Congress
delegated authority to the agency generally to make rules
carrying the force of law, and that the agency interpretation
claiming deference was promulgated in the exercise of that
authority." Mead Corp., 533 U.S. at 226-27. Thus, even if
an agency possesses delegated authority, if "Congress has
directly spoken to the precise question at issue," we "must
give effect to the unambiguously expressed intent of Con-
gress," and that ends this Court's inquiry. Chevron, 467 U.S.

at 842-43 (Chevron step one). Where "the statute is silent or
ambiguous with respect to the specific issue, the question for
the court is whether the agency's answer is based on a
permissible construction of the statute." Id. at 843 (Chevron
step two). The agency's interpretation of the statute is
entitled to deference only if it is "reasonable and consistent
with the statute's purpose." Independent Ins. Agents of Am.,
Inc. v. Hawke, 211 F.3d 638, 643 (D.C. Cir. 2000). However,
"[m]ere ambiguity in a statute is not evidence of congression-
al delegation of authority" in the first instance. Michigan, 268
F.3d at 1082 (emphasis added). Rather, Chevron "deference
comes into play of course, only as a consequence of statutory
ambiguity, and then only if the reviewing court finds an
implicit delegation of authority to the agency." Sea-Land
Serv., Inc. v. Dep't of Transp., 137 F.3d 640, 645 (D.C. Cir.
1998) (emphasis added).

Indeed, "[a]gency authority may not be lightly presumed.
'Were courts to presume a delegation of power absent an
express withholding of such power, agencies would enjoy
virtually limitless hegemony, a result plainly out of keeping
with Chevron [, Mead,] and quite likely with the Constitution
as well.' " Michigan, 268 F.3d at 1082 (quoting Ethyl Corp.,
51 F.3d at 1060). " 'Thus, we will not presume a delegation of
power based solely on the fact that there is not an express
withholding of such power.' " Id. (quoting API, 52 F.3d at
1120). Nonetheless, when Congress has explicitly or impli-
edly left a gap for an agency to fill, there is a delegation of
authority to the agency to give meaning to a specific provision
of the statute by regulation, "and any ensuing regulation is
binding in the courts unless procedurally defective, arbitrary
and capricious in substance, or manifestly contrary to the
statute." Mead, 533 U.S. at 227; see 5 U.S.C. s 706(2)(A)
(agency action shall be set aside if found to be "arbitrary,
capricious, an abuse of discretion, or otherwise not in accor-
dance with law").

With this standard in mind, we turn to the case at bar.
First we consider whether FERC had authority to require
the utility petitioners to give up their statutory rights under
section 205 and determine it did not. Second we examine

whether section 203 confers authority on FERC to require
petitioners to modify the ISO agreement to allow withdrawal
only upon approval by the Commission, and conclude it does
not. Finally, we find that FERC's requirement that pre-
existing wholesale power contracts be modified was contrary
to law under the Mobile-Sierra doctrine.

A. Section 205 Rights

Section 205 of the Federal Power Act gives a utility the
right to file rates and terms for services rendered with its
assets. 16 U.S.C. s 824d. The PJM members had voluntarily
proposed a sharing arrangement on changes to rate design
that attempted to balance the utility owners' rights and the
ISO Board's independence. FERC disapproved this sharing
arrangement and directed the utility petitioners to give up all
authority to make unilateral changes to rate design. Peti-
tioners contend that FERC lacks the authority to require the
utility owners to give up their statutory rights under section
205. We agree.

FERC cannot point to any statute giving it authority for its
unprecedented decision to require the utility petitioners to
cede rights expressly given to them in section 205 of the
Federal Power Act. FERC finds no authority in section 205.
Indeed, quite the contrary. FERC is attempting to deny the
utility petitioners the very statutory rights given to them by
Congress. Section 205(d) provides that a public utility may
file changes to rates, charges, classification, or service at any
time upon 60 days notice. Id. s 824d(d). FERC can then
review those changes under section 205 and suspend them for
a period of five months, but it can reject them only if it finds
that the changes proposed by the public utility are not "just
and reasonable." Id. s 824d(e); see Cities of Campbell v.
FERC, 770 F.2d 1180, 1184-85 (D.C. Cir. 1985); Papago
Tribal Util. Auth. v. FERC, 723 F.2d 950, 952-53 (D.C. Cir.
1983). As the Supreme Court stated in United Gas Pipe
Line Co. v. Memphis Light, Gas & Water Division, 358 U.S.
103, 113-14 (1958), the public utility, "like the seller of an
unregulated commodity, has the right ... to change its rates

... [at] will, unless it has undertaken by contract not to do
so." Section 205 (and 206) of the Act "are simply parts of a
single statutory scheme under which all rates are established
initially by the [public utilities], by contract or otherwise, and
all rates are subject to being modified by the Commission
upon a finding that they are unlawful." United Gas Pipe
Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 341 (1956)
(emphasis added) (addressing the provisions of the Natural
Gas Act parallel to the Federal Power Act). Thus, FERC
plays "an essentially passive and reactive" role under section
205. City of Winnfield v. FERC, 744 F.2d 871, 876 (D.C. Cir.
1984) (Scalia, J.).

Similarly, nothing in section 206 sanctions denying petition-
ers their right to unilaterally file rate and term changes.
Section 206 merely permits the Commission--acting either on
its own initiative or after a complaint--to initiate changes to
existing utility rates and practices. In order to make any
change in an existing rate or practice, FERC must first prove
that the existing rates or practices are "unjust, unreasonable,
unduly discriminatory or preferential." 16 U.S.C. s 824e(a);
see Alabama Power Co. v. FERC, 993 F.2d 1557, 1569 (D.C.
Cir. 1993). Then FERC must show that its proposed changes
are just and reasonable. Tennessee Gas Pipeline Co. v.
FERC, 860 F.2d 446, 454 (D.C. Cir. 1988). Nothing in this
provision gives FERC the power to deny a utility the right to
file changes in the first instance.

The courts have repeatedly held that FERC has no power
to force public utilities to file particular rates unless it first
finds the existing filed rates unlawful. See Pub. Serv.
Comm'n v. FERC, 866 F.2d 487, 488-89 (D.C. Cir. 1989)
(interpreting parallel provision of the Natural Gas Act, 15
U.S.C. s 717d) ("On four occasions in the last three years this
court has reviewed [FERC] efforts to compromise s 5's limits
on its power to revise rates. On each the court has repelled
[FERC]'s gambit. This is number five."); Western Res., Inc.
v. FERC, 9 F.3d 1568, 1578 (D.C. Cir. 1993) ("We now make
it an even six."); see also Consumers Energy Co. v. FERC,
226 F.3d 777, 780 (6th Cir. 2000) (Natural Gas Act); Louisi-
ana v. Federal Power Comm'n, 503 F.2d 844, 861 (5th Cir.

1974) (same). Nor may FERC prohibit public utilities from
filing changes in the first instance. Rather this Court, among
others, has stressed that the power to initiate rate changes
rests with the utility and cannot be appropriated by FERC in
the absence of a finding that the existing rate was unlawful.
Yet here, FERC purports to deny the utility petitioners any
ability to initiate rate design changes with respect to services
provided with their own assets. FERC thereby eliminated
the very thing that the statute was designed to protect--the
ability of the utility owner to "set the rates it will charge
prospective customers, and change them at will," subject to
review by the Commission. City of Cleveland v. FPC, 525
F.2d 845, 855 (D.C. Cir. 1976).

Of course, utilities may choose to voluntarily give up, by
contract, some of their rate-filing freedom under section 205.
Under the Supreme Court's Mobile-Sierra doctrine,3 parties
may negotiate a fixed-rate contract with a provision relin-
quishing their right to file for a unilateral change in rates. In
this case, the parties agreed to a sharing arrangement of the
section 205 filing responsibilities. FERC claims that it relied
on Order No. 888 and the "bedrock principle" of ISO indepen-
dence to require the utility petitioners to cede their section
205 rights and mandate a different sharing arrangement. As
FERC believes an ISO to be a public utility within the scope
of the Federal Power Act, and thus entitled to make section
205 filings, FERC contends that its decision is "entirely
reasonable, and is entitled to Chevron deference." Yet,
FERC's approach would turn Chevron on its head. FERC
cannot rely on one of its own regulations to trump the plain
meaning of a statute. See Chevron, 467 U.S. at 842-43.
While an ISO may have certain section 205 rights, there is
simply no denying the utility petitioners' section 205 rights.
No matter how "bedrock" the principle of ISO independence
may be, Order No. 888 is merely a regulation. It cannot be

__________
3 The doctrine derives its name from the companion cases United
Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 (1956),
and Federal Power Comm'n v. Sierra Pac. Power Co., 350 U.S. 348,
353 (1956).

the basis for denying the petitioners their rights provided by
a statute enacted by both houses of Congress and signed into
law by the president. While there may be some ambiguity in
how to treat an ISO under section 205, such "ambiguity is not
evidence of congressional delegation of authority" to set aside
the utility petitioners' statutory rights under section 205.
Michigan, 268 F.3d at 1082. In sum FERC lacks the author-
ity to require the petitioners to cede their right under section
205 of the Act to file changes in rate design with the
Commission.

B. FERC Jurisdiction Under Section 203

The utility petitioners argue that FERC erred in directing
them to modify their ISO agreements to require Commission
approval prior to a utility's withdrawal from the ISO under
section 203 of the Act. Section 203 provides: "No public
utility shall sell, lease, or otherwise dispose of" jurisdictional
facilities whose value exceeds $50,000 "without first having
secured an order of the Commission authorizing it to do so."
16 U.S.C. s 824b(a) (emphasis added). FERC contends that
the formation of the ISO is a "dispos[ition]" of facilities within
the meaning of section 203, thus giving the Commission
jurisdiction under that section. We disagree. A utility does
not "sell, lease, or otherwise dispose" of its facilities when it
agrees to the changes in operational control necessary to
initially join or to withdraw from an ISO. Therefore FERC
exceeded its jurisdiction by directing the utility petitioners to
modify their agreement to state that any notice of withdrawal
from the ISO shall become effective only upon FERC approv-
al.

When the utilities joined the PJM ISO there was no
transfer of ownership or even physical operation of their
facilities. Pursuant to the operating agreement, each of the
utilities retained both ownership and physical control of their
facilities, but gave to the PJM ISO certain operational re-
sponsibilities relating to the provision of transmission services
using their jurisdictional facilities. Thus, when a PJM mem-
ber withdraws, there is again, no change in ownership, and no

grounds for FERC to require preapproval under section 203.
FERC contends that the word "dispose" in section 203 can be
construed broadly to include the transfer of supervisory
operational responsibility over facilities to the ISO. We find
such an interpretation to be inconsistent with a logical read-
ing of the statute and an unexplained departure from past
FERC practice.

First, the terms "sell" and "lease" in section 203 clearly
contemplate a transfer of ownership or proprietary interests.
Id. The expression "otherwise dispose" requires a similar
interpretation under the principle noscitur a sociis. See Dole
v. United Steelworkers of America, 494 U.S. 26, 36 (1990)
("words grouped in a list should be given a related meaning");
Neal v. Clark, 95 U.S. 704, 708-09 (1878) ("the coupling of
words together shows that they are to be understood in the
same sense"). Thus, the term "dispose" in section 203 can
only reasonably be read to refer to changes or transfers in
proprietary interests or something akin thereto.

Second, FERC's expansive reading of its section 203 juris-
diction cannot be reconciled with section 202, which has been
definitively interpreted to make clear that Congress intended
coordination and interconnection arrangements be left to the
"voluntary" action of the utilities. See 16 U.S.C. s 824a(a).
Section 202 provides that "the Commission is empowered and
directed to divide the country into regional districts for the
voluntary interconnection and coordination of facilities for the
generation, transmission, and sale of electric energy." Id.
(emphasis added). That provision does not provide FERC
with any substantive powers "to compel any particular inter-
connection or technique of coordination." Duke Power Co. v.
Federal Power Comm'n, 401 F.2d 930, 943 (D.C. Cir. 1968)
(emphasis in original); see Central Iowa Power Coop. v.
FERC, 606 F.2d 1156, 1167-68 (D.C. Cir. 1979) ("Given the
expressly voluntary nature of coordination under section
202(a), the Commission could not have mandated adoption of
the [coordination] Agreement"). Thus, it would be anomalous
for FERC to have jurisdiction under section 203 to prohibit
the utility petitioners from ending their voluntary coordina-
tion and interconnection through the PJM ISO. This does

not mean that FERC is prohibited from reviewing entry to or
exit from an ISO. The petitioners are not disputing FERC's
authority to review their agreements at the outset and to
decide, based on the evidence in the record, whether the
entrance and exit rights specified therein are just and reason-
able within the meaning of section 205. Nor do petitioners
contest FERC's authority to review a specific withdrawal
under section 205. Rather it is only FERC's assertion of
jurisdiction under section 203 that is at issue.

Third, prior to this case this Commission held a similar
view of the limits of its own jurisdiction under section 203. It
observed that "Section 203 was ... designed to insure that
transfers of utility property to, as well as from, the companies
subject to our jurisdiction would be in the public interest."
Duke Power Co., 36 F.P.C. 399, 402 (1966) (emphasis added),
rev'd on other grounds, Duke Power Co. v. Federal Power
Comm'n, 401 F.2d 930 (D.C. Cir. 1968). Indeed, prior to this
case, FERC had never applied section 203 where only opera-
tional control was transferred. Cases such as Central Ver-
mont Public Service Corp., 39 F.E.R.C. p 61,295 (1987), and
Savannah Electric & Power Co., 42 F.E.R.C. p 61,240 (1988),
cited by FERC, are not helpful to the Commission's position
because they involved changes in corporate ownership and
direct control. Central Vermont involved a transfer of own-
ership and control of jurisdictional facilities through a trans-
fer of common stock from existing shareholders to a newly
created holding company. Savannah Electric involved the
transfer of all of a public utility's stock to a registered public
utility holding company. Indeed these cases note that there
was a change in proprietary interest contemplated in the
disputed transaction. See Central Vermont, 39 F.E.R.C. at
61,960 ("Although the current stockholders of the public
utility will own stock in the holding company after the reorga-
nization is completed, they will no longer have a proprietary
interest in, or direct control over, the jurisdictional facilities")
(emphasis added); Savannah Electric, 42 F.E.R.C. at 61,778.
Similarly the sale/leaseback cases cited by FERC are not
relevant because they all involve transfers of proprietary
interests through an actual sale of facilities, which are then

leased back to the original owner. See Baltimore Refuse
Energy Systems Co., 40 F.E.R.C. p 61,366 (1987). In those
cases there was no change in operational control at all--there
section 203 approval was required solely because of a change
in the legal ownership of the facilities. Thus, if these cases
show anything, it is that FERC's jurisdiction under section
203 turns on changes in ownership.

FERC's supporting intervenors argue that the transfer of
operational control over jurisdictional facilities to the ISO is a
"disposition" within the meaning of section 203. Similarly, in
the Jurisdictional Order, FERC noted that "the creation of
an ISO requires the transfer of control of the operation of the
PJM transmission facilities from the transmission owners ...
to the ISO and is a disposition of jurisdictional facilities
requiring prior Commission authorization under section 203."
76 F.E.R.C. at 62,513. Yet, FERC did not rely on this
analysis in its brief before this Court, and with good reason.
In the proceedings below, the Commission found that the
PJM power pool was already "operated" on a coordinated
basis, with a central dispatch, "by an independent staff re-
ferred to as the PJM Office of Interconnection (PJM-OI)."
PJM Restructuring Order, 81 F.E.R.C. at 62,234 n.1. Prior
to the attempt to create an ISO, FERC never asserted
section 203 jurisdiction over the PJM tight power pool. The
"operational control" exercised by the ISO is no different
from that of its predecessor power pool. The distinction
suggested by the intervenors, that the PJM utilities are
transferring control to an independent ISO rather than a
member-controlled tight power pool, is a very thin reed.
Moreover, although the ISO would exercise supervision over
the daily scheduling and dispatching activities of the network
facilities, the participating members would retain physical
control and ownership of the transmission facilities and be
responsible for their maintenance. The transmission owners
would merely transmit energy in accordance with the di-
rectives of the ISO. Public utilities make decisions about the
operational control of their facilities on a regular basis. They
give customers the right to demand capacity, they enter into
coordination agreements, and they join together in coopera-

tive ventures that require common management. Yet, for
more than half a century, section 203 has never been con-
strued to give the Commission control over every such agree-
ment. Its focus is plainly upon the disposition of the facili-
ties themselves. As "[a]gency authority may not be lightly
presumed," Michigan, 268 F.3d at 1082, we find that FERC's
attempted reach under section 203 exceeds its statutorily-
defined grasp. No "disposition" within the meaning of sec-
tion 203 is contemplated by the ISO agreements, and thus
FERC has no jurisdiction to require preapproval under that
provision.

C. Generic Modification of Contracts

Finally we turn to PSE&G's challenge to FERC's order
requiring the generic reformation of pre-existing wholesale
power contracts to reflect transmission pricing under the new
ISO regime. PSE&G contends that the Commission failed to
make the particularized findings required under the Mobile-
Sierra doctrine. FERC concedes that it did make a "gener-
ic" finding that existing bilateral and power sale agreements
of PJM members had to be modified, but that such a generic
finding was entirely appropriate because the PJM restructur-
ing plan "transferr[ed] the obligation to provide open access
transmission services from the individual [utility owners] to
the ISO." PJM Restructuring Order, 81 F.E.R.C. at 62,281.
FERC submits that a "decision to proceed generically across
a group of contracts that were universally affected in the
same way by the restructuring plan was reasonable." Yet
petitioner PSE&G had a Mobile-Sierra contract that was
negotiated at arms length with Old Dominion and designed to
provide both parties with long-term price certainty and
FERC made no findings that modifications to this contract
were required by the public interest. Because the Commis-
sion has not made the required findings under the Mobile-
Sierra doctrine, FERC's order is contrary to law and must be
vacated.

Prior to the formation of the PJM ISO, transmission ser-
vice was (and in most parts of the country, still is) sold on a

utility-by-utility basis. If a power sale required transmission
service over the lines of more than one utility to travel on a
path from the power plant to the buyer, transmission service
would be purchased separately from each intervening utility.
Under the Commission's ISO guidelines set forth in Order
No. 888, the transmission lines of all of the utilities that join
an ISO are to be pooled together and sold for a single rate,
even when a transaction uses the transmission lines of more
than one utility. In Order No. 888 and its progeny, FERC
indicated that the new transmission pricing rules were to
apply prospectively only. Pre-existing contracts would be left
unchanged unless the parties voluntarily agreed to an amend-
ment or the customer proved, on a case-by-case basis, that
the facts presented by an individual contract justified a
change. See Order No. 888, 61 Fed. Reg. at 21,557-58. Yet,
in the PJM Restructuring Order the Commission ordered
that all pre-existing contracts be modified without making
any of the required findings under the Mobile-Sierra doc-
trine.

Under the Mobile-Sierra doctrine FERC may abrogate or
modify freely negotiated private contracts that set firm rates
or establish a specific methodology for setting the rates for
service, and deny either party the right to unilaterally change
those rates, only if required by the public interest. Texaco
Inc. v. FERC, 148 F.3d 1091, 1095 (D.C. Cir. 1998). As we
have held, the purpose of the Mobile-Sierra doctrine is to
preserve the benefits of the parties' bargain as reflected in
the contract, assuming that there was no reason to question
what transpired at the contract formation stage. See Town of
Norwood v. FERC, 587 F.2d 1306, 1312 (D.C. Cir. 1978). The
public interest standard of the Mobile-Sierra doctrine is
much more restrictive than the just and reasonable standard
of section 205 of the Act. See Potomac Elec. Power Co. v.
FERC, 210 F.3d 403, 407 (D.C. Cir. 2000); Texaco, 148 F.3d
at 1097. Yet, in requiring modifications to the PSE&G-Old
Dominion 1992 agreement, FERC failed to undertake, let
alone satisfy, the requirements of the Mobile-Sierra doctrine.
At no time did FERC make a particularized finding that the

public interest required the modification of the PSE&G-Old
Dominion contract.

FERC claims to have engaged in a fact-specific inquiry in a
section 206 complaint brought by Old Dominion. See Old
Dominion Elec. Coop. v. Public Serv. Elec. & Gas Co., 84
F.E.R.C. p 61,155 (1998). However, in that proceeding, the
Commission did not engage in any analysis; instead, dismiss-
ing Old Dominion's complaint, the Commission stated that
"we are not persuaded that this docket is the proper place to
address the issue of multiple [transmission] charges. Rather,
the docket in which this matter should be (and, in fact,
already has been) addressed is the PJM [Restructuring
Order] proceeding." Id. at 61,844. Nor is any case-specific
justification to be found in the PJM Restructuring Order.
Instead, FERC simply relied on its general policy to be
applied in ISOs that the charging of multiple, utility-specific
transmission rates in a transaction that requires use of more
than one utility owner's lines should be eliminated. See PJM
Restructuring Order, 81 F.E.R.C. at 62,281. This is insuffi-
cient to satisfy the requirements of the Mobile-Sierra doc-
trine. "[M]ore is required to justify regulatory intervention
in a private contract than a simple reference to the policies
served by a particular rule." Texaco, 148 F.3d at 1097.
While FERC may be "becoming hostile to Mobile-Sierra" and
the particularized findings that doctrine requires, Boston
Edison Co. v. FERC, 233 F.3d 60, 68 (1st Cir. 2000), the
Commission would do well to heed its own admonition and
"not take contract modification lightly." Potomac Elec. Pow-
er Co. v. Allegheny Power Sys., 85 F.E.R.C. p 61,160, at
61,632-33 (1998), aff'd, Potomac Elec. Power Co. v. FERC,
210 F.3d 403 (D.C. Cir. 2000).

Despite FERC's bald assertion that the transmission rate
under the PSE&G-Old Dominion 1992 agreement was "un-
reasonable" or "discriminatory," this case involves little more
than a party to a contract seeking to avail itself of a lower
rate than it was entitled to under the terms of its original
agreement. This Court has consistently held, however, that a
rate differential attributable to the operation of the Mobile-
Sierra doctrine, is not, by itself, enough to demonstrate that

the public interest demands a modification to or an abroga-
tion of an existing contract. See, e.g., Potomac Elec., 210
F.3d at 409; Cities of Bethany v. FERC, 727 F.2d 1121, 1139-
41 (D.C. Cir. 1984). As FERC's decision to require the
generic reformation of pre-existing wholesale power contracts
to reflect transmission pricing under the new ISO regime was
based on little else, it fails to comply with the Mobile-Sierra
doctrine, and is hereby vacated.

III. Conclusion

FERC has attempted to exert authority where it has none.
FERC can point to no statute authorizing its requirement
that the utility petitioners cede their statutory rights under
section 205 of the Federal Power Act to file changes in rate
design with the Commission. Nor does FERC have jurisdic-
tion under section 203 of the Act to require the utility
petitioners to modify the ISO agreement to allow withdrawal
only upon approval by the Commission. A utility does not
"sell, lease, or otherwise dispose" of facilities when it agrees
to the changes in operational control necessary to withdraw
from (or initially join) an ISO. Finally, FERC's requirement
of generic reformation of pre-existing wholesale power con-
tracts, without making a particularized finding that the public
interest requires modification of a particular agreement, is a
violation of the Mobile-Sierra doctrine. Therefore, we grant
the petitions for review, vacate those portions of the Jurisdic-
tional Order, PJM Restructuring Order, and the Compliance
Order that are inconsistent with this opinion, and remand for
further proceedings.

So ordered.