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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 8, 2003 Decided July 8, 2003
No. 02-1013
DETROIT EDISON COMPANY,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MIDWEST ISO TRANSMISSION OWNERS, ET AL.,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
John D. McGrane argued the cause for petitioner. With
him on the briefs were Mary Ann K. Huntington and Grego-
ry W. Camet.
Jennifer L. Key argued the cause and filed the briefs for
intervenor Southern California Edison Company.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
Larry D. Gasteiger, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
Gregg K. Stepan argued the cause for intervenor Midwest
Independent Transmission System Operator, Inc. On the
brief were Stephen G. Kozey and Stephen L. Teichler.
Before: EDWARDS, SENTELLE and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: Detroit Edison Co. petitions for
review of a Federal Energy Regulatory Commission (FERC
or Commission) order accepting a tariff filing that allows
retail customers to take electric distribution service under the
FERC tariff. Because we agree with Detroit Edison that
FERC exceeded its statutory jurisdiction by accepting the
tariff, we grant the petition for review.
I. Background
A. Statutory and Regulatory Background
The electric industry provides three principal services: the
generation of electric energy, the transmission of that energy,
and the distribution of that energy from the transmission
facilities to individual customers. See Transmission Access
Policy Study Group v. FERC, 225 F.3d 667, 690–91 (D.C. Cir.
2000) (‘‘TAPSG’’), aff’d sub nom. New York v. FERC, 535
U.S. 1 (2002). These services reflect the three principal types
of facilities in the industry: generating facilities used to
produce energy, transmission facilities used to transmit ener-
gy in bulk over long distances (generally at higher voltages),
and local distribution facilities used to distribute the energy
to individual customers (generally at lower voltages). See id.
Service is further divided into wholesale and retail service.
Wholesale service involves the transmission or distribution of
electric energy to customers that will resell the energy to end
users. Id. Retail service, by contrast, denotes transmission
or distribution to end users. Id.
3
Section 201(b)(1) of the Federal Power Act (FPA) grants
FERC jurisdiction over ‘‘transmission of electric energy in
interstate commerce[,] TTT the sale of electric energy at
wholesale in interstate commerce,’’ and the facilities used for
such transmissions and wholesale transactions. 16 U.S.C.
§ 824(b)(1) (2000). States retain jurisdiction ‘‘over facilities
used in local distribution.’’ Id.
In its landmark Order 888,1 FERC was forced to reevalu-
ate its statutory jurisdiction in light of the Order’s measures
to increase competition and deregulation in the electric ener-
gy market. Prior to Order 888, ‘‘electric utilities were verti-
cally integrated, owning generation, transmission, and distri-
bution facilities and selling these services as a ‘bundled’
package to wholesale and retail customers in a limited geo-
graphical service area.’’ Pub. Util. Dist. No. 1 of Snohomish
County, Wash. v. FERC, 272 F.3d 607, 610 (D.C. Cir. 2001).
FERC found that public utilities were using their monopoly
control over interstate transmission facilities to gain advan-
tage over potential competitors for sales of energy. See
generally TAPSG, 225 F.3d at 681–83. Addressing these
concerns, Order 888 mandated that the wholesale transmis-
sion of electric energy be unbundled from the sale of power.
Order 888 at 31,635–36. FERC required utilities to file open
access nondiscriminatory tariffs that contain the minimum
terms and conditions of nondiscriminatory wholesale trans-
mission services, which FERC prescribed in a pro forma
tariff. Id. In addition, Order 888 provided that if state
commissions order ‘‘unbundling’’ of retail transmissions, open
1 Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities and
Transmitting Utilities, Order No. 888, FERC Stats. & Regs.
¶ 31,036, 61 Fed. Reg. 21,540 (1996), clarified, 76 FERC ¶ 61,009
and 76 FERC ¶ 61,347 (1996), on reh’g, Order No. 888–A, FERC
Stats. & Regs. ¶ 31,048, 62 Fed. Reg. 12,274, clarified, 79 FERC
¶ 61,182 (1997), on reh’g, Order No. 888–B, 81 FERC ¶ 61,248, 62
Fed. Reg. 64,688 (1997), on reh’g, Order No. 888–C, 82 FERC
¶ 61,046 (1998), aff’d in part and remanded in part sub nom.
TAPSG, 225 F.3d 667, aff’d sub nom. New York, 535 U.S. 1.
4
access requirements apply to unbundled retail transmission
service as well. Id.
In light of the unbundling and open access requirements,
FERC made several jurisdictional determinations. First,
FERC concluded that, pursuant to FPA § 201(b)(1), it has
jurisdiction over the interstate transmission of electric energy
to any wholesale or unbundled retail customer. Order 888 at
31,980; New York, 535 U.S. at 11. Importantly, FERC
realized that unbundled retail ‘‘wheeling’’ (the collective pro-
cess of transmission and distribution) could involve service
over transmission facilities, as well as service over local
distribution facilities. Order 888 at 31,980. Recognizing the
statutory limit on its jurisdiction over local distribution facili-
ties, FERC created a seven-factor test to determine whether
a given facility is a local distribution facility (over which
FERC has no jurisdiction) or a transmission facility (over
which FERC does have jurisdiction). Id. at 31,770–71,
31,981; New York, 535 U.S. at 23; TAPSG, 225 F.3d at 695.
The seven-factor test considers the following: (1) local distri-
bution facilities are normally in close proximity to retail
customers; (2) local distribution facilities are primarily radial
in character; (3) power flows into local distribution systems,
it rarely if ever, flows out; (4) when power enters a local
distribution system it is not reconsigned or transported on to
some other market; (5) power entering a local distribution
system is consumed in a comparatively restricted geographic
area; (6) meters are based at the transmission local distribu-
tion interface to measure flows into the local distribution
system; and (7) local distribution systems will be of reduced
voltage. Order 888 at 31,981.
When a local distribution facility is used to delivery energy
to an unbundled retail customer, FERC lacks any statutory
authority, and the state has jurisdiction over that transaction.
Order 888 at 31,981; New York, 535 U.S. at 22–23. By
contrast, when a local distribution facility is used in a whole-
sale transaction, FERC has jurisdiction over that transaction
pursuant to its wholesale jurisdiction under FPA § 201(b)(1).
Order 888 at 31,980; TAPSG, 225 F.3d at 695. In sum,
FERC has jurisdiction over all interstate transmission service
5
and over all wholesale service, but FERC has no jurisdiction
over unbundled retail distribution service–i.e., unbundled re-
tail service over local distribution facilities. For our pur-
poses, the most important result of these jurisdictional deter-
minations is that customers can take any FERC-jurisdictional
service under a utility’s open access tariff, which the utility is
required to file with FERC. Customers must take non-
FERC-jurisdictional service, such as unbundled retail distri-
bution, under a state tariff.
Finally, Order 888 addressed the concern that unbundled
retail customers could take distribution service under FERC-
jurisdictional transmission tariffs (i.e., open access tariffs on
file with FERC) in lieu of state-jurisdictional tariffs, to avoid
stranded costs charges assessed by state utility commissions.
Order 888 at 31,772, 31,783. FERC affirmed that states have
jurisdiction over local distribution ‘‘service’’–i.e., the service of
delivering electricity to end users–even ‘‘where there are no
identifiable local distribution facilities.’’ Id. at 31,783. Thus,
FERC concluded that state utilities would be able to impose
stranded costs charges through their jurisdiction over local
distribution. Id.
B. Proceedings Before the Commission
In compliance with Order 888, Midwest Independent
Transmission System Operator (Midwest), a company that
operates but does not own electric transmission facilities, filed
its Open Access Transmission Tariff (OATT). Midwest’s
OATT adopted the pro forma tariff’s definition of ‘‘Eligible
Customer,’’ which includes ‘‘any retail customer taking un-
bundled Transmission Service pursuant to a state retail ac-
cess program or pursuant to a voluntary offer of unbundled
retail transmission service by the Transmission Provider.’’
Order 888 at 31,931. On September 16, 1998, FERC condi-
tionally accepted Midwest’s OATT. See Midwest Indep.
Transmission Sys. Operator, Inc., 84 FERC ¶ 61,231 (Initial
Order).
In the Initial Order, FERC required that Midwest’s OATT
be modified to specify how wholesale transmission customers
6
would obtain wholesale distribution services when a local
distribution facility is involved. Id. at 62,172. Consistent
with Order 888’s jurisdictional determination, the Initial Or-
der emphasized: ‘‘Of course, local distribution services for
retail transmission customers will be subject to the jurisdic-
tion of the state commission.’’ Id. (emphasis added).
In response to the Initial Order, Midwest filed a revised
OATT (Compliance Filing), which defined ‘‘Wholesale Distri-
bution Service’’ to mean ‘‘[t]he provision of distribution ser-
vice over a Transmission Owner’s Distribution Facilities nec-
essary to effectuate a transaction under this [OATT].’’ The
term ‘‘Distribution Facilities’’ was circularly defined to in-
clude ‘‘[t]he facilities owned or controlled by a Transmission
Owner and used to provide Wholesale Distribution Service.’’
Paradoxically, then, Midwest’s OATT defined ‘‘Wholesale Dis-
tribution Service’’ in such a way as to possibly cover retail
distribution service as well as wholesale distribution service.
Detroit Edison protested the Compliance Filing because it
was concerned that unbundled retail customers could take
distribution service under the FERC-jurisdictional tariff (i.e.,
Midwest’s OATT), and thus avoid paying stranded costs
charges assessed by the Michigan Public Service Commission.
On April 16, 1999, FERC accepted Midwest’s Compliance
Filing and rejected Detroit Edison’s protest. Midwest Indep.
Transmission Sys. Operator, Inc., 87 FERC ¶ 61,085 (Com-
pliance Order). FERC reasoned that nothing in the Compli-
ance Filing changed the definition of ‘‘Eligible Customer,’’
which was adopted from the pro forma tariff. Id. at 61,364.
Under this definition, FERC held that a retail customer could
take service over ‘‘FERC-jurisdictional distribution facilities’’
so long as the state had unbundled its transmission service or
the transmission provider voluntarily offered transmission
service. Id. FERC did not address Detroit Edison’s argu-
ment that Midwest’s OATT exceeded FERC’s jurisdiction by
allowing an unbundled retail customer to take distribution
service under the FERC tariff.
Detroit Edison filed a petition for rehearing, arguing that
allowing unbundled retail distribution customers to take ser-
7
vice under the OATT would exceed FERC’s statutory juris-
diction, contradict Order 888 and FERC precedent, and inter-
fere with states’ attempts to allocate stranded costs. FERC
denied rehearing. Midwest Indep. Transmission Sys. Oper-
ator, Inc., 97 FERC ¶ 61,178 (2001) (Rehearing Order). The
Commission again attempted to justify the OATT based on its
jurisdiction over unbundled retail transmission service. Id. at
61,827. Furthermore, in addressing contrary Commission
precedent, FERC held that it has jurisdiction over any trans-
action occurring at a facility that does not serve exclusively
retail customers. Id. FERC did not mention Order 888’s
seven-factor test for distinguishing local distribution facilities
from transmission facilities.
Detroit Edison filed this petition for review of the Compli-
ance Order and the Rehearing Order.
II. Analysis
In its petition, Detroit Edison renews its contention that
FERC exceeded its statutory jurisdiction by approving the
OATT and assuming jurisdiction over unbundled retail distri-
bution service. Before deciding that issue, however, we must
address FERC’s assertion that we lack jurisdiction over
Detroit Edison’s petition. FERC argues that Detroit Edi-
son’s petition constitutes an impermissible and untimely col-
lateral attack on the ‘‘Eligible Customer’’ definition included
in Order 888’s pro forma tariff. We disagree.
A. Collateral Attack
As outlined above, supra at 3, FERC included in Order 888
a pro forma tariff prescribing the minimum terms and condi-
tions of nondiscriminatory transmission services and defining
which entities are eligible to take service under a FERC
tariff. In relevant part, the pro forma tariff defines an
‘‘Eligible Customer’’ as ‘‘any retail customer taking unbun-
dled Transmission Service pursuant to a state retail access
program or pursuant to a voluntary offer of unbundled retail
transmission service by the Transmission Provider.’’ Order
888 at 31,931. Shortly after Order 888’s promulgation, sever-
al parties, including Detroit Edison, challenged the ‘‘Eligible
8
Customer’’ definition. Detroit Edison argued that the ‘‘Eligi-
ble Customer’’ definition should ‘‘exclude any reference to
transmission service provided to retail customers’’ because
otherwise potential retail transmission customers would fo-
rum shop between the FERC tariff and a state-jurisdictional
retail wheeling tariff. Order 888–A at 30,213. On rehearing,
FERC declined to exclude unbundled retail transmission
customers from the class of eligible customers. Rather, the
Commission reaffirmed its authority over the rates, terms,
and conditions of unbundled retail transmission. Order
888–A at 30,215 (citing Order 888 at 31,780, 31,966–81); New
York, 535 U.S. at 16–24 (affirming FERC’s jurisdiction over
unbundled retail transmission).
FERC argues that Detroit Edison’s petition merely renews
Detroit Edison’s once-rejected attack on the pro forma tar-
iff’s ‘‘Eligible Customer’’ definition, which Midwest’s OATT
incorporates verbatim. We disagree. In considering Detroit
Edison’s protest, FERC never held or even intimated that
Detroit Edison was collaterally attacking Order 888’s defini-
tion of ‘‘Eligible Customer.’’ The Commission may not ‘‘re-
cast its view’’ of Detroit Edison’s claim at this stage. ANR
Pipeline Co. v. FERC, 71 F.3d 897, 900–01 (D.C. Cir. 1995)
(rejecting collateral attack argument raised for the first time
before the Court). In any event, Detroit Edison’s petition
does not challenge the definition of ‘‘Eligible Customer.’’
Contrary to FERC’s argument, Detroit Edison no longer
contests that unbundled retail customers are eligible to re-
ceive transmission service. Rather, Detroit Edison contends
that such customers may not take distribution service under
a FERC tariff. As noted above, Order 888 plainly recognizes
the difference between the transmission and distribution com-
ponents of retail wheeling. The issue Detroit Edison raises
then, is not ‘‘Which customers are eligible?’’ but ‘‘What type
of service are the ‘Eligible Customers’ eligible for?’’ Nothing
in the ‘‘Eligible Customer’’ definition tells us whether eligible
retail customers may receive distribution service under a
FERC-jurisdictional tariff. Consequently, Detroit Edison is
not collaterally attacking the ‘‘Eligible Customer’’ definition.
9
We therefore have jurisdiction over Detroit Edison’s petition
for review.
B. Statutory Jurisdiction
FERC’s interpretation of its own statutory jurisdiction is
entitled to Chevron deference. See TAPSG, 225 F.3d at 694
(citing Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467
U.S. 837 (1984)). Nonetheless, we hold that FERC clearly
exceeded its statutory jurisdiction by accepting Midwest’s
OATT, which allows unbundled retail customers to take dis-
tribution service under a FERC tariff. Section 201(b)(1) of
the FPA denies FERC jurisdiction over local distribution
facilities and any unbundled retail service occurring over
those facilities. 16 U.S.C. § 824(b)(1). Until now, both the
Commission and the courts have consistently reaffirmed this
jurisdictional boundary. New York, 535 U.S. at 21–23;
TAPSG, 225 F.3d at 691, 695–96; Order 888 at 31,784. As
late as the Initial Order in this case FERC correctly stated:
‘‘Of course, local distribution services for retail transmission
customers will be subject to the jurisdiction of the state
commission.’’ 84 FERC at 62,172. FERC now advances two
arguments in an attempt to explain its about-face and har-
monize its orders with the statutory limits on its jurisdiction.
Neither argument is persuasive.
First, the Commission contends that Midwest’s OATT does
not exceed FERC’s statutory jurisdiction because the OATT
only allows unbundled retail customers to take distribution
service over ‘‘FERC-jurisdictional distribution facilities.’’
Compliance Order, 87 FERC at 61,364. FERC defines such
a facility as any distribution facility that is not ‘‘used exclu-
sively to provide service to unbundled retail customers.’’
Rehearing Order, 97 FERC at 61,827. FERC asserts that
Midwest’s distribution facilities are FERC-jurisdictional be-
cause they are used for both wholesale and retail distribution.
Therefore, FERC claims jurisdiction to set rates for all
service occurring over such facilities, including unbundled
retail distribution service.
FERC’s position contradicts the plain language of the FPA.
Section 201(b)(1) denies FERC jurisdiction over ‘‘facilities
10
used in local distribution.’’ 16 U.S.C. § 824(b)(1). FERC
would rewrite the statute to exclude only ‘‘facilities used
exclusively in local distribution.’’ Such an interpretation
would eviscerate state jurisdiction over numerous local facili-
ties, in direct contravention of Congress’ intent. See New
York, 535 U.S. at 22 (recognizing ‘‘Congress’ intent to pre-
serve state jurisdiction over local facilities’’). Moreover, the
orders under review totally ignore Order 888’s carefully
formulated seven-factor test for distinguishing between local
distribution facilities and ‘‘FERC-jurisdictional facilities,’’
which this Court ultimately approved. See Order 888 at
31,770–71, 31,981, aff’d in TAPSG, 225 F.3d at 696. FERC’s
interpretation disregards the statutory language and relevant
precedent to expand impermissibly its statutory jurisdiction.
FERC’s second argument is even weaker than its first.
FERC contends that Midwest’s OATT does not usurp state
jurisdiction because a retail customer is eligible for distribu-
tion service under the OATT only if the state has voluntarily
unbundled its retail service or a transmission provider volun-
tarily provides the desired distribution service. In essence,
FERC claims that Midwest’s OATT does not exceed FPA
§ 201’s jurisdictional limits because it clearly comports with
FPA § 212(h), 16 U.S.C. § 824k(h), which prohibits the Com-
mission from ordering retail wheeling directly to an ultimate
consumer. This argument is fundamentally wrongheaded.
Section 212(h) and Section 201 place separate and indepen-
dent limits on FERC’s jurisdiction. Neither this Court nor
the Commission has ever held that compliance with Section
212(h) automatically ensures compliance with Section 201’s
prohibition on FERC jurisdiction over unbundled retail distri-
bution. What FERC really seems to be arguing, though, is
that a state somehow cedes its jurisdiction over unbundled
retail distribution if it unbundles retail service or if a public
utility voluntarily provides it. This proposition finds no sup-
port in law. Indeed, Order 888 expressly rejected this argu-
ment, holding that even where a state orders unbundled retail
wheeling, the state retains jurisdiction over local distribution.
Order 888 at 31,771, 31,781–83; see also TAPSG, 225 F.3d at
695. Accordingly, we reject FERC’s attempt to evade the
11
jurisdictional strictures of Section 201 by invoking the sepa-
rate jurisdictional limitation found in Section 212(h).
III. Conclusion
When reviewing agency action, we are charged to ‘‘hold
unlawful and set aside’’ any action found to be ‘‘in excess of
statutory jurisdiction.’’ 5 U.S.C. 706(2)(C) (2000). By accept-
ing Midwest’s tariff filing and asserting jurisdiction over
unbundled retail distribution service, FERC exceeded its
statutory jurisdiction under FPA § 201(b)(1). Accordingly,
we grant the petition and vacate the orders under review.
So ordered.