United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 31, 2005 Decided December 2, 2005
No. 04-1341
FPL ENERGY MARCUS HOOK, L.P.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
PJM INTERCONNECTION, L.L.C.,
INTERVENOR
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Stephen L. Huntoon argued the cause and filed the briefs for
petitioner.
Dennis Lane, Former Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief was Cynthia A. Marlette, General Counsel.
Barry S. Spector argued the cause and filed the brief for
intervenor. Michael J. Thompson entered an appearance.
Before: SENTELLE, GARLAND and GRIFFITH, Circuit Judges.
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Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: FPL Energy Marcus Hook
(“Marcus Hook”) petitions for review of a Federal Energy
Regulatory Commission (“FERC” or “the Commission”) order
denying a request for a reallocation and redetermination of
Marcus Hook’s cost responsibility for a construction upgrade
resulting from its request to interconnect with an electricity
transmission grid. Marcus Hook also petitions for review of
FERC’s order denying its request for rehearing. Because we
find that FERC did not adequately explain its decision on the
upgrade’s system benefit, we grant the petition for review,
partially vacate the orders, and remand for further proceedings.
I.
A.
Formed in 1927 in the Mid-Atlantic region, intervenor PJM
Interconnection (“PJM”) has operated since 1956 as a tight
power pool, having a single control area with free-flowing
transmission lines. See Atl. City Elec. Co. v. FERC, 295 F.3d 1,
5 (D.C. Cir. 2002). In 1996, FERC initiated “sweeping
changes” in the electric utility industry, which led PJM to
reorganize itself in 1997 as an independent system operator
(“ISO”). Mich. Pub. Power Agency v. FERC, 405 F.3d 8, 10
(D.C. Cir. 2005). Adhering to FERC’s regulations for ISOs,
PJM adopted a pool-wide open access tariff and a regional bid-
based energy market in 1997. Id. at 5.
Further changes in 2002 led FERC to designate PJM as the
first regional transmission organization (“RTO”). PJM
Interconnection, LLC, 101 FERC ¶ 61,345 (2002), order on
reh’g, 104 FERC ¶ 61,124 (2003), order on reh’g, 105 FERC
¶ 61,123 (2003), order on reh’g, 109 FERC ¶ 61,067 (2004),
3
reh’g pending. As an RTO, PJM acts as an “umbrella entit[y]”
that controls electricity transmission assets. Mich. Pub. Power,
405 F.3d at 10. Under FERC’s new regime, electricity-
generating plants can interconnect with transmission lines
owned by RTOs and then sell energy to one another—a result
favorable to competition. As administrative entities, RTOs and
ISOs like PJM must handle the interconnections of new
electricity generating facilities lying within the geography of
their transmission-owning members. PJM’s responsibilities
included the interconnection of petitioner, whose project resides
within the service area of PECO Energy Company, a
transmission-owning member of PJM. The Marcus Hook
project—a combined cycle, gas-fired, electric generating facility
in Marcus Hook, Pennsylvania—entered service in late 2004.
The open access tariff provides the terms and conditions for
all such interconnections under PJM’s purview. The process
begins when a new generating facility first approaches PJM and
submits an interconnection request. That request must describe
the new facility’s size and location, among other things. Tariff
Section 36.1. PJM then places all such requests into a first-
come, first-served queue. Tariff Section 36.10.
The tariff requires PJM to undertake several studies of the
queued projects. The first is a feasibility study, which
preliminarily determines what system upgrades are necessary to
accommodate the new interconnection. Tariff Section 36.2.
From this study, PJM must estimate the requesting party’s cost
responsibility for the upgrades. Following the feasibility study,
PJM must conduct a system impact study, which refines and
more comprehensively estimates cost responsibility for
necessary system upgrades. Tariff Section 36.4.1. Defined as
“a comprehensive regional analysis of the effect” of a new
interconnection, a single impact study may include an evaluation
of multiple interconnection requests. Id. Customers may
4
terminate or withdraw their interconnection requests based on
the impact study’s findings. PJM then conducts a final facilities
study on the remaining customers and allocates good faith
estimates of cost responsibility among them. Tariff Section
36.7. Upon completion of the facilities study, PJM tenders to
the interconnection customer an Interconnection Service
Agreement (“ISA”), which specifies the customer’s actual cost
responsibility. Tariff Sections 36.8, 36.8.3, 37.4.
All cost figures produced by PJM’s studies must comply
with Section 37. Interconnection customers must pay for all
necessary attachment facilities. Tariff Section 37.1. In addition,
Section 37.2 imposes on the interconnection customer “100
percent of the costs of the minimum amount of [upgrades]
necessary to accommodate its Generation Interconnection
Request and that would not have been incurred under the
Regional Transmission Expansion Plan but for such Generation
Interconnection Request, net of benefits resulting from the
construction of the upgrades . . . .” PJM prepares Regional
Transmission Expansion Plans (“RTEPs”), which forecast “the
enhancement and expansion of the Transmission System in
order to meet the demands for firm transmission service in the
PJM Region.” Tariff Section 1.37A; see also PJM
Interconnection LLC, 87 FERC ¶ 61,299, 62,202 n.40 (1999).
The costs and benefits listed in Section 37.2 include costs and
benefits “associated with accelerating, deferring, or eliminating”
planned upgrades, upgrades resulting from modifications to the
RTEP, and other upgrades that never become part of an RTEP.
Interconnecting facilities must meet milestones in order to
maintain their place within the queue. Tariff Section 36.8.4(a);
see also id. Section 36.8.5. Failure to meet a milestone or
execute an ISA could trigger termination and withdrawal of the
project. Tariff Section 36.8.4(c). Because the tariff allows PJM
to evaluate multiple interconnection requests in a single study,
5
withdrawal of one request could affect the cost responsibility of
other interconnection customers. Indeed, following a
withdrawal, the tariff directs PJM to reevaluate upgrades
previously deemed necessary by a facilities study that had
evaluated multiple projects. Id. The tariff also directs PJM to
redetermine cost responsibility for, and enter into an amended
ISA with, customers remaining in the queue.
Following these tariff procedures for facilities
interconnection, Marcus Hook submitted an interconnection
request to PJM, which placed the project in queue position A21
with a queue date of August 17, 1998. It submitted another
small request to PJM on October 22, 2001, which received a
queue position of H6. PJM conducted the required feasibility,
impact, and facilities studies for Marcus Hook’s request.
The facilities study, most important for this case, evaluated
the combined effect of Marcus Hook’s A21 project and two
other projects, queued with earlier priority at A13 and A19.
According to the study, sufficient system capacity existed to
support the A13 project, but the addition of A19 and A21 would
push the system beyond the breaking point. To alleviate the
capacity burden, PJM advised an upgrade to the
Mickleton–Monroe circuit. Towers along that circuit had been
built with a single transmission line but included unused
positions for a second line; filling the open positions with a new
transmission line would support the new interconnections,
including Marcus Hook’s. By recommending the upgrade, the
facilities study revised the prior studies.
PJM estimated the cost of the Mickleton–Monroe upgrade
at nearly $13 million. Because the upgrade was unnecessary at
the time of the A13 request, that project escaped cost
responsibility entirely. PJM therefore assigned the costs to the
later-submitted projects, A19 and Marcus Hook’s A21. On
6
January 20, 2002, PJM and Marcus Hook entered into an ISA,
which saddled Marcus Hook with over $10 million of the
upgrade’s total cost. The balance fell to the A19 project.
Had the interconnections proceeded as forecasted in PJM’s
studies, this action would not have been brought. But, alas, the
best-laid plans of mice and RTOs often go awry, and project
A13 withdrew from the queue prematurely. The withdrawal
presented PJM with an unexpected question: whether to
complete the no-longer-necessary Mickleton–Monroe upgrade.
PJM’s studies of multiple interconnection requests had shown
that the transmission system could support projects A19 and
A21 without the Mickleton–Monroe upgrade. Scrapping the
upgrade would therefore not harm the remaining projects.
Economic concerns operated on the other side of the coin,
however. At the time of A13’s withdrawal, the upgrade was
over ninety percent complete; removing the largely completed
upgrade would not be an inexpensive undertaking. Judging
completion to be the least costly alternative, PJM trudged
forward and completed the upgrade.
B.
Marcus Hook disputed its cost responsibility for what it
considered to be an unnecessary project. Claiming that PJM had
infringed Sections 36.8.4(c) and 37.2 of its tariff, Marcus Hook
filed a complaint with FERC. As a remedy, Marcus Hook
sought recompense from PJM for over $9 million, the sum total
of its payments in support of the Mickleton–Monroe upgrade.
To obtain its relief, Marcus Hook asked FERC to direct PJM to
draw up a new, revised ISA with reduced cost responsibility for
Marcus Hook. The complaint suggested that a favorable ruling
would also require PJM to refund the difference between the
original and amended ISAs, which Marcus Hook argued should
be the entirety of the payments already made.
7
Marcus Hook grounded its complaint—and grounds its
petition for review—in the language of PJM’s tariff.
Specifically, petitioner pointed to Section 36.8.4(c) of the tariff,
the provision covering withdrawn interconnection requests.
That section, in pertinent part, states:
In the event that a terminated and withdrawn
Interconnection Request was included in a [facilities study]
that evaluated more than one Interconnection Request . . .
[PJM] shall reevaluate the need for the facilities and
upgrades indicated by the [facilities study], shall
redetermine the cost responsibility of each remaining
Interconnection Customer for the necessary facilities and
upgrades based on its assigned priority . . . and shall enter
into an amended [ISA] with each remaining Interconnection
Customer setting forth its revised cost obligation.
Tariff Section 36.8.4(c). From this language, petitioner argued
that, upon project A13’s withdrawal, PJM was required to
reevaluate the necessity of the Mickleton–Monroe upgrade,
redetermine Marcus Hook’s responsibility for the upgrade, and
enter into an amended ISA with Marcus Hook based on the
redetermination. Because PJM failed to perform any of these
actions, petitioner asked FERC to order PJM to do so.
Petitioner Marcus Hook asserted that the upgrade is now
unnecessary and that a reevaluation would so demonstrate.
Indeed, Marcus Hook’s complaint pointed to evidence that PJM
itself considered the upgrade unnecessary in the absence of the
A13 project. If the project is no longer necessary, Marcus Hook
argued, then Section 37.2 of the tariff absolves it of cost
responsibility. The section imposes “100 percent of the costs of
the minimum amount of [upgrades] necessary to accommodate
its Generation Interconnection Request and that would not have
been incurred under the Regional Transmission Expansion Plan
8
but for such Generation Interconnection Request, net of benefits
resulting from the construction of the upgrades . . . .” Tariff
Section 37.2. Petitioner found here two textual hooks for its
claim for relief: first, that it should not be responsible for
unnecessary upgrades; second, that the upgrade’s benefit to the
system justifies shifting cost responsibility to another entity or
entities.
FERC issued an order denying petitioner’s request for
relief. The Commission characterized the issue before it rather
abstractly as “which entity bears the risk” of cost responsibility
for upgrades made unnecessary by an earlier project’s
withdrawal. Concluding that the tariff places the risk on the
interconnecting customer, FERC interpreted Section 36.8.4(c)
to require PJM to redetermine necessity only for “as yet to be
constructed” upgrades. FERC explained its interpretation by
finding that PJM “could not” reallocate the costs to any other
entity even if it reevaluated the necessity. The Commission
suggested that Marcus Hook should have hedged its risk by
negotiating safeguards into its ISA.
Having dispensed with PJM’s ability to reevaluate and
reallocate, FERC then rejected Marcus Hook’s system benefit
argument. Specifically, the Commission concluded that the
Mickleton–Monroe upgrade lacked system benefit. FERC
focused on language from Section 37.2, imposing on the
customer costs “that would not have been incurred under the
Regional Transmission Expansion Plan but for” the
interconnection request. The Commission reasoned that the
additional Mickleton–Monroe line had not been included in
PJM’s RTEP prior to Marcus Hook’s interconnection request,
and therefore lacked system benefit. FERC suggested that
Marcus Hook would not have been responsible for any costs if
the upgrade had appeared in the RTEP.
9
Marcus Hook filed for rehearing, challenging FERC’s
interpretation of the tariff and submitting additional evidence of
the upgrade’s system benefit. FERC denied the request for
rehearing and issued another order. The Commission applied its
own evidentiary rules to reject the additional evidence as
untimely. See 18 C.F.R. § 385.206(8). According to FERC, the
evidence should have appeared in Marcus Hook’s original
filings.
Revisiting its initial analysis of Section 36.8.4(c), FERC
found that the tariff only allowed PJM to redetermine cost
responsibility for “each remaining Interconnection Customer”
whose interconnection request was included in the facilities
study. The Commission concluded that there were no such
remaining customers—that is, no projects remained in the queue
to which PJM could reallocate any costs of the
Mickleton–Monroe upgrade. Accordingly, as between Marcus
Hook—the only relevant, remaining interconnection customer
in the queue—and PJM, FERC affirmed its initial decision to
allocate the risk to Marcus Hook. Necessity or the lack thereof,
according to FERC, “does not change the allocation of risk
under PJM’s tariff.”
The Commission also revisited the question of system
benefit but relied on a different ground to reject Marcus Hook’s
rehearing argument. Rather than reach the merits as it had
initially, FERC considered system benefit irrelevant to its
analysis. The Commission reduced the issue to an either/or
proposition: If the upgrade had been included in PJM’s RTEP
at the time of the interconnection request, the interconnecting
customer would have no cost responsibility. If the upgrade did
not appear in the RTEP, however, the customer would have sole
responsibility for the costs. Because the Mickleton–Monroe
upgrade did not appear in PJM’s RTEP at the time Marcus Hook
submitted its interconnection request, FERC concluded that
10
Marcus Hook retained its cost responsibility following A13’s
withdrawal.
Marcus Hook now petitions this court for review of FERC’s
initial order and the order denying rehearing.
II.
This court reviews FERC’s orders under the arbitrary and
capricious standard. 5 U.S.C. § 706(2)(A); see also PSEG
Energy Res. & Trade LLC v. FERC, 360 F.3d 200, 203 (D.C.
Cir. 2004). Factual findings by FERC must be supported by
substantial evidence. Florida Mun. Power Agency v. FERC, 411
F.3d 287, 291 (D.C. Cir. 2005). We “generally ‘give[ ]
substantial deference to [FERC’s] interpretation of filed tariffs,
even where the issue simply involves the proper construction of
language.’” S. Cal. Edison Co. v. FERC, 415 F.3d 17, 21 (D.C.
Cir. 2005) (quoting Koch Gateway Pipeline Co. v. FERC, 136
F.3d 810, 814 (D.C. Cir. 1998)) (second alteration in original).
We need not defer, however, when the tariff is not ambiguous.
Id. (citation omitted). Accordingly, the deference we apply is
“Chevron-like” in nature. Consol. Edison Co. of New York v.
FERC, 347 F.3d 964, 972 (D.C. Cir. 2003).
III.
Petitioner’s complaint essentially raises a single issue:
What are PJM’s duties under the tariff when a queued project
withdraws and makes a previously necessary upgrade
unnecessary? That single issue breaks down into several
subparts: (1) whether PJM had a duty to reevaluate the
completed Mickleton–Monroe upgrade at all; (2) to whom could
PJM have reallocated costs should such a reallocation have been
required; and (3) whether system benefit obviated Marcus
Hook’s cost responsibility even if reallocation to other
11
customers was not an option.
On the first question, FERC seems to have concluded that
PJM has no duty at all to reevaluate the necessity of the
Mickleton–Monroe upgrade. In its initial order, the Commission
limited PJM’s duty to reevaluate to “as yet to be constructed”
upgrades. The parties have agreed that, as a “virtually
completed” upgrade, the Mickleton–Monroe upgrade was no
longer “as yet to be constructed.” FERC’s statements therefore
suggest that PJM had no duty to reevaluate the need for the
upgrade. Marcus Hook certainly interprets the order that way
and spends considerable space in its briefs refuting what it
believes to be FERC’s holding.
Confusingly, though, FERC does not appear to have rested
its decision on PJM’s lack of duty. Rather, the Commission’s
initial order immediately ties PJM’s duty to reevaluate to PJM’s
ability to reallocate costs following a reevaluation. Furthermore,
the Commission’s rehearing order does not even obliquely
discuss PJM’s basic duty to reevaluate the need for upgrades, a
rather conspicuous omission. The rehearing order instead
focuses exclusively on PJM’s ability to reallocate. However
unclear FERC’s orders may otherwise be, it is certainly clear
from such omissions that FERC did not hold that PJM had no
duty to reevaluate the necessity of the upgrade. Accordingly, if
we were to uphold the Commission’s orders, it could not be on
this basis. See Missouri Pub. Serv. Comm’n v. FERC, 234 F.3d
36, 41 (D.C. Cir. 2000) (stating court can only uphold agency
action on “the grounds invoked by the agency” (citation and
internal quotation marks omitted)). We note also that the
Commission has not refashioned its holding before this court.
FERC’s brief barely addresses the “as yet to be constructed”
language, which it says “merely characterize[s] how the Tariff’s
interconnection procedures work.” This language confirms our
conclusion that the Commission’s orders assume a duty to
12
reevaluate under Section 36.8.4(c).
As to the second question, the Commission’s orders
question PJM’s ability to reallocate the costs of the
Mickleton–Monroe upgrade. Section 36.8.4(c) states that PJM
“shall redetermine the cost responsibility of each remaining
Interconnection Customer for the necessary facilities and
upgrades based on” queue position. FERC concluded that,
under this language, PJM could not have reallocated costs to any
other customer. The initial order suggests that the upgrade’s
costs could have been reallocated only had the upgrade been “of
value to other parties seeking capacity.” The rehearing order
clarifies this reasoning and states that upgrade costs could “be
reallocated among the projects lower down in the queue” that
would also use the upgrade’s additional capacity. Applying this
interpretation, the Commission concluded that the queue held no
lower projects to which PJM could reallocate the upgrade’s
costs. Because of Marcus Hook’s position in the queue, FERC
found that it continues to bear the cost responsibility for the
Mickleton–Monroe upgrade.
Marcus Hook apparently does not challenge the
Commission’s findings or reasoning on PJM’s ability to
reallocate to other interconnection customers. Petitioner instead
focuses on the initial order’s apparent limitation on PJM’s duty
to reevaluate to “as yet to be constructed” upgrades. Beyond its
reevaluation argument, petitioner dedicates only one paragraph
in its initial brief to the reallocation of costs among remaining
customers. That paragraph, though, centers on which costs must
be reallocated, not which customers remain in the queue.
Petitioner’s reply brief merely mimics its opening brief. As we
have determined, FERC’s orders assume that PJM had a duty to
reevaluate; therefore, Marcus Hook’s silence on the issue of
reallocation does not aid our analysis.
13
Although the tariff’s language is somewhat ambiguous, the
text of Section 36.8.4(c) reasonably supports the Commission’s
holding. PJM must “redetermine the cost responsibility of each
remaining Interconnection Customer” for necessary upgrades
based on queue position. Tariff Section 36.8.4(c) (emphasis
added). The Section reiterates the same language in the next
clause, requiring amended ISAs for “each remaining
Interconnection Customer.” Several other tariff provisions,
listed in FERC’s rehearing order, also require a reallocation of
costs among “remaining” customers. Other than Marcus Hook’s
meager references in its briefs, it offers no counter-interpretation
of these provisions. Given the tariff’s consistent focus on
remaining customers and their queue positions—and Marcus
Hook’s lack of argument to the contrary—we cannot say the
Commission unreasonably interpreted the tariff. Consol.
Edison, 347 F.3d at 975.
With respect to the third question, FERC’s two orders reach
the same conclusion by two different routes. In its initial order,
the Commission found that the Mickleton–Monroe upgrade
lacked system benefit because it had not been included in PJM’s
RTEP. The rehearing order took a different tack, concluding
that FERC “need not reach the merits.” The Commission stated
that Section 37.2 of the tariff makes Marcus Hook responsible
for all of the costs of upgrades not part of the RTEP and none of
the costs of upgrades included in the RTEP. Thus, according to
FERC, actual benefit provided to the system is “irrelevant” to
Marcus Hook’s cost responsibility.
Faced with FERC’s dual findings, Marcus Hook asserts
both that system benefit is relevant to its complaint and that the
Mickleton–Monroe upgrade had system benefit. Indeed,
petitioner expressed confusion over whether the Commission’s
relevance rationale was “evidentiary” or legal in nature. At least
partly because of the shifting rationales, we too are uncertain as
14
to how FERC reached its decision here. It is clear the two
orders share one common element, a stress on the importance of
PJM’s RTEP to the issue of system benefit. The orders differ,
however, on why the RTEP was important. In its rehearing
order, the Commission changed its analysis from a merits
inquiry to a relevance inquiry.
The inability to settle on a single rationale casts doubt on
FERC’s disposition of the action. The Commission’s failure to
explain the reason for its differing rationales raises more serious
questions. We hold that FERC’s failure to provide an
intelligible explanation for adopting its new rationale amounts
to a failure to engage in reasoned decisionmaking. See Pub.
Utils. Comm’n of Cal. v. FERC, 988 F.2d 154, 167 (D.C. Cir.
1993) (agency determination must be result of reasoned
decisionmaking).
We also doubt seriously whether either order’s reasoning,
standing alone, would withstand scrutiny. In addition to
conflicting with each other, neither order adequately explains
the link between PJM’s RTEP and the question of system
benefit. In its rehearing order, FERC did not even cite to
Section 37.2—or any other tariff provision—in its discussion of
system benefit. It is not clear on what part of the tariff the
Commission hangs its reasoning. And though we grant the
Commission considerable deference in its interpretation of
ambiguous tariff language, we can only uphold the
Commission’s interpretation if we can “discern a reasoned path”
to the decision. E. Tex. Elec. Coop. v. FERC, 218 F.3d 750, 755
(D.C. Cir. 2000) (quoting K N Energy, Inc. v. FERC, 968 F.2d
1295, 1303-04 (D.C. Cir. 1992)). We can discern no such
reasoned path.
In addition, FERC’s interpretation of the tariff also appears
flawed. In its analysis of the role of system benefit to cost
15
allocation, FERC failed to consider the full text of Section 37.2.
The Commission correctly recognized that necessity and “but
for” causation are two essential elements of the cost
responsibility calculus under Section 37.2; it failed, however, to
acknowledge the remainder of the section. It is true that the
tariff imposes on interconnection customers “100 percent of the
costs” of upgrades meeting those two elements, but the tariff
also reduces the customer’s cost responsibility by the amount of
“benefits resulting from the . . . upgrades.” Tariff Section 37.2.
Accordingly, this key language requires PJM to subtract system
benefit from the interconnection customer’s cost responsibility.
The Commission inexplicably ignored this language and did not
explain why PJM’s RTEP should apply on the benefit side of the
equation.
Section 37.2 also provides examples of costs and benefits
that may be considered when assigning cost responsibility.
According to the language of the section, applicable benefits
may include those in an RTEP, those placed in a modified
RTEP, and those that never become part of an RTEP. From this
provision, we find it difficult to conclude that system benefit is
the either/or proposition that FERC makes it out to be, and
FERC’s minimalist explanation does not allow us to defer to its
expertise. Nothing in its orders adequately explains why PJM’s
RTEP should be the sole dispositive factor for Marcus Hook’s
cost responsibility in this case. Accordingly, “we remand to
FERC for further consideration . . . in light of the entire” tariff
section. Office of Consumers’ Counsel v. FERC, 783 F.2d 206,
223 (D.C. Cir. 1986).
Because we find that FERC has not adequately explained its
reasoning on the system benefit issue, we need not address
Marcus Hook’s further challenge to the Commission’s rejection
of its additional evidence.
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IV.
Because we find that FERC did not adequately explain its
decision on system benefit, we grant the petition for review,
partially vacate FERC’s orders, and remand for further
proceedings.
It is so ordered.