United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 29, 2005 Decided January 10, 2006
No. 04-1145
IDACORP ENERGY L.P.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
CALIFORNIA INDEPENDENT SYSTEM OPERATOR
CORPORATION, ET AL.,
INTERVENORS
Consolidated with
04-1287, 04-1288
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Lawrence G. Acker argued the cause for petitioner
IDACORP Energy L.P. With him on the briefs was Brett A.
Snyder.
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J. Phillip Jordan argued the cause for petitioner California
Independent System Operator Corporation. With him on the
briefs were Robert V. Zener and Anthony J. Ivancovich.
Beth G. Pacella, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were John S. Moot, General Counsel, and Robert H.
Solomon, Deputy Solicitor. Dennis Lane, Former Solicitor,
entered an appearance.
Lawrence G. Acker and Brett A. Snyder were on the brief
for intervenor IDACORP Energy L.P. in support of respondent.
J. Phillip Jordan, Robert V. Zener, Anthony J. Ivancovich,
Mark D. Patrizio, Stan Berman, and Joseph H. Fagan were on
the brief for intervenors California Independent System
Operator Corporation and Pacific Gas and Electric Company in
support of respondent. Michael E. Ward entered an appearance.
Before: ROGERS, TATEL, and GRIFFITH, Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: Despite daunting technical
discussions of neutrality adjustments and megawatt-hours
contained in the parties’ many briefs, this case is really just a
billing dispute between the entity that runs the California
electric grid and one of its customers. The Federal Energy
Regulatory Commission rejected the customer’s claim for a
refund, and the customer now argues the biller (1) impermissibly
changed its invoice retroactively, and (2) failed to follow the
correct methodology for ensuring that certain charges stayed
within pre-arranged limits. The biller filed a cross-petition,
claiming the Commission (1) improperly interpreted its
agreement with the customer, and (2) should have permitted it
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to increase the pre-arranged limit on charges. Finding that
FERC appropriately rejected the customer’s first challenge but
seeing merit to the second, we grant in part and deny in part its
petition for review. Because the biller has yet to suffer any
injury, we are without jurisdiction to address its cross-petition.
I.
A non-profit organization, the California Independent
System Operator Corporation (CAISO), runs the electric grid for
most of California. Petitioner IDACORP is one of several
“Scheduling Coordinators” which receives energy from CAISO.
CAISO charges Scheduling Coordinators in amounts governed
by a tariff on file with the Federal Energy Regulatory
Commission (FERC).
The dispute in this case centers on charges imposed during
a seven-month period in 2000. Specifically, IDACORP
contends that during that period CAISO misapplied a cap
contained in tariff section 11.2.9.1:
The total charges levied under Section 11.2.9 shall not
exceed $0.095/MWh [i.e., 9.5 cents per megawatt-
hour] . . . unless: (a) [CAISO’s] Governing Board
reviews the basis for the charges above that level and
approves the collection of charges above that level for
a defined period; and (b) [CAISO] provides at least
seven days’ advance notice to Scheduling Coordinators
of the determination of [CAISO’s] Governing Board.
Tariff section 11.2.9, entitled “Neutrality Adjustments,”
authorizes CAISO to “levy additional charges or payments as
special adjustments” in five categories: (a) amounts needed to
round charges up to the nearest whole dollar, (b) penalties levied
by CAISO, (c) amounts needed to balance CAISO’s accounts at
the end of each trading day, (d) payment adjustments, and
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(e) awards from good faith negotiations or alternative dispute
resolution procedures.
FERC accepted CAISO’s contention that its charges had not
exceeded the cap. Cities of Anaheim, Azusa, Banning, Colton
and Riverside, Cal. v. CAISO, 105 F.E.R.C. ¶ 61,021, at 61,179
(2003) (“October 2003 Order”), reh’g 102 F.E.R.C. ¶ 61,274
(2003) (“March 2003 Order”), reh’g 95 F.E.R.C. ¶ 61,197
(2001) (“May 2001 Order”), reh’g 94 F.E.R.C. ¶ 61,268 (2001)
(“March 2001 Order”), reh’g denied, 106 F.E.R.C. ¶ 61,205
(2004) (“March 2004 Order”). IDACORP petitioned for review,
finding fault with two aspects of FERC’s ruling: (1) allowing the
retroactive exclusion of certain types of charges from the cap,
and (2) permitting the application of the cap to the monthly
average of charges rather than to each hour’s charges
independently. We address these claims in turn. For each, we
review FERC’s decision under the familiar arbitrary and
capricious standard, affirming if the Commission “made a
reasoned decision” and gave “a satisfactory explanation for its
action including a rational connection between the facts found
and the choice made.” Pac. Gas & Elec. v. FERC, 373 F.3d
1315, 1319 (D.C. Cir. 2004) (internal quotation marks omitted).
CAISO filed a conditional cross-petition.
II.
IDACORP first challenges CAISO’s treatment of what are
known as “out-of-market” (OOM) purchases. Just as the name
implies, OOM purchases are energy purchases from outside the
market CAISO administers. CAISO makes such purchases to
ensure it can satisfy Scheduling Coordinators’ demands for
energy when those demands exceed supplies in CAISO’s
market. CAISO then divides the costs of those purchases among
Scheduling Coordinators based on the amount of energy each
consumes.
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CAISO’s tariff allocated most neutrality adjustment charges
among Scheduling Coordinators in the same way as OOM
purchases, with one important difference: Only neutrality
adjustment charges are subject to section 11.2.9.1’s cap.
CAISO’s initial invoices billed the two types of charges together
as “neutrality costs.” During the course of proceedings
challenging CAISO’s application of the cap, however, CAISO
argued that OOM charges fall outside the cap’s reach. FERC
agreed, reasoning as follows:
After careful review of [CAISO’s] arguments and
related Tariff provisions, we agree with [CAISO’s]
reasoning that its recovery of OOM dispatch costs is
not constrained by Section 11.2.9.1’s stated hourly
limit of $0.095/MWh. We recognize that [CAISO]
included OOM charges in its neutrality adjustment
charge billings as a matter of administrative
convenience, and that proper application of the
neutrality adjustment charge allocation
mechanism—i.e., recovery of the costs explicitly stated
under Section 11.2.9—does not include OOM dispatch
costs. Thus, while we maintain our finding that
[CAISO’s] recovery of neutrality adjustment charges
is limited to $0.095/MWh, we clarify that any other
costs assessed under provisions other than Section
11.2.9 are not subject to that limit.
March 2003 Order, 102 F.E.R.C. at 61,849. Accordingly, FERC
directed CAISO “to separate all costs recoverable under Section
11.2.9 from all other costs included in the invoiced ‘neutrality
costs.’” Id.
In response, CAISO submitted a “compliance filing,” in
which it identified the charges properly invoiced under section
11.2.9. Letter from Anthony J. Ivancovich, Senior Regulatory
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Counsel, CAISO, et al. to Magalie R. Salas, Secretary, FERC
(June 10, 2003) (“Compliance Filing”). CAISO contended,
however, that providing further detail about the proper
categorization of non-section 11.2.9 charges mistakenly
invoiced as neutrality adjustments “would be a purposeless
expenditure of time and resources” because it would result in no
change in the total amount charged to any Scheduling
Coordinator. Id. at 6. Because none of the section 11.2.9
charges exceeded the cap, CAISO concluded it owed no refunds.
Id. at 5. FERC accepted the compliance filing. October 2003
Order, 105 F.E.R.C. at 61,183. After unsuccessfully seeking
rehearing on this issue, see March 2004 Order, 106 F.E.R.C.
¶ 61,205, IDACORP petitioned for review here.
IDACORP contends that FERC’s decision to permit CAISO
to amend its invoice and move OOM charges out of the
“neutrality adjustment” category amounted to “retroactive
ratemaking.” As all parties agree, CAISO may not engage in
retroactive ratemaking, defined as “imposing a rate increase for
[power] already sold.” Pac. Gas & Elec. Co., 373 F.3d at 1319
(quoting Ark. La. Gas Co. v. Hall, 453 U.S. 571, 578 (1981))
(alteration in original). But FERC saw no retroactive
ratemaking, explaining that its acceptance of the compliance
filing “does not allow [CAISO] to change its rate structure,” but
instead “requires [CAISO] to correct an invoicing mistake.”
October 2003 Order, 105 F.E.R.C. at 61,180. We agree.
Because the ban on retroactive ratemaking requires
compliance with the filed tariff, we begin with section 11.2.9.1.
See Pac. Gas & Elec., 373 F.3d at 1320 (requiring “adequate
notice before the approved rate is changed”). Section 11.2.9.1’s
cap applies only to “[t]he total charges levied under Section
11.2.9.” IDACORP nowhere claims that any of the five
categories listed in section 11.2.9 encompasses OOM charges.
Indeed, as FERC points out—and IDACORP does not
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contest—a different tariff provision, section 11.2.4.2.1, covers
“[a]ll costs incurred by [CAISO] for [OOM] dispatch
instructions.”
Put another way, pointing to no “rate increase” CAISO
seeks to impose, IDACORP asks us to bind CAISO to its
original invoice. Its claim, then, sounds more like retroactive
invoicing than retroactive ratemaking. The ban on retroactive
ratemaking, however, imposes no obstacle to amending
invoices; in fact, the prohibition on retroactive ratemaking may
well require an amended invoice if the original invoice deviated
from the tariff. See Maislin Indus., U.S., Inc. v. Primary Steel,
Inc., 497 U.S. 116, 131 (1990) (allowing collection of filed rate
even after parties had negotiated a lower rate).
IDACORP’s complaint that CAISO’s compliance filing
failed to indicate the basis for non-section 11.2.9 charges lends
no support to its retroactive ratemaking claim. Concerns about
non-section 11.2.9 charges relate only to the accuracy of the
amounts billed, which have remained unchanged since the time
of the original invoice. Thus, any non-section 11.2.9 inaccuracy
would lead to a garden variety billing dispute, not a claim of
retroactive ratemaking.
In short, when CAISO moved OOM charges out of the
billing category subject to the cap, it did not engage in
retroactive ratemaking, but instead simply brought the invoices
in line with the tariff. We will therefore deny this portion of the
petition for review.
III.
This brings us to IDACORP’s contention that FERC acted
arbitrarily and capriciously in failing to require hourly
application of the section 11.2.9.1 cap. Applying the cap hourly
would forbid CAISO from charging in excess of 9.5 cents per
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megawatt-hour in any individual hour even if it charged less
than 9.5 cents per megawatt-hour in other hours. By
comparison, applying the cap monthly would permit charges in
excess of 9.5 cents per megawatt-hour in some hours so long as
the average charge per megawatt-hour over the entire month did
not exceed 9.5 cents.
FERC ordered CAISO to apply the cap hourly, reasoning
that “[t]he provision . . . does not include language indicating
that the limit—which, we note, is stated using a ‘per megawatt-
hour’ unit—is not intended for application on an hourly basis.”
March 2001 Order, 94 F.E.R.C. at 61,934. As the proceedings
progressed, FERC adhered to this decision, despite CAISO’s
repeated insistence that the cap should instead be applied
annually. May 2001 Order, 95 F.E.R.C. at 61,687; March 2003
Order, 102 F.E.R.C. at 61,849-50. In the compliance filing
FERC ultimately accepted, CAISO purported to apply the cap
hourly. It computed the “hourly” charge assessed to each
Scheduling Coordinator under section 11.2.9 by computing the
total charge for each month and dividing by the number of hours
in the month. Compliance Filing at 5. In its compliance filing,
CAISO also explained that its “Settlements process requires that
the amounts . . . be calculated as of the end of each month, rather
than day by day or hour by hour,” but provided no further
explanation. Id. at 2.
FERC initially credited CAISO’s explanations: “[CAISO]
explains that its calculations were limited by the data available,
but demonstrates that they in fact reflect hourly costs.” October
2003 Order, 105 F.E.R.C. at 61,179. But backing away from
this explanation in its order on rehearing, FERC stated that
“IDACORP is correct that the amounts were not calculated on
an hour-by-hour basis.” March 2004 Order, 106 F.E.R.C. at
61,699. Instead, FERC accepted the compliance filing for
different reasons:
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[T]he report demonstrates that the amounts at issue are
de minimis, and IDACORP has not shown that it has
been harmed by [CAISO’s] calculating the charges on
a monthly, rather than an hour-by-hour, basis. Indeed,
IDACORP presents no evidence of any amount for
which it is due a refund. Given that the data provided
by [CAISO] shows that the amounts at issue were very
small (and were actually negative in all months), we
find that the administrative burden involved in
performing further calculations to comply precisely
with our earlier directive in every hour of the seven
months at issue, for every Scheduling Coordinator,
would be extremely costly while potentially causing
substantial delay in both this proceeding and [another
pending proceeding involving CAISO] by depleting
[CAISO’s] limited resources. Therefore, we conclude
that any further recalculations of the neutrality
adjustment charges are unwarranted.
Id. (footnote omitted). In support of its conclusion that the
amounts at issue are de minimis, FERC explained: “For
example, [CAISO] notes that the amount of costs credited or
debited as of the end of June 2000 with regard to the entire
market was [negative] $798.11. The amount per Scheduling
Coordinator would be a fraction thereof. All other months
reflected similarly minimal, negative amounts.” Id. n.9 (citation
omitted).
As IDACORP points out, however, FERC’s explanation
doesn’t follow given that small monthly totals can mask
volatility when debits and credits are permitted to offset each
other. A simple example illustrates this point: Suppose CAISO
on one occasion charged IDACORP $1,000,000, and then on
another gave IDACORP a refund of $1,000,798.11. These
amounts are hardly de minimis, but the aggregated
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total—resulting from subtracting the refund from the
charge—would be negative $798.11, just as CAISO found.
Were this indeed the case, it would affect IDACORP’s bill quite
dramatically: The $1,000,000 charge would be lowered to the
maximum allowable under the cap while the cap would have no
effect on the refund. Perhaps FERC would respond that this
case does not involve million-dollar variances reaching far
above and falling far below the cap. Its order, however,
nowhere makes this point, nor does anything in the record reveal
the extent of hourly fluctuations.
At oral argument, CAISO’s counsel insisted that the charges
at issue are by their very nature de minimis. As he explained,
CAISO imposed neutrality adjustment charges only under
section 11.2.9(c), which authorizes it to levy charges for
“amounts required to reach an accounting trial balance of zero
in the course of the Settlement process in the event that the
charges calculated as due from [CAISO’s] Debtors are lower
than payments calculated as due to [CAISO’s] Creditors for the
same Trading Day,” but requires CAISO to make payments “[i]n
the event that the charges due from [CAISO’s] Debtors are
higher than the payments due to [CAISO’s] Creditors.”
According to CAISO’s counsel, this subsection functions as a
mere “accounting fudge factor.” Oral Arg. Tr. 42. If true, this
explanation might well support FERC’s conclusion that the
amounts at issue are de minimis, as it would demonstrate that
the low aggregated totals are not masking volatility in individual
charges. But because FERC didn’t rely on this explanation, we
may not consider it. See SEC v. Chenery Corp., 318 U.S. 80, 87
(1943) (“The grounds upon which an administrative order must
be judged are those upon which the record discloses that its
action was based.”). Accordingly, we will grant this portion of
IDACORP’s petition and remand to FERC for further
proceedings consistent with this opinion.
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We hasten to note that nothing in this opinion requires
FERC to mandate hourly application of the cap. Instead, we are
simply remanding for FERC to reconsider its order. In doing so,
FERC should consider whether hourly application may be
impractical given that the charges at issue appear to arise at most
once each day, coming about only when “the charges calculated
as due from [CAISO’s] Debtors are lower than payments
calculated as due to [CAISO’s] Creditors for the same Trading
Day.” Tariff § 11.2.9(c) (emphasis added). Of course, the fact
that section 11.2.9.1 limits the dollar amount charged “per
megawatt-hour”—FERC apparently relied on this in requiring
hourly application of the cap, see March 2001 Order, 94
F.E.R.C. at 61,934—in no way suggests that the cap must be
applied on an hourly basis. The mere presence of the word
“hour” in “megawatt-hour” does not mean that a megawatt-hour
must be consumed in a single hour. A megawatt-hour is not a
unit of time, but a unit of energy. Indeed, as the Federal Energy
Regulatory Commission conceded at oral argument, a megawatt-
hour can be consumed over any period of time—in ten seconds,
ten minutes, a day, or a week.
IV.
The additional issues the parties raise need not detain us
long. IDACORP challenges FERC’s denial of its first motion to
intervene, but that denial caused it no prejudice given that FERC
eventually permitted IDACORP to participate in the
proceedings. Accordingly, we will dismiss this portion of
IDACORP’s petition for lack of jurisdiction. See 16 U.S.C.
§ 825l(b) (granting judicial review only to “[a]ny party . . .
aggrieved” by FERC’s order).
We also lack jurisdiction over CAISO’s cross-petition, in
which it challenges FERC’s interpretation of the section 11.2.9.1
cap and the Commission’s rejection of CAISO’s attempt to
increase the cap from 9.5 cents to 35 cents per megawatt-hour.
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Acknowledging that it was not “aggrieved” by FERC’s order,
CAISO nonetheless argues that it “will be aggrieved if
IDACORP is successful in its challenge to the FERC-ordered
separation of the OOM costs and other costs from the neutrality
charges.” CAISO’s Opening Br. 15. But because we have
rejected IDACORP’s challenge, CAISO remains
unaggrieved—a fact unaffected by our grant of another part of
IDACORP’s petition. CAISO continues to insist that it will owe
no refund, claiming that section 11.2.9 charges are small enough
to avoid triggering the 9.5 cents per megawatt-hour cap. See
Oral Arg. Tr. 42 (“This is a tiny item.”). Any injury to CAISO
is therefore not only conjectural, but believed by CAISO itself
to be unlikely to occur. We will therefore dismiss CAISO’s
cross-petition for lack of jurisdiction. See Interstate Natural
Gas Ass’n of Am. v. FERC, 285 F.3d 18, 45 (D.C. Cir. 2002)
(requiring injury that is “not conjectural or hypothetical” for
petitioner to be “aggrieved” (internal quotation marks omitted)).
Of course, should CAISO become aggrieved due to some action
FERC takes on remand, it may then seek judicial review of the
issues raised in its cross-petition.
V.
Finding no retroactive ratemaking, we deny the portion of
IDACORP’s petition relating to OOM charges. But because we
conclude that FERC’s acceptance of CAISO’s compliance filing
was arbitrary and capricious, we grant IDACORP’s petition in
part. We dismiss the remainder of IDACORP’s petition and the
entirety of CAISO’s cross-petition, both for lack of jurisdiction.
So ordered.