United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 5, 2008 Decided October 31, 2008
No. 06-1408
PUBLIC SERVICE COMMISSION OF WISCONSIN,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
AMERICAN TRANSMISSION COMPANY, LLC ET AL.,
INTERVENORS
No. 07-1016
AMERICAN TRANSMISSION COMPANY, LLC ET AL.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
PUBLIC SERVICE COMMISSION OF WISCONSIN ET AL.,
INTERVENORS
On Petitions for Review of Orders
of the Federal Energy Regulatory Commission
2
Channing D. Strother, Jr. argued the cause for petitioner
Public Service Commission of Wisconsin.
Kira E. Loehr argued the cause for petitioner American
Transmission Company, LLC and the intervenors in support of
the petitioners. William Lee Cullen and Daniel L. Sanford were
on brief. Curt F. Pawlisch entered an appearance.
Judith A. Albert, Attorney, Federal Energy Regulatory
Commission, argued the cause for the respondent. Cynthia A.
Marlette, General Counsel, and Robert H. Solomon, Solicitor,
were on brief.
Stephen L. Teichler, Ilia Levitine, William Raymond
Derasmo, Wendy N. Reed, Andrew T. Swers and Amanda M.
Riggs were on brief for intervenors Midwest ISO Transmission
Owners et al. Jeffrey M. Jakubiak entered an appearance.
Before: SENTELLE, Chief Judge, and HENDERSON and
KAVANAUGH, Circuit Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: The
petitioners, the Public Service Commission of Wisconsin
(PSCW) and American Transmission Company LLC (ATC),1
challenge two orders of the Federal Energy Regulatory
1
PSCW is an independent state agency that regulates Wisconsin
retail utility rates and exercises authority over Wisconsin utilities’
construction of major projects. ATC is an independent transmission
company created by the Wisconsin legislature (effective January 1,
2001) and authorized to acquire ownership of and to operate all
Wisconsin high voltage transmission as well as to build additional
Wisconsin transmission facilities as necessary. See Wis. Stat.
§ 196.485 (2006). ATC is a MISO member.
3
Commission (FERC or Commission) approving a proposed
tariff revision filed by the Midwest Independent Transmission
System Operator, Inc. (MISO), a regional transmission
organization (RTO).2 Midwest Indep. Transmission Sys.
Operator, Inc., 114 F.E.R.C. ¶ 61,106 (Feb. 3, 2006) (“Order
Conditionally Accepting and Suspending Proposed Tariff
Revisions and Establishing Technical Conference”) (FERC
Tariff Ord.); Midwest Indep. Transmission Sys. Operator, Inc.,
117 F.E.R.C. ¶ 61,241 (Nov. 29, 2006) (“Order on Technical
Conference, Rehearing, Clarification, and Compliance”) (FERC
Reh’g Ord.). The proposed revision included a provision to
allocate among MISO transmission customers3 region-wide a
portion of the costs of qualifying transmission upgrades built by
individual MISO transmission providers but to exclude from
such cost sharing any upgrade project that was already
“planned” as of the date the proposed revision was filed. The
petitioners contend the cost allocation policy is arbitrary and
discriminatory insofar as it excludes updates planned before the
filing. Applying our deferential standard of review to FERC’s
ratemaking orders, we conclude that FERC did not err in
approving the cost allocation policy MISO proposed.
2
MISO’s member transmission providers are the owners of
transmission facilities. MISO exercises functional control over the
facilities, calculating available transmission capability and receiving,
approving and scheduling transmission service. See Midwest ISO
Transmission Owners v. FERC, 373 F.3d 1361, 1365-66 (D.C. Cir.
2004).
3
A “Transmission Customer” is defined as “any eligible customer
(or its designated agent) that can or does execute a transmission
service agreement or can or does receive transmission service.” 18
C.F.R. § 37.3(b).
4
I.
On December 20, 2001, FERC granted MISO RTO status
in order to provide open access to MISO’s electricity
transmission system to all member utilities in fifteen midwestern
states and one Canadian province. Midwest Indep. Transmission
Sys. Operator, Inc., 122 F.E.R.C. ¶ 61,283, ¶ 57 (2008).
Accordingly, since early 2002 MISO has provided transmission
service under a single open access transmission tariff.
In March 2004, MISO stakeholders4 formed a Regional
Expansion Criteria and Benefits (RECB) Task Force “charged
with developing criteria for including transmission projects in
the Midwest ISO Transmission Expansion Plan (‘MTEP’) and
developing methods for allocating and recovering costs of the
projects included in the MTEP.” Aff. of Martin Blake 7.
Formation of the RECB Task Force was “precipitated” by
disagreement among stakeholders over “treatment of generator
upgrades,” specifically whether and to what extent the costs of
such upgrades should be spread among MISO’s transmission
customers. Letter from Stephen G. Kozey, Vice President,
General Counsel and Secretary, MISO, to Hon. Magalie R.
Salas, Secretary, FERC 14 (filed Oct. 7, 2005) (Cost Allocation
Policy Letter).
In an order issued July 8, 2004 addressing proposed
revisions to MISO’s tariff, FERC approved MISO’s “general
proposal to implement the ‘default’ pricing proposal of [FERC]
4
MISO’s stakeholders include “large transmission-dependent
utilities, municipals and cooperatives, independent generators, power
marketers, large retail customers, consumer advocates and state
commissions.” See Midwest Indep. Transmission Sys. Operator, Inc.,
109 F.E.R.C. ¶ 61,168, at 61,809-10 (2004).
5
Order No. 2003”5 pending MISO’s filing of its own proposal.
Midwest Indep. Transmission Sys. Operator, Inc., 108 F.E.R.C.
¶ 61,027, at 61,147 (2004). FERC’s order further advised:
We note that Midwest ISO states its intent that the
default pricing proposal will remain in effect only until
a pricing policy based on the . . . principle of payment
for upgrades by those that cause and benefit from the
upgrades can be established by Midwest ISO and its
stakeholders. This is a goal supported by many
intervenors in this proceeding, and we encourage
Midwest ISO to continue to work with stakeholders in
considering such a pricing policy. Midwest ISO
outlines the actions it is taking to develop such a
proposal, and while we will not impose a deadline for
filing the proposal at this time, we expect Midwest ISO
to work with stakeholders to meet its goal of having a
permanent pricing policy in effect by December 1,
2004.
Id. (footnotes omitted), order on reh’g, 109 F.E.R.C. ¶ 61,085
(2004).
In June 2005, MISO published the “Midwest ISO
Transmission Expansion Plan 2005” (MTEP 05), which, inter
alia, contained a list of upgrade projects contemplated by each
MISO transmission provider. The list identified each provider’s
projects as either “planned” or “proposed” based on the
provider’s characterization thereof. A “planned” project was
defined as “the preferred solution to an identified issue” and a
5
See Standardization of Generator Interconnection Agreements
and Procedures, Order No. 2003, 104 F.E.R.C. ¶ 61,103 (2004), order
on reh’g, Order No. 2003-A, 106 F.E.R.C. ¶ 61,220 (2004), order on
reh’g, Order No. 2003-B, 109 F.E.R.C. ¶ 61,287 (2004), order on
reh’g, Order No. 2003-C, 111 F.E.R.C. ¶ 61,401 (2005).
6
“proposed” project as “a tentative solution to an identified
issue.” MTEP 05 app. A.
On September 16, 2005, the RECB Task Force adopted a
policy for allocating costs of new electrical generation projects,
which the MISO Board of Directors approved. Cost Allocation
Policy Letter 11-12; FERC Tariff Ord. at 61,349. Accordingly,
on October 7, 2005, MISO filed with FERC proposed tariff
revisions to implement the policy. The filing included a letter
from MISO Vice President, General Counsel and Secretary
Stephen G. Kozey to FERC’s Secretary setting out the substance
of the proposed policy and explaining the process leading to its
adoption, along with two attachments.6 Attachment FF (titled
“Transmission Expansion Planning Protocol”) included a cost
allocation provision which proposed that twenty per cent of the
costs of “Baseline Reliability Projects” (i.e., upgrade projects
“needed to maintain reliability while accommodating the
ongoing needs of existing Market Participants and Transmission
Customers”),7 involving voltage of 345 kV and above “be
allocated on a system-wide basis to all Transmission Customers
and recovered through a system-wide rate,” with the remaining
eighty per cent of the costs to be “allocated on a sub-regional
basis to all Transmission Customers in designated pricing
zones.” Attachment FF ¶¶ II(A)(1), III(A)(2)(c)(ii). Attachment
FF also included a “Grandfathered Projects” clause which
provided:
6
See Letter of MISO Vice President, General Counsel and
Secretary Stephen G. Kozey accompanying MISO Cost Allocation
Policy Filing 14 (filed Oct. 7, 2005) (Cost Allocation Policy Letter).
7
FERC defines “market participant” generally as “[a]ny entity
that, either directly or through an affiliate, sells or brokers electric
energy, or provides ancillary services to the Regional Transmission
Organization.” 18 C.F.R. § 35.34(b)(2).
7
The cost allocation provisions of this Attachment FF
shall not be applicable to transmission projects
identified in Attachment FF-1, which is based on the
list of projects designated as Planned Projects in
[MTEP 05] . . . .
Attachment FF ¶ III(A)(2)(b). Attachment FF-1, in turn,
contained a “List of Planned Projects to be Excluded from
Regional Cost Allocation,” which, without explanation, included
36 projects that had been listed as “proposed” (rather than
“planned”) in MTEP 05. In an order issued February 3, 2006,
FERC conditionally accepted the proposed tariff revisions,
effective February 5, 2006, “subject to further modifications,”
including a directive that MISO “correct language in section
3.A.2.b. on Sheet No. 1841 which describes the Excluded
Projects List as based on the planned projects of the MTEP 05”
because “the actual list is based on the planned project list with
some additions of proposed projects that the Midwest ISO has
determined to be in advanced stages of planning.” FERC Tariff
Ord. at 61,348, 61,364.8 The Commission concluded that
MISO’s proposed cost allocation policy was “a reasonable
compromise position from which this independent transmission
provider, with significant stakeholder input, may start to apply
regional cost sharing of transmission expansion projects” and
that it did not “place[] any undue disadvantage on any one
party.” Id. at 61,363-64.
On April 4, 2006, MISO issued a new version of
Attachment FF, which revised the Grandfathered Projects clause
to read:
8
The FERC Tariff Order further directed Commission staff “to
convene a technical conference to explore the issues raised by the
Midwest ISO’s proposal for the degree of regional cost sharing for
reliability projects at 345 kV and above.” FERC Tariff Ord. at 61,366.
8
The cost allocation provisions of this Attachment FF
shall not be applicable to transmission projects
identified in Attachment FF-1, which is based on the
list of projects designated as Planned Projects in
[MTEP 05] and some additions of proposed projects
that the Transmission Provider has determined to [be]
in the advanced stages of planning.
Revised Attachment FF ¶¶ III(A)(2)(b) (issued April 4, 2006)
(underlining of revised language in original) (alteration added).
ATC and PSCW filed requests for rehearing, which the
Commission denied in an order issued November 29, 2006,
iterating that MISO’s cost allocation policy reflected “a
reasonable compromise” and was “not unduly discriminatory.”
FERC Reh’g Ord. ¶¶ 94, 98.
ATC and PSCW each filed a petition for review of the
Commission’s two orders upholding the cost allocation policy.
We consolidated the two petitions. Pub. Serv. Comm’n of Wis.
v. FERC, No. 06-1408 (filed Mar. 16, 2007).
II.
“We review FERC’s orders by applying the Administrative
Procedure Act’s ‘arbitrary and capricious’ standard.” Wis. Pub.
Power, Inc. v. FERC, 493 F.3d 239, 256 (D.C. Cir. 2007) (citing
5 U.S.C. § 706(2)(A); Midwest ISO Transmission Owners v.
FERC, 373 F.3d 1361, 1368 (D.C. Cir. 2004)). As to the facts,
the Commission’s findings are “conclusive” if “supported by
substantial evidence.” 16 U.S.C. § 825l(b). “[W]e are
‘particularly deferential to the Commission’s expertise’ ” where,
as here, the orders under review “concern ratemaking.” Midwest
ISO Transmission Owners, 373 F.3d at 1368 (quoting Ass’n of
Oil Pipe Lines v. FERC, 83 F.3d 1424, 1431 (D.C. Cir. 1996)).
Given the high degree of deference we accord the Commission,
we conclude that the petitioners have not carried their burden of
showing the Commission acted arbitrarily when it approved
9
MISO’s proposal to spread upgrade costs on a “going forward”
basis. See Wis. Pub. Power, Inc. v. FERC, 493 F.3d 239, 260
(D.C. Cir. 2007) (“ ‘The burden . . . is on the petitioners to show
that the Commission’s choices are unreasonable and its chosen
line of demarcation is not within a zone of reasonableness as
distinct from the question of whether the line drawn by the
Commission is precisely right.’ ” (quoting ExxonMobil Gas
Mktg. Co. v. FERC, 297 F.3d 1071, 1084 (D.C. Cir. 2002))).
FERC determined that MISO’s going forward policy,
favored by a majority of MISO stakeholders, was “just and
reasonable,” concluding it reflected a “reasonable compromise”
which “recognize[d] the existing state of the system along with
those projects which were already planned” and put all
transmission providers “on equal footing in so far as they were
unaware of what, if any, future cost sharing might be available
and were therefore unable to manipulate the process by how
they designated their projects.” FERC Tariff Ord. at 61,351,
61,363-64. In making this determination, the
Commission “ ‘examine[d] the relevant data and articulate[d] a
. . . rational connection between the facts found and the choice
made’ ” and we are therefore bound to uphold its decision.
Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361,
1368 (D.C. Cir. 2004) (quoting Motor Vehicle Mfrs. Ass’n v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983))
(alteration and ellipsis in original). Further, FERC’s decision is
consistent with its established practice to “give deference to
regional choices . . . on how to allocate the costs of transmission
expansions.” New England Power Pool v. New England Power
Pool, 105 F.E.R.C. ¶ 61,300, at 62,450 (2003). Nonetheless, the
petitioners challenge FERC’s decision on various grounds,
which we address in turn.9
9
While each petitioner raised separate arguments in its briefs,
each also expressly adopted the other’s arguments. See PSCW Br. 6;
10
A. Misplaced Reliance on the RECB Task Force
The petitioners contend that FERC erred in “[g]iving
[w]eight to the [n]on-[c]onsensus ‘[s]takeholder [p]rocess,’ ”
relying on the recommendation of the RECB Task Force, which
entity “consist[ed] predominately of vertically integrated
utilities located outside of Wisconsin.”10 PSCW Br. 20. They
claim that vertically integrated utilities “could and did, to their
economic benefit and without regard to benefits and cost
causation, engage in an economic cram down of costs on
Wisconsin, a small minority.” Id. at 9. We find this argument
unpersuasive. First, the Commission often gives weight to “a
proposal [that] may not ‘represent complete stakeholder
consensus’ ” but is “ ‘the position of the majority of the
transmission owning members of [the RTO].’ ” Am. Elec.
Power Serv. Corp. v. Midwest Indep. Transmission Sys.
Operator, Inc., 122 F.E.R.C. ¶ 61,083, ¶ 172 (FERC 2008)
(quoting PJM Interconnection, L.L.C., Opinion No. 494, 119
F.E.R.C. ¶ 61,063, ¶ 56 (2007)) (alteration by court). Further,
the petitioners do not offer any evidence of majority
overreaching or assert the process “was not ‘open’ or did not
‘allow[] for extensive participation.’ ” PSCW Br. 21. Instead,
they challenge the fairness of the cost-allocation policy the
majority approved at the conclusion of the lengthy deliberative
process, which, as we have noted, FERC reasonably determined
to be “just and reasonable.” FERC Tariff Ord. at 61,351. That
the allocation starting date the majority chose may have affected
Wisconsin projects disproportionately in the short
ATC Br. xiv.
10
A “vertically integrated utility” is a “single regulated utility”
which provides “electricity generation, transmission, and distribution
for a particular geographic area.” Wis. Pub. Power, Inc. v. FERC,
493 F.3d 239, 246 (D.C. Cir. 2007).
11
term11—because of the large number of projects ATC had
“planned” before that date—does not make the policy “unduly
discriminatory.” As FERC explained on rehearing, “ATC will
benefit from the cost sharing proposal in the future,” noting that
“four projects by ATC, amounting to over $350 million, should
qualify for regional and/or sub-regional cost sharing under the
Midwest ISO cost allocation policy.” FERC Reh’g Ord. ¶ 98.
The petitioners challenge in particular FERC’s finding “that
the exclusion list ‘is a reasonable compromise position’ ” as “not
based upon any MISO contention in the October 7 filing, which
nowhere characterized the exclusion list as a ‘compromise.’ ”
PSCW Br. 22; see FERC Tariff Ord. at 61,363; FERC Reh’g
Ord. ¶ 94. The petitioners further contend that the proposal was
in fact “not a compromise midpoint between positions.” PSCW
Br. 23; accord ATC Reply Br. 8-9. In any event, PSCW
contends, FERC had “a[] [Federal Power Act] duty to
independently determine whether the proposal before it is just
and reasonable.” PSCW Br. 26 (footnotes omitted); cf Tejas
Power Corp. v. FERC, 908 F.2d 998, 1003 (D.C. Cir. 1990)
(although court “has consistently required the Commission to
give weight to the contracts and settlements of the parties before
it,” “the Commission may approve the settlement and certificate
the proposed service only if, in its independent judgment, the
new service ‘is or will be required by the present or future public
convenience and necessity’ ” (quoting 15 U.S.C. § 717f(e))
(internal citation omitted). We reject this argument as well.
First, in its October 7, 2005 filing, MISO did characterize
its cost allocation proposal, of which the Excluded Projects List
is a part, as a “compromise,” that is, “a midpoint between
11
The petitioners claim that the excluded Wisconsin projects have
a total investment cost of around $690 million, PSCW Br. 12; ATC
Br. 10, or 55 per cent of the costs of all of the excluded projects,
PSCW Reply Br. 4.
12
generators being directly assigned all costs as in other
RTOs/ISOs and the tariffs applicable to non-independent
transmission providers that required the refunding of all costs.”
Cost Allocation Policy Letter 14. MISO explained that the
proposal was “a tenuous balance that was voted on by task force
members as a package, and to change individual elements would
result in a proposal for which support for the proposal as a
whole would be highly uncertain.” Id. 14-15; see also Mot. to
Intervene and Supporting Comments of the Midwest ISO
Transmission Owners 3-4 (Oct. 28, 2005) (describing
negotiating positions and compromises). With regard to the
Excluded Project List in particular, MISO recounted that
stakeholders had been concerned “about the wide variability in
[then] current investment projections, in addition to the fact that
some Midwest ISO member systems [we]re currently in a
building crest, while others [we]re not” and, when discussions
“did not yield a method that stakeholders could agree on or
uniformly support,” the RECB Task Force adopted the going
forward approach, which was “an equitable way to resolve this
critical ‘starting-point’ issue.” Cost Allocation Policy Letter
13. In any event, the Commission noted on rehearing that,
notwithstanding some parties “disagree[d] with the use of the
phrase ‘compromise position,’ [their] request for rehearing d[id]
not change [FERC’s] findings in the February 3 Order with
regard to the appropriateness of the RECB Task Force process.”
FERC Reh’g Ord. ¶ 95. Finally, as explained above, FERC did
make its own, independent assessment that the policy was “just
and reasonable,” FERC Tariff Ord. at 61,351, and that
assessment is neither arbitrary nor capricious.
B. The “Proposed”/“Planned” Distinction
We next address the petitioners’ contention that FERC’s
reliance on the RECB Task Force’s distinction between
“planned” projects and “proposed” projects was arbitrary in
several respects. We find none of their arguments persuasive.
13
The petitioners first argue it was arbitrary to create the
Excluded Projects List “based on [an] individual transmission
owner’s self-identified ‘Planned’ and ‘Proposed’ transmission
projects,” noting in particular that some “proposed” projects
have similar (or even earlier) in-service dates than some that are
“planned.” ATC Br. 14. As “[t]he most compelling evidence of
the arbitrary nature of the Planned and Proposed designations,”
the petitioners cite “the fact that the Midwest ISO included on
the Excluded Projects List not just all of the Planned projects in
Appendix A, but 36 of the Proposed projects.” Id. On the first
point, FERC recognized that MISO reasonably decided to focus
not on the in-service date but on the stage of a project’s planning
as of October 7, 2005, in keeping with its going forward
rationale. As for the second, that MISO treated some projects as
“planned” notwithstanding the owners’ “proposed” designation
suggests that, contrary to the petitioners’ assertion, MISO did
not blindly accept the owners’ own characterization.
The petitioners also challenge FERC’s determination that
MISO changed the 36 projects’ designations from “proposed”
to “planned” because of those projects’ advanced planning
stage. The petitioners assert that this explanation for the
changes first appears in FERC’s February 3, 2006 Tariff Order,
pointing out that only after that Order issued did MISO insert
the rationale into its revised Attachment FF. See FERC Tariff
Ord. at 61,361 (noting “proposed” projects that “were
sufficiently advanced in the planning process . . . were viewed
by the Midwest ISO as being, for practical purposes,
‘planned’ ”); Revised Attachment FF ¶ III(A)(2)(b) (issued April
4, 2006) (“The cost allocation provisions of this Attachment FF
shall not be applicable to transmission projects identified in
Attachment FF-1, which is based on the list of projects
designated as Planned Projects in [MTEP 05] and some
additions of proposed projects that the Transmission Provider
has determined to [be] in the advanced stages of planning.”
(underlining of revised language in original)). The record
14
contains evidence, however, that at an August 19, 2005 meeting
(before the October 7, 2005 Cost Allocation Policy Letter
designating the 36 projects as “proposed”), “the [MISO]
stakeholders voted to use the list of projects that were identified
as ‘planned’ in MTEP 2005 or that were identified as
‘proposed’ but were so far along that they really should be
identified as ‘planned.’ ” Blake Aff. 13 (emphasis added).
Further, the petitioners point to no specific project they claim
was misdesignated. Nor did they do so before the tariff revision
was filed on October 7, 2005—notwithstanding MISO, before
its revised filing, “offered any Transmission Owner that wanted
the opportunity to argue that one or more of its projects that
were represented as Planned Projects in the MTEP 05 should be
considered more tentative in nature and thus be re-categorized
as Proposed projects (subject to cost sharing as they are
determined going forward in the regional planning process to be
necessary or Planned projects).” Cost Allocation Policy Letter
13.12
The petitioners next argue that FERC failed to “articulate a
reasoned explanation based on substantial evidence in the record
in order to treat some regionally beneficial projects in
development differently from other regionally beneficial
projects in development.” ATC Br. 17-18. As we have already
concluded, however, FERC provided an adequate rationale. The
Commission explained that MISO reasonably adopted the
planned/proposed distinction to provide a “going forward” cost
sharing system which reasonably limits the cost sharing to those
12
The petitioners also fault FERC’s failure to define the
“advanced planning” criterion in its orders. This objection is barred
because it was not raised before the Commission. See 16 U.S.C.
§ 825l(b) (“No objection to the order of the Commission shall be
considered by the court unless such objection shall have been urged
before the Commission in the application for rehearing unless there is
reasonable ground for failure so to do.”).
15
upgrades planned after the tariff revision was proposed and
pursuant to its terms.
Finally, the petitioners contend the planned/proposed
distinction is arbitrary because it has “the perverse effect of
penalizing those transmission owners who engaged in the very
proactive planning that Congress and the Commission have
established as a high priority for national energy policy, while
at the same time rewarding those who may have been less
diligent in their planning efforts.” ATC Br. 25-26.13 As FERC
noted, however, ATC will benefit significantly from the cost
sharing policy in the future, FERC Reh’g Ord. ¶ 98, and, as we
next explain, it is not unfair to require ATC to shoulder the costs
of projects which were “planned” before any cost sharing policy
was in effect.
C. Other Challenges to FERC’s Order
We next consider various other arguments offered by the
petitioners. None of them warrants overturning FERC’s
decision.
First, the petitioners challenge FERC’s determination that
it was not unfair to deny cost sharing for the excluded projects
because they were planned without any assurance that costs
would be shared by other transmission providers. In particular,
the petitioners object to FERC’s statement that the “cost
responsibility” for ATC’s planned projects “has already been
determined.” FERC Reh’g Ord. ¶ 97. They contend that, to the
13
The petitioners assert “Wisconsin has proactively ensured that
needed baseline reliability upgrades are ‘planned’ and actually
constructed, as [ATC] does on a ten-year planning horizon.” PSCW
Br. 35. We note, however, that ATC did not begin operating until
January 1, 2001 and it is therefore likely that at least some of the
planned projects were contemplated before ATC or its ten-year time
frame existed.
16
contrary,” [a]ll parties have been long aware that it is this very
proceeding that is to ‘determine[]’ that ‘cost responsibility.’ ”
PSCW Br. 28. PSCW misconstrues FERC’s language. What
FERC meant was that ATC (and other owners) necessarily
undertook financial responsibility for projects they planned
before it was known whether any cost sharing policy would be
adopted14—much less a policy that would spread the costs of
projects ATC had planned on its own.15 Thus, although “[g]rid-
wide cost recovery is not unexpected” in an ISO, id., FERC
reasonably determined that the “parties had no way of
foreseeing how the RECB Task Force negotiations would come
out on the cost allocation mechanism” and therefore “moved
forward with [upgrade] projects without any assurance that such
projects would be candidates for regional cost sharing.” FERC
Reh’g Ord. ¶ 96 (emphasis added). The transmission providers
14
Although MISO was first proposed in 1998, see Midwest Indep.
Transmission Sys. Operator, Inc., 84 F.E.R.C. ¶ 61,231 (1998), it was
not granted RTO status until December 2001 and the cost sharing
issue first came to the fore when the RECB Task Force was created in
March 2004 to “develop[] criteria” for cost sharing. Until such criteria
were adopted, MISO was to continue to use Order 2003’s “ ‘default’
pricing proposal” as an “interim measure.” Midwest Indep.
Transmission Sys. Operator, Inc., 108 F.E.R.C. ¶ 61,027, at 61,147
(2004).
15
Attachment FF’s “Baseline Reliability Project” provision calls
for extensive cooperation in the planning of upgrades, providing, inter
alia, that each MISO transmission provider “shall collaborate with
Transmission Owning members and with other Transmission
Providers to develop appropriate planning models that reflect expected
system conditions for the planning horizon,” “shall produce an
efficient expansion plan that includes all Baseline Reliability Projects
determined by the Transmission Provider to be necessary through the
planning horizon” and “shall obtain the [Transmission Provider
Board’s] approval” of its expansion plan. Attachment FF ¶ II(A)(1).
17
therefore were not unduly prejudiced when MISO adopted a
policy that did not provide for sharing the projects’ costs.
The petitioners also assert that FERC “mischaracterize[d]
the excluded upgrades as ‘local,’ ” PSCW Br. 36, when it stated
that “critics of the Midwest ISO’s proposal for leaving
previously planned projects untouched by the proposed cost
sharing, are primarily concerned with their local previously
planned project not experiencing the benefits of the proposed
cost sharing,” FERC Reh’g Ord. ¶ 96. The petitioners argue that
FERC’s use of “local” reflects an intent to exclude projects from
cost sharing notwithstanding such projects improve regional
reliability, the criterion for cost sharing under Attachment FF.
FERC never disputed that a “planned” project, although locally
situated, might improve regional reliability or qualify (but for its
advanced planning stage) for cost sharing under Attachment FF.
Under MISO’s cost allocation policy, the regional effect of a
project is simply ignored if the project is excluded because of its
planning stage.16
The petitioners next contend FERC deviated from its July
8, 2004 compliance order which “required MISO to develop and
file a cost recovery policy based on ‘payment for transmission
upgrades by the parties that cause and benefit from them.’ ”
PSCW Br. 47 (quoting FERC Tariff Ord. at 61,348, 61,351).17
But the language of FERC’s order was hortatory rather than
16
The petitioners similarly argue that FERC’s orders fail to
recognize that ATC’s planned Wisconsin projects are upgrades of the
MISO RTO—not pre-RTO “existing” transmission facilities—and
therefore should be eligible for cost sharing. Again, under MISO’s
cost allocation policy whether a project is an “upgrade” of the RTO is
irrelevant if it was a “planned” project as of October 7, 2005.
17
The petitioners’ claim that FERC impermissibly deviated from
ISO and RTO orders in other cases, PSCW Br. 45-49, is barred under
16 U.S.C. § 825l(b), see supra note 12.
18
mandatory, “encourag[ing]” not “requir[ing]” MISO to adopt its
own cost allocation policy. See Midwest Indep. Transmission
System Operator, Inc., 108 F.E.R.C. ¶ 61,027, at 61,147; see id.
(noting that, while Order No. 2003, supra note 5, “allows
independent Transmission Providers to propose innovative
cost-recovery methods, it does not require them to make such
proposals”). In any event, MISO did adopt such a policy. That
its provisions are not what the petitioners would have chosen
does not undermine FERC’s approval of it. Nor was it
necessary that the cost sharing policy “allocate costs with
exacting precision.” ISO Transmission Owners v. FERC, 373
F.3d 1361, 1369 (D.C. Cir. 2004) (citing Sithe/Independence
Power Partners, L.P. v. FERC, 285 F.3d 1, 5 (D.C. Cir. 2002)).
Our precedent requires only that “all approved rates reflect to
some degree the costs actually caused by the customer who must
pay them.’ ” Midwest ISO Transmission Owners v. FERC, 373
F.3d at 1368 (quoting KN Energy, Inc. v. FERC, 968 F.2d 1295,
1300 (D.C. Cir.1992)) (emphasis added); accord Pac. Gas &
Elec. Co. v. FERC, 373 F.3d 1315, 1320 (D.C. Cir. 2004);
Transmission Access Policy Study Group v. FERC, 225 F.3d
667, 708 (D.C. Cir. 2000). And FERC reasonably concluded
that MISO’s cost allocation policy meets this standard.
Moreover, it is consistent with the “Cost Causation Rate
Principles” FERC has embraced in previous decisions,
notwithstanding the petitioners’ claim to the contrary, see
PSCW Br. pt. IV; ISO New England, Inc v. New England Power
Pool, 91 F.E.R.C. ¶ 61,311, at 62,076 (2000) (“Our general
principle is to assign costs of various upgrades to those who
benefit to the extent that they can be identified”).
Finally, the petitioners contend FERC erred in not adopting
as the cost-sharing criterion whether a project’s estimated in-
service date is after October 7, 2005, the date of MISO’s tariff
filing. In its order, FERC explained not only why it chose the
“advanced planning” criterion but also why it rejected the in-
service date alternative: “Using either January 1, 2007 or
19
October 7, 2005 to begin cost sharing for ‘in-service’ projects
would . . . requir[e] cost-sharing for several advanced stage
projects, including one large-scale project that has already
received state regulatory approvals for construction.” FERC
Tariff Ord. at 61,364. This explanation was not arbitrary. The
in-service date alternative might well be more precise, as PSCW
contends, but we cannot reject FERC’s reasonable “planned”
criterion because it may not “allocate costs with exacting
precision,” Midwest ISO Transmission Owners, 373 F.3d at
1369.18
For the foregoing reasons, we conclude that the petitioners
have not shown that either FERC’s Tariff Order, Midwest Indep.
Transmission Sys. Operator, Inc., 114 F.E.R.C. ¶ 61,106 (Feb.
3, 2006), or its Rehearing Order, Midwest Indep. Transmission
Sys. Operator, Inc., 117 F.E.R.C. ¶ 61,241 (Nov. 29, 2006), was
arbitrary or capricious or without record support. Accordingly,
we deny the petitions for review.
So ordered.
18
The petitioners also insist that “Wisconsin has kept pace with
transmission upgrade construction” notwithstanding the comments
“[c]ertain exclusion list supporters” made to the Commission
suggesting “the exclusion list was necessary because Wisconsin had
lagged behind in transmission construction, and the [ATC] upgrades
at issue should be excluded so that Wisconsin could ‘catch up’ on such
construction so that MISO states would begin regional cost sharing on
an ‘even basis.’ ” PSCW Br. 39 (quoting Cost Allocation Policy
Letter 12). The petitioners acknowledge, however, that FERC itself
made no such suggestion. See PSCW Br. 41 (“FERC’s approval of
the exclusion list cites no FERC statement, much less makes a finding,
that Wisconsin lagged behind other states in transmission upgrade
construction, or that any such lag would be a basis for the exclusion
list.”). There is, therefore, nothing in FERC’s orders to challenge in
this respect.