Firstenergy Service Co. v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 11, 2013 Decided July 18, 2014

No. 12-1461

FIRSTENERGY SERVICE COMPANY,
PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT

DUKE ENERGY KENTUCKY, INCORPORATED, ET AL.,
INTERVENORS

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

John Lee Shepherd, Jr. argued the cause for petitioner.
With him on the briefs were John N. Estes III, William Rainey
Barksdale, and John Anthony James Barkmeyer.

Holly E. Cafer, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
the brief were David L. Morenoff, Acting General Counsel,
and Robert H. Solomon, Solicitor.
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Before: GRIFFITH and SRINIVASAN, Circuit Judges, and
SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge
SENTELLE.

SENTELLE, Senior Circuit Judge: Petitioner FirstEnergy
Service Company is a diversified energy company acting on
behalf of its affiliates American Transmission Systems, Inc.
(“ATSI”) and a collection of ATSI Utilities. Like many
electric utility companies, FirstEnergy is a voluntary member
of a Regional Transmission Organization (“RTO”). In June
2011, FirstEnergy transferred from one RTO to another. In
doing so, it incurred costs related to transmission projects
both from the organization it left, MISO, and from the one it
entered, PJM. FirstEnergy filed a complaint with the Federal
Energy Regulatory Commission (“FERC” or “the
Commission”), contending that the imposition of costs from
both RTOs on ATSI was unjust and unreasonable. The
Commission disagreed and dismissed the complaint.
FirstEnergy now petitions this court for review of FERC’s
orders. For the reasons set forth below, we conclude that the
Commission did not commit reversible error in its
determination and therefore affirm the orders under review.

BACKGROUND

Statutory and Regulatory Overview

Two related but distinct sections of the Federal Power
Act (“FPA”) govern FERC’s adjudication of just and
reasonable rates: section 205, codified at 16 U.S.C. § 824(d),
and section 206, codified at 16 U.S.C. § 824(e). Section 205
 3

confers upon FERC the duty to ensure that wholesale energy
rates and services are just and reasonable. 16 U.S.C.
§ 824d(a). No public utility under FERC’s jurisdiction may
“make or grant any undue preference or advantage to any
person or subject any person to any undue prejudice or
disadvantage” in establishing rates. Id. § 824d(b). Section
205 requires regulated utilities to file with the Commission
tariffs outlining their rates for FERC’s approval. Id.
§ 824d(c). Section 206 empowers FERC to make a
determination on existing rates and to modify them if they are
found to be “unjust, unreasonable, unduly discriminatory or
preferential.” Id. § 824e(a). An investigation under section
206 may arise upon complaint or on FERC’s own initiative.
Id.

In its Order No. 2000 rulemaking, Regional Transmission
Orgs., Order No. 2000, FERC Stats. & Regs. ¶ 31,089 (1999),
order on reh’g, Order No. 2000-A, FERC Stats. & Regs.
¶ 31,092 (2000), appeals dismissed sub nom. Pub. Util. Dist.
No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001) (per curiam),
the Commission created RTOs, which operate the
transmission grid to provide access for all “at rates established
in a single, unbundled, grid-wide tariff.” NRG Power Mktg.,
LLC v. Me. Pub. Utils. Comm’n, 558 U.S. 165, 169 n.1
(2010). Generally, these are voluntary associations of
transmission facilities that administer energy markets and file
tariffs for a group of utilities under section 205. Two such
RTOs are the Midwest Independent System Operator, Inc.
(“MISO”) and PJM Interconnection, L.L.C. (“PJM”).

MISO and PJM

This case involves FirstEnergy’s relationship to both
MISO and PJM. For years, FirstEnergy’s operations were
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split between the two RTOs, requiring FirstEnergy to operate
under two sets of rules. In August of 2009, FirstEnergy filed
a “Realignment Request” seeking FERC’s “approval to
realign FirstEnergy’s operations within a single RTO: PJM.”
Realignment Request at 2. The Realignment Request asserted
that “[m]oving ATSI into the RTO with which it has stronger
electrical ties should reduce congestion and increase
efficiency across both RTOs.” Id. at 3. In June 2011,
FirstEnergy transferred from MISO to PJM. Rehearing Order
¶ 4.

In administering their respective markets, RTOs socialize
the cost of new transmission projects among RTO members.
MISO and PJM allocate such transmission project costs
differently. Generally, MISO allocates costs among members
at the time specific projects are approved. See Pub. Serv.
Comm’n of Wisconsin v. FERC, 545 F.3d 1058, 1060–61
(D.C. Cir. 2008) (describing and approving MISO’s Tariff
Attachment FF, titled “Transmission Expansion Planning
Protocol”). “[A] Party that withdraws from [MISO] shall
remain responsible for all financial obligations incurred
pursuant to this Attachment FF while a Member of
[MISO]. . . .” Realignment Request at 39 (citing MISO
Tariff, Attach. FF § III.A.2.i).

PJM, in contrast, reallocates transmission project costs on
a yearly basis pursuant to Schedule 12 of its tariff. The tariff
allocates these costs to each transmission owner based on its
share of PJM’s total load, and recalculates the allocations on
an annual basis. See Realignment Order ¶ 98.

A key feature of PJM’s [regional transmission
expansion] process, and of cost allocation based upon
it, is to annually restudy and consider modifications to
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the portfolio of projects in the plan as the needs of the
region change. Unlike the one-time allocation of costs
of lower voltage projects, providing for an annual
reallocation of the costs of high voltage facilities pro
rata based on load-ratio share will help ensure that,
over time, the costs of these projects are allocated to
those who are likely to benefit.

PJM Interconnection, L.L.C., 138 FERC ¶ 61,230 P 62
(2012), on reh’g, 142 FERC ¶ 61,216 (2013), vacated on
other grounds, Ill. Commerce Comm’n v. FERC, 2014 WL
2873936 (7th Cir. June 25, 2014). PJM does not allocate
regional transmission costs to withdrawing transmission
owners. See Duquesne Light Co., 122 FERC ¶ 61,039, reh’g
denied, 124 FERC ¶ 61,219 P 164 (2008) (“[A] departing
transmission owner leaving PJM would, pursuant to
[Schedule 12], no longer be subject to these charges; it would
not have a zonal annual peak load [with which to calculate its
costs] as it would no longer be a zone in PJM.”).

Due to these differing methodologies, a transmission
owner that withdraws from MISO is still responsible for its
share of transmission costs allocated prior to its withdrawal.
Conversely, a utility that withdraws from PJM is no longer
responsible for costs in ensuing yearly allocations; any costs
going forward are redistributed among PJM members at that
time, regardless of when the projects were approved. Because
FirstEnergy withdrew from MISO and joined PJM, it is
responsible for both its prior MISO costs and its share of the
yearly reallocation for so-called legacy projects in PJM
approved before it joined. Realignment Request at 35.
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Proceedings Before the Commission

In effecting its transfer from MISO to PJM, FirstEnergy
submitted filings under both section 205 and section 206.
Through these submissions, it sought to secure termination of
ATSI’s participation in MISO and to garner approval of its
integration into PJM.

On August 17, 2009, FirstEnergy (on behalf of ATSI)
submitted its Realignment Request under FPA section 205.
FirstEnergy requested approval of its withdrawal from MISO
and permission to transfer into PJM under the terms set forth
in an ATSI-PJM Integration Agreement. Realignment
Request at 18, 27–35 & Ex. 1. ATSI reported that, under the
Integration Agreement, the ATSI Utilities would “continue to
pay for qualifying [MISO] regional facilities planned and
approved before June 1, 2011,” but would “not pay for PJM
legacy . . . projects that were approved by the PJM Board
prior to ATSI’s entry into PJM.” Id. at 35. The ATSI Utilities
would, “of course, pay for qualifying [PJM] projects planned
and approved by the PJM Board after their June 1, 2011 date
when their load is integrated into PJM.” Id. PJM itself
“support[ed] FirstEnergy’s implementation plan for
integrating ATSI into the PJM region” and “believe[d] that
FirstEnergy has met the applicable requirements of exiting
[MISO] and joining PJM.” PJM Comments on Realignment
at 2. PJM went on to note that nothing in the language of
Schedule 12 contemplates cost allocation when a new
member joins PJM. Id. at 11–12 (Schedule 12 was “not
designed with the scenario in mind of an altogether new
Transmission Zone joining PJM.”).

Additionally, FirstEnergy sought specific findings from
the Commission as to two matters: (1) a waiver of certain
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PJM auction procedures with which it would be unable to
comply due to timing, Realignment Request at 11–12; see
also Realignment Order ¶ 59; and (2) an exemption from PJM
reallocation costs for projects approved prior to ATSI’s
integration (“legacy projects”), Realignment Request at 35.

On October 19, 2009, FirstEnergy submitted a section
206 filing (“Complaint”) to the Commission. In the
Complaint, ATSI through FirstEnergy alleged that if FERC
denied its legacy projects exemption request, Schedule 12 of
the PJM tariff would be unjust and unreasonable as applied to
ATSI. Complaint at 2–3 (noting that the parallel 206 filing
was made in response to arguments by “several parties in [the
Realignment Proceeding] . . . that the ATSI Utilities had no
right to seek this relief absent the filing of a section 206
complaint”).

FERC issued two orders responsive to petitioner’s filings.
Order Addressing RTO Realignment Request and Complaint,
129 FERC ¶ 61,249 (December 17, 2009) (“Realignment
Order”); Order Addressing Remaining Requests for
Rehearing and Clarification, 140 FERC ¶ 61,226 (September
20, 2012) (“Rehearing Order”). In the Realignment Order,
FERC held that ATSI satisfied the requirements to withdraw
from MISO, Realignment Order ¶ 48, and accepted the
integration plan into PJM, id. ¶ 78. The Commission also
granted the auction waiver ATSI sought. Id.

However, FERC denied the legacy projects exemption.
Id. ¶ 111. FERC applied the section 206 standard to
FirstEnergy’s requested exemption, explaining that it “cannot
find . . . that allocating a portion of [those] costs to new
entrants is unjust and unreasonable, or unduly discriminatory
or preferential.” Id. ¶ 7. The Commission further found that
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FirstEnergy was responsible for the costs attributable to its
decision to transfer between RTOs. “While we have held that
companies are free to join and exit RTOs, we have applied the
existing tariffs for each RTO in determining the costs to be
allocated to the transmission owners seeking to exit and/or
enter.” Id. ¶ 113. It is up to FirstEnergy to “determine
whether such a move is cost-justified.” Id.

FirstEnergy timely filed two requests for rehearing on
January 15, 2010 and January 19, 2010. FirstEnergy raised
two principal arguments: First, it contended that FERC had
unlawfully and irrationally dismissed its complaint under
section 206 on the ground that the challenged tariff provision
had previously been found reasonable when initially filed
under FPA section 205. Second, it contended that FERC’s
ruling violated cost causation principles and resulted in
reallocating sunk costs. Rehearing Request at 3–4, 6, 16–18.

Thirty-two months later, on September 20, 2012, FERC
issued its order denying rehearing on the legacy projects
issue. Rehearing Order ¶ 21. “Specifically, we cannot find
on this record that PJM’s tariff is unjust and unreasonable in
allocating to a new member, such as ATSI, a share of the
costs of regional transmission expansion projects . . . that
were planned prior to the new member’s integration into
PJM.” Id. The Commission also rejected FirstEnergy’s
arguments on cost causation and sunk costs, noting for the
first time that “[c]ost causation also includes the allocation of
‘costs to serve’ that party including those facilities that benefit
the party.” Id. ¶ 26. Finally, FERC found that the costs
FirstEnergy incurred in its transfer were not duplicative: the
costs associated with MISO are a contract exit fee not based
on a finding of benefits, while PJM’s costs are related to the
benefit flowing to FirstEnergy. Id. ¶ 34. Fundamentally, the
 9

Commission was “not persuaded that . . . PJM’s tariff is
unjust and unreasonable. RTO participation is voluntary, as
the Commission has made clear on numerous occasions.
ATSI, in considering the merits of its membership in PJM,
elected to proceed and, thus, cannot now claim that PJM’s
[transmission project] cost allocation methodology created a
barrier to entry.” Id. ¶ 31.
Petition for Review

Petitioner seeks review of both orders before this Court.
FirstEnergy contends generally that FERC erred in its
treatment of the complaint and arbitrarily and capriciously
required ATSI to pay for PJM’s legacy transmission costs.
According to FirstEnergy, such a requirement is “contrary to
cost causation principles and FERC’s well-established policy
against reallocating sunk costs.” Pet. Br. at 3. Moreover,
petitioner argues, FERC’s blanket adherence to PJM’s tariff is
an arbitrary and capricious failure to meaningfully consider
the merits of its section 206 filing.

We disagree, and deny FirstEnergy’s petition for review.
For the reasons discussed below, we hold that the
Commission correctly determined that FirstEnergy had not
carried its burden under FPA section 206 of demonstrating
that Schedule 12 of PJM’s tariff was unjust and unreasonable
as applied to ATSI.

STANDARD OF REVIEW

We review final orders of the Commission under the
arbitrary and capricious standard of the Administrative
Procedure Act, 5 U.S.C. § 706(2)(A). An agency action will
be upheld if the agency “articulate[d] a satisfactory
 10

explanation for its action including a ‘rational connection
between the facts found and the choice made.’ ” Motor
Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington
Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)).
The Commission’s factual findings will be upheld if
supported by substantial evidence. 16 U.S.C. § 825l(b).

DISCUSSION

We begin by addressing petitioner’s concern that “the
orders on review effectively deny a utility’s right to file a
complaint under FPA section 206 to request modification of
an RTO tariff when joining an RTO.” Pet. Br. at 22. The
Commission did in this case dismiss petitioner’s complaint.
Realignment Order ¶ 111. Petitioner contends that the
Commission’s dismissal was a wholesale discarding of
FirstEnergy’s filing which operates as a violation of rights
guaranteed to petitioner under Atlantic City Elec. Co. v.
FERC, 295 F.3d 1 (D.C. Cir. 2002). Pet. Br. at 22.
Specifically, FERC’s orders purportedly run afoul of Atlantic
City, where we held that FERC may not lawfully compel a
public utility that joins an RTO to surrender its statutory right
to exit the organization under section 205. See 295 F.3d at 9–
10. We disagree. FERC did not preclude petitioner from
asserting its Complaint, or exercising any statutory right. It
did not indulge in the sort of wholesale dismissal of
petitioner’s arguments that petitioner posits. Instead, FERC
addressed petitioner’s Complaint on the merits. Rehearing
Order ¶¶ 21, 29, 32; see Realignment Order ¶ 112 (“ATSI’s
voluntary choice to move from one RTO to another does not
cause either of [the transmission cost allocation]
methodologies to no longer be just and reasonable or not
unduly discriminatory simply because each produces a
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different result.”). The linguistic choice by FERC to state
that it was “dismiss[ing]” FirstEnergy’s Complaint rather than
“denying” it does not convert that which is substantively
sufficient into redressible error. Realignment Order ¶ 111.

“The deeper problem with FERC’s holding,” petitioner
tells us, “is that it is unlawful and irrational to dismiss any
complaint under FPA section 206 on the ground that the
challenged tariff provision was previously found reasonable
when initially filed under FPA section 205.” Pet. Br. at 24.
Perhaps that is true as an abstract statement of law. However,
we cannot agree that FERC’s review was so hollow. The
treatment given the provision under review was meaningful,
as discussed below, and not the recitation petitioner describes.

“Just and Reasonable” Determination

“Generally speaking, section 205 covers rate filings by
jurisdictional public utilities [and] invokes just and reasonable
standards for filed rates . . . .” Ala. Power Co. v. FERC, 993
F.2d 1557, 1571 (D.C. Cir. 1993). “Section 206 empowers
the Commission, on its own motion or upon complaint, to
investigate rates and to determine the lawfulness of such
rates.” Id. The statutory “just and reasonable” standard is
the same under section 205 and section 206. See, e.g., Bos.
Edison Co. v. FERC, 233 F.3d 60, 64 (1st Cir. 2000) (“[T]he
utility sets the rates in the first instance, subject to a basic
statutory obligation that rates be just and reasonable and not
unduly discriminatory or preferential. FERC . . . can
investigate a newly filed rate (section 205), or an existing rate
(section 206), and, if the rate is inconsistent with the statutory
standard, order a change in the rate to make it conform to that
standard.” (internal citations omitted)); Kan. Gas & Elec. Co.
v. FERC, 758 F.2d 713, 716 (D.C. Cir. 1985) (“FERC
 12

evaluated the proposed rates under Sections 205 and 206 of
the Federal Power Act, both of which require the Commission
to determine that the rates are just and reasonable.” (internal
quotation marks and citation omitted)).

“Because [petitioner] is challenging . . . existing rates, its
claim must be brought pursuant to § 206, rather than § 205, of
the FPA.” Sithe/Independence Power Partners, L.P. v.
FERC, 165 F.3d 944, 948 (D.C. Cir. 1999). Section 206(a)
provides that “[w]henever the Commission, after a hearing
held upon its own motion or upon complaint, shall find that
any rate . . . is unjust, unreasonable, unduly discriminatory or
preferential, the Commission shall determine the just and
reasonable rate . . . .” 16 U.S.C. § 824e(a). Under section
206, “the burden of proof to show that any rate, charge,
classification, rule, regulation, practice, or contract is unjust,
unreasonable, unduly discriminatory, or preferential shall be
upon . . . the complainant.” Id. § 824e(b).

Thus, we consider this complaint on a typical section 206
standard. Here, FirstEnergy bears the burden of
demonstrating that, as applied to ATSI, Schedule 12 of PJM’s
tariff is unjust and unreasonable. FERC argues on brief that a
section 206 filing carries with it a dual burden: petitioner
“first must show that the existing rate or practice is unjust,
unreasonable, unduly discriminatory or preferential, and then
must demonstrate that its own proposal is a just and
reasonable replacement.” Br. for FERC at 4 (citing
Blumenthal v. FERC, 552 F.3d 875, 881 (D.C. Cir. 2009)).

To begin our analysis, we note that FERC does hold
petitioner—and indeed any filer under section 206 save the
Commission itself—to too high a standard. The “just and
reasonable” lodestar is no loftier under section 206 than under
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section 205, and it is only FERC who is required to shoulder
the “dual burden” when it institutes a section 206 proceeding.
See, e.g., Ala. Power Co., 993 F.2d at 1571 (“While the
proponent of a rate change under § 206, here FERC, has the
burden of proving that the existing rate is unlawful . . . the
party filing a rate adjustment with the Commission under
§ 205 bears the burden of proving the adjustment is lawful.”
(internal citations omitted)). As petitioner correctly notes,
we rejected the above “dual burden” reasoning in Blumenthal
as “unnecessary to our holding and inaccurate insofar as it
implied that a challenge to rates must propose alternative rates
that are just and reasonable.” Md. Pub. Serv. Comm’n v.
FERC, 632 F.3d 1283, 1285 n.1 (D.C. Cir. 2011). It is “the
Commission’s job—not the petitioner’s—to find a just and
reasonable rate.” Id.

However, clarification of this standard here is cold
comfort to petitioner. Regardless of whether it is charged
with completing step two, proposing new just and reasonable
rates, it still must complete step one, demonstrating that
PJM’s existing rates are unjust and unreasonable. Our
question then is whether petitioner met its burden as to the
existing rates, and we agree with the Commission that it did
not. We hold that FERC did not err in rejecting each of
petitioner’s arguments as failing to demonstrate that PJM’s
Schedule 12 was unjust and unreasonable as applied to ATSI.

Cost Causation and Sunk Cost Allocation

FirstEnergy first argues that the Commission’s failure to
meaningfully engage on the cost concerns attendant PJM’s
tariff renders the orders before us arbitrary and capricious.
We cannot agree with this characterization of the orders on
review. FERC considered each of the arguments raised by
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petitioner and appropriately concluded that they did not
render application of Schedule 12 unjust and unreasonable.
That the Commission did not agree with petitioner’s
assessment of the effects Schedule 12 would have on
FirstEnergy does not render its determination arbitrary and
capricious.

FirstEnergy alleged that it cannot be just and reasonable
to require it to pay both MISO’s system-wide costs as an exit
fee and PJM’s system-wide costs as a condition of its entry to
PJM. Complaint at 8. However, the Commission reasonably
found that the payment structures for MISO and PJM are
wholly distinct from each other and undertaken for separate
purposes. Rehearing Order ¶¶ 33–34. As a result, “ATSI’s
voluntary choice to move from one RTO to another does not
render [either methodology] unjust or unreasonable . . .
simply because each methodology produces a different
result.” Id. ¶ 33. We are satisfied that this is a reasonable
basis on which to reject the section 206 complaint.

The Commission went on to point out that “ATSI and the
PJM transmission owners are free to negotiate the terms of
ATSI’s entrance into PJM” and that PJM would “have both a
will and an incentive to facilitate ATSI’s realignment on a
mutually beneficial basis.” Realignment Order ¶ 114. This
strategy may have been especially effective given that PJM
agrees that Schedule 12 did not contemplate integration of
new transmission owners or allocating legacy costs to them.
Id. ¶ 113 n.75; PJM Comments on Realignment Request at
11–12. Petitioner incorrectly characterizes this finding as
“[breaking] new ground by holding that a complaint could be
rejected because FERC prefers that the parties file a
negotiated proposal under FPA section 205.” Pet. Br. at 30.
One does not follow from the other—FERC rejected the
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complaint because it found that the rates as applied were not
unjust and unreasonable; that it suggested an alternative via
negotiation does not change this determination. In any event,
petitioner did have the opportunity to negotiate with PJM in
the eighteen months between the Realignment Order and
FirstEnergy’s integration into the RTO and could have at that
point submitted a section 205 filing with new terms alongside
PJM. Such an approach would have allowed FirstEnergy to
avoid its burden as to the existing tariff. See 16 U.S.C.
§ 824d. Instead, it made the choice to join PJM without such
a negotiated agreement, and is unable to demonstrate the
requisite “unjust and unreasonable” showing that it must
establish under section 206.

In addition to its argument on duplicative costs, petitioner
also contends that Schedule 12 presents inescapable fallacies
concerning cost causation and reallocation of sunk costs.
However, in principle, a “beneficiary pays” approach is a just
and reasonable basis for allocating the costs of regional
transmission projects, even if it leads to reallocating sunk
costs. As the Commission found, cost causation “includes the
allocation of ‘costs to serve’ that party including those
facilities that benefit the party.” Rehearing Order ¶ 26.
“Even if a new member was not using the system when a
particular project was planned or authorized, the new member
may nevertheless use and benefit from the new facility in the
future.” Id. PJM’s comments that Schedule 12 was not
implemented with new RTO members in mind are immaterial.
Because FirstEnergy will use and benefit from the new
facilities, id. ¶ 26 & n.27, we defer to FERC’s conclusion that
the costs FirstEnergy will incur are not unjust and
unreasonable under a “costs to serve” approach.
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FirstEnergy goes on to complain that the transmission
costs here are also “sunk” in that investment decisions about
these facilities were made before petitioner sought to join
PJM. Pet. Br. at 51–54. Petitioner notes that FERC has in
other cases shied away from redistributing costs that have
already been incurred, or are sunk. See PJM Interconnection,
L.L.C., Opinion No. 494, 119 FERC ¶ 61,063 at P 53 (2007),
reh’g denied, Opinion No. 494-A, 122 FERC ¶ 61,082
(2008), reh’g denied, 124 FERC ¶ 61,033 (2008), reh’g and
clarification denied, 127 FERC ¶ 61,092 (2009), aff’d in
relevant part, Ill. Commerce Comm’n, 576 F.3d 470, 474 (7th
Cir. 2009). However, the Commission’s prior decisions
concerning sunk costs are inapplicable where they involved
facilities “built solely for the benefit of the individual
transmission owner’s systems.” Rehearing Order ¶ 30. By
contrast, PJM’s “project costs that will be allocated to the
ATSI zone were developed as part of PJM’s regional planning
process and are designed to benefit the entire PJM footprint
over the entirety of their useful life.” Id. Further, the
transmission planning process in PJM accommodates updates:
it will take into account the addition of FirstEnergy to the
regional grid, which can result in changes to planned projects.
Id. ¶ 29. As a result, we agree with the Commission that the
rates at issue here are not unjust and unreasonable as a
reallocation of sunk costs.

It is worth noting that FERC did not address these issues
until rehearing. Rehearing Order ¶ 26. Further, we are
sympathetic to FirstEnergy in its reliance on the Seventh
Circuit’s rejection of the same Schedule 12 in Illinois
Commerce Commission v. FERC, 576 F.3d 470, 476 (7th Cir.
2009). Petitioner explains its rationale as: “[i]n [Illinois
Commerce Commission], the Seventh Circuit found that
FERC failed to support its cost causation theory with respect
 17

to existing members of PJM; it follows a fortiori that FERC
cannot rely on the same cost causation theory to socialize
legacy project costs to new members of PJM who had no say
in the decision to build them.” Pet. Br. at 48. However, the
Seventh Circuit rejected Schedule 12 on a finding that FERC
had not demonstrated that the benefits from transmission
projects were “at least roughly commensurate with . . .
utilities’ share of total electricity sales.” Ill. Commerce
Comm’n, 576 F.3d at 477. Although FirstEnergy might have
argued before us that the costs and benefits of PJM’s regional
projects are not commensurate for ATSI, it did not do so and
thus we do not reach that issue. 1

“[A]ll approved rates [must] reflect to some degree the
costs actually caused by the customer who must pay them.”
Id. at 476 (alteration in original) (internal citation and
quotation marks omitted). FERC found that petitioner’s
customers would use and benefit from the new facilities,
Rehearing Order ¶¶ 26, 34, and noted that facilities may
provide benefits over their lifetime, including benefits to
petitioner, id. ¶ 30. We defer to the Commission’s reasoned
finding.

Waiver or Modification of Tariff Provisions

Finally, FirstEnergy broadly argues that FERC’s orders
regarding the section 206 complaint are based almost entirely
on the tariffs already in place in both RTOs. It reasoned that
1
The Seventh Circuit recently had occasion to reconsider Schedule
12 in Illinois Commerce Comm’n v. FERC, 2014 WL 2873936, __
F.3d __ (7th Cir. June 25, 2014). That decision reinforced the
earlier determination in Illinois Commerce Commission that FERC
failed to demonstrate commensurate benefits, and thus does not
influence our conclusion here.
 18

it had already found those rates just and reasonable and thus
FirstEnergy can make no argument to the contrary. However,
FERC is required to evaluate a 206 complaint as to existing
rates specifically because they might have become unjust and
unreasonable by intervening shifts in circumstances—e.g.,
ATSI’s leaving MISO and joining PJM. Pet. Br. at 25 (citing
La. Pub. Serv. Comm’n v. FERC, 482 F.3d 510, 519–20 (D.C.
Cir. 2007)). It is not enough, FirstEnergy states, to repeat that
“the plain language of the tariff governs,” and doing no more
than that is an arbitrary and capricious failure to meaningfully
respond to petitioner’s statutory challenge. Pet. Br. at 23–24.

But FERC did not simply repeat that the plain language
of the tariff governs. The Commission reasoned that “[e]ach
of the PJM and [MISO] cost allocation methodologies has
been accepted by the Commission as just and reasonable,”
and that “ATSI’s voluntary choice to move from one RTO to
another does not cause either of [those] methodologies to no
longer be just and reasonable.” Realignment Order ¶ 112.
This statement is the upshot of FirstEnergy’s failure to carry
its burden, and FERC lawfully declined to waive the legacy
projects costs or modify the tariff so FirstEnergy could avoid
them.

Petitioner argues that the legacy projects costs it seeks to
avoid are no different than the auction procedures FERC
waived; both were findings petitioner requested of FERC in
order to facilitate the transition into PJM, yet the Commission
treated the requests differently. However, the Commission
articulated a reasoned distinction between the auction waiver
and the legacy projects exemption—that the former is to
provide an alternative means of tariff compliance, while the
latter is wholesale removal of a tariff requirement. Rehearing
Order ¶ 40. FirstEnergy did not show that it could not comply
 19

with the tariff requirement regarding legacy projects costs,
nor did its requested exemption from those costs seek an
alternative means of compliance. Rather, as the Commission
found, the requested exemption sought to “remove a tariff
requirement entirely.” Id. For that reason, FERC reasonably
distinguished between FirstEnergy’s requested findings here
and found “no inconsistency in accepting the [auction
procedure] waiver, while rejecting the request for an
exemption from [legacy projects costs].” Id. Nor do we.

Finally, says petitioner, illustrative of the Commission’s
caprice is its theory that the tariff here could not be modified
while other tariffs could. Pet. Br. at 41–42 (arguing that the
Commission modified the tariff in the MidAmerican
proceedings); id. at 42–44 (same regarding Entergy).
However, the Commission reasonably found that
circumstances required for modification of a tariff were not
present in ATSI’s case. Most importantly, as discussed
above, the Commission did not find the existing tariff to be
unjust and unreasonable as applied to ATSI, as required under
the FPA. This was not a case where an RTO itself submitted
a 205 filing to change its own tariff, obviating the need for an
“unjust and unreasonable” showing. Finally, the parties did
not negotiate a settlement. Absent such circumstances, there
was no authority for FERC to modify the tariff and the plain
language of the tariff does indeed govern. See Realignment
Order ¶ 113 n.75.

CONCLUSION

Because FirstEnergy failed to carry its burden under
section 206 that Schedule 12 of PJM’s tariff was unjust and
unreasonable as applied to ATSI, we deny the petition for
review.