United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 13, 2017 Decided April 18, 2017
No. 15-1139
EMERA MAINE, FORMERLY KNOWN AS BANGOR
HYDRO-ELECTRIC COMPANY, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
LS POWER TRANSMISSION, LLC, ET AL.,
INTERVENORS
Consolidated with 15-1141
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Sean A. Atkins argued the cause for petitioners Emera
Maine, et al. With him on the briefs were Kenneth G. Jaffe,
Michael E. Ward, Jeffrey M. Jakubiak, Stephen M. Spina,
David R. Poe, David B. Raskin, Karen Krug O=Neill, and S.
Mark Sciarrotta. Jason J. Fleischer, Charles G. Cole, Mary E.
Grover, and Phyllis E. Lemell entered appearances.
2
Jason Marshall argued the cause for petitioners New
England States Committee on Electricity, Inc., et al. With him
on the joint briefs were John Michael Adragna, Phyllis G.
Kimmel, Jeffrey K. Janicke, F. Anne Ross, Edward McNamara,
Clare E. Kindall and Robert D. Snook, Assistant Attorneys
General, Office of the Attorney General for the State of
Connecticut, Maura Healy, Attorney General, Office of the
Attorney General for the Commonwealth of Massachusetts,
Jeffrey M. Leupold, Senior Counsel, and Leo J. Wold, Assistant
Attorney General, Office of the Attorney General for the State
of Rhode Island.
Carol J. Banta, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief was Robert H. Solomon, Solicitor.
Paul Alessio Mezzina argued the cause for intervenors
supporting respondent in Case No. 15-1139. With him on the
brief were Ashley C. Parrish, David G. Tewksbury, Gunnar
Birgisson, and Michael R. Engleman.
Before: BROWN and WILKINS, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge WILKINS.
WILKINS, Circuit Judge: We consider two petitions for
review challenging determinations by the Federal Energy
Regulatory Commission (“FERC” or “the Commission”)
following compliance filings by the regional transmission
organization for New England’s electric grid. See ISO New
England Inc., Order on Compliance Filings, 143 F.E.R.C.
¶ 61,150 (May 17, 2013) (Initial Order), on reh’g, 150 F.E.R.C.
¶ 61,209 (Oct. 16, 2014) (Rehearing Order).
3
For the reasons given below, both petitions for review are
denied.
I.
In 2011, the Commission issued Order No. 1000, ordering
utilities to remove certain “right of first refusal” provisions
from their existing tariffs and agreements. See Transmission
Planning and Cost Allocation by Transmission Owning and
Operating Public Utilities, F.E.R.C. Stats. & Regs. ¶ 31,323,
76 Fed. Reg. 49,842 (2011) [hereinafter Order No. 1000].
These provisions granted incumbent utilities “the option to
construct any new transmission facilities in their particular
service areas, even if the proposal for new construction came
from a third party.” S.C. Pub. Serv. Auth. v. FERC (South
Carolina), 762 F.3d 41, 72 (D.C. Cir. 2014) (per curiam).
Order No. 1000’s prohibition of such provisions was premised
on the rationale that rights of first refusal deterred new entrants
“from proposing much-needed infrastructure reforms,
discouraging competition within the industry, and potentially
driving up the cost of rates charged for wholesale electricity
service.” Okla. Gas & Elec. Co. v. FERC (Oklahoma Gas),
827 F.3d 75, 76 (D.C. Cir. 2016).
Order No. 1000 was upheld by this Court in South
Carolina. 762 F.3d at 71-81. The petitioners in that case raised
a litany of challenges to the Order, including that FERC was
prevented from eliminating rights of first refusal because those
provisions were entitled to the Mobile-Sierra presumption. Id.
at 81. The Mobile-Sierra presumption requires the
Commission to “presume a contract rate for wholesale energy
is just and reasonable” and prohibits the Commission from
setting aside that rate unless the Commission finds that the rate
4
“seriously harm[s] the public interest.” 1 Id.; see generally
United Gas Pipe Line Co. v. Mobile Gas Serv. Corp. (Mobile),
350 U.S. 332 (1956); Fed. Power Comm’n v. Sierra Pac.
Power Co. (Sierra), 350 U.S. 348 (1956). It is premised on the
idea that arms-length bargaining generally results in contract
rates that are just and reasonable. See NRG Power Mktg., LLC
v. Me. Pub. Utils. Comm’n, 558 U.S. 165, 175 n.4 (2010).
In Order No. 1000, “[t]he Commission had reserved
judgment on whether to apply this presumption to the rights of
first refusal until evaluating the individual utilities’ compliance
filings, and therefore so did we.” Oklahoma Gas, 827 F.3d at
76 (citing South Carolina, 762 F.3d at 81).
Oklahoma Gas presented the situation South Carolina
anticipated and we considered a petition for review of a FERC
compliance filing determination in which FERC refused to
apply the Mobile-Sierra presumption to a right of first refusal
provision. We held that the Mobile-Sierra presumption was
inapplicable because the presumption does not extend to “terms
arrived at by horizontal competitors with a common interest to
exclude any future competition.” Id. at 80.
The case before us now presents a slight wrinkle on the
question we answered in Oklahoma Gas, along with a separate
challenge to an application of another provision of Order No.
1000.
1
In Oklahoma Gas, we noted that “the Supreme Court has at least
thus far applied the doctrine to rates, although we are presented here
with a right of first refusal provision.” 827 F.3d at 79. In that case,
as here, because “neither party advocates for restricting Mobile-
Sierra exclusively to rates, there is no need to decide that question.”
Id.
5
In response to Order No. 1000, a compliance filing was
made by ISO New England Inc. (“ISO-NE”) – the FERC-
approved regional transmission organization whose tariff
governs transmission service and wholesale electric markets in
New England – and its participating transmission owners (the
“Transmission Owners”). After FERC issued the Initial Order
and Rehearing Order containing FERC’s compliance
determinations, two petitions for review were filed with this
Court.
The first petition for review was filed by the Transmission
Owners, who object to FERC’s determination that the right of
first refusal must be removed from the Transmission Operating
Agreement among ISO-NE and the Transmission Owners.
What makes this case different from Oklahoma Gas is that,
here, FERC purported to apply the Mobile-Sierra presumption
as a matter of discretion, even though FERC continued to
maintain that it was not required to apply the presumption as a
matter of law (a position we vindicated in Oklahoma Gas). As
a result, we must consider the new question of whether FERC
has overcome the Mobile-Sierra presumption, which presents
a higher hurdle than the more deferential default standard for
evaluating FERC actions.
The second petition for review was filed by the New
England States Committee on Energy, Inc. (“NESCOE”) and
governmental entities from five of the six states it represents in
regional electricity matters: Connecticut, Massachusetts, New
Hampshire, Rhode Island, and Vermont (collectively, with
NESCOE, the “State Petitioners”). The State Petitioners argue
that, in the ISO-NE compliance order, the Commission went
beyond Order No. 1000 and impermissibly altered the balance
of responsibility and power as between state governments and
ISO-NE.
6
II.
We consider first the petition for review filed by the
Transmission Owners.
In its orders, the Commission determined that the Mobile-
Sierra presumption did not apply as a matter of law. See Initial
Order ¶¶ 160-72. Nevertheless, as a matter of discretion, the
Commission applied the presumption to the right of first refusal
provision in Section 3.09 of the Transmission Operating
Agreement, noting that it had earlier accorded Mobile-Sierra
protection to the provision in 2004 when the Transmission
Operating Agreement was first approved. See id. ¶ 172.
However, the Commission ultimately found that the right of
first refusal “severely harm[s] the public interest,” meaning
that the Mobile-Sierra presumption was overcome. Id. As a
result of this analysis, the Commission ordered the right of first
refusal provision stricken from the Transmission Operating
Agreement. Id. ¶ 11.
The Transmission Owners first assert that the Commission
erred in finding the Mobile-Sierra presumption inapplicable as
a matter of law. In addition, the Transmission Owners contend
that FERC did not properly establish that the right of first
refusal harmed the public interest, as is required in order to
overcome the presumption.
A.
The Commission argues that the Transmission Owners
lack standing to contest the determination that the Mobile-
Sierra presumption does not apply as a matter of law, because
the Commission nonetheless applied the presumption as a
matter of discretion.
7
In support of its contention that standing is absent, the
Commission cites New England Power Generators
Association v. FERC, 707 F.3d 364 (D.C. Cir. 2013). In New
England Power, the Commission was attacked from two sides
after it concluded that rates resulting from an auction process
were not contract rates, but nevertheless were subject to the
Mobile-Sierra presumption. As we explained, one petitioner
“like[d] the result but not the reasoning: it argue[d] the auction
results, as contract rates, must receive the Mobile–Sierra
presumption,” while an opposing group of petitioners
“support[ed] much of FERC’s reasoning but not the result: they
contend that because the auction results are not contract rates,
FERC cannot presume them just and reasonable.” New
England Power, 707 F.3d at 366 (emphasis omitted). We held
that the first petitioner lacked standing because “its desired
outcome – application of Mobile-Sierra’s public interest
standard – has already been achieved.” Id. at 369.
There is one crucial distinction between New England
Power and this case, however: in New England Power, the
petitioner had prevailed before the Commission and was
objecting only to the Commission’s reasoning in reaching that
favorable result. Here, by contrast, the Transmission Owners
not only take issue with the Commission’s reasoning but are
also aggrieved by the Commission’s conclusion that the right
of first refusal must be removed from the Transmission
Operating Agreement.
Of course, the fact that the Mobile-Sierra presumption was
applied as a matter of discretion by the Commission renders
irrelevant the Transmission Owners’ argument that the
Commission was required to apply it as a matter of law. 2
2
In any event, our decision in Oklahoma Gas has since rejected the
Transmission Owners’ argument that FERC is required to apply the
8
However, this does not diminish the Transmission Owners’
standing to challenge an adverse determination by the
Commission.
B.
Since the Transmission Owners have standing to bring
their challenge, we must evaluate whether the Commission
erred in finding that the right of first refusal in the Transmission
Operating Agreement “severely harm[s] the public interest.”
See Initial Order ¶ 172. FERC’s determination will be set aside
if it is “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A);
see, e.g., Williams Gas Processing-Gulf Coast Co. v. FERC,
475 F.3d 319, 326 (D.C. Cir. 2006).
The Transmission Owners’ objections fall into three
categories. First, they assert that FERC’s orders were
inconsistent with its past decisions. Second, the Transmission
Owners allege that FERC applied the wrong legal standard as
the yardstick for measuring whether the Mobile-Sierra
presumption had been overcome. Finally, the Transmission
Owners argue that FERC’s determination was not in accord
with the evidence before it. We consider these arguments in
turn.
1.
“[I]t is ‘axiomatic that [agency action] must either be
consistent with prior [action] or offer a reasoned basis for its
departure from precedent . . . .’” Williams Gas, 475 F.3d at
326 (alterations in original) (quoting Brusco Tug & Barge Co.
v. NLRB, 247 F.3d 273, 278 (D.C. Cir. 2001)). The
Mobile-Sierra presumption to rights of first refusal such as the one
at issue in this case. See Oklahoma Gas, 827 F.3d at 80.
9
Transmission Owners allege that the Commission’s
determinations in the challenged orders flunk this requirement
because they are inconsistent with two prior actions by the
Commission: Order No. 1000 and the 2004 order that first
approved the Transmission Operating Agreement.
In Order No. 1000, the Commission declined to resolve the
question of whether the Mobile-Sierra presumption applied to
the threatened rights of first refusal in existing tariffs and
agreements. The Commission noted that one commenter –
National Grid – had argued that the presumption applied to the
specific right of first refusal in the Transmission Operating
Agreement at issue here. However, the Commission found
“that the record is not sufficient to address the specific issues
raised by National Grid in this generic proceeding.” Order No.
1000 ¶ 292. The Commission further explained:
[W]e generally do not interpret an individual contract
in a generic rulemaking, and we are not persuaded to
do so here given the limited record developed so far
on section 3.09. Thus, we conclude that these
arguments, including National Grid’s argument as to
the applicable standard of review, are better addressed
as part of the proceeding on ISO New England’s
compliance filing pursuant to this Final Rule, where
interested parties may provide additional information.
Id.
In the Rehearing Order, the Commission elaborated,
noting that the record at the time of Order No. 1000 was
insufficient because the Commission issued Order No. 1000
“prior to having before it the universe of contracts and
arguments to determine which lend support to, or provide
evidence against the specific issue.” Rehearing Order ¶ 193.
10
Once the specific contract and relevant arguments were
submitted as part of the compliance filing process, “the
Commission was able to examine together all the arguments
relating to this specific issue – Mobile-Sierra protection of the
right of first refusal provisions – as well as the individual
contract provisions and other related documents, such as
Commission orders addressing these provisions.” Id. The
Commission explained that its “findings on compliance were
based on this more complete, and now sufficient, record.” Id.
The Transmission Owners take issue with the
Commission’s characterization. They argue that the
Commission’s decision in the orders now under review
arbitrarily departed from the Commission’s finding in Order
No. 1000 that the record was not sufficient to address the
applicability of the Mobile-Sierra presumption. The thrust of
the petitioners’ argument is that the only new empirical data
introduced between the time FERC issued Order No. 1000 and
the Initial Order was information introduced by the
Transmission Owners to show that regional transmission needs
were already being addressed while the right of first refusal was
in place. Accordingly – per the Transmission Owners’
argument – if the record was insufficient to make a Mobile-
Sierra finding when Order No. 1000 was issued, it remained
insufficient at the time of the Initial Order.
This misunderstands the way in which the record was “not
sufficient” at the time of Order No. 1000. The Transmission
Owners view the Initial Order as reaching a different verdict
from Order No. 1000 in spite of the fact that no new evidence
was introduced in support of that new verdict. To the contrary,
FERC did not come to any verdict on the Mobile-Sierra issue
in Order No. 1000. Instead, the Commission deferred until
later compliance proceedings the introduction of specific
evidence about the Transmission Operating Agreement –
11
including the text of the agreement itself – and the region. See
Order No. 1000 ¶ 292. Because this evidence had not yet been
introduced, the record in Order No. 1000 was “insufficient” to
reach any verdict, not just insufficient to find that the right of
first refusal was sufficiently harmful to overcome the Mobile-
Sierra presumption. See id. (“[T]he record is not sufficient to
address the specific issues raised . . . .” (emphasis added)). It
was not at all inconsistent for FERC to treat the record as
sufficient to reach such a verdict after the introduction of the
language of the provision at issue and other information from
interested parties.
The Transmission Owners cite a second example of
purportedly inconsistent decision-making. This time, the
earlier decision was the 2004 order by the Commission
approving the Transmission Operating Agreement in which the
Commission found that the Transmission Operating
Agreement’s right of first refusal provision “will have no
adverse impact on third parties or the New England market.”
ISO New England, Inc., 109 F.E.R.C. ¶ 61,147, ¶ 78 (2004). In
its Initial Order, which is the subject of the petition for review
in this case, the Commission addressed the argument that the
2004 finding precluded its new determination that the right of
first refusal “severely harm[s] the public interest” and therefore
must be removed. See Initial Order ¶ 172. The Commission
asserted that the 2004 finding presents no barrier because the
Commission “is permitted to adapt its rules and policies in light
of changing circumstances” and “changes in the electric
industry driving the demand for new transmission, coupled
with the advent of nonincumbent transmission developers, led
the Commission to reexamine the effect of federal rights of first
refusal on customers and nonincumbent transmission
developers.” Id. ¶¶ 196-98.
12
In support of this proposition, the Commission cited a
1968 Supreme Court decision upholding the Commission’s
restriction of escalation clauses in natural gas contracts
notwithstanding an earlier decision of the Commission that had
expressly declined to limit their use. Id. ¶ 197 (citing In re
Permian Basin Area Rate Cases, 390 U.S. 747, 783-84 (1968)).
In the cited case, the Court held that the challenged decision
may not “properly be set aside merely because the Commission
has on an earlier occasion reached another result;
administrative authorities must be permitted, consistently with
the obligations of due process, to adapt their rules and policies
to the demands of changing circumstances.” Permian Basin,
390 U.S. at 784.
This case presents another example of changing
circumstances and an appropriate adaptation of rules and
policies by FERC. While FERC reached a different conclusion
in its Initial Order than in its 2004 order approving the
Transmission Operating Agreement, this different conclusion
was not the result of arbitrary decision-making by the
Commission. Rather, it was the natural consequence of the
new policy adopted in Order No. 1000 to address the changing
circumstances identified by the Commission.
2.
Turning to the meat of FERC’s analysis, the Transmission
Owners argue that FERC did not apply the correct legal
standard in analyzing whether the Mobile-Sierra presumption
had been overcome.
We considered the application of the Mobile-Sierra
standard in a similar context in Texaco Inc. v. FERC, 148 F.3d
1091 (D.C. Cir. 1998), where we upheld FERC’s application
of a generic rule – Order No. 636 – to a particular contract.
13
Order No. 636 required pipelines to use a new pricing method
that was intended to promote a national gas-sales market by
reducing the impact of fixed costs – which vary significantly
between pipelines – on market prices. Id. at 1094.
In a rate filing shortly after FERC promulgated Order No.
636, one pipeline proposed maintaining its existing rate
structure for existing customers and adopting the new rate
structure for new customers only. Id. FERC rejected that
proposal, finding that it would “distort the pricing information
signals that Order 636 was designed to regularize.” Id. at 1095.
Because the rate provisions in the service agreements between
the pipeline and its existing customers were subject to the
Mobile-Sierra presumption, FERC was required to show that
“the public interest required it to intervene.” Id. at 1096.
After reviewing the record, we found FERC’s public
interest showing in Texaco to be sufficient. We explained that
“the ‘public interest’ that permits FERC to modify private
contracts is different from and more exacting than the ‘public
interest’ that FERC seeks to serve when it promulgates its
rules,” meaning that “more is required to justify regulatory
intervention in a private contract than a simple reference to the
policies served by a particular rule.” Id. at 1097. While “FERC
relie[d] in part on the public interest rationale articulated in
Order 636 to justify its modification of the” service
agreements, FERC “did not rest its reformation of the [service]
agreements on the generalized public interest goals underlying
Order 636.” Id. Instead, FERC determined that retaining the
existing rate structure in the contracts at issue would adversely
affect the public interest, specifically by “distort[ing] gas
market pricing to the detriment of the integrated national gas
sales market” and by inflicting “anti-competitive” harm on the
pipeline’s main competitor. Id. (internal quotation marks
omitted).
14
In this way, Texaco drew a distinction between mere
recitation of policy goals and a “particularized” analysis of the
deleterious effects of the contract provision at issue. While
new policies – such as those adopted in Order No. 636 in
Texaco or Order No. 1000 here – may be supported by
“generalized public interest goals,” “particularized” analysis is
required in order to overcome the Mobile-Sierra presumption
where it applies.
The Commission’s challenged orders in this case contain
the requisite “particularized” analysis. In Order No. 1000, the
Commission found that rights of first refusal are generally
anticompetitive. See Order No. 1000 ¶¶ 256-57. In the orders
now being challenged, FERC went further and found that the
specific right of first refusal in ISO-NE’s Transmission
Operating Agreement “would adversely affect transmission
development.” Rehearing Order ¶ 204; see also id. ¶ 196-97
(citing evidence of “transmission system expansion” in New
England that “makes the need to foster competitive practices
more acute”). Of course, the Transmission Owners may
quibble with the evidentiary basis for that conclusion – and
they do, as discussed below – but it cannot be said that the
Commission failed to make the “particularized” finding
required by our case law.
The Transmission Owners have one additional argument
regarding the legal standard. They point to a statement from
the Supreme Court’s decision in Morgan Stanley Capital
Group Inc. v. Public Utility District No. 1, 554 U.S. 527
(2008): “We have said that, under the Mobile-Sierra
presumption, setting aside a contract rate requires a finding of
‘unequivocal public necessity’ or ‘extraordinary
circumstances.’” Id. at 550-51 (citations omitted) (quoting
Permian Basin, 390 U.S. at 822; Ark. La. Gas Co. v. Hall, 453
15
U.S. 571, 582 (1981)). The Transmission Owners argue that
this sentence requires FERC, in all cases in which the Mobile-
Sierra presumption applies, to make an explicit finding of
either “unequivocal public necessity” or “extraordinary
circumstances.”
We reject the invitation to don blinders and read this
sentence as establishing an exclusive list of phrases FERC must
incant to rebut the Mobile-Sierra presumption. Reading just
two paragraphs down in the same opinion reveals the Court’s
conclusion that “the FPA intended to reserve the Commission’s
contract-abrogation power for those extraordinary
circumstances where the public will be severely harmed.” Id.
at 551 (emphasis added). In other words, severe harm to the
public constitutes extraordinary circumstances. Where FERC
has made a finding of such harm, it has made the requisite
finding of extraordinary circumstances. FERC made such a
finding here, see Initial Order ¶ 172, thereby clearing the
Mobile-Sierra bar as articulated in Morgan Stanley.
3.
The Transmission Owners also contend that, in reaching
the conclusion that the rights of first refusal harmed the public
interest, the Commission identified no evidence to support that
conclusion and ignored the contrary evidence submitted by
defenders of the right of first refusal.
The Transmission Owners’ first contention – that FERC
identified no evidence in support of its conclusion – is based
on the faulty premise that economic theory cannot provide the
basis for FERC’s decisions. As we held in rejecting a nearly
identical challenge to Order No. 1000, “at least in
circumstances where it would be difficult or even impossible
to marshal empirical evidence, the Commission is free to act
16
based upon reasonable predictions rooted in basic economic
principles.” South Carolina, 762 F.3d at 76; see also id. at 64-
65. This case presents a nearly identical circumstance to that
addressed in South Carolina, as we once again must decide
whether the Commission was entitled to rely on economic and
competition theory to justify its decision in the absence of
empirical data. Again we reach the same result, mindful of the
limitations of empirical data in evaluating a counterfactual and
the proper role of other forms of evidence in some situations.
Cf. id. at 65 (“Agencies do not need to conduct experiments in
order to rely on the prediction that an unsupported stone will
fall; nor need they do so for predictions that competition will
normally lead to lower prices.” (quoting Associated Gas
Distribs. v. FERC, 824 F.2d 981, 1008-09 (D.C. Cir. 1987))).
The Transmission Owners’ second contention – that FERC
ignored the evidence they introduced into the record – is also
wrong. The Transmission Owners introduced evidence that
ISO-NE “has placed $4.7 billion in new transmission facilities
in service and has placed another $5.7 billion in projects (in
different stages of development) in the ISO-NE Regional
System Plan.” Rehearing Order ¶ 196. This evidence of
transmission development, they contend, demonstrates that the
right of first refusal does not harm the public interest.
Far from ignoring this evidence, FERC confronted it head-
on. The Commission credited the evidence, but explicitly
rejected the inference that “the incumbent transmission owners
are sufficiently developing projects under the existing
framework with their current rights of first refusal.” Id. ¶ 197.
The Commission did note, however, that this evidence
illustrated the “onset” of a “development trend” – noted earlier
by the Commission in Order No. 1000 – that “demonstrates a
changing circumstance in the marketplace, which continues to
threaten the public interest by avoiding expected efficiencies
17
and cost savings and makes the need to foster competitive
practices more acute.” Id. (footnote omitted).
The rejection of the Transmission Owners’ preferred
inference was well within the Commission’s discretion.
Evidence of a certain level of past development does not
compel a conclusion about the development that would have
occurred in a counterfactual universe without the right of first
refusal provision or, more importantly, the relative level of
development that would occur in the future in alternate
universes with and without the provision. The inference that
there is a functioning market with the right of first refusal in
place may be plausible, but the contrary conclusion drawn by
FERC is plausible as well. “Where the evidence might support
more than one rational interpretation, ‘the question we must
answer . . . is not whether record evidence supports [the
petitioner’s] version of events, but whether it supports
FERC’s.’” Cogeneration Ass’n of Cal. v. FERC, 525 F.3d
1279, 1283 (D.C. Cir. 2008) (alterations in original) (quoting
Fla. Mun. Power Agency v. FERC, 315 F.3d 362, 368 (D.C.
Cir. 2003)). Accordingly, we reject the Transmission Owners’
challenge to the Commission’s orders.
III.
We turn next to considering the petition for review filed
by the State Petitioners, which takes issue with a different
aspect of the Commission’s orders.
In addition to addressing rights of first refusal, Order No.
1000 also required the consideration of transmission needs
driven by public policy when determining what projects to
include in the Regional System Plan for cost allocation
purposes. See Order No. 1000 ¶¶ 78-84. Public policy
requirements that could give rise to transmission needs include
18
“enacted statutes (i.e., passed by the legislature and signed by
the executive) and regulations promulgated by a relevant
jurisdiction, whether within a state or at the federal level.” Id.
¶ 2.
ISO-NE’s compliance filing included a proposed multi-
step procedure for complying with this new requirement. See
Initial Order ¶¶ 77-84. Under this proposal, NESCOE – the
regional committee that represents the New England states in
electricity matters – would first “identify state and federal
public policies that may drive the need for transmission in New
England.” Id. ¶ 77. After transmission needs are identified,
“ISO-NE will undertake scenario studies to provide a sense of
the costs and benefits of various high-level alternatives.” Id.
Then, “[i]f some or all states determine that those transmission
solutions may meet their identified public policies,” those
states may direct ISO-NE to solicit initial proposals from
transmission developers. Id. ISO-NE was tasked with
conducting a preliminary review of those proposals, after
which NESCOE “may submit to ISO-NE a list of projects that
one or more of the states would like to have further developed.”
Id. ¶¶ 82-83. However, if NESCOE does not identify any
projects to be further developed, the planning process would
end. Id. ¶ 83. Ultimately, ISO-NE would place projects into
the Regional System Plan only if requested by either NESCOE
or the participating states’ utility regulatory authorities. Id.
¶ 84.
FERC rejected this proposed procedure because it left to
NESCOE or the states several roles that FERC contends Order
No. 1000 had directed ISO-NE – the regional transmission
organization – to fulfill. See id. ¶¶ 108, 116. FERC asserted:
[T]o comply with Order No. 1000 the Filing Parties
must propose a process for the public utility
19
transmission providers in the region to select in the
regional transmission plan for purposes of cost
allocation the more efficient or cost-effective
transmission solution that resolves an identified
transmission need driven by public policy
requirements.
Id. ¶ 108.
The State Petitioners object on two grounds. First, they
argue that FERC’s determination impermissibly conflicts with
and expands on Order No. 1000. This argument turns on the
State Petitioners’ reading of the word “select” in the Initial
Order as meaning that FERC requires not only a process to
identify transmission needs driven by public policy
requirements and evaluate potential transmission solutions that
could meet those needs – two requirements that the State
Petitioners do not dispute are contained in Order No. 1000 –
but also selection of whichever project is the most efficient or
cost-effective.
We need not determine whether any such selection
requirement would be permissible, however, because the
Commission adamantly disclaims such a reading. The
Commission explains that the language at issue was not
distinguishing between identifying transmission needs and
selecting projects, but rather was clarifying which entity must
control each step of the process. The Rehearing Order made
clear that there is no requirement that ISO-NE “must select . . .
a transmission solution to address every identified transmission
need driven by a public policy requirement.” Rehearing Order
¶ 126. The only selection requirement is that if a solution is
selected it “must be selected by ISO-NE rather than by
NESCOE.” Id. In light of these clarifications by the
Commission, there is no inconsistency with Order No. 1000.
20
The State Petitioners’ second objection is that the
Commission exceeded the bounds of its authority under the
Federal Power Act (“FPA”). Specifically, the State Petitioners
point to section 201(a) of the FPA, which provides that FERC’s
authority is “to extend only to those matters which are not
subject to regulation by the States.” 16 U.S.C. § 824(a). The
Supreme Court has explained:
The policy declaration that federal regulation is “to
extend only to those matters which are not subject to
regulation by the States” is one of great generality. It
cannot nullify a clear and specific grant of jurisdiction,
even if the particular grant seems inconsistent with the
broadly expressed purpose. But such a declaration is
relevant and entitled to respect as a guide in resolving
any ambiguity or indefiniteness in the specific
provisions which purport to carry out its intent. It
cannot be wholly ignored.
Conn. Light & Power Co. v. Fed. Power Comm’n, 324 U.S.
515, 527 (1945).
As the State Petitioners concede, the “clear and specific”
grants of jurisdiction in the FPA include FERC’s authority to
regulate the rates charged for transmission of electricity, see 16
U.S.C. § 824d, and to “facilitate the planning of a reliable
grid,” see South Carolina, 762 F.3d at 90. Nevertheless, the
State Petitioners contend that the FPA does not grant FERC
authority over what they characterize as “the means by which
states meet their own public policy mandates.” Pet’rs’ (15-
1141) Joint Br. 35.
This argument fails because it is necessarily an objection
to the entire regional planning and cost allocation scheme. The
21
role of a regional transmission organization such as ISO-NE is
to plan for the region’s transmission needs. Order No. 1000
established a regional planning process that is agnostic as to the
provenance of the transmission needs, whether resulting from
population growth or federal public policy or state public
policy. In South Carolina, we approved this process and
explicitly rejected the argument that the regional planning
“mandate infringes on the States’ traditional regulation of
transmission planning, siting, and construction, violating the
federalism principle recognized in Section 201(a).” 762 F.3d
at 62; see also id. at 58-59. Similarly, we held that providing
for cost allocation falls within the Commission’s authority to
regulate the rates charged for electricity. Id. at 84.
The division of roles between ISO-NE and the states poses
no jurisdictional problem for FERC. ISO-NE has no role in
setting public policy for the states. ISO-NE considers
transmission needs that arise from a variety of sources, one of
which is the public policy requirements chosen by federal and
state officials. See Rehearing Order ¶ 132 (“Transmission
needs driven by public policy requirements, and not the public
policy requirements themselves, are what must be considered
by public utility transmission providers under Order No.
1000.”). As we explained in South Carolina:
The [regional planning] mandate simply recognizes
that state and federal policies might affect the
transmission market and directs transmission
providers to consider that impact in their planning
decisions. In this regard, the requirement is no
different from other facets of the planning process.
The providers assess what transmission capacity is
required to fulfill a variety of needs (such as reliability
of the grid, geographic expansion, and now public
policy requirements) and then plan how to develop
22
that capacity. This fits comfortably within the
Commission’s authority under Section 206.
762 F.3d at 89-90 (citations omitted).
Requiring that ISO-NE, rather than the states, evaluate
transmission needs and potential solutions is a reasonable
implementation of Order No. 1000’s regional planning process,
which we upheld in South Carolina. That is true regardless of
whether those transmission needs arise from state public policy
requirements or any other source.
We note as well that the Commission’s conclusion that the
proposed regional planning process did not satisfy Order No.
1000 was supported by substantial evidence, as set forth in its
Orders. See Initial Order ¶¶ 71-121; Rehearing Order ¶¶ 29-
32, 98-154.
***
For the foregoing reasons, both petitions for review are
denied.
So ordered.