United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 12, 2021 Decided January 28, 2022
No. 20-1389
COGENTRIX ENERGY POWER MANAGEMENT, LLC AND
VISTRA CORP.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENTS
NEW ENGLAND STATES COMMITTEE ON ELECTRICITY, INC.,
INTERVENOR
On Petition for Review of Orders of the Federal Energy
Regulatory Commission
Christopher R. Jones argued the cause for petitioners. With
him on the briefs were Miles H. Kiger and Jessica Harris Miller.
Nicholas M. Gladd entered an appearance.
Matthew J. Glover, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on the
brief were Matthew R. Christiansen, General Counsel, Robert H.
Solomon, Solicitor, and Beth G. Pacella, Deputy Solicitor.
Anand R. Viswanathan, Attorney, entered an appearance.
2
Before: SRINIVASAN, Chief Judge, KATSAS, Circuit Judge,
and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.
RANDOLPH, Senior Circuit Judge: Cogentrix Energy Power
Management, LLC and Vistra Corp. own electric generation
facilities in New England. Their petition for judicial review is
directed at the Federal Energy Regulatory Commission’s orders
affecting their facilities. ISO New England Inc., 171 FERC
¶ 61,160 (2020) (“Initial Order”), on reh’g, 172 FERC ¶ 61,251
(2020) (“Rehearing Order”). Electric generation facilities in
this area receive payment for their services through formula
rates established by ISO New England Inc.’s open access
transmission tariff (the “ISO New England tariff”).1 The
Commission’s orders approved Schedule 17, an amendment to
the ISO New England tariff. Schedule 17 established a new
recovery mechanism for costs incurred by certain electric
generation and transmission facilities to comply with mandatory
reliability standards the Commission had approved.
The Commission ruled that Cogentrix and Vistra could use
Schedule 17 to recover only costs incurred after they filed a
cost-based rate with the Commission pursuant to Federal Power
Act (“FPA”) § 205, 16 U.S.C. § 824d, and the Commission had
approved the rate. The Commission reasoned that the filed rate
doctrine and its corollary, the rule against retroactive
ratemaking, limited recovery to prospective costs.
1
ISO New England is a regional transmission organization that
coordinates electricity transmission in New England and whose tariff
governs recovery of transmission rates. Emera Me. v. FERC, 854 F.3d
9, 16 (D.C. Cir. 2017).
3
I.
A.
Congress added electric grid reliability to the Commission’s
regulatory responsibilities in the Electricity Modernization Act
of 2005, Pub. L. No. 109-58, tit. XII, 119 Stat. 941 (2005).2 The
Act created FPA § 215, 16 U.S.C. § 824o, which gives the
Commission the power to “adopt and enforce mandatory
technical reliability standards for facilities that make up the
national energy grid.” New York v. FERC, 783 F.3d 946, 950
(2d Cir. 2015). Congress provided the Commission with this
authority in order to enhance the reliability of the electric grid
after a large-scale blackout in the northeastern United States in
summer 2003. Id.
Section 215 does not give the Commission authority to
write mandatory reliability standards. Instead, the Commission
may certify a non-governmental organization as the “Electric
Reliability Organization” to write and propose the standards. 16
U.S.C. § 824o(c), (d). The Commission may approve such
standards if the Commission finds that the standards are “just,
reasonable, not unduly discriminatory or preferential, and in the
public interest.” Id. § 824o(d)(2). The North American Electric
Reliability Corporation has been the certified Electric Reliability
Organization since 2006. N. Am. Elec. Reliability Corp., 116
FERC ¶ 61,062 (2006); Fed. Energy Regul. Comm’n, Reliability
Primer 34–35 (2020).
In 2013, the Commission approved a new set of critical
infrastructure protection reliability standards the Corporation
proposed. Version 5 Critical Infrastructure Protection
2
The Electricity Modernization Act is part of the Energy Policy
Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).
4
Reliability Standards, 145 FERC ¶ 61,160 (2013) (“Reliability
Standards”), on clarification & reh’g, 146 FERC ¶ 61,188
(2014) (“Reliability Standards Clarification Order”). These
new standards require system operators like ISO New England
to designate the system’s generation and transmission facilities
as low-, medium-, or high-impact, based on the facilities’
relative importance to the reliable operation of the electric grid.
Reliability Standards, at PP. 2, 41. All facilities must comply
with the low-impact reliability standards. Id. at P. 2. Facilities
designated as medium- or high-impact must comply with
additional reliability standards. Id. Medium- and high-impact
facilities had to comply with the new standards by April 1, 2016.
Reliability Standards Clarification Order, at P. 7.
B.
ISO New England started designating transmission and
generation facilities as medium-impact facilities in 2013 and
2014, respectively. Those critical facilities3 began to incur costs
to comply with the standards. Cogentrix, Vistra, and other
critical facility owners commenced negotiations with ISO New
England regarding compensation for those compliance costs.
Those discussions resulted in Schedule 17.
Schedule 17 amends the ISO New England tariff to include
a cost-based recovery mechanism for expenses that critical
facility owners incur to comply with the new standards. A
facility may recover costs under Schedule 17 “only to the
extent” that it satisfies four conditions. Schedule 17 § 2.2(A),
J.A. 61. First, the costs must be “incurred . . . during the period
in which the subject facility is designated as [a] []Critical
3
Like the parties, we use “critical facilities” to refer to electric
generation and transmission facilities that are designated by ISO New
England as medium-impact facilities.
5
Facility” by ISO New England. Id. § 2.2(A)(i). Second, the
critical facility owner must specify a cost recovery period and
the costs must have been paid during that period. Id.
§ 2.2(A)(ii). Third, the costs must be “presented by the
[]Critical Facility Owner in a Section 205 filing and approved by
the Commission.” Id. § 2.2(A)(iii). Fourth, the costs must
“satisfy all other conditions for recovery, as set forth in this
Schedule 17.” Id. § 2.2(A)(iv).
On January 6, 2020, ISO New England filed Schedule 17
with the Commission with a requested effective date of March
6, 2020.4 The Commission had concerns about the temporal
scope of cost recovery permitted by Schedule 17 § 2.2(A)(i), so
the Commission filed a deficiency letter. In the letter, the
Commission asked ISO New England whether it “intends to
allow the recovery of costs incurred prior to the requested
effective date” of Schedule 17 and, if so, to “explain how this
cost recovery mechanism would be consistent with the filed rate
doctrine and the rule against retroactive ratemaking.” J.A. 132.
ISO New England responded that Schedule 17 § 2.2(A)(i)
“does not address the recovery of [mandatory reliability costs]
incurred prior to [Schedule 17’s] requested effective date of
March 6, 2020.” Id. at 135. ISO New England explained that
the critical facility owners bear the burden in their individual
FPA § 205 filings to “demonstrate that the costs proposed for
recovery . . . are consistent with the filed rate doctrine and the
rule against retroactive ratemaking.” Id. at 134.
The Commission thereafter approved Schedule 17.
Pursuant to the filed rate doctrine and the rule against retroactive
ratemaking, the Commission limited recovery to “those costs
4
A new rate cannot become operative until sixty days after it is
filed with the Commission. 16 U.S.C. § 824d(d).
6
incurred on or after the effective date of the [critical facility
owner’s] relevant individual FPA section 205 filing.” Initial
Order, at P. 27. The Commission clarified on rehearing that
critical facility owners may include in their section 205 filings
the “undepreciated” portion of “such past capital expenditures
to comply with the . . . requirements.” Rehearing Order, at P.
22.
II.
The filed rate doctrine forbids utilities from charging rates
other than those properly filed with the Commission. Towns of
Concord, Norwood, & Wellesley v. FERC, 955 F.2d 67, 71
(D.C. Cir. 1992) (citing Ark. La. Gas Co. v. Hall, 453 U.S. 571,
577 (1981)). A “corollary” to the filed rate doctrine is the rule
against retroactive ratemaking, which “prohibits the
Commission from adjusting current rates to make up for a
utility’s over- or undercollection in prior periods.” Id. at 71 &
n.2.
A.
Cogentrix and Vistra argue that Schedule 17 “expressly
permits” recovery of previously paid costs to comply with the
mandatory reliability standards. Petitioners’ Br. 30. We agree
with the Commission that Schedule 17 “expressly permits” no
such thing.
As discussed above, Schedule 17 has four conditions critical
facility owners must satisfy in order to recover compliance
costs. The first and third conditions are relevant here: costs
must be “incurred . . . during the period in which the subject
facility is designated as [a] []Critical Facility,” and must be
“presented by the []Critical Facility in a Section 205 filing and
approved by the Commission.” Schedule 17 § 2.2(A)(i), (iii),
7
J.A. 61.
Cogentrix and Vistra argue that the only temporal limit
Schedule 17 places on cost recovery is that the costs are incurred
when a facility is designated as a medium-impact facility by ISO
New England. The Commission disagreed. It read Schedule 17
to neither “address whether facility owners may seek to recover
costs incurred prior to the effective date of the relevant
individual FPA section 205 filing” nor “explicitly state that only
prospective costs (i.e., costs from the effective date of the
individual FPA section 205 filings going forward) are eligible
for recovery.” Rehearing Order, at PP. 5, 26. In other words,
the Commission found that Section 17 does not address whether
costs incurred before the effective date of the critical facility’s
FPA § 205 filing can be recovered.
Cogentrix and Vistra ignore Schedule 17’s third
requirement, namely that recovery is limited to costs presented
in a facility’s individual FPA § 205 filing and approved by the
Commission. The Commission reasonably concluded that this
requirement preserves the filed rate doctrine and the rule against
retroactive ratemaking, because the Commission may not accept
a rate filed under FPA § 205 that would violate those doctrines.
Initial Order, at P. 27 (citing Towns of Concord, 955 F.2d at 71
n.2, 75); see also Old Dominion Elec. Coop. v. FERC, 892 F.3d
1223, 1226–27 (D.C. Cir. 2018). Given the tariff’s third
requirement for cost recovery, we cannot say that Schedule 17
expressly permits recovery of mandatory reliability costs
incurred prior to a facility’s individual FPA § 205 filing.5
5
As the Commission points out, ISO New England “in its own
filing acknowledged tariff ambiguity as to the timing of cost
recovery.” Respondent’s Br. 25. At oral argument, Cogentrix and
Vistra asserted that after the Commission filed its deficiency letter,
they “had a good-faith assumption and basis to conclude” that they
8
B.
Cogentrix and Vistra next contend that the Commission’s
application of the filed rate doctrine and the rule against
retroactive ratemaking to Schedule 17 is contrary to FPA § 219.
See 5 U.S.C. § 706(2)(A). They point to section 219(b)(4)(A),
which directs the Commission to create a rule that “allow[s]
recovery of . . . all prudently incurred costs necessary to comply
with mandatory reliability standards.”6 16 U.S.C.
§ 824s(b)(4)(A). In their view, if the costs were “prudently
incurred,” section 219(b)(4)(A) imposes no temporal limitation
on recovery of said costs.
But as Cogentrix and Vistra recognize, section 219(d)
imposes two limitations on the recovery of mandatory reliability
costs. Specifically, the statute requires that “[a]ll rates approved
under the rules adopted pursuant to this section . . . are subject
to the requirements of sections 824d [FPA § 205] and 824e
[FPA § 206] of this title that all rates, charges, terms, and
“could convince [ISO New England] to include past costs” in
Schedule 17. Oral Arg. 37:2–6. ISO New England did not adopt their
view, and told the Commission that “Schedule 17 does not address the
recovery of [mandatory reliability costs] incurred prior to . . . March
6, 2020,” the requested effective date of Schedule 17. J.A. 135. The
fact that ISO New England did not think that Schedule 17 — which is
part of the ISO’s own tariff — unambiguously covered prior costs
strongly counsels against the contrary “unambiguous” reading
Cogentrix and Vistra now advance.
6
Pursuant to this statutory directive, the Commission adopted 18
C.F.R. § 35.35(f), which provides that the “Commission will approve
recovery of prudently-incurred costs necessary to comply with the
mandatory reliability standards pursuant to section 215 of the Federal
Power Act, provided that the proposed rates are just and reasonable
and not unduly discriminatory or preferential.”
9
conditions be just and reasonable and not unduly discriminatory
or preferential.” Id. § 824s(d). The Commission determined
that when FPA § 219(b)(4)(A) and 219(d) are read together, the
statute directs the Commission to allow for recovery of “‘all’
[mandatory reliability] costs when consistent with FPA section
205,” which “include[s] the prohibition against retroactive rate
recovery.” Rehearing Order, at P. 15.
Cogentrix and Vistra challenge that reading by invoking the
negative-implication canon — the “expression of one thing
implies the exclusion of others (expressio unius est exclusio
alterius).” Antonin Scalia & Bryan A. Garner, Reading Law:
The Interpretation of Legal Texts 107 (2012). They argue that
the filed rate doctrine and the rule against retroactive ratemaking
do not derive from the requirements in FPA § 205(a) and (b) that
rates be just and reasonable and not unduly discriminatory. See
16 U.S.C. § 824d(a)–(b). Rather, Cogentrix and Vistra maintain
that the doctrines originate from FPA § 205(c), (d), and (e).
Those respective sections require that public utility rates be filed
with the Commission and available for public inspection; that
utilities provide sixty days’ notice of a change in rates; and that
the Commission has the authority to hold a hearing about the
legality of a rate and suspend the rate while its legality is
decided. See id. § 824d(c)–(e).
We have consistently held that the expressio unius “canon
has little force in the administrative setting” to establish
unambiguous intent under step one of Chevron U.S.A. Inc. v.
NRDC, 467 U.S. 837 (1984). Tex. Rural Legal Aid, Inc. v. Legal
Servs. Corp., 940 F.2d 685, 694 (D.C. Cir. 1991); see Nat’l
Ass’n of Mfrs. v. SEC, 800 F.3d 518, 550 (D.C. Cir. 2015). And
we are not persuaded that the canon does the work that
Cogentrix and Vistra would like here. This court and the
Supreme Court have recognized repeatedly that the filed rate
doctrine and the rule against retroactive ratemaking play an
10
important role in helping the Commission fulfill its statutory
responsibility to ensure that regulated entities charge only rates
that are just and reasonable. See Towns of Concord, 955 F.2d at
71 (citing Ark. La. Gas Co., 453 U.S. at 577–78).
The reasoning goes something like this: the Federal Power
Act “vests the Federal Energy Regulatory Commission with
responsibility for ensuring that all rates charged by utilities
within the Commission’s jurisdiction are ‘just and reasonable.’”
Id. at 68 (quoting 16 U.S.C. § 824d(a)). Utilities must file all
rates with the Commission. 16 U.S.C. § 824d(c). When a utility
seeks to charge a different rate, the utility must file a new rate
schedule with the Commission; no rate change “shall be made
. . . except after sixty days’ notice to the Commission and to the
public.” Id. § 824d(d).
The Commission could not ensure that rates are just and
reasonable if the rates are not on file with the Commission for
a period of time before the rates go into effect. Therefore, FPA
§ 205(c) and (d), 16 U.S.C. § 824d(c) and (d) — two of the
provisions from which Cogentrix and Vistra assert the filed rate
doctrine and the rule against retroactive ratemaking derive —
require that “regulated utilities . . . file with the Commission and
keep open for public inspection a schedule of the rates they
intend to charge ratepayers.” Old Dominion, 892 F.3d at 1226.
Those provisions “effectuate” the Commission’s statutory
responsibility to ensure that all rates are just and reasonable. Id.;
see also Mont.-Dakota Utils. Co. v. Nw. Pub. Serv. Co., 341
U.S. 246, 251 (1951) (“[T]he right to a reasonable rate is the
right to the rate which the Commission files or fixes . . ..”). FPA
§ 219’s requirement that mandatory reliability costs be “just and
reasonable” therefore incorporates the filed rate doctrine and the
rule against retroactive ratemaking. Congress did not exclude
the Commission’s application of the doctrines for costs
recovered under FPA § 219.
11
This reading of FPA § 219 accords with the Commission’s
implementing regulation, 18 C.F.R. § 35.35. Like FPA § 219,
the regulation specifies that the Commission will “approve
recovery of prudently-incurred costs necessary to comply with
the mandatory reliability standards . . . provided that the
proposed rates are just and reasonable and not unduly
discriminatory or preferential.” 18 C.F.R. § 35.35(f). But in
addition to these substantive requirements, the regulation also
incorporates the procedural filing rules in FPA § 205(c) to (e).
See id. § 35.35(c) (section 219 rates are “subject to the filing
requirements of sections 205 and 206 of the Federal Power Act
and to the substantive requirements of sections 205 and 206”
(emphases added)). The regulation thus incorporates the filed
rate doctrine and the rule against retroactive ratemaking by
applying all of section 205’s requirements to any rate filings
seeking recovery for costs to comply with the mandatory
reliability standards.
C.
Cogentrix and Vistra also maintain that the Commission’s
orders are arbitrary and capricious because the Commission
misapplied the rule against retroactive ratemaking here. See 5
U.S.C. § 706(2)(A). Their argument is that the rule against
retroactive ratemaking does not apply because there was no rate
on file for medium-impact reliability costs prior to Schedule 17.
True, the Commission has explained that “[f]or there to be
retroactive ratemaking or a violation of the filed rate
doctrine . . . there must first be a rate on file.” Niagara Mohawk
Power Corp., 111 FERC ¶ 61,120, at P. 46 (2005). But that
does not help Cogentrix and Vistra. As the Commission
explained, Cogentrix and Vistra are attempting to collect
additional rates “for a service that has already been rendered,”
which would be a violation of the rule against retroactive
12
ratemaking. Rehearing Order, at P. 20. Cogentrix and Vistra
had a rate on file for their generation facilities in the ISO New
England Tariff, and their customers and the service provided
were the same before and after the Commission approved
Schedule 17. Id. at P. 19. Schedule 17 was thus a changed rate,
not a new rate. Id.
Cogentrix and Vistra argue that the Commission’s orders
are contrary to the Commission’s typical use of historical costs
to set current rates. See, e.g., PJM Interconnection, LLC, 172
FERC ¶ 61,054, at P. 58 (2020) (“Longstanding practice,
Commission and court precedent allow the use of reasonably
representative historic test period data to craft rates, terms and
conditions of service.”). But in this proceeding, Cogentrix and
Vistra were not looking to set a new rate by using historical
costs to estimate future costs. Rather, they were seeking to
recover historical costs going back to 2014 through an
adjustment to current transmission rates. Petitioners’ Br. 19–20
(noting that critical facility owners have been harmed because
they “incurred approximately $300,000 to $2.1 million in initial
costs” and “approximately $700,000 - $5.3 million in
compliance costs through 2019”).7 The rule against retroactive
7
The Commission’s brief uses the example of a software license
— one Schedule 17-qualifying cost — to explain the problem with the
arguments of Cogentrix and Vistra:
Cogentrix [and Vistra] do[] not seek to use the cost of a
software license . . . that was used when providing service
in the past to estimate the cost of a software license for a
future period. Rather, [they] seek[] to charge future
ratepayers for the cost of that past software license, an
attempt to recover for under-collection for service provided
in the past.
Respondent’s Br. 29.
13
ratemaking prohibits such cost recovery, because it would cause
an increase in “current rates to make up for a utility’s . . .
undercollection in prior periods.” Towns of Concord, 955 F.2d
at 71 n.2. Under the FPA, the “Commission has no authority
. . . to allow retroactive change in the rates charged to
consumers.” Old Dominion, 892 F.3d at 1226. Cogentrix and
Vistra received transmission rates under the ISO New England
tariff during the relevant period. That the companies failed to
recover mandatory reliability costs does not allow an exception
to the rule against retroactive ratemaking.
Cogentrix and Vistra also seek to benefit from this
exception to the filed rate doctrine: “The filed rate doctrine
simply does not extend to cases in which buyers are on adequate
notice that resolution of some specific issue may cause a later
adjustment to the rate being collected at the time of service.”
Nat. Gas Clearinghouse v. FERC, 965 F.2d 1066, 1075 (D.C.
Cir. 1992) (per curiam). This is not because notice “relieve[s]
the Commission from the prohibition against retroactive
ratemaking,” but that “it changes what would be purely
retroactive ratemaking into a functionally prospective process by
placing the relevant audience on notice at the outset that rates
being promulgated are provisional only and subject to later
revision.” Columbia Gas Transmission Corp. v. FERC, 895
F.2d 791, 797 (D.C. Cir. 1990).
The notice exception “permits the filing of tariffs that
provide a formula for calculating rates, rather than a specific rate
number.” W. Deptford Energy, LLC v. FERC, 766 F.3d 10, 22
(D.C. Cir. 2014). The exception also applies “when judicial
invalidation of Commission decisions has resulted in retroactive
changes in rates.” Id.
Cogentrix and Vistra want the exception expanded to cover
14
statutes and regulations that permit cost recovery.8 They point
out that FPA § 219 directs the Commission to “allow recovery
of . . . all prudently incurred costs necessary to comply with
mandatory reliability standards,” 16 U.S.C. § 824s(b)(4)(A), and
that 18 C.F.R. § 35.35(f) provides the same. But all rate
changes seeking to recover costs must be filed with the
Commission. 16 U.S.C. § 824d(d); Old Dominion, 892 F.3d at
1232. For this reason, statements on a website or in pleadings
in litigation do not come within the notice exception. See Old
Dominion, 892 F.3d at 1232; W. Deptford Energy, 766 F.3d at
23–24. Perhaps statutes and regulations are different, perhaps
not. Like the Commission, we do not decide that here. See
Rehearing Order, at P. 17. As shown above, neither section 219
nor its implementing regulation provides that rates may be
adjusted retroactively.
According to Cogentrix and Vistra, the Commission’s
ruling that Schedule 17 does not provide adequate notice is
contrary to NSTAR Electric & Gas Corp. v. FERC, 481 F.3d 794
(D.C. Cir. 2007). NSTAR affirmed the Commission’s
determination that notice was met by Market Rule 17, which
provided that tariff rates would apply only if ISO New England
and the electricity generator did not later file a separate
negotiated agreement for recovery of generators’ operating costs
during congestion periods. Id. at 801. Cogentrix and Vistra
contend that Schedule 17 is “identical” to Market Rule 17.
Petitioners’ Br. 37. The Commission, however, reasonably
explained that Schedule 17 “provided notice only of a potential
change to be proposed in potential future filings.” Rehearing
Order, at P. 18. Market Rule 17 “put transmission customers on
8
Cogentrix and Vistra admit that they “are not aware of an
instance in which this Court has found that a statute or regulation
expressly permitting cost recovery provides adequate notice.”
Petitioners’ Br. 34.
15
notice that the default rates” in the tariff “would apply only
absent a separate negotiated agreement,” which “may have
retroactive effect.” NSTAR, 481 F.3d at 801. Market Rule 17
thus established that the filed rates were “provisional only and
subject to later revision.” Id. (quoting Columbia Gas, 895 F.2d
at 797). In contrast, notice that critical facilities seek to recover
Schedule 17-qualifying costs will be provided at the time of
critical facilities’ FPA § 205 filings, not at the filing of Schedule
17 itself.
We conclude that the Commission’s application of the filed
rate doctrine and the rule against retroactive ratemaking to
Schedule 17 was not arbitrary or capricious.9
Petition Denied.
9
The remaining arguments of Cogentrix and Vistra do not
warrant discussion and are rejected.