United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 17, 2001 Decided December 11, 2001
No. 00-1174
Public Utility District No. 1 of
Snohomish County, Washington,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
PJM Interconnection, L.L.C., et al.,
Intervenors
Consolidated with
Nos. 00-1175, 00-1176, 00-1177, 00-1178, 00-1179,
00-1180, 00-1181, 00-1182, 00-1184
Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Eric L. Christensen argued the cause for petitioner Public
Utility District No. 1 of Snohomish County, Washington.
With him on the briefs were Michael J. Gianunzio and
Deborah A. Swanstrom.
David B. Raskin and Elias G. Farrah argued the cause for
Jurisdictional Utilities and Supporting Intervenors. With
them on the briefs were Mary A. Murphy, David P. Sharo,
Charles G. Cole, Alice E. Loughran, Richard T. Saas, Donald
A. Kaplan, Andrew N. Greene, David Earl Goroff, Elizabeth
Ward Whittle, Stuart A. Caplan, Michael E. Small and Paul
M. Flynn. Catherine M. Giovannoni, Steven J. Ross, Edward
H. Comer, Kelly D. Hewitt, Joseph H. Fagan and Scott
Wilensky entered appearances.
Jonathan D. Schneider argued the cause and filed the
briefs for petitioner South Carolina Public Service Authority.
Susan N. Kelly and Milton J. Grossman were on the brief
for intervenor Transmission Dependent Utility Systems.
Dennis Lane, Solicitor, Federal Energy Regulatory Com-
mission, argued the cause for respondent. With him on the
brief was Larry D. Gasteiger, Attorney. Beth G. Pacella and
David H. Coffman, Attorneys, entered appearances.
Robert C. McDiarmid, Daniel I. Davidson, Cynthia S.
Bogorad, Susan N. Kelly, Milton J. Grossman and Barry
Cohen were on the brief for intervenors American Public
Power Association, et al. Joseph P. Serio, Wallace F. Till-
man, Alan J. Roth and David E. Pomper entered appear-
ances.
David B. Raskin and Charles G. Cole were on the brief for
intervenor Edison Electric Institute on the passive ownership
issue.
Before: Randolph, Rogers, and Garland, Circuit Judges.
Opinion for the Court filed Per Curiam.
Per Curiam: On December 20, 1999, the Federal Energy
Regulatory Commission promulgated a final rule to advance
the formation of regional transmission organizations
("RTOs"). See Regional Transmission Organizations, Order
No. 2000, FERC Stats. & Regs. p 31,089 (1999), 65 Fed. Reg.
810 (2000) ("Order 2000"), on reh'g, Order No. 2000-A, FERC
Stats. & Regs. p 31,092, 65 Fed. Reg. 12,088 (2000) ("Order
2000-A") (codified at 18 C.F.R. s 35.34).1 On February 25,
2000, the Commission denied rehearing while clarifying cer-
tain provisions of the rule. See Order 2000-A, p 31,092, at
31,354. The petitioners raise a variety of challenges to Order
2000, principally on the grounds that the Commission exceed-
ed its statutory authority, and if it did not, that it acted
arbitrarily and capriciously and contrary to law.
The contentions of the Jurisdictional Utilities ("Utilities")
are premised on the view that Order 2000 not only mandates
certain informational filings as to expected RTO participation
but also has the effect of mandating RTO participation. We
hold first, that the challenged requirements of Order 2000 are
voluntary and impose no mandatory requirements upon the
Utilities, and second, that the Utilities have failed to demon-
strate that they are aggrieved by Order 2000. Accordingly,
we dismiss the Utilities' petitions for lack of jurisdiction.
We dismiss as well the petition of the Public Utility District
No. 1 of Snohomish County, Washington, which challenged
the Commission's failure to address the costs and benefits of
RTO formation, and the petition of the South Carolina Public
Service Authority, which sought review of the Commission's
refusal to forbid passive ownership of an RTO by market
participants.
I.
Historically, electric utilities were vertically integrated,
owning generation, transmission, and distribution facilities
and selling these services as a "bundled" package to whole-
sale and retail customers in a limited geographical service
area. Promoting Wholesale Competition Through Open Ac-
cess Non-discriminatory Transmission Services by Public
__________
1 All references to Order 2000 and Order 2000-A refer to pages in
the FERC Stats. and Regs. Unless otherwise indicated, references
to "Order" or "Order 2000" refer to the final rule and its preambles.
Utilities, Recovery of Stranded Costs by Public Utilities and
Transmitting Utilities, 60 Fed. Reg. 17,662, 17,668 (proposed
Apr. 7, 1995) (codified at 18 C.F.R. ss 35.15, 35.26-35.29).
Beginning in the late 1960s, however, significant economic
changes and technological advances in generation and trans-
mission gave rise to many new entrants in the generating
markets, which, by using smaller scale technology, could sell
energy at a lower price than many utilities' existing genera-
tion facilities. Id. at 17,671. But barriers to a competitive
wholesale power market remained because if and when the
existing vertically integrated utilities provided regional trans-
mission access to these new efficient generating plants, they
favored their own generation. Id.
Concluding that these practices were unduly discriminatory
and anti-competitive, the Commission issued Orders 888 and
889 in 1996.2 Orders 888 and 889 established the foundation
for the development of competitive wholesale power markets
by requiring non-discriminatory open access transmission ser-
vices by public utilities. See Transmission Access Policy
Study Group v. FERC, 224 F.3d 667, 682 (D.C. Cir. 2000)
("TAPSG"). In the Notice of Proposed Rulemaking underly-
ing the Order now on review, the Commission observed that
Orders 888 and 889 "required a significant change in the way
many public utilities have done business for most of this
century," and that "most public utilities accepted these
changes and made substantial good faith efforts to comply
with the new requirements." See Notice of Proposed Rule-
__________
2 Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recov-
ery of Stranded Costs by Public Utilities and Transmitting Utili-
ties, Order No. 888, 61 Fed. Reg. 21,540 (1996), clarified, 76
F.E.R.C. p 61,009 and 76 F.E.R.C. p 61,347 (1996), on reh'g, Order
No. 888-A, 62 Fed. Reg. 12,274, clarified, 79 F.E.R.C. p 61,182
(1997), on reh'g, Order No. 888-B, 62 Fed. Reg. 64,688 (1997), on
reh'g, Order No. 888-C, 82 F.E.R.C. p 61,046 (1998); Open Access
Same-Time Information System and Standards of Conduct, Order
No. 889, 61 Fed. Reg. 21,737 (1996), on reh'g, Order No. 889-A, 62
Fed. Reg. 12,484 (1997), on reh'g, Order No. 889-B, 81 F.E.R.C.
p 61,253 (1997).
making, Regional Transmission Organizations, 64 Fed. Reg.
31,390, 31,393 (1999) ("NOPR").
Since the issuance of Orders 888 and 889 the electric
industry has changed significantly in response to those or-
ders. The availability of open access transmission tariffs has
resulted in a much greater reliance on wholesale markets to
provide generation resources, which in turn, has resulted in
the increase of interregional electricity transfers. This has
caused various changes in the industry, including the divesti-
ture by integrated utilities of their generating assets, an
increase in mergers, increases in new participants in the
industry in the form of independent power marketers and
generators, an increase in the total volume of trade in the
wholesale electricity market, state efforts to increase retail
competition, and new and different uses of the transmission
grid. In sum, the Commission observed in the underlying
NOPR that "[t]he very success of Order Nos. 888 and 889,
and the initiative of some utilities that have pursued volun-
tary restructuring beyond the minimum open access require-
ments, have put new stresses on regional transmission sys-
tems--stresses that call for regional solutions." Id.
In response to these changes in the structure and function-
ing of the electric industry, the Commission investigated the
need for regional transmission entities. The Commission
staff found that the transmission grid was being used more
intensively than in the past and that "market institutions
were not adequately prepared to deal with such a dramatic
series of events," as had occurred, for example, mid-June
1998 when the Midwest experienced unprecedented high spot
market prices. Id. at 31,394. The staff concluded that to
address reliability concerns and foster competition, "better
regional coordination in areas such as maintenance of trans-
mission and generation systems and transmission planning
and operation" was required. Id. Although, in the wake of
Orders 888 and 889, some members of the industry attempted
to form various regional entities, the results were "haphaz-
ard" and "inconsistent"; while some succeeded, others failed,
and "much of the country's transmission facilities remain[ed]
outside of an operational regional transmission institution."
Id. at 31,395.
In Order 2000, the Commission identified two categories of
remaining barriers to a competitive wholesale electric market
envisioned in Orders 888 and 889: (1) engineering and eco-
nomic inefficiencies in the current transmission grid; and (2)
lingering opportunities for transmission owners to discrimi-
nate to favor their own activities. The Commission issued
Order 2000 to advance the formation of RTOs in response to
these two concerns, indicating that RTOs will remedy "eco-
nomic and engineering inefficiencies and the continuing op-
portunity for undue discrimination." Order 2000, p 31,089 at
31,017. According to the Commission, RTOs could: "(1)
improve efficiencies in transmission grid management; (2)
impose grid reliability; (3) remove remaining opportunities
for discriminatory transmission practices; (4) improve market
performance; and (5) facilitate lighter handed regulation."
Id. at 30,933.
The final rule, as contained in Order 2000 and clarified by
Order 2000-A, specifies both the minimum characteristics and
functions that a regional entity must satisfy in order to be
considered an RTO under the rule. See 18 C.F.R.
ss 35.34(j), (k); see also id. s 35.34(l). The final rule, howev-
er, adopts a flexible approach to the structuring of RTOs,
allowing an RTO to take the form of an ISO, transco, a
combination of the two, or some other form as long as it
meets the minimum function and characteristic requirements
set forth in the rule.3 See id. s 35.34(b)(1). Five of the
minimum requirements of an RTO are relevant to this appeal.
First, among the minimum characteristics of an RTO, the rule
specifies that RTOs must have independence from market
participants. See id. s 35.34(j)(1). As one means of ensuring
__________
3 "Transcos," short for transmission companies, both own and
operate transmission facilities for profit. "Independent system
operators" (ISOs), in contrast, are non-profit organizations that
operate the transmission facilities that others own. Thus, unlike
ISOs, transcos do not separate the ownership from the operation of
the facilities.
such independence, although the rule allows transmission
owners to "retain the authority under section 205 of the
Federal Power Act [("FPA" or "Act"] (16 U.S.C. [s] 824d) to
seek recovery from the [RTO] of the revenue requirements
associated with the transmission facilities that they own," the
rule requires that RTOs have "exclusive and independent
authority under [s 205 of the Act] to propose rates, terms
and conditions of transmission service provided over the
facilities it operates." Id. s 35.34(j)(1)(iii) & note. Second,
as another means of ensuring independence, the final rule
provides that the "[RTO], its employees, and any non-
stakeholder directors must not have financial interests in any
market participant." Id. s 35.34(j)(1)(i). The rule does not,
however, prohibit passive ownership, but rather allows the
Commission to review passive ownership proposals on a case-
by-case basis. Third, among the minimum characteristics of
an RTO, the rule prescribes the regional scope of RTOs, see
id. s 35.34(j)(2), but leaves specific regional cost-benefit anal-
yses to be conducted on a case-by-case basis. Fourth, among
the minimum functions of an RTO, the rule specifies that the
RTO must have planning and expansion authority, see id.
s 35.34(k)(7). Fifth, the rule creates an "open architecture"
policy, which requires all RTO proposals to allow the RTO the
flexibility to improve its structure and operations to meet
demands. See id. s 35.34(l).
In order to encourage RTO participation and formation, the
final rule requires every public utility, as defined by s 201 of
the FPA, 16 U.S.C. s 824(e), that owns, operates or controls
facilities for the transmission of electric energy in interstate
commerce to make certain filings with respect to their partic-
ipation in an RTO, see 18 C.F.R. s 35.34(a), and establishes a
collaborative process to facilitate the voluntary development
of RTOs. See Order 2000, p 31,089 at 30,991, 30,994. All
public utilities not currently in an ISO must file with the
Commission either a proposal to participate in an RTO or an
"alternative filing" by October 15, 2000. 18 C.F.R. s 35.34(c).
A public utility that is currently a member of an ISO must file
with the Commission by January 15, 2001, a statement that it
is participating in an approved ISO and an explanation of the
extent to which the ISO has the characteristics and functions
of an RTO; to the extent the ISO does not conform to the
requirements of an RTO, the ISO member must provide a
proposal to participate in an RTO, a proposal to modify the
ISO to conform to the requirements of an RTO, or an
"alternative filing." Id. s 35.34(h). For all public utilities,
the "alternative filing" must describe any efforts made to
participate in an RTO, a detailed explanation of why the
utility has not made a filing to participate in an RTO, and the
"specific plans, if any, the public utility has for further work
toward participation" in an RTO. Id. s 35.34(g) (emphasis
added).
II.
The Jurisdictional Utilities do not challenge the Commis-
sion's overarching objective to encourage participation in and
formation of RTOs. Indeed, they hardly could, for in the
Federal Power Act Congress has directed the Commission
both "to divide the country into regional districts for the
voluntary interconnection and coordination of facilities for the
generation, transmission, and sale of electric energy" and "to
promote and encourage such interconnection and coordination
within each such district and between such districts." FPA
s 202(a), 16 U.S.C. s 824a(a). Instead, the Utilities challenge
certain aspects of the minimum requirements and functions of
RTOs set forth in Order 2000. Specifically, they contend
that: (1) the Commission lacked the statutory authority to
mandate a division of rate filing responsibilities in which
transmission owners must involuntarily cede their alleged
statutory right to file rates; (2) the Order's division of rate
filing responsibilities is arbitrary and capricious both because
the division was unjustified and because it would hinder the
transmission owners' ability to recover their costs; (3) Order
2000 improperly limited transmission owners' right to con-
tract to make unilateral rate modifications; (4) the Order's
open architecture requirement is arbitrary and capricious;
and (5) the Order's transmission expansion requirement im-
permissibly abdicated the Commission's authority to approve
interconnections and expansions. The Commission responds
that none of these contentions are properly before the court
because (1) the Utilities are not aggrieved by Order 2000 as is
required to seek review under s 313(b) of the Act, 16 U.S.C.
s 825l(b), and (2) the issues presented on appeal are not ripe.
Because we conclude that the Utilities lack standing because
they have suffered no injury in fact, we need not reach
whether the Utilities' claims are also unripe. City of Orville
v. FERC, 147 F.3d 979, 987 n.10 (D.C. Cir. 1998).
Section 313(b) of the Act, pursuant to which the Utilities
seek judicial review of Order 2000, provides that a party must
be aggrieved by the Commission's order. See 16 U.S.C.
s 825l(b). A party is aggrieved within the meaning of
s 313(b) if it can establish both the constitutional and pruden-
tial requirements for standing. See La. Energy & Power
Auth. v. FERC, 141 F.3d 364, 367 (D.C. Cir. 1998). In Lujan
v. Defenders of Wildlife, 504 U.S. 555 (1992), the Supreme
Court set forth the familiar three requirements for constitu-
tional standing: (1) "the plaintiff must have suffered an
'injury in fact'--an invasion of a legally protected interest
which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical"; (2) "there must
be a causal connection between the injury and the conduct
complained of"; and (3) "it must be likely, as opposed to
merely speculative, that the injury will be redressed by a
favorable decision." Id. at 560 (citations omitted) (internal
quotation marks omitted).
The validity of the Commission's jurisdictional argument
turns on whether Order 2000 requires the Utilities to partici-
pate in an RTO, or rather merely encourages them to join or
form an RTO voluntarily. If Order 2000 mandates RTO
participation, the Utilities will suffer the immediate and con-
crete injury of involuntarily having to cede their claimed
statutory rights and being subject to allegedly arbitrary and
capricious agency action. Thus, mandated participation in an
RTO gives the Utilities the unpleasant choice between Scylla
and Charybdis--either participate in an RTO and lose their
claimed statutory rights pursuant to the allegedly unlawful
authority of the Commission or face sanctions. By contrast,
if Order 2000 is voluntary as to RTO participation, the
Utilities need not participate in an RTO at all, and even if
they choose to participate in an RTO, they will not be
involuntarily ceding any claimed statutory rights, but rather
voluntarily waiving them. Accordingly, we first examine
whether Order 2000 is voluntary.
A.
The Jurisdictional Utilities base their challenges to Order
2000 on the premise that it is not voluntary. In their main
brief, they set forth three bases for their contention that the
Commission "cannot evade all responsibility for its actions by
declaring its entire program 'voluntary.' " First, they main-
tain that those transmission owners that joined ISOs before
the issuance of Order 2000 have no practical choice but to
participate in an RTO because they cannot alter their existing
ISO structure without the Commission finding that withdraw-
al is in the public interest and, in Order 2000, according to the
Utilities, the Commission found that the public interest re-
quires participation in RTOs. For other transmission own-
ers, they contend, "it is hard to see either Order No. 2000 or
its deprivation of section 205 rights as voluntary" because the
Commission "has required every public utility either to file an
RTO proposal or justify why it has not done so." Finally,
they maintain the Commission's "concept of 'voluntariness' is
but a mirage," inasmuch as the Commission in Order 2000
noted its authority to require membership in an RTO as a
condition for approving mergers and other corporate restruc-
turings, and to make grants of authority to charge market-
based rates contingent on RTO membership. The Utilities
rely on colorful language in Associated Gas Distributors v.
FERC, 824 F.2d 981 (D.C. Cir. 1987), in which the court
declined to treat as voluntary the provision of Order No. 436
that required those gas pipelines that opted to secure a
"blanket certificate" for the provision of gas transportation to
make an "open-access" commitment. The court reasoned
that refusal to provide blanket-certificate transportation could
spell bankruptcy and opting not to could be fatal. Id. at 1024.
The court observed that "when a condemned man is given the
choice between the noose and the firing squad, we do not
ordinarily say that he has 'voluntarily' chosen to be hanged."
Id.
There are two main difficulties with the Utilities' premise
that Order 2000 mandates RTO formation and participation.
First, the text and preambles of the final rule do not support
their contention. Second, notwithstanding the text, the Utili-
ties fail to offer anything to support their contention that for
practical purposes RTO participation is not voluntary.
Order 2000, by its own terms, does not mandate RTO
participation. See 18 C.F.R. ss 35.34(c), (g), (h). It requires
all public utilities (whether they are members of an ISO or
not) to file either a proposal to participate in an RTO or an
alternative filing. See id. ss 35.34(c), (h). The alternative
filing need only describe efforts made to participate in an
RTO, an explanation of obstacles to participating in an RTO,
and the specific plans, if any, that the public utility has to
participate in an RTO in the future. See id. s 35.34(g). The
voluntariness of Order 2000 thus lies in the existence of the
alternative filing, which enables any public utility to opt not to
participate in an RTO. Therefore, although the filing re-
quirements are mandatory, participation in an RTO is not.
The preambles confirm that Order 2000 neither was intend-
ed to mandate nor does mandate RTO participation. In the
preamble to Order 2000, the Commission repeatedly stated
that it was implementing a "voluntary approach to RTO
formation" and that only the filing requirement is mandatory.
See Order 2000, p 31,089 at 31,034. Indeed, the Commission
expressly noted the view that its RTO proposal cannot really
be said to be voluntary because nonparticipation in an RTO
will result in negative consequences for nonparticipants, and
replied that it was "not adopting as a generic policy in this
Final Rule ... that RTO participation is required." Id.
Notwithstanding skepticism by many commentators that a
voluntary approach would accomplish the Commission's goals,
the Commission stuck to its guns and concluded that although
"it is clear that RTOs are needed to resolve impediments to
fully competitive markets," "we continue to believe, as we
proposed in the NOPR, that at this time we should pursue a
voluntary approach to participation in RTOs." Id. at 31,033.
The Commission explained:
[A] voluntary approach as we have structured it, with
guidance and encouragement from the Commission, is
most appropriate at this time. Given the rapidly evolv-
ing state of the electric industry, we want to allow
involved participants the flexibility to develop mutually
agreeable regional arrangements with respect to RTO
formation and coordination.
Id. In what proved to be a dashed hope, the Commission
continued, "[f]urther, we want the industry to focus its efforts
on the potential benefits of RTO formation and how best to
achieve them, rather than on a non-productive challenge to
our legal authority to mandate RTO participation." Id.
The preamble to Order 2000-A underscores the Commis-
sion's already explicit meaning of Order 2000, stating that
"the Commission adopted as a matter of policy a voluntary
approach to RTO formation" and that "Order No. 2000 does
not mandate RTO participation." Order 2000-A, p 31,092 at
31,357. Both preambles also distinguished the Commission's
authority to voluntarily encourage RTO participation, pursu-
ant to s 202(a) of the Act, from the Commission's authority to
mandate RTO participation on a case-by-case basis to remedy
undue discrimination or anti-competitive effects pursuant to
ss 206 and 309 of the Act. See Order 2000, p 31,089 at
31,043; Order 2000-A, p 31,092 at 31,360.
Nevertheless, the Utilities would have this court read "be-
tween the lines" of Order 2000, contending that the Order is
involuntary in effect because of the remedial actions that the
Commission might take against those utilities that fail to
participate in an RTO. According to the Utilities, Order
2000 has the practical effect of mandating RTO participation
both because current members of an ISO have no choice but
to participate in an RTO because they cannot exit their
existing ISO structure as the Commission found that the
public interest requires participation in an RTO, and because
the Commission has the authority to condition the approval
of mergers and market-based rates on RTO participation.
The Utilities' characterization of Order 2000 directly contra-
dicts its text and effects and, hence, does not change the
Order's voluntary nature.
As an initial matter, the text of Order 2000 does not
support the Utilities' contentions. The Commission made
neither a generic finding that RTO participation is required
for a disposition of jurisdictional facilities to be in the public
interest, nor a generic finding that would enable it to condi-
tion the approval of all future mergers and market-based
rates on participation in an RTO. To the contrary, the
preamble to Order 2000 explicitly stated otherwise:
We are not adopting as a generic policy in this Final
Rule either that RTO participation is required in order to
retain or obtain market-based rate authorization for
wholesale power sales, or that RTO participation is re-
quired for a disposition of jurisdictional facilities to be in
the public interest.
Order 2000, p 31,089 at 31,034; accord id. at 31,044-45. The
preamble to Order 2000-A confirms this:
In response to those who argue that the Commission
should state generically that all market-based rates and
mergers must be conditioned on RTO participation, we
continue to believe that this is best addressed on a case-
by-case basis. We see no need to decide at this time that
no merger or market-based rate proposal could satisfy
our applicable standards without RTO participation.
There will be sufficient opportunity to consider this in
the context of individual cases.
Order 2000-A, p 31,092 at 31,358. Because neither of the
preambles made these generic findings, the Utilities should
be no more fearful of these future individual actions after the
issuance of the final rule than they were before its issuance.
Although the Commission implicitly stated in Order 2000
that it might be more inclined to allow affiliated sellers to
charge market-based rates if the transmission affiliate be-
longed to an RTO and that it would also more readily approve
mergers and acquisitions in that circumstance, this does not
change the current state of the law: the Commission ap-
proves market-based rates only if the seller and its affiliates
either do not have or have adequately mitigated market
power. See La. Energy & Power Auth., 141 F.3d at 365;
Cajun Elec. Power Coop. v. FERC, 28 F.3d 173, 176 (D.C.
Cir. 1994). The fact that an RTO member may more readily
satisfy the applicable standards for market-based rates or
merger approvals has no bearing on whether other entities
satisfy the standards as well.
It is conceivable that Order 2000's provisions on RTOs are,
in effect, mandatory if Order 2000 will result in participation
in RTOs because of the benefits of joining or forming an RTO
(and, in the same vein, the resulting costs of not doing so), see
Associated Gas Distribs., 824 F.2d at 1024, but the Utilities
have come forward with no evidence to support this conclu-
sion. Absent such a showing, the court has no reason not to
take the Commission at its word that Order 2000 is voluntary.
Cf. N. Ind. Pub. Serv. Co. v. FERC, 954 F.2d 736, 740 (D.C.
Cir. 1992) ("NIPSCO").
Furthermore, the Utilities' conception of Order 2000 as
mandating RTO participation makes no mention of the alter-
native filing option that allows any public utility--whether it
is a member of an ISO or not--to decline to participate in an
RTO without penalty (beyond those that are available to the
Commission under the Federal Power Act regardless of the
final rule). See 18 C.F.R. ss 35.34(c)(2), (h)(3)(iii). The
Utilities respond that they do not want to file an alternative
filing because they want to participate in an RTO, and hence
they urge the court to construe Order 2000 to mandate RTO
participation because it sets forth mandatory requirements
for the minimum characteristics and functions of an RTO. In
this regard, the Utilities point to several recent orders of the
Commission in which it declined to recognize an entity in its
entirety as an RTO because it did not meet the minimum
requirements specified in Order 2000. See N.Y. Indep. Sys.
Operator, 96 F.E.R.C. p 61,059 at 61,187 (July 12, 2001);
PJM Interconnection, L.L.C., 96 F.E.R.C. p 61,061 at 61,243-
44 (July 12, 2001). In essence, however, the Utilities do not
want to participate in an "RTO" as the Commission has
envisioned it in Order 2000. Rather, they want to form some
different entity, presumably to gain some of the advantages
that the Commission has identified in Order 2000, but neither
formation of nor participation in this entity appears to be
precluded by Order 2000 itself, as the alternative filing provi-
sion, 18 C.F.R. s 35.34(g), makes clear.
For these reasons, we conclude that the language of Order
2000 is sufficient to establish that RTO participation is volun-
tary.
B.
Returning to consideration of the Commission's position
that the court lacks jurisdiction to review the Utilities' chal-
lenges to Order 2000, we conclude that the Utilities have
failed to show that they have suffered an injury in fact as a
result of the final rule.
The Utilities set forth a variety of ways in which Order
2000 injures them, including that, upon joining or forming an
RTO, (1) they are deprived of their claimed statutory right to
file with the Commission rate changes for services to custom-
ers, (2) they risk losing their investments in transmission
assets because of the Order's division of rate filing responsi-
bilities, (3) they lose the alleged right to contract directly with
current and potential customers, (4) they lose management
control as to the operation of their assets, and (5) the rates
they are paid for transmission services will decline. All of
these injuries only come to pass, however, if a public utility
opts to participate in an RTO; Order 2000 does not mandate
this. Rather, Order 2000 only mandates a filing requirement,
which allows any public utility to make an alternative filing.
None of the Utilities' claimed injuries will occur if they opt to
make an alternative filing and do not participate in an RTO.
To the extent the Utilities may want to participate in an
"RTO-like" organization with different rate filing divisions,
nothing in Order 2000 prevents them from doing so; public
utilities can avoid being locked into an RTO by submitting an
alternative filing. Because none of the Utilities' injuries will
come to fruition if they opt to make an alternative filing, their
stated injuries are non-existent or at least highly speculative;
thus, they are inadequate to give rise to an injury in fact.
See N.C. Utils. Comm'n v. FERC, 653 F.2d 655, 664 (D.C.
Cir. 1981).
Noticeably absent from the Utilities' alleged injuries is a
harm that stems from the mandatory requirement of Order
2000--the filing requirement itself. They neither challenge
the filing requirement nor contend that they are harmed by
it. Thus, they have set forth no injury in fact that they suffer
from Order 2000, and hence they are not aggrieved as
required under s 313(b) of the Act.
Accordingly, in view of our conclusion that Order 2000 does
not mandate RTO participation, the court lacks jurisdiction to
address the Utilities' challenges to the final rule.
III.
Petitioner Public Utility District No. 1 of Snohomish Coun-
ty, Washington ("Snohomish") seeks review of the Commis-
sion's assessment that RTOs will be cost-effective. Snoho-
mish also contends that the Commission's failure to require
those filing RTO proposals to demonstrate the cost-
effectiveness of the proposed RTO is both irrational and
contrary to law. Because Snohomish has not suffered an
injury as a result of Order 2000, and because the Commission
agrees that it must consider cost-benefits when evaluating
RTO proposals, we dismiss the petition for review.
Snohomish argues that, in requiring all public utilities to
file RTO proposals, the Commission failed to appreciate the
unique circumstances in the Pacific Northwest, where 75
percent of the transmission power lines are owned and oper-
ated by the Bonneville Power Administration. Because of
Bonneville's dominant position, the negative effects from the
"balkanization" of service providers, effects that prompted the
Commission to promulgate Order 2000, are allegedly not
present in Snohomish's region. If there is no balkanization,
Snohomish's argument continues, then there is no reason to
impose the costs of RTO formation on consumers in the
Pacific Northwest. Snohomish contends that forming an
RTO in the Pacific Northwest is not in the public interest
because the costs of formation will outweigh any benefits in
service and efficiency. Snohomish bases this argument large-
ly on its prediction of negative economic consequences for
Bonneville (and its bondholders) if Bonneville is forced to
relinquish control of transmission assets to an RTO. Snoho-
mish also postulates that the Commission has overemphasized
the benefits a Pacific Northwest RTO will provide. The
Commission disagreed with Snohomish's assessment and de-
nied its request for rehearing of Order 2000.
The Commission questions our jurisdiction to hear Snoho-
mish's petition on the ground that Snohomish is not "ag-
grieved" within the meaning of s 313(b). 16 U.S.C. s 825l(b).
As the Commission sees it, Order 2000 does not require
Snohomish, which is not a "public utility" subject to the
Order, to do anything. The Commission also views Snoho-
mish's claims as unripe. If we reach the merits, the Commis-
sion urges us to rule in its favor on the ground that substan-
tial evidence of the nationwide savings of RTO formation
supports its Order.
Snohomish's complaints are both specific and general.
With respect to the specific issue of RTO formation in the
Pacific Northwest, Snohomish offered data to prove that this
would be more costly than any resulting benefit. Snohomish
complains that the Commission did not adequately consider
this data. Snohomish also presented a general argument--
any RTO applicant must demonstrate cost-effectiveness be-
fore the Commission approves the application; Order 2000
does not provide this safeguard; therefore, the Order violates
the Federal Power Act because it does not ensure that the
Commission will approve only RTOs that are in the public
interest, as ss 203 and 205 of the FPA require. Id. ss 824b,
824d.
Order 2000 is but a preliminary step. It encourages volun-
tary RTO formation. See Part II, supra. If Snohomish's
general argument stood alone we would dismiss its petition
for lack of "aggrievement." Order 2000 does not provide for
Commission approval of any RTOs; it requires only that
public utilities file proposals or explain why they are not
doing so. Snohomish does not argue that it would suffer any
actual injury if the Commission approved an inefficient RTO
in, for example, New Jersey. Snohomish is connected to an
entirely separate regional power grid. See City of Orrville,
147 F.3d at 979.
Snohomish's more specific complaint is a different matter.
There are currently pending before the Commission proceed-
ings on an application for an RTO in the Pacific Northwest.
In Avista Corp., 95 F.E.R.C. p 61,114 (Apr. 26, 2001), reh'g
granted in part and clarified in part, 96 F.E.R.C. p 61,058
(July 12, 2001), decided after Order 2000 issued, RTO filers in
the Pacific Northwest (including Bonneville) sought a declara-
tory order from the Commission providing "preliminary
guidance with respect to Governance, Scope and Configura-
tion, and Liability of" the proposed RTO ("RTO West").4 Id.
at 61,324 (emphasis added). Snohomish intervened in the
proceeding, reiterating the general challenge it sought to
raise in the rulemaking--namely, that no RTO proposal may
be approved unless the applicants have demonstrated that its
benefits will outweigh its costs. The Commission responded as
follows:
In Order No. 2000, the Commission found that the
benefits of RTO formation overall outweigh the costs, but
it did not require individual cost benefit analyses in
compliance filings. We will not reverse that determina-
tion here.
Id. (footnote omitted).
Snohomish takes this to mean that it is barred from
submitting its cost-benefit analysis in the proceeding. That is
a misreading of the passage. The Commission was simply
reiterating its rejection of Snohomish's general argument. It
was not, as Snohomish thinks, stating that it would refuse to
consider cost-benefit analyses in determining whether to ap-
__________
4 The plan is to merge two RTO filings, RTO West and Transcon-
nect, into one joint proposed RTO, retaining the name RTO West.
See Avista, 95 F.E.R.C. p 61,114 at 61,322.
prove an RTO for the Pacific Northwest. Far from it. As
Commission counsel explained at oral argument, the Commis-
sion must--in order to comply with the Federal Power Act
and the Administrative Procedure Act, see 16 U.S.C. ss 824b,
824d; 5 U.S.C. s 706; see also Office of Consumers Council
v. FERC, 783 F.2d 206, 227 (D.C. Cir. 1986)--adequately
address Snohomish's specific cost-benefit evidence (if Snoho-
mish presents it) prior to the Commission's final decision on
the RTO proposal for the Pacific Northwest. RTO West is
itself undertaking its own cost-benefit analysis of the propos-
al. See Avista, 95 F.E.R.C. p 61,114 at 61,324 n.6.
The short of the matter is that in the site-specific proceed-
ing, Snohomish may accomplish all it set out to accomplish in
the rulemaking. Snohomish cannot point to any particular
hardship it will suffer from having to wait to make its case in
that forum. See Abbott Labs. v. Gardner, 387 U.S. 136, 149
(1967); Toilet Goods Ass'n v. Gardner, 387 U.S. 158, 164-65
(1967). And there is no reason why the Commission should
have passed judgment on Snohomish's evidence in its general
rulemaking proceeding.5 See NIPSCO, 954 F.2d 736 at 738.
IV.
The objection of petitioner South Carolina Public Service
Authority ("Authority") is that Order 2000 allows for up to
100 percent passive ownership of an RTO by market partici-
pants, in contravention of the Order's avowed "independence
principle." This supposedly makes the Commission's reason-
ing arbitrary and capricious, and its decision to permit pas-
sive ownership unsupported by substantial evidence. The
Commission contends that we should not entertain the Au-
thority's challenge at this stage of RTO development.
__________
5 Whether all of this amounts to mootness, or ripeness, or lack of
aggrievement on Snohomish's part is not of great concern for "the
critical issue is apt to be less a matter of standing or of actual
controversy than of the advisability of reviewing an administrative
rule prior to its application in a specific factual situation." Toilet
Goods Ass'n v. Gardner, 360 F.2d 677, 684 (2d Cir. 1966) (Friendly,
J.), aff'd, 387 U.S. 158 (1967).
The Authority wholeheartedly supports RTO formation and
applauds the Commission for tackling the difficult task of
reforming the electricity transmission field. But the Authori-
ty believes that the Commission has set its Order up for
failure by not prohibiting outright the passive ownership of
RTOs by market participants. According to the Authority, if
market participants are allowed to own as much as 100
percent of an RTO, then discriminatory rates and inefficient
resource allocation will continue because the RTO will not be
"independent" from the market participants even if they are
merely passive owners.
The Commission justifies permitting passive ownership on
the basis of comments received from market participants
indicating that adverse tax consequences may prevent public
utilities from forming a type of RTO known as a "transco."
In a transco, the RTO owns and operates electricity transmis-
sion services for a profit. Because RTOs must be indepen-
dent from market participant control, their voluntary forma-
tion may be impeded by the adverse tax (and other economic)
consequences facing a public utility wanting to sell transmis-
sion facilities to an RTO. The Commission asserts that
permitting passive ownership--provided that procedural and
substantive safeguards exist to ensure that public utilities do
not effectively control an RTO's s 205 rate filings or grid
distribution functions--facilitates the formation of RTOs.
The Authority does not think that the Commission's reliance
on safeguards such as audits every three years, see 18 C.F.R.
ss 35.34(j)(1)(iv)(A) & (B), rationally reflects its commitment
to encourage the formation of RTOs which are independent of
public utility control.
The Authority would be "aggrieved" within the meaning of
s 313(b), see La. Energy & Power Auth., 141 F.3d at 366,
only if its assumption about passive ownership--that market
participants will dominate RTOs despite having no formal
control authority--is a correct prediction. Yet the Order
calls only for RTO proposals. The Authority could suffer
injury only if passive ownership occurs in an RTO operating
in its region. It is difficult to see how the Authority is now
"aggrieved" by Order 2000. See City of Orrville, 147 F.3d at
985. We would therefore be inclined to dismiss its petition on
ripeness grounds. This would still allow the relationship
between passive ownership and RTO independence to be
evaluated with respect to a specific RTO proposal encompass-
ing the Authority's region. See NIPSCO, 954 F.2d at 737-38.
The Authority points out that an RTO proposal--the Grid-
South proposal--covering its region was filed, that the Au-
thority challenged it on the passive ownership ground, and
that the Commission ruled that this was "an impermissible
collateral attack on ... Order No. 2000." Carolina Power &
Light Co., 95 F.E.R.C. p 61,282 at 61,988 (May 30, 2001). The
Authority treats the Commission's ruling as deciding that it
cannot oppose passive ownership even when it may be affect-
ed directly by an RTO in that form. That is a misreading of
the Commission's decision. The Commission did not fore-
close the Authority from raising the specific claim that Grid-
South (or any RTO in the Authority's region) could injure
consumers in South Carolina because of impermissible pas-
sive owner dominance. The Commission simply rejected the
Authority's "generic" argument that permitting passive own-
ership is per se unacceptable. In doing so, the Commission
made clear that the Authority had not challenged the "de-
tailed findings" the Commission made concerning the effec-
tiveness of safeguards to ensure that passive ownership of
GridSouth is truly passive. Id. at 61,988-89.
In any event, what the Authority actually contests is the
Commission's failure to promulgate a rule prohibiting passive
ownership of RTOs. If the Authority had its way, there
would be a paragraph in Order 2000 stating that "100 percent
passive ownership of an RTO by market participants is
prohibited." Instead of addressing passive ownership by
rulemaking, the Commission decided to adjudicate the issue
in the context of specific RTO proposals (for example, Grid-
South). This selection of adjudication over rulemaking is well
within the Commission's discretion. See NLRB v. Bell Aero-
space Co., 416 U.S. 267, 294 (1974); see also SEC v. Chenery
Corp., 332 U.S. 194, 203 (1947); City of Orrville, 147 F.3d at
988 n.11. Because the possibility of passive ownership, by
itself, causes the Authority no injury, and because case-by-
case adjudications present a better forum in which to chal-
lenge the effectiveness of passive ownership safeguards, the
petition for review is dismissed.
* * * *
For the foregoing reasons, the petitions for review of the
Jurisdictional Utilities, Public Utility District No. 1 of Snoho-
mish County, Washington, and the South Carolina Public
Service Authority are dismissed.