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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 15, 2004 Decided July 30, 2004
No. 03-1027
ENTERGY SERVICES, INC.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
AQUILA MERCHANT SERVICES, INC. AND
LOUISIANA PUBLIC SERVICE COMMISSION,
INTERVENORS
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
John S. Moot argued the cause for petitioner. With him on
the briefs was William S. Scherman.
Beth G. Pacella, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
were Cynthia A. Marlette, General Counsel, Dennis Lane,
Solicitor, and David H. Coffman, Attorney.
Before: SENTELLE, ROGERS and GARLAND, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: Entergy Services, Inc. (‘‘Enter-
gy’’ or ‘‘petitioner’’), an electricity utility system owning and
operating both transmission facilities and generation re-
sources, petitions for review of a Federal Energy Regulatory
Commission (‘‘FERC’’ or ‘‘the Commission’’) order finding
that Entergy had unreasonably discriminated against compet-
itors by keeping transmission capacity off the market in
violation of FERC Order No. 888. Entergy contends that the
order is arbitrary and capricious. For the reasons more fully
set forth below, we deny the petition and uphold FERC’s
order.
I. Background
1. Regulatory Background
The Federal Power Act (‘‘FPA’’ or ‘‘Act’’) grants FERC
jurisdiction over the sale or resale and the transmission of
electric energy in interstate commerce. See generally FPA
§§ 201(b), 205 and 206, 16 U.S.C. §§ 824(b), 824d and 824e.
In 1996, FERC acted upon evidence of pervasive discrimina-
tion in the transmission of electric power by completing a
massive regulatory revision, culminating in Order No. 888.
Promoting Wholesale Competition Through Open Access
Nondiscriminatory Transmission Services by Public Utili-
ties; Recovery of Stranded Costs by Public Utilities and
Transmitting Utilities, Order No. 888, FERC Stats. & Regs.
¶ 31,036 (1996), 61 Fed. Reg. 21,540 (‘‘Order No. 888’’), on
reh’g, Order No. 888–A, FERC Stats. & Regs. ¶ 31,048, 62
Fed. Reg. 64,688 (1997), on reh’g, Order No. 888–B, 81 FERC
¶ 61,248 (1997), on reh’g, Order No. 888–C, 82 FERC ¶ 61,046
(1998), aff’d, Transmission Access Policy Study Group v.
FERC, 225 F.3d 667 (D.C. Cir. 2000) (‘‘TAPS’’), aff’d sub
nom., New York v. FERC, 535 U.S. 1 (2002). Specifically,
FERC concluded that public utilities that owned, controlled,
3
or operated facilities for transmitting electric energy in inter-
state commerce (‘‘transmission providers’’) were using their
control over such facilities to favor their own sales to the
detriment of competing sellers and consumers. Id. ¶ ¶ 31,682,
31,919–26; Order No. 888–A at 30,210. Invoking its authority
under FPA §§ 205 and 206, FERC imposed three require-
ments relevant to the present petition to remedy that dis-
crimination. First, the Commission required transmission
providers to make available open access transmission, i.e., to
offer transmission services to all eligible parties on a nondis-
criminatory basis. Order No. 888, ¶ 31,635. See 18 C.F.R.
§ 35.28(c)(1). Second, the Commission required providers to
unbundle their wholesale services, i.e., to offer separate sales,
transmission, and ‘‘ancillary’’ services. See New York v.
FERC, 535 U.S. 1 at 11 (2002). Third, the order required
providers to take transmission service to serve their own
wholesale customers (wholesale ‘‘load’’) and unbundled retail
load on the same terms offered other transmission customers.
See 18 C.F.R. § 35.28(c)(2).
The Commission implemented the new regulatory scheme,
in part, by promulgating a pro forma Open Access Transmis-
sion Tariff (‘‘OATT’’) that includes the minimum terms and
conditions under which transmission providers may offer
service. See Order No. 888–A at 30,503–43 (containing the
final OATT); 18 C.F.R. § 35.28(c)(1) (requiring all transmis-
sion providers to have on file a tariff equivalent to the OATT
‘‘or such other open access tariff as may be approved by the
Commission consistent with Order No. 888’’). Previously,
transmission providers had provided two main services: ‘‘un-
bundled’’ transmission, in which they delivered electric power
purchased by a transmission customer from a specified origi-
nation point to a specified destination at a specified transmis-
sion rate; and ‘‘bundled’’ sales, in which they delivered and
sold electric power to the customer at a single rate that
encompassed both the transmission and power costs. The
OATT replaces the first of these services with ‘‘point-to-
point’’ service, and partially replaces the second with ‘‘net-
work integration service.’’
4
The point-to-point transmission service, addressed in Part
II of the OATT, is transmission service from a specified point
of receipt to a specified point of delivery. See Order No. 888–
A, ¶ 30,510 § 1.35. Point-to-point service can be ‘‘firm,’’ not
subject to a prior claim, or ‘‘non-firm,’’ subject to interruption.
Id. ¶ 30,509 § 1.27. ‘‘Network integration transmission ser-
vice,’’ addressed in Part III of the OATT, is a flexible service,
which allows the transmission provider to service a network
customer’s load by using multiple receipt and delivery points.
All network transmission service is firm. A ‘‘network cus-
tomer’’ is an entity receiving network integration transmis-
sion service. Id. ¶ 30,509 § 1.20.
A transmission provider that uses transmission facilities to
serve its own wholesale and/or unbundled retail load must
take transmission service for such loads under its OATT. 18
C.F.R. § 35.28(c)(2). However, transmission providers need
not take transmission service under the OATT to serve their
bundled retail load. See Order No. 888–A ¶ 30,217 (to the
extent that ‘‘the transmission of purchased power to the
bundled retail customers TTT takes place over [the] transmis-
sion provider’s facilities,’’ the OATT does not have to be used
for ‘‘such transmission’’) (footnote omitted).
Order No. 888 requires that ‘‘network service customers
receive service comparable to the services’’ provided to the
provider’s historical customers. The Preamble to Part III of
the OATT requires that a transmission provider offer its
network transmission service in a manner that allows the
‘‘network customer’’ to serve its ‘‘network load’’ in a manner
‘‘comparable to that in which the Transmission Provider
utilizes its Transmission System to serve its Native Load
Customers.’’ Order No. 888–A ¶ 30,529–30. See also id.
¶ 30,536 § 33.2 (providing that during periods of transmission
constraints, the transmission provider may not ‘‘redispatch’’
power in a manner that unduly discriminates between its ‘‘use
of the Transmission System on behalf of its Native load
Customers and any Network Customer’s use of the Transmis-
sion System to serve its designated Network Load’’).
5
Order No. 888 expressed the concern that ‘‘a transmission
customer’’ might have an incentive to ‘‘reserve certain capaci-
ty simply to prevent everyone else from using it[.]’’ Order
No. 888 at 31,693. The Commission addressed this concern
in two ways. First, it required a network transmission
customer, as a prerequisite to obtaining network transmission
service, to designate those ‘‘network resources’’ that would
generate the power to be transmitted over the reserved
capacity. Order No. 888–A at 30,531–32 § 29.2(v). Second,
this concern was addressed by allowing the customer to
designate only generation that it owned or had signed a
contract to purchase. Id. ¶ 30,533 § 30.7. This ‘‘designation
requirement’’ helped assure that the ‘‘transmission customer’’
and the ‘‘transmission provider’’ would have ‘‘an incentive not
to oversubscribe’’ to capacity requirements, because the costs
of these ‘‘excessive margin requirements [would] be prohibi-
tive.’’ Order No. 888 ¶ 31,754.
FERC’s concerns regarding the tying up of capacity led it
to examine transmission providers’ reservation of capacity to
serve bundled retail load. While deciding not to require
transmission providers to take transmission service for their
bundled retail sales under the OATT, the Commission recog-
nized that the providers’ reservation of capacity for such
service would have a direct impact on the capacity available to
other customers taking firm transmission service under the
OATT. Order No. 888 at 31,745.
To assure that transmission providers did not reserve more
capacity than was needed to serve bundled retail load, FERC
allowed transmission providers to reserve only such capacity
as was needed to serve existing native load demand, or that
would be needed to serve reasonably forecasted native load
growth. Order No. 888 at 31,745. In addition, transmission
providers had to make the latter capacity available to other
shippers until it was actually needed to meet native load
requirements. Id.
Specifically, OATT § 28.2 requires that transmission pro-
viders seeking to reserve capacity to serve their native load
customers designate network resources. The provision states:
6
The Transmission Provider, on behalf of its Native Load
Customers, shall be required to designate resources and
loads in the same manner as any Network Customer
under Part III of this Tariff.
Id. ¶ 30,530 § 28.2.
2. Administrative Proceedings
Entergy is an integrated energy company engaged primari-
ly in electric power production, retail distribution operations,
energy marketing and trading, and gas transportation. Enter-
gy owns and operates power plants with about 30,000 mega-
watts (‘‘MW’’) of electric generating capacity, delivering elec-
tricity to 2.6 million utility customers in Arkansas, Louisiana,
Mississippi, and Texas. On March 30, 1998, one of Entergy’s
wholesale customers—Aquila Power Corporation (‘‘Aquila’’)—
filed a complaint, amended on June 23, 1998, against Entergy,
charging that Entergy had reserved 2,000 MW of firm capaci-
ty at separate interconnections with four different transmis-
sion providers for the purpose of importing power to serve its
native load; but without designating any network resources
in connection with these reservations. Aquila Power Corp. v.
Entergy Servs., Inc., 90 FERC ¶ 61,260 at 61,858–59 (2000).
On March 16, 2000, FERC found that Entergy had ‘‘re-
served virtually all of the firm interface capacity on four key
interfaces, even though it had no off-system network re-
sources.’’ Id. ¶ 61,859. The Commission ruled that by re-
serving transmission capacity without designating associated
network resources, Entergy violated OATT § 28.2. 90
FERC ¶ 61,260 (‘‘March 16, 2000 Order’’). The Commission
granted the complaint as to this issue and directed Entergy
to cease its violations. Id. On April 17, 2000, Entergy
requested rehearing, which was denied on July 26, 2000. 92
FERC ¶ 61,064 (2000) (‘‘July 26, 2000 Order’’). On August
25, 2000, Entergy filed a second request for rehearing, which
was denied by order dated December 20, 2002. 101 FERC
7
¶ 61,328 (2002) (‘‘December 20, 2002 Order’’). This petition
for review followed.
II. Analysis
Entergy states the question before us is ‘‘whether FERC
was arbitrary and capricious in holding that Entergy violated
its OATT by failing to reserve transmission service under the
OATT for its bundle retail customers, despite the fact that
Order No. 888 held that FERC would not regulate transmis-
sion service to bundled retail load.’’ It argues that Order No.
888 makes clear that ‘‘we are not TTT requiring that bundled
retail service be taken under the terms of the Final Rule pro
forma tariffs.’’ Pets. Br. at 9 quoting Order No. 888 ¶ 31,745.
It argues that in the orders under review FERC exceeded
the scope of Order No. 888. Specifically, Entergy contends
that in Order No. 888, FERC required a utility to offer an
open access tariff to its wholesale customers under a standard
filed tariff, the OATT, which would place a transmission
provider and its competitors on equal footing by requiring
each utility to state separate rates for its wholesale genera-
tion, transmission and ancillary services, and to take trans-
mission of its own wholesale sales and purchases under a
single general tariff applicable equally to itself and others.
New York, 535 U.S. at 11. Entergy contends that FERC,
however, is not empowered under Order No. 888 to impose
obligations under the OATT on the transmission component
of bundled retail sales—the type of service at issue here.
According to Entergy, FERC’s statement in the preamble to
Order No. 888 that ‘‘we are not requiring the transmission
provider to unbundle transmission service to its retail native
load nor are we requiring that bundled retail service be taken
under the terms of the Final Rule pro forma tariff.’’ Order
No. 888 ¶ 31,745, precludes FERC from imposing the obli-
gation of designating network resources relevant to such
sales under OATT § 28.2. FERC obviously disagrees, as do
we.
At issue here is FERC’s interpretation of a final regulation.
We defer to an agency interpretation of its own regulation so
8
long as it is not ‘‘plainly erroneous or inconsistent with the
regulation.’’ Bowles v. Seminole Rock & Sand Co., 325 U.S.
410, 414 (1945). Similarly, we defer to FERC’s interpretation
of its orders so long as the interpretation is reasonable. See,
e.g., East Texas Elec. Coop. v. FERC, 218 F.3d 750, 753–54
(D.C. Cir. 2000). FERC’s interpretation of the OATT is not
only reasonable, it follows the explicit language of the tariff.
OATT § 29.2(v) requires a network customer to designate, as
a prerequisite to obtaining network transmission service, the
‘‘network resources’’ that will generate the power to be
transmitted over the reserved capacity. See Order No. 888–
A ¶ 30,531–32 § 29.2(v). And OATT § 28.2 likewise requires
a transmission provider to designate network resources used
to serve ‘‘Native Load Customers.’’ Id. ¶ 30,530 § 28.2. The
definition of ‘‘Native Load Customers’’in OATT § 1.19 sup-
ports this conclusion:
[W]holesale and retail power customers TTT on whose
behalf the Transmission Provider TTT has undertaken an
obligation to construct and operate the Transmission
Provider’s system to meet the reliable electric needs of
such customers.
Id. ¶ 30,508 § 1.19. The Commission’s interpretation of
OATT § 28.2 as requiring transmission providers to designate
network resources when reserving capacity to serve bundled
retail load was certainly not plainly erroneous or inconsistent
with the provision’s language.
Entergy, however, argues that applying OATT to its reser-
vation with the stated purpose of supplying bundled retail
customers is inconsistent with the express terms of Order No.
888, which declared that it did not regulate retail commerce.
Again, we disagree.
Specifically, Entergy contends that the preambles to Order
No. 888 and its progeny ‘‘clearly limited the scope of the
OATT, applying it only to new wholesale or unbundled retail
sales.’’ Pet. Br. at 13 (citing Order No. 888 at 31,745 and
Order No. 888–A at 30,217). The portion of 888–A upon
which petitioner relies states:
9
In a situation in which a transmission provider purchases
power on behalf of its retail native load customers, the
Commission does not have jurisdiction over the transmis-
sion of the purchased power to the bundled retail cus-
tomers insofar as the transmission takes place over such
transmission provider’s facilities, and therefore the pro
forma tariff does not have to be used for such transmis-
sion.
Emphasis added. Petitioner therefore argues that FERC’s
interpretation of OATT § 28.2 as requiring it to designate
network resources is improper. Like the Commission, we
reject this argument. The Commission’s interpretation re-
flects the plain meaning of the language of OATT § 28.2, and
Entergy’s interpretation cannot be reconciled with that lan-
guage. Insofar as the language of § 28.2 is viewed as incon-
sistent with extracts from the preambles of the Orders,
FERC correctly notes that ‘‘language in the preamble of a
regulation is not controlling over the language of the regula-
tion itself.’’ Wyoming Outdoor Council v. U.S. Forest Ser-
vice, 165 F.3d 43, 53 (D.C. Cir. 1999). But we need not
decide how much weight to give the statements Entergy
relies upon because we are not convinced there is any irrecon-
cilable inconsistency between those statements and the OATT
in the first place. The Commission explained that its inter-
pretation of OATT § 28.2 does ‘‘not require a transmission
provider to obtain transmission service under the tariff when
purchasing power on behalf of bundled retail native load
customers,’’ but only ‘‘require[s] transmission providers to
designate resources in the same manner as any network
customer under the tariff.’’ 92 FERC at 61,064. FERC’s
explanation is eminently sensible.
Entergy argues that the regulatory position FERC chose
in this case is inconsistent with its self-limitation in Order 888
as upheld by the Supreme Court in New York v. FERC, 535
U.S. 1 (2002). Specifically, Entergy reminds us that the
Supreme Court noted ‘‘FERC rejected a proposal that the
open access requirement should apply to ‘the transmission
component of bundled retail sales.’ ’’ Id. at 1 (quoting Order
888 at 31,699). However, we do not see any irreconcilable
inconsistency between FERC’s decision under review and its
10
express policy in Order 888. The referenced FERC ‘‘rejec-
tion’’ is most easily understood as a refusal to exercise
jurisdiction to provide a specific and direct regulatory reme-
dy—‘‘functional unbundling’’—that would require each utility
‘‘to take transmission of its own wholesale sales and pur-
chases under a single general tariff.’’ Id. at 11.
FERC’s interpretation of OATT § 28.2 does not require a
regulated entity to execute a service agreement, to be bound
by the tariff rates and conditions of the OATT, or to do
anything else involved in obtaining service under the tariff.
It requires, and only requires, that the entity designate
network resources. The Commission has explained its pur-
pose in imposing that requirement, a purpose not only consis-
tent with Order 888, but perhaps essential thereto: prevent-
ing transmission providers from blocking capacity that would
otherwise be sought and used by its transmission customers.
This very case illustrates the reasonableness of FERC’s
decision. But for FERC’s application of OATT § 28.2, En-
tergy would have used its firm transmission reservation to
enable it to purchase power whenever it was economical for it
to do so, ‘‘while den[ying] all firm transmission requests and
entertain[ing] non-firm transmission requests only when it
was unable to make an economic deal for itself.’’ 90 FERC at
61,260. For that reason, FERC has applied OATT § 28.2 to
other transmission providers in Entergy’s position in two
previous cases. Wisconsin Public Power Inc. v. Wisconsin
Public Service Corp., 83 FERC ¶ 61,198 (1998); Morgan
Stanley Capital Group v. Illinois Power Co., 83 FERC
¶ 62,204 (1998). FERC therefore offers not just a reasonable
interpretation of § 28.2; it offers a consistent interpretation
as well.
In short, the Commission’s interpretation of the OATT does
not conflict with other portions of Order 888 and is reasonable
and will be upheld. We note in passing that Entergy makes
other arguments, none of which overcome the reasonableness
of FERC’s interpretation. Arguably, Entergy’s claim that
the Commission’s ruling will discourage utilities from arrang-
ing importations of power from other systems, and thereby
threaten system reliability, is not even properly before us, as
11
not timely raised before the Commission. Be that as it may,
we need not separately discuss either it or the other argu-
ments advanced by petitioner as the interpretation by the
Commission readily survives our standard of review.
III. Conclusion
For the reasons set forth above, we deny the petition for
review.