832 F.3d 495
5th Cir.2016Background
- FERC promulgated Order No. 1000 to reform regional transmission planning and require jurisdictional utilities to adopt regional cost-allocation methods that roughly allocate costs to beneficiaries (cost-causation) and reduce free-rider problems.
- WestConnect is a multi-state transmission planning region with a mix of jurisdictional (FERC-regulated) and non-jurisdictional (nonpublic) utilities; many nonpublic utilities elected to participate as non-enrolled "Coordinating Transmission Owners" avoiding binding cost allocation.
- WestConnect jurisdictional utilities (including El Paso Electric) filed compliance tariffs under Order No. 1000; FERC issued three Compliance Orders requiring binding cost allocation among enrolled (jurisdictional) utilities and directing enrollment disclosures.
- Petitioners (El Paso Electric and intervenors) challenged FERC’s Compliance Orders, arguing that requiring binding cost allocation only for jurisdictional utilities in WestConnect forces them to subsidize non-jurisdictional utilities, creating free-rider and cost-causation problems.
- The Fifth Circuit upheld most challenges as collateral attacks or denied them, but held that FERC’s orders lacked an adequate explanation for how excluding non-jurisdictional utilities from binding cost allocation in WestConnect would avoid unjust and unreasonable rates; it vacated and remanded that issue for further explanation and fact-finding.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC’s mandates that binding cost allocation apply only to jurisdictional utilities in WestConnect are arbitrary and capricious | EP Electric: Applying binding cost allocation only to jurisdictional utilities will force them to subsidize non-jurisdictional utilities, violating cost-causation and producing unjust and unreasonable rates | FERC: Order No. 1000 governs only jurisdictional utilities; it may proceed incrementally, and the reciprocity condition and other mechanisms will incentivize non-jurisdictional participation or mitigate harm | Court: Grant in part — vacated and remanded FERC’s Compliance Orders on this point for failure to explain how unjust and unreasonable rates will be avoided in WestConnect |
| Whether FERC properly relied on the reciprocity condition to justify not subjecting non-jurisdictional utilities to binding cost allocation | EP Electric: Reciprocity will not reliably force participation in WestConnect; FERC failed to analyze its practical effect | FERC: Reciprocity (access conditioned on participation) can incentivize non-jurisdictional utilities to participate | Court: Rejected consideration of FERC’s post-hoc reliance on reciprocity because the agency did not meaningfully explain its operation in the record; remand required for explanation |
| Whether the Compliance Orders unlawfully delegated ratemaking to the WestConnect committee (improper sub-delegation) | EP Electric: FERC abdicated Section 205 review authority by allowing the committee to select projects that obtain binding cost allocation | FERC: Has reviewed procedures and retains Section 206 enforcement authority; the committee’s role is consistent with Order No. 1000 | Court: Denied review — no unlawful abdication; FERC retained oversight and Section 206 authority |
| Whether other challenges (single developer selection, Mobile-Sierra, state siting preemption) are permissible | EP Electric: These aspects violate contract/doctrine or encroach on state siting authority | FERC: Orders clarify, not alter, Order No. 1000; do not usurp state siting authority; Mobile-Sierra inapplicable | Court: Dismissed as impermissible collateral attacks or without merit (majority) |
Key Cases Cited
- S. Carolina Pub. Serv. Auth. v. F.E.R.C., 762 F.3d 41 (D.C. Cir. 2014) (reviews Order No. 1000 and scope re: non-public utilities)
- FERC v. Elec. Power Supply Ass’n, U.S. , 136 S. Ct. 760 (2016) (agency must provide satisfactory explanation; courts defer to reasoned agency decisions in technical domains)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious standard requires reasoned connection between facts and choice)
- La. Pub. Serv. Comm’n v. FERC, 771 F.3d 903 (5th Cir. 2014) (deference to FERC but agency must supply reasoned explanation)
- Ill. Commerce Comm’n v. FERC, 576 F.3d 470 (7th Cir. 2009) (costs should reflect degree to which payors cause costs; remand where FERC failed to measure correlation between benefits and costs)
- Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527 (2008) (just-and-reasonable standard for wholesale-electricity rates)