76 F.4th 352
5th Cir.2023Background
- FERC promulgated Order No. 1000 (2011) requiring regional transmission planning and ex ante cost-allocation among public (jurisdictional) utilities, grounded in the cost-causation principle (rates should roughly correspond to costs/benefits).
- WestConnect is a geographically large, highly integrated planning region with roughly equal numbers of jurisdictional and non-jurisdictional utilities; Order No.1000 allows non-jurisdictional utilities to enroll but does not require them to.
- In 2016 this court (El Paso Elec. I) vacated FERC’s WestConnect cost-allocation orders as arbitrary and capricious for failing to explain why non-jurisdictional utilities would accept binding cost allocation (or why rates would remain just and reasonable if they did not).
- On remand FERC defended the scheme, arguing that (a) non-jurisdictional utilities are likely to accept cost allocation because projects must meet a 1.25:1 benefit-to-cost threshold and would fail without their participation, and (b) any limited free-riding is tolerable in light of other policy goals.
- Petitioners (WestConnect jurisdictional utilities led by El Paso Electric) challenged the remand orders, arguing they permit intentional intra-regional free-riding (violating the FPA and Order No.1000) and that FERC’s remand explanation remains inadequate.
- The Fifth Circuit majority granted the petition and reversed FERC’s orders, holding they conflict with the FPA/Order No.1000 cost-causation obligations and—alternatively—are inadequately explained; Judge Southwick dissented, finding FERC’s predictive judgment and explanation reasonable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC’s WestConnect cost-allocation scheme violates the FPA/cost-causation principle | Scheme permits non-jurisdictional utilities to be planned for but not required to pay, causing subsidization and therefore unjust and unreasonable rates | Some intra-regional free-riding is inevitable; FERC may balance cost-causation against other policy goals and need only rough commensurateness | Majority: Scheme unlawfully departs from cost-causation by allowing intended intra-regional beneficiaries to avoid cost allocation; orders reversed |
| Whether FERC’s remand explanation remedied the earlier deficiencies (arbitrary & capricious review) | FERC still failed to show why non-jurisdictional utilities will accept binding cost allocation or why rates won’t become unjust | FERC made a reasonable predictive judgment based on economic theory and expertise (1.25 benefit-cost threshold will incentivize payment) | Majority: Remand explanation is inadequate and arbitrary and capricious; alternative legal ground for reversal |
| Reliability of the 1.25 benefit-to-cost ratio as a cure for free-riding | Ratio is no cure; it enables gamesmanship and does not prevent non-jurisdictional opt-outs that shift costs to jurisdictional utilities | Ratio and reevaluation procedure will often cause projects to fail absent non-jurisdictional participation, creating an incentive to pay | Majority: Reliance on the ratio is speculative and inconsistent with Order No.1000; not a satisfactory justification |
| Whether a "wait-and-see" supervisory posture (future enforcement or revision) suffices | Future intervention is too late under filed-rate doctrine; promises of later action cannot cure present illegality | Agency can exercise predictive judgment and supervise regions; empirical evidence may develop | Majority: "Wait-and-see" is insufficient and unreasonable; cannot justify current unlawful order |
Key Cases Cited
- El Paso Elec. Co. v. FERC, 832 F.3d 495 (5th Cir. 2016) (prior opinion vacating WestConnect orders and remanding for explanation)
- FERC v. Elec. Power Supply Ass'n, 577 U.S. 260 (2016) (deference in rate decisions; arbitrary-and-capricious standard)
- S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014) (facial challenge to Order No.1000; some free-ridership tolerance and policy balancing)
- Old Dominion Elec. Coop. v. FERC, 898 F.3d 1254 (D.C. Cir. 2018) (agencies need not allocate costs with exacting precision)
- Nat'l Ass'n of Reg. Util. Comm'rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007) (costs to be allocated to those who cause costs and reap benefits)
- Ill. Com. Comm'n v. FERC, 576 F.3d 470 (7th Cir. 2009) (benefits must be roughly commensurate with costs)
- Carnegie Nat'l Gas Co. v. FERC, 968 F.2d 1291 (D.C. Cir. 1992) (FERC may emphasize competing policies over strict cost-causation)
- KN Energy, Inc. v. FERC, 968 F.2d 1295 (D.C. Cir. 1992) (rates must reflect to some degree the costs caused by the paying customer)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (1983) (arbitrary-and-capricious review standards)