988 F.3d 471
D.C. Cir.2021Background
- Congress (Energy Policy Act of 2005) directed FERC to adopt incentive-based rate treatments for transmission; FERC codified a "Transco" ROE adder to encourage standalone transmission companies to invest in infrastructure.
- FERC historically awarded Transco adders (initially 100 bps, later 50 bps) based on a case-by-case assessment of a Transco’s independence and whether affiliates would affect investment planning, capital formation, or business structure.
- ITC Holdings’ transmission subsidiaries (International Transmission Co., ITC Midwest, METC) held Transco adders. In 2016 ITC Holdings was acquired by Fortis and GIC, which placed market-participant affiliates within the Eastern Interconnection on its corporate cap table.
- Transmission customers filed a Section 206 complaint alleging the merger reduced ITC’s independence and thus rendered its Transco adders unjust and unreasonable. FERC found independence was reduced (but not eliminated) and cut the adders from 50 bps to 25 bps.
- ITC challenged FERC on two principal grounds: (1) FERC departed from a purported precedential methodology (NextEra/GridLiance) for assessing independence; and (2) FERC violated Section 206 by failing to expressly find the existing adders unlawful before setting a new rate. The D.C. Circuit denied the petition; Judge Sentelle dissented, arguing FERC failed to make the required explicit unlawful-rate finding.
Issues
| Issue | ITC's Argument | FERC's/Respondent's Argument | Held |
|---|---|---|---|
| Whether FERC arbitrarily departed from precedent by using a different methodology to assess Transco independence | NextEra/GridLiance established a geographically focused test: affiliates outside the region have no effect, inside-affiliates only matter if large or uncontracted; FERC here applied a broader corporate-structure test without explanation | Order No. 679 never mandated a single methodology; FERC uses a case-by-case inquiry weighing investment planning, capital formation, and business structure; NextEra/GridLiance applied those criteria on their records | Court: No arbitrary departure. FERC never adopted the narrow methodology ITC claims; case-by-case application of Order No. 679 criteria was permissible and supported by the record. |
| Whether FERC exceeded Section 206 by reducing adders without expressly finding the prior adders unlawful | Section 206 requires an explicit finding that an existing rate is unjust or unreasonable before imposing a new rate (Emera Maine) — FERC failed to make that explicit finding | The complaint alleged the adders were unjust and unreasonable; FERC conducted a two-step Section 206 analysis (found reduced independence → concluded existing 50 bps level no longer appropriate → set 25 bps) so the statutory procedure was followed even if FERC did not use the exact words | Court: Held FERC complied with Section 206. The Commission’s analysis tracked the required two-step procedure and substantial evidence supports its factual findings; omission of the exact phrase did not invalidate the order. |
Key Cases Cited
- Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017) (Section 206 requires explicit finding that existing rate is unlawful before imposing new rate)
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016) (standard of review and deference to FERC in rate-related matters)
- NextEra Energy Res., LLC v. FERC, 898 F.3d 14 (D.C. Cir. 2018) (affirming FERC’s Transco adder grant on the record there)
- West Deptford Energy, LLC v. FERC, 766 F.3d 10 (D.C. Cir. 2014) (agency must explain departures from uniform prior practice)
- TransCanada Power Mktg. Ltd. v. FERC, 811 F.3d 1 (D.C. Cir. 2015) (agencies need not use precise statutory phrasing when the required analysis is otherwise evident)
- City of Centralia v. FERC, 213 F.3d 742 (D.C. Cir. 2000) (substantial-evidence review of FERC factual findings)