27 F.4th 705
D.C. Cir.2022Background
- PJM, the regional transmission organization, coordinates high-voltage transmission projects that yield both local (nearby utilities) and regional (systemwide) benefits.
- FERC initially required a postage-stamp cost-allocation (2007), which the Seventh Circuit invalidated in Illinois Commerce I/II for ignoring local benefits concentrated in eastern PJM.
- FERC later approved a 50:50 hybrid (postage-stamp : flow-based usage) allocation for projects approved after Feb 1, 2013.
- Parties negotiated a contested 2016 settlement for 32 "Vintage Projects" (2007–2013) using three formulas: a going-forward 50:50 hybrid, a historical adjustment to mirror the going-forward allocation, and a cancelled-projects formula (50:50 postage-stamp : violation method).
- Linden VFT and LIPA objected; FERC approved the settlement. Petitioners challenged FERC’s approval and Linden challenged its liability for Transmission Enhancement Charge (TEC) adjustments under the tariff.
- The D.C. Circuit reviewed the settlement approval and Linden’s tariff-liability claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC lawfully approved the contested settlement allocating Vintage-Project costs via hybrid formulas | LIPA/Linden: settlement is arbitrary and conflicts with Illinois Commerce and FERC precedent; it violates cost-causation | FERC: hybrid allocations reasonably balance regional and local benefits and mirror earlier-approved 50:50 approach; settlement result is just and reasonable | Court upheld FERC’s approval; hybrid formulas reasonable and not arbitrary |
| Whether Illinois Commerce requires a quantified cost-benefit analysis before approving an allocation | LIPA/Linden: Illinois Commerce mandates quantification of regional vs local benefits | FERC: Illinois Commerce forbids extreme postage-stamp allocations but does not require exact cost-benefit quantification; a plausible, articulable basis suffices | Court: Illinois Commerce does not demand exact quantification; hybrid 50:50 meets requirement of rough commensurability |
| Whether FERC could apply the going-forward formula (approved for post-2013 projects) to Vintage Projects | LIPA/Linden: FERC had to analyze each Vintage Project separately and could not simply reuse the going-forward rule | FERC: no need to treat subcategories differently absent evidence Vintage Projects are materially distinct; ex ante tariff framework supports uniform rules | Court: reasonable to extend the previously approved unchallenged formula to Vintage Projects absent evidence to the contrary |
| Whether Linden is liable under the tariff to pay TEC adjustments for 2016–2017 after it surrendered withdrawal rights before FERC approval | Linden: tariff bars collection if the responsible customer is no longer "subject to" TEC adjustments during the period when adjustments are "collected" | FERC: TEC adjustments accrued and were "collected" effective Jan 1, 2016, so Linden owes 2016–2017 amounts despite surrendering rights before approval | Court: "collected" means obtaining payment; tariff unambiguously ties collection to FERC implementation date, not effective date—Linden is not liable for 2016–2017 TECs; FERC’s contrary ruling vacated and remanded |
Key Cases Cited
- Illinois Commerce Comm’n v. FERC, 576 F.3d 470 (7th Cir. 2009) (vacating postage-stamp allocation for ignoring local benefits)
- Illinois Commerce Comm’n v. FERC, 756 F.3d 556 (7th Cir. 2014) (reinforcing need to avoid grossly disproportionate postage-stamp allocations)
- Old Dominion Elec. Coop. v. FERC, 898 F.3d 1254 (D.C. Cir. 2018) (invalidating pure flow-based allocation for ignoring regional benefits)
- Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361 (D.C. Cir. 2004) (cost-causation principle requires rates reflect costs caused by paying customers)
- Colo. Interstate Gas Co. v. FERC, 599 F.3d 698 (D.C. Cir. 2010) (deference to FERC on ambiguous tariff interpretation)