884 F.3d 1176
D.C. Cir.2018Background
- NorthWestern, a Montana utility, formerly purchased 60 MW of regulation service and passed costs to customers under Schedule 3; it built the 150 MW Dave Gates Generating Station (three 50 MW units) to supply regulation service beginning 2011.
- NorthWestern proposed a revised Schedule 3 rate to recover Gates Station costs by allocating 45 MW (wind-related) to retail customers at state rates and 60 MW (fuel-related) to retail+wholesale under Schedule 3, using a ratio of 60/105 (.57).
- NorthWestern’s proposed Schedule 3 also sought to recover fuel costs, credit off-system sales revenue, recover costs from a 2012 three-month outage, and allow recovery for future outage purchases.
- An ALJ reduced NorthWestern’s proposed rate: used a numerator of 19 MW (excluding regulation-down capacity), a denominator of 150 MW (nameplate), excluded fuel costs from Schedule 3, and required separate filings for outage-related recovery.
- FERC affirmed the ALJ, ordered refunds of amounts collected in excess of the approved Schedule 3 rate, and NorthWestern petitioned for review under the arbitrary-and-capricious standard.
Issues
| Issue | NorthWestern's Argument | FERC's/Respondent's Argument | Held |
|---|---|---|---|
| Whether FERC could exclude regulation-down capacity from numerator | Excluding regulation-down was improper; those MWs are needed and were previously passed through (60 MW embedded) | NorthWestern failed to show it could not recover by off-system sales or other means; burden on NorthWestern under §205 | FERC reasonably excluded regulation-down MWs (numerator reduced to 19) |
| Whether denominator should be 105 MW or nameplate 150 MW | Denominator should be actual MW devoted to regulation (105) | Precedent uses nameplate capacity to reflect total available capacity; Gates nameplate = 150 MW | FERC reasonably used 150 MW denominator |
| Whether fuel costs may be recovered under Schedule 3 | Fuel costs incurred providing regulation at Gates should be allowed under Schedule 3; retroactive recovery under Schedule 4 may be unavailable | Fuel normally recovered under Schedule 4 (energy), Schedule 3 governs capacity; NorthWestern never tried Schedule 4 recovery | FERC reasonably excluded fuel costs from Schedule 3 and adequately explained its decision |
| Whether refunds and separate filings for outage costs were arbitrary | Ordering refunds and requiring separate §205 filings for outage-related costs was improper; equitable factors and retroactive recovery concerns insufficiently considered | This was an over‑collection case for Schedule 3 customers; refunds are standard; outage and future-purchase recovery require separate factual showings | FERC reasonably ordered refunds and required separate filings for outage/future purchase recovery |
Key Cases Cited
- Alabama Electric Cooperative, Inc. v. FERC, 684 F.2d 20 (D.C. Cir. 1982) (just-and-reasonable rate must reflect cost of service plus fair return)
- FPC v. Hope Natural Gas Co., 320 U.S. 591 (U.S. 1944) (rate-of-return standard and just-and-reasonable principle)
- Public Service Commission of New York v. FERC, 642 F.2d 1335 (D.C. Cir. 1980) (burden allocation for rate changes vs. constant elements)
- Kansas Gas & Electric Co. v. FERC, 758 F.2d 713 (D.C. Cir. 1985) (utility proposing a clause that departs from status quo bears burden of proof)
- Black Oak Energy, LLC, 139 FERC ¶ 61,111 (FERC 2012) (discussion of refunds in over-collection vs. cost-allocation cases)