898 F.3d 1254
D.C. Cir.2018Background
- PJM members historically used a hybrid cost-allocation (50% postage-stamp, 50% DFAX) for high-voltage "Regional Facilities," a method FERC approved as consistent with the cost-causation principle.
- Dominion adopted "end-of-life" local planning criteria and sought to rebuild two high-voltage lines (Elmont–Cunningham and Cunningham–Dooms); under the prior allocation, a substantial portion of costs would have been regionally shared.
- A group of PJM utilities proposed a 2015 tariff amendment (Schedule 12(xv)) to bar regional cost sharing for projects included in the Regional Plan solely to satisfy an individual utility’s planning criteria, allocating those costs entirely to the local zone.
- FERC initially rejected the amendment but, after a technical conference, approved it (Cost-Allocation Order) and applied it to deny regional cost sharing for Dominion’s two high-voltage projects (Elmont‑Cunningham Order and Cunningham‑Dooms Order).
- Dominion sought judicial review, arguing FERC’s approval and application of the amendment violated the cost-causation principle and was arbitrary and capricious because high-voltage lines produce significant regional benefits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the tariff amendment may categorically bar regional cost sharing for projects that meet only an individual utility’s planning criteria | Dominion: Amendment unlawfully bars cost sharing for projects (including high-voltage) that provide regional benefits, violating cost-causation | FERC: Amendment creates a category of Regional-Plan projects not selected for cost allocation and thus complies with Order No. 1000 | Court: Approved amendment was arbitrary as applied where it forbids cost sharing for high-voltage projects conceded to have significant regional benefits |
| Whether FERC’s approval of the amendment conflicts with the cost-causation principle | Dominion: Categorical exclusion departs from matching costs to benefits, shifting disproportionate costs to one zone | FERC: Most "owner-criteria" projects historically produced only local benefits; analogous MISO treatment supports change | Court: FERC’s aggregate statistics conflated low-voltage (local) projects with high-voltage (regional) ones; justification inadequate |
| Proper construction of Schedule 12(xv): does the "notwithstanding" clause exempt selected Regional Facilities from the cost-allocation formula? | Intervenors: Clause applies only after a facility is selected for cost allocation, so amendment would conflict with Order No. 1000 | FERC: Amendment applies to Required Transmission Enhancements that are not necessarily selected for cost allocation, thus consistent with Order No. 1000 | Court: Agreed with FERC’s later construction—amendment created a category of Regional-Plan projects not selected for cost allocation |
| Whether FERC provided an adequate explanation tying facts to its choice under the arbitrary-and-capricious standard | Dominion: No adequate reasoned explanation for excluding regionally beneficial high-voltage projects from cost sharing | FERC: Cited empirical distribution of prior projects and MISO precedent; argued projects meeting only owner criteria are not needed for PJM/NERC reliability standards | Court: Explanation insufficient; FERC failed to reconcile its prior finding that high-voltage facilities yield significant regional benefits with a categorical bar on cost sharing |
Key Cases Cited
- Ala. Elec. Co-op., Inc. v. FERC, 684 F.2d 20 (D.C. Cir.) (cost-causation principle supports matching rates to costs)
- Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361 (D.C. Cir.) (courts defer to allocation methods but require rough commensurateness of costs and benefits)
- BNP Paribas Energy Trading GP v. FERC, 743 F.3d 264 (D.C. Cir.) (cost-causation principle framed as matching burden with benefit)
- K N Energy, Inc. v. FERC, 968 F.2d 1295 (D.C. Cir.) (cost-causation fleshes out just-and-reasonable standard)
- FERC v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (U.S.) (arbitrary-and-capricious standard for review of agency action)