Opinion for the Court filed by Circuit Judge GRIFFITH.
Petitioners challenge three orders
1
of the Federal Energy Regulatory Commission (“FERC”) that require the City of Vernon, California (‘Vernon”) to issue refunds to the California Independent System Operator Corporation (“CAISO”) for
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overcollection of its transmission revenue requirement (“TRR”).
2
Any opinion whose opening sentence includes three acronyms, one footnote that refers to three FERC orders and another that requires a definition of an accounting procedure is likely to be about a matter of some complexity. Fortunately, the legal issue that resolves the controversy before us is not so complex as the dispute itself, and because this case is a continuation of the litigation that resulted in our decision in
Pacific Gas & Electric Company v. FERC,
In PG & E, we were asked to review a challenge brought by some existing PTOs of CAISO to a FERC order that approved the TRR Vernon filed when it sought to become a PTO as well. We concluded that FERC had failed to demonstrate that CAISO’s rates (also referred to as the “transmission access charge” or “TAC”) would be just and reasonable if Vernon were to participate under the proposed TRR. On remand, FERC issued three orders directing Vernon to pay refunds to CAISO so as to restore CAISO’s just and reasonable rate. Vernon now petitions for review of these orders and asks us to consider whether FERC has authority (1) to review Vernon’s TRR under the just and reasonable standard and (2) to order Vernon to refund any over collection of its TRR.
Joining Vernon are the Transmission Agency of Northern California (“TANC”), the City of Santa Clara, California, the City of Redding, California, and M-S-R Public Power Agency (collectively, the “TANC Parties”).
3
Together, they argue that because Vernon, as a municipality, is exempted from the Federal Power Act when it provides transmission services,
see E. Ky. Power Coop., Inc. v. FERC,
I.
The Federal Power Act (“FPA”) grants FERC authority “to provide effective federal regulation of the expanding business of transmitting and selling electric power in interstate commerce.”
New York v. FERC,
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In the past, the monopoly control of vertically-integrated utilities presented a major structural problem in the electricity industry because consumers were forced to pay a single price for “bundled” generation, transmission, and distribution services.
See, e.g., Midwest ISO Transmission Owners v. FERC, 373
F.3d 1361, 1363 (D.C.Cir.2004)
(“Midwest ISO”); Pub. Util. Dist. No. 1 of Snohomish Co. v. FERC,
This last step created a complication from which this case arises. Because governmental entities are exempt from the FPA,
see
FPA § 201(f), 16 U.S.C. § 824(f), FERC cannot regulate them even when they join regulated ISOs.
See PG & E,
Established in 1997 by the State of California, CAISO is an ISO subject to the FPA. Initially, it had three PTOs, each subject to FERC’s jurisdiction — Pacific Gas & Electric Company, Southern California Edison Company, and San Diego Gas & Electric Company. Under § 205, FERC had authority to examine these PTOs’ TRRs to ensure that they were just and reasonable. On March 31, 2000, CAI-SO proposed to amend its tariff to allow
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non-jurisdictional utilities, including governmental entities, to become PTOs. See
Cal. Indep. Sys. Operator Corp.,
On August 30, 2000, Vernon, seeking to become a PTO of CAISO, filed its TRR.
See City of Vernon, Cal.,
It should not be surprising that these PTOs were troubled by FERC’s approval of Vernon’s TRR. Because CAISO’s rates are based on the TRRs of each of the PTOs, a Vernon TRR that is not just and reasonable could frustrate FERC’s effort to ensure that CAISO’s rates are. Observing this, in PG & E we held that “FERC never clarified or developed either the approach or the standard that it applied” to review Vernon’s TRR, id. at 1118, and remanded the case “so that FERC can articulate with clarity what approach and standard are governing its review and how both ensure CAISO’s rates are just and reasonable under § 205,” id. at 1119.
On remand, FERC held a hearing and collected comments from interested parties, including Vernon, the TANC Parties, and the other PTOs of CAISO. In the Initial Decision, the Administrative Law Judge (“ALJ”) “concluded that Vernon’s TRR should be subject to a
Section 205 like
review, in order to ensure that its inclusion in the [CAISO rate] results in just and reasonable [CAISO] rates.”
City of Vernon, Cal.,
In Opinion No. 479, FERC affirmed much of the ALJ’s Initial Decision but clarified that Vernon’s TRR should be reviewed under § 205’s “just and reasonable” standard.
In Opinion No. 479-A, FERC denied rehearing of Opinion No. 479 and emphasized that it read
PG & E
as “fully endorsing” FERC’s § 205 review of Vernon’s TRR.
In Opinion No. 479-B, FERC denied rehearing of Opinion No. 479-A,
see
II.
We begin by determining whether we have jurisdiction to review petitioners’ claims. Section 313(b) of the FPA provides that a party seeking judicial review of a FERC order must be “aggrieved” by that order. FPA § 313(b), 16 U.S.C. § 825Z (b). “A party is aggrieved within the meaning of § 313(b) if it can establish both the constitutional and pru
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dential requirements for standing.”
Snohomish,
We have no trouble finding jurisdiction to review claims initially raised by Vernon under administrative review by FERC. Vernon has constitutional standing. It has been injured in fact because it was ordered to make payments out of its treasury, the injury was caused by FERC’s orders, and this Court can redress Vernon’s injury if FERC’s order is contrary to law. Vernon also has prudential standing. Because Vernon sought to become a PTO of CAISO, its relationship with CAISO falls within the zone of interests protected by the FPA.
Were the consolidated petition before us to include only arguments previously raised by Vernon in its administrative hearing, we would not need to resolve whether the TANC Parties also have standing.
See, e.g., Ry. Labor Executives’ Ass’n v. United States,
For TANC to have standing, its injury-in-fact must be “(a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.”
Lujan,
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We first consider whether FERC, in its effort to ensure that CAISO’s rates are just and reasonable under § 205, may review Vernon’s TRR under the same just and reasonable standard. We begin by determining the appropriate standard of review for our analysis of this question.
In general, “[w]e set aside a decision of the FERC only if it is arbitrary and capricious or otherwise contrary to law.”
Envtl. Action, Inc. v. FERC,
Petitioners argue that because Vernon is exempt from FPA jurisdiction, FERC’s § 205 review of its TRR is beyond the scope of FERC’s statutory authority. But once Vernon becomes a PTO, its TRR becomes a component of the rate design under which CAISO operates. And as we acknowledged in
PG & E,
“FERC may analyze and consider the rates of non-jurisdictional utilities to the extent that those rates affect jurisdictional transactions.”
PG & E,
Petitioners’ arguments to the contrary are unavailing. First, petitioners argue that because the
PG & E
Court directed FERC to ensure that CAISO’s rates (not Vernon’s TRR) were just and reasonable, FERC should have subjected only CAI-SO’s rates to the just and reasonable standard. But FERC has sufficiently demonstrated that it is impossible to ensure that CAISO’s rates are just and reasonable without reviewing Vernon’s TRR under the same standard.
See
Opinion No. 479,
Second, petitioners argue that FERC ignored its own precedent, in which it has previously held that FERC “cannot review [a non-jurisdictional transmission owner’s] rates under the Section 205 just and reasonable standard.... ” Petitioners’ Br. at 14 n. 34 (quoting
Cal. Indep. Sys. Operator Corp.,
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Petitioners next argue that FERC, even if it may review Vernon’s TRR, lacks authority to order Vernon to pay refunds. On this point, we agree with petitioners because the structure of the FPA clearly reflects Congress’s intent to exempt governmental entities from FERC’s refund authority. Again, we begin our analysis with our standard of review.
Because “FERC is a ‘creature of statute,’ and the agency has ‘only those authorities conferred upon it by Congress,’ ”
Nat’l Ass’n of Regulatory Util. Comm’n v. F.E.R.C.,
In this case, we need go no further than step one of
Chevron
to hold that FERC acted contrary to law when it or
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dered Verñon to pay refunds to CAISO. Section 201(f) of the FPA unequivocally exempts from subchapter II “any political subdivision of a State ... unless [included by] specific reference....” FPA § 201(f), 16 U.S.C. § 824(f). The implication of this exemption is clear: subsections of sub-chapter II do not apply to governmental entities (including municipalities) unless a provision expressly provides FERC with such authority. We find it significant that Congress has in fact authorized FERC with limited refund authority in subchap-ter II in order to ensure that its jurisdictional entities maintain just and reasonable rates. Section 206(b) gives FERC authority to order “[a] public utility to make refunds of any amounts paid ... in excess of those which would have been paid under the just and reasonable rate.” FPA § 206(b), 16 U.S.C. 824e(b). This subsection, however, does not apply to Vernon because a municipality is not a public utility.
See, e.g., Bonneville Power Admin. v. FERC,
FERC’s alternative interpretation is impermissible. It argues that “the agency here is legitimately employing its section 205 authority to assure that a jurisdictional rate of a jurisdictional utility ... is just and reasonable.” Respondent’s Br. at 36. But because nothing in the language of § 205 contravenes § 201(f)’s specific exemption of municipalities, the plain language of Congress remains. dispositive on this point. A recent and similar case from the Ninth Circuit reflects this conclusion. In
BPA,
the Ninth Circuit reviewed FERC orders requiring both public and non-public utilities to make refunds to California ratepayers for excess charges these utilities collected in some spot market transactions. The central issue was “whether FERC’s authority to order refunds is based on the
identities of the sellers
subject to the refund order,
i.e.,
public versus non-public utilities, or on the
nature of the transactions, i.e.,
FERC’s broad regulatory authority over the sale of electric energy for resale in interstate commerce.”
Id.
at 911 (emphases added). Relying on the “clear and unambiguous” text of § 201(f) of the FPA,
id.,
and refusing “to second guess Congress’s judgment as to the breadth of FERC’s refund authority” as provided by § 206(b),
id.,
the Court held that FERC’s authority is based on the identities of the sellers, rather than the nature of the transactions.
See id.
at 916. The Court thus “conclude[d] that FERC does not have refund authority over wholesale electric energy sales made by governmental entities and non-public utilities.”
Id.
at 911. The Court noted that “FERC’s long-standing interpretation of §§ 205 and 206 confirms that governmental entities/non-public utilities lie outside its rate-making and refund authority,”
id.
at 921, and held that “FERC cannot expand its statutory authority to reach governmental entities/non-public utilities through § 206(b) simply because such entities voluntarily participated in markets approved by FERC that involved FERC-jurisdictional wholesale sales of electric energy in interstate commerce.”
Id.
at 924. We agree with the
BPA
Court that FERC’s refund authority under the FPA is ultimately determined by the “identities of the sellers subject to the refund order,”
FERC’s reliance on the Agreement between CAISO and Vernon is misplaced. In Opinion No. 479-A, FERC reasonably read the Agreement as obligating Vernon to “make all refunds ... required of a[PTO] to implement any FERC order related to the ISO Tariff.”
We find FERC’s reference to
Alliant Energy v. Nebraska Public Power District,
FERC’s alternative theory—that it has authority to enforce the Agreement because it was filed by CAISO, a jurisdictional entity, and approved by FERC— still cannot overcome the plain language of Congress. We have previously held that “as a statutory entity, [FERC] cannot acquire jurisdiction merely by agreement of the parties before it.”
Columbia Gas Transmission Corp. v.
FERC,
In conclusion, while we find FERC’s review of Vernon’s TRR to have been based on a consideration of the relevant factors and, therefore, neither arbitrary nor capricious, we cannot reconcile the clear and unambiguous language of § 201(f) with FERC’s refund order. Accordingly, we vacate the portions of FERC’s orders directing Vernon to refund CAISO. 11
V.
For the foregoing reasons, we grant the petition for review and remand the case for further proceedings.
So ordered.
Notes
.
City of Vernon, Cal.,
. A TRR “consists of the costs and rate of return to which the utilities are entitled as participating transmission owners.”
Pacific Gas & Elec. Co.
v.
FERC,
. Of these petitioners, only Vernon has thus far sought to join CAISO.
. The term "non-public entity," or its equivalent "non-public utility,” can be confusing even to the careful reader. The FPA defines a "public utility” as "any person who owns or operates facilities subject to the jurisdiction of [FERC.]” FPA § 201(e), 16 U.S.C. § 824(e). FERC refers to utilities wholly-owned by governmental entities as "non-public utilities” or "non-public entities” because governmental entities are exempt from the FPA and therefore exempt from FERC’s jurisdiction when they provide transmission services.
. Section 16.2 provides:
Each Participating [Transmission Owner] whether or not it is subject to the rate jurisdiction of FERC under section 205 and section 206 of the Federal Rower Act shall make all refunds, adjustments to its Transmission Revenue Requirement, and adjustments to its [Transmission Owner] Tariff, and do all other things required of a Participating [Transmission Owner] to implement any FERC order related to the ISO Tariff, including any FERC order that requires the ISO to make payment adjustments or pay refunds to, or receive prior period overpay-ments from, any Participating [Transmission Owner]. All such refunds and adjustments shall be made, and all other actions taken, in accordance with the ISO Tariff, unless the applicable FERC order requires otherwise.
Opinion No. 479-A,
. Vernon proposed the following standard:
The proper standard of review for [FERC] to apply to Vernon’s TRR, or any nonjuris-dictional [Participating Transmission Owner's] TRR, is (1) whether the Vernon City Council’s determinations were arbitrary and capricious and not based upon substantial evidence, and (2) whether substantial evidence in fact demonstrates that the ISO's rates will be just and reasonable after the inclusion of Vernon’s TRR.
Opinion No. 479,
. Under this standard, " ‘[a]n open access tariff that is not unduly discriminatory or anti-competitive should offer third parties access on the same or comparable basis, and under the same or comparable terms and conditions, as the transmission provider’s uses of its [own] system.’ ”
Alliant Energy Corp. v. FERC,
. In a related argument, Vernon specifically faults FERC for not applying the "prudence” standard to judge the "pass-through” costs of Vernon’s TRR. In
PG & E,
we held that it was "unclear under what standard FERC reviewed Vernon's TRR to ensure that a pass through of its costs by the CAISO would be
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just and reasonable.”
requires a complainant alleging that some aspect of a utility’s rate or practice is unjust or unreasonable to present evidence sufficient to raise serious doubt that a reasonable utility manager, under the same circumstances and acting in good faith, would not have made the same decision and incurred the same costs. If the petitioner clears this initial hurdle, the utility has the burden of presenting evidence sufficient to dispel those doubts. If it cannot, the complainant wins.
Ind. Mun. Power Agency v. FERC,
. In support of FERC’s refund authority under § 205, intervenors cite
NARUC
and
United Distribution Companies v. FERC,
. In fact, FERC had previously defined the scope of its refund order narrowly as to exclude any jurisdiction over the NPPD.
See Mid-Continent Area Power Pool Enron v. Mid-Continent Area Power Pool Western Resources, Inc.,
. Although Vernon also argues that FERC's orders violate the Tenth Amendment because those orders "supplant the authorized rate-making decisions of the Vernon City Council” and "command that Vernon make improper payments out of its treasury,” Petitioners' Br. at 39, we need not address this argument because we grant the petition for review on statutory grounds.
See, e.g., Am. Dental Ass’n v. Shalala,