Case Information
*2 R OGERS , Circuit Judge
: Xcel Energy petitions for review of three orders of the Federal Energy Regulatory Commission denying a retroactive refund for unlawful rates. Southwest Power Pool, Inc., a regional transmission organization, filed a tariff revision pursuant to section 205 of the Federal Power Act to implement the formula rate of a non-jurisdictional participating transmission owner, Tri-County Electric Cooperative, Inc. To carry out the statutory mandate that rates be just and reasonable, the Commission subjects the revenue requirements of non-jurisdictional participating owners to review under section 205 standards. Unless there is no material issue, the Commission will either suspend the proposed rates while it conducts a section 205 review or allow the rates to take effect where the non-jurisdictional entity voluntarily agrees to make refunds if the Commission determines the rates are unfair and unjust. In this instance, contrary to section 205’s mandate and Commission precedent, and over formal protests by intervenors, the Commission, despite concluding that the proposed rates may be unjust and unreasonable, allowed them to go into effect without suspension or a voluntary refund commitment by Tri-County.
On rehearing, the Commission admitted its error of law but concluded that the only available remedy was prospective under section 206 of the Federal Power Act. The Commission stated that retroactive suspension of the rates would be inconsistent with section 2.4(a) of its regulations barring suspension of a rate schedule after it took effect. We grant the petition in part and remand the case to the Commission.
I.
Section 205 of the Federal Power Act (“FPA”) mandates that “[a]ll rates and charges . . . demanded, or received by any public utility for . . . the transmission or sale of electric energy subject to the jurisdiction of the Commission . . . shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful.” 16 U.S.C. § 824d(a). Section 205(d) provides that unless the Commission otherwise orders, “ no change shall be made by any public utility in any such rate, charge, classification, or service, or in any rule, regulation, or contract relating thereto, except after sixty days’ notice to the Commission and to the public.” Id. § 824d(d). Section 205(e) empowers the Commission, on its own initiative or upon complaint, to investigate the lawfulness of a rate in a newly filed schedule, and to suspend the effectiveness of the changed schedule for up to five months. Id . § 824d(e). The Commission may also order that increased rates and charges be collected subject to refund so that when the rate schedule goes into effect after suspension, the “interested public utility or public utilities” must refund the amount of the increased rates or charges “found not justified” by the Commission. Id .
Under section 206(a) of the FPA, the Commission may institute, on its own motion or upon complaint, an investigation into the rates of public utilities to determine whether the rates are just and reasonable. 16 U.S.C. § 824e(a). Section 206(b) requires the Commission to establish a refund effective date that is no earlier than the date of the publication of its order instituting the investigation on its own motion or the date of the complaint, as applicable. Id . § 824e(b). If the Commission determines upon investigation that a public utility’s rates are unjust and unreasonable, the Commission may prospectively fix the just and reasonable rate and order refunds of the difference between the rate charged and the just and reasonable rate for a fifteen-month period that commences on the refund effective date.
In response to the development of regional transmission
organizations (“RTOs”) and independent system operators
(“ISOs”),
see generally Pub. Util. Dist. No. 1 of Snohomish Cty.
v. FERC
,
Southwest Power Pool, Inc. (“SPP”) is an RTO and a
“public utility” as defined in the FPA.
See Sw. Power Pool, Inc.
,
On February 1, 2012, SPP filed revisions to its Open Access
Transmission Tariff (“OATT”) pursuant to section 205 to
implement Tri-County’s formula rate for transmission service.
According to SPP’s submission, Tri-County had become a
transmission owner in the SPS Zone and its formula rate would
be used to calculate the annual transmission revenue
requirement (“ATRR”). Xcel filed a protest, requesting the
Commission allow SPP’s tariff filing only if Tri-County agreed
voluntarily to make refunds or suspend the proposed rates while
the Commission conducted a section 205 review.
See
Motion to
Intervene and Protest at 4, 19 (Feb. 22, 2012). The Commission
did neither. On March 30, 2012, the Commission — despite
concluding that there was insufficient evidence to determine
whether Tri-County qualified as a “transmission provider” under
SPP’s OATT, and that the proposed rates may not be just and
reasonable — accepted the tariff revisions for filing, to become
effective April 1, 2012 as requested, and established hearing and
settlement judge procedures.
Sw. Power Pool, Order Accepting
Formula Rate Proposal and Establishing Hearing and
Settlement Judge Procedures
(“
Order I
”),
Xcel sought rehearing and a stay, and requested expeditious action by the Commission. Xcel Request for Rehearing, Motion for Stay, and Request for Clarification (Apr. 25, 2012) (“2012 Reh’g Request”). It argued that the Commission had clearly erred, contrary to the mandate in section 205 to protect consumers from excessive rates, by never fully reviewing Tri- County’s ATRR before allowing SPP’s rates to take effect after concluding the proposed rates may be unjust and unreasonable. Except where proposed rates were not contested or there were no issues of material fact, Xcel pointed out that “[a]fter TANC , in every case where the Commission has reviewed the costs of a non-jurisdictional utility included in an RTO’s or ISO’s rate, the Commission has only set those rates for hearing where the non-jurisdictional utility made a commitment to provide refunds.” Id. at 7 & n.24. [1] Xcel therefore requested that the Commission “reverse its determination to accept the SPP Filing and, instead, . . . suspend it, subject to refund and hearing procedures.” Id. at 8. Because the Commission erred as a matter of law in allowing SPP’s rates to take effect without conducting a full section 205 review or otherwise ensuring consumer protection through refunds, Xcel argued that Commission precedent barring retroactive rate suspension on rehearing was not dispositive. Id. at 9 n.29. Xcel also sought a stay of Order I , stating the SPP tariff filing increased revenue requirements by $1.98 million annually, of which over 97% would be borne by loads taking service under the SPP tariff other than Tri-County, of which about 60% will be borne by SPS and its native load customers. See id. at 11; FPA § 313(c), 16 U.S.C. § 825 l (c); 5 U.S.C. § 705. Xcel noted that “SPP has not yet issued transmission service bills reflecting the Tri- County ATRR.” 2012 Reh’g Request at 9 n.29.
On rehearing, the Commission acknowledged that it “erred
in allowing SPP’s rate proposal for Tri-County’s ATRR to go
into effect April 1, 2012, without a commitment from Tri-
County to refund the difference between the as-filed rate and the
rate ultimately found to be just and reasonable by the
Commission.”
Sw. Power Pool, Order on Rehearing
(“
Order
II
”), 142 FERC ¶ 61,135, at P 13 (2013). Further, the
Commission acknowledged, “[c]onsistent with Commission
policy in other instances involving non-public utilities, without
such a refund commitment, the effective date for Tri-County’s
ATRR should be the date the Commission makes the ATRR
effective in its order approving the ATRR following hearing and
settlement judge procedures.”
Id
. It stated, however, that it
lacked jurisdiction to make Tri-County’s collected rates subject
to refund.
See id.
PP 14–15 (citing
Riverside
, 128 FERC
¶ 61,207, at P 24 (citing
TANC
,
Xcel sought rehearing and clarification, observing in part that the Commission had not addressed its position that the rates at issue were SPP’s rates, not Tri-County’s, and thus its request that SPP’s rates be suspended and made effective subject to refund was within the Commission’s jurisdiction. See Request for Rehearing and Request for Clarification at 4 (Mar. 25, 2013) (“2013 Reh’g Request”).
The Commission denied rehearing and accepted SPP’s
compliance filing in which Tri-County agreed to pay forward
looking refunds.
Sw. Power Pool, Order Denying Rehearing
and Accepting Compliance Filing Subject to Further
Compliance Filing
(“
Order III
”),
In the meantime, an administrative law judge determined
that Tri-County “ha[d] failed to carry its burden to prove that its
facilities [included in exhibits to SPP’s tariff filing] are
Transmission Facilities eligible to be rolled into SPP’s Zone 11
ATRR.”
Sw. Power Pool, Initial Decision
,
II.
Xcel petitions for review of the Commission’s three orders
denying a refund of the unlawful rates it paid for eleven months,
from April 1, 2012, to February 22, 2013.
See
FPA § 313(b), 16
U.S.C. § 825
l
(b). The court reviews the Commission’s orders
under the Administrative Procedure Act to determine whether the
Commission’s action is arbitrary and capricious or contrary to
law.
See, e.g.
,
Sithe/Independence Power Partners v. FERC
, 165
F.3d 944, 948 (D.C. Cir. 1999). This is a deferential standard,
see
Transmission Access Policy Study Grp. v. FERC
,
It is long-established that the “primary aim [of the FPA] is
the protection of consumers from excessive rates and charges.”
Mun. Light Bds. of Reading & Wakefield v. FPC
,
First, as a threshold matter, to the extent the Commission denied Xcel relief because it lacks authority to order refunds from Tri-County, a non-jurisdictional entity, this was not responsive to Xcel’s request. See Order II at PP 14–15; Order III at P 28 & n.43. (The same is true of such arguments as appear in the Commission’s brief. See, e.g. , Resp’t’s Br. 35.) Xcel did not argue that the Commission has authority under the FPA to order refunds from Tri-County. Rather, Xcel argued that the Commission may exercise its remedial authority with respect to SPP, whose OATT was unlawfully inflated by Tri-County’s ATRR, resulting in Xcel’s subsidiary SPS paying unlawful rates for eleven months. See, e.g. , 2012 & 2013 Reh’g Requests at 6 and 16, respectively. SPP’s filing pursuant to section 205 submitted revisions to its tariff, albeit to implement Tri-County’s ATRR. As Xcel has noted without contradiction by the Commission, SPP’s proposed rates were filed by SPP, charged to SPP’s customers by SPP, and were associated with service purported to be provided by SPP. SPS did not and does not take transmission service from Tri-County nor had any arrangement or other obligation to pay for Tri-County’s non-jurisdictional tariffs. See Pet’r’s Br. 27–28. The Commission acknowledged that:
[A]s a regional transmission organization, SPP controls
the transmission facilities that provide the services and
has the OATT pursuant to which the services are
provided, and thus SPP is the entity providing services,
even if the relevant charges are ultimately traceable to
[a non-jurisdictional entity] and even if they appear on
SPP’s invoices as line items and with no “mark up.”
SPP 2007
,
Second, the Commission’s reliance on section 2.4(a) of its
regulations and related cases to deny Xcel retroactive relief is
misplaced.
See Order III
at P 28. Xcel does not dispute that
section 2.4(a) is a general prohibition against suspending a rate
schedule in effect under a final order that was not the product of
the Commission’s legal error.
See generally United Gas
Improvement Co. v. Callery Props., Inc
, 382 U.S. 223, 229
(1965). Rather, Xcel maintains that the applicability of section
2.4(a) is far from evident where no full section 205 review has
occurred. The Commission relied on
Cooperative Power Ass’n
v. FERC
,
More telling still, the orders cited by the Commission that
have applied section 2.4(a) to deny rehearing to suspend a rate
are inapposite.
See Order III
at PP 25 n.36, 28 n.44 (citing
Dynegy Midwest Generation, Inc.
,
In seeking rehearing of
Order II
, Xcel argued as well that
the Commission had authority under section 309 of the FPA to
remedy its legal error and provide Xcel relief.
See
2013 Reh’g
Request at 16. Xcel referenced the Supreme Court’s statement
in analogous circumstances that “[a]n agency, like a court, can
undo what is wrongfully done by virtue of its order,” which was
not final as it was still subject to judicial review.
United Gas
Improvement Co.
,
Still, the Commission dug in its heels, disclaiming any
power or principle of equity to grant Xcel further relief, stating
it could not act in a manner that was inconsistent with the statute
where rates were accepted and have taken effect even to achieve
what some parties have claimed is a more equitable result.
Order III
at P 27 (citing
Pub. Utils. Comm’n of Cal. v. FERC
,
988 F.2d 154, 168 n.12 (D.C. Cir. 1993)). For instance, the
Commission cited
City of Anaheim v. FERC
,
On appeal, the Commission, and intervenors SPP and Tri-
County, rely on
Indiana & Michigan
,
The Commission ignores what distinguishes the instant case, where it has conceded an error of law by failing, contrary to section 205’s mandate, to ensure SPP’s rates were just and reasonable before they took effect or provide refund protection. In a typical case, where the Commission exercises its section 205 authority to ensure consumer protection against unjust and unreasonable rates, Xcel is not contesting the applicability of section 2.4(a) of the Commission’s regulations in denying retroactive relief where a rate schedule has been approved and taken effect in a final order. But where the Commission acknowledges that it acted contrary to section 205’s mandate to protect consumers against unjust and unreasonable rates, its initial rate order is ultra vires and the Commission cannot rationally ignore the different contexts in which it has refused to suspend existing rate schedules or its remedial authority in section 309.
Xcel observes that this court could exercise its equity power,
see
Pet’r’s Br. 50, to respond to the “exigencies of the case” in
order to eliminate “compelling” hardship from non-recoverable
excessive rates,
Ind. & Mich.
, 502 F.2d at 345–46.
Consideration of that option is premature. The Commission has
yet to evaluate the equities of providing refund protection to
recover unlawful rates resulting from its failure to adhere to
section 205’s mandate. On appeal, the Commission has
expressed concern about under-recovery, which it states “there
could be in this case,” Resp’t’s Br. 33, but this was not the
Commission’s rationale in denying relief in
Orders II
or
III
.
See
SEC v. Chenery Corp.
,
Because the Commission’s reliance on section 2.4(a) of its
regulations as applied in its precedent is inapposite, and its
position that its section 205 error of law is irremediable beyond
prospective relief under section 206 appears irreconcilable with
the authority Congress granted it in section 309 to remedy its
errors, we grant the petition in part and remand the case to the
Commission for appropriate action.
See Cities of Batavia
, 672
F.2d at 77. Xcel suggests that the remedy it seeks would not
involve a change to the originally granted effective date for the
SPP rates of April 1, 2012, and that there is no reason to presume
the necessary correction to
Order I
would contravene the FPA,
inasmuch as parties were on notice the SPP rate is tentative and
may be adjusted with retroactive effect.
See
Pet’r’s Br. 40–41
(citing
NSTAR Elec. & Gas Corp. v. FERC
,
Notes
[1] Xcel cited as examples:
City of Azusa
, 138 FERC
¶ 61,049 (2012);
City of Pasadena
,