United States Court of Appeals, District of Columbia Circuit
March 19, 2018
Petitions for Review of Orders of the Federal Energy
Jonathan S. Franklin argued the cause for petitioners. With
him on the briefs were Michael A. Yuffee, Adrienne E. Clair,
and Rebecca L. Shelton.
M. Vaysman and Michael R. Engleman were on the brief for
intervenors LSP Transmission Holdings, LLC, et al. in support
T. Perry, Deputy Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief was Robert H. Solomon, Solicitor.
Parke, Stacey L. Burbure, Kenneth G. Jaffe, Neil H.
Butterklee, Gary E. Guy, Amanda Riggs Conner, Randall V.
Griffin, Richard P. Bress, David L. Schwartz, Vilna Waldron
Gaston, and Sandra E. Rizzo were on the brief for intervenors
FirstEnergy Companies, et al. in support of respondent.
Kenneth R. Carretta and Elias G. Farrah entered appearances.
Before: Henderson, Kavanaugh, [*] and Katsas, Circuit Judges.
past, electric utilities in the mid-Atlantic region have
shared the costs of high-voltage transmission lines, which
benefit the entire region. In 2015, some of these utilities
proposed to eliminate cost sharing for projects undertaken
only to satisfy an individual utility's planning
criteria, including projects that involve high-voltage lines.
The Federal Energy Regulatory Commission approved this change
and applied it to deny cost sharing for projects to rebuild
two high-voltage lines. The petitioners, whose local zone now
must bear the entire cost of these two projects, contend that
FERC's decisions were unlawful or inadequately explained.
Federal Power Act gives FERC jurisdiction over facilities
that transmit electricity in interstate commerce.
See 16 U.S.C. § 824(b)(1); 42 U.S.C. §
7172(a)(1)(B). Under the Act, electric utilities must charge
"just and reasonable" rates. 16 U.S.C. §
824d(a). For decades, the Commission and the courts have
understood this requirement to incorporate a
"cost-causation principle"-the rates charged for
electricity should reflect the costs of providing it. See
Ala. Elec. Co-op., Inc. v. FERC, 684 F.2d 20, 27 (D.C.
Cir. 1982). We often frame this principle as one that ensures
"burden is matched with benefit," so that FERC
"generally may not single out a party for the full cost
of a project, or even most of it, when the benefits of the
project are diffuse." BNP Paribas Energy Trading GP
v. FERC, 743 F.3d 264, 268 (D.C. Cir. 2014); see
Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361,
1368-69 (D.C. Cir. 2004). This cost-causation principle
"add[s] flesh to [the] bare statutory bones" of the
just-and-reasonable-rate requirement. K N Energy, Inc. v.
FERC, 968 F.2d 1295, 1300 (D.C. Cir. 1992).
promote more efficient coordination among electric utilities,
FERC has promulgated a regulation known as "Order No.
1000." Transmission Planning and Cost Allocation by
Transmission Owning and Operating Public Utilities, 136 FERC
¶ 61, 051 (2011). It imposes two requirements relevant
here. First, utilities in each planning region must jointly
produce a regional transmission plan to determine what new
facilities would best meet regional needs for electricity.
Id. P 148. Second, in their respective tariffs,
utilities must include a formula "for allocating the
costs of new transmission facilities selected in the regional
transmission plan for purposes of cost allocation."
Id. P 558. This formula must satisfy six general
principles, the first of which is the cost-causation
principle: "The cost of transmission facilities must be
allocated to those within the transmission planning region
that benefit from those facilities in a manner that is at
least roughly commensurate with estimated benefits."
Id. P 622. Order No. 1000 requires each utility to
show, through compliance filings, that its cost-allocation
formula is consistent with the six specified principles.
Id. P 603.
case involves disputes within a planning region encompassing
much of the Mid-Atlantic and part of the Midwest. In this
region, the transmission of electricity is overseen by PJM
Interconnection, LLC, which controls but does not own the
facilities of its member utilities. ("PJM" refers
to Pennsylvania, New Jersey, and
Maryland-the first three states in which PJM
operated.) The region is subdivided into zones that
correspond to areas served by each individual utility. The
utilities are governed by the PJM Operating Agreement, which
sets forth the respective rights and duties of PJM and its
members, and the PJM Open Access Transmission Tariff, which
details the terms on which the utilities provide service.
comply with the regional-planning requirement of Order No.
1000, PJM-member utilities maintain a Regional Transmission
Expansion Plan. Schedule 6 of the Operating Agreement
specifies what kind of projects must be included in this
Regional Plan. As relevant here, Schedule 6 designates three
categories of projects for inclusion in the Plan: (1)
projects to satisfy PJM's own planning and reliability
criteria; (2) projects to satisfy reliability criteria
developed by standard-setting organizations such as the North
American Electric Reliability Corporation ("NERC");
and (3) projects to satisfy planning criteria established by
individual utilities. The utilities submit their individual
planning criteria both to FERC, on a document called Form
715, and to PJM.
12 of the Tariff addresses the cost-sharing requirements of
Order No. 1000. Before 2015, Schedule 12 required regional
cost sharing for all "Regional Facilities," which
it defined as projects that were (a) included in the Regional
Plan to satisfy any of the planning criteria described above
and (b) particular kinds of high-voltage projects. Schedule
12 also establishes the cost-allocation formula for such
Regional Facilities. Half of these costs are allocated on a
pro rata basis, based on the level of customer demand within
each zone, regardless of where the specific project at issue
is located. This method of cost allocation is called the
"postage stamp" approach. The remaining costs are
allocated based on an estimate of which zones most directly
benefit from the project at issue, as made under what is
called a "distribution factor ('DFAX')
analysis." In contrast, the costs of lower-voltage
facilities, which generally do not qualify as "Regional
Facilities," are allocated solely under a DFAX analysis.
required by Order No. 1000, PJM submitted this
cost-allocation methodology to FERC, which approved it in
March 2013. PJM Interconnection, LLC, 142 FERC
¶ 61, 214, PP 412-26 (2013) ("PJM Compliance
Order"). In so doing, FERC specifically found that
"high-voltage transmission facilities have significant
regional benefits that accrue to all members of the PJM
transmission system." Id. P 413. Further, it
found that the proposed hybrid cost-allocation method for
high-voltage facilities, incorporating both postage-stamp and
DFAX components, would satisfy the cost-causation principle
"that costs be allocated in a manner that is roughly
commensurate with benefits received." Id.
According to FERC, the postage-stamp component
"capture[d] the full spectrum of benefits associated
with high-voltage facilities, including difficult to quantify