Consol. Edison Co. of N.Y., Inc. v. Fed. Energy Regulatory Comm'n

45 F.4th 265

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Petitioner

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent

Hudson Transmission Partners, LLC, et al., Intervenors

New Jersey Board of Public Utilities, Petitioner

v.Federal Energy Regulatory Commission, Respondent

Public Service Electric and Gas Company, et al., Intervenors

No. 15-1183

C/w 15-1188, 16-1153, 19-1002, 20-1074, 20-1077, 20-1082, 20-1269, 20-1351, 20-1382

No. 20-1079

C/w 20-1080, 20-1081

United States Court of Appeals, District of Columbia Circuit.

Argued March 14, 2022

Decided August 9, 2022

Richard P. Bress argued the cause for petitioners. With him on the joint briefs were Neil H. Butterklee, Susan J. LoFrumento, Sebrina M. Greene, Gary D. Levenson, William R. Hollaway, Lucas C. Townsend, David L. Schwartz, Eric J. Konopka, Shannon M. Grammel, Lawrence G. Acker, Gary D. Bachman, and Michael Diamond. Elias G. Farrah and Andrew F. Neuman entered appearances.

Kevin M. Lang, John Sipos, John C. Graham, and Alina Buccella were on the joint brief for intervenors City of New York and New York State Public Service Commission in support of petitioners.

Elizabeth E. Rylander, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Susanna Y. Chu, Attorney.

David M. Gossett argued the cause for intervenors American Electric Power Service Corporation, et al. in support of respondent. With him on the joint brief were John Longstreth, Donald A. Kaplan, Richard P. Sparling, Stacey Burbure, Cara J. Lewis, and Steven M. Nadel. Kenneth R. Carretta, Amanda R. Conner, Vilna W. Gaston, William M. Keyser III, Morgan Parke, Bradley Miliauskas, and P. Nikhil Rao entered appearances.

Alec Schierenbeck, Deputy State Solicitor, Office of the Attorney General for the State of New Jersey, argued the cause for petitioner. With him on the briefs were Andrew J. Bruck, Acting Attorney General, and Paul Youchak and Nathaniel Levy, Deputy Attorneys General. Alex Moreau, Deputy Attorney General, entered an appearance.

Susanna Y. Chu, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were Matthew R. Christiansen, General Counsel, Robert H. Solomon, Solicitor, and Elizabeth E. Rylander, Attorney.

Lucas C. Townsend argued the cause for intervenors Consolidated Edison Company of New York, Inc., et al. in support of respondent. With him on the brief were Neil H. Butterklee, Susan J. LoFrumento, Richard P. Bress, David L. Schwartz, Eric J. Konopka, Gary D. Levenson, William R. Hollaway, Lawrence G. Acker, Gary D. Bachman, and Brian M. Zimmet.

Before: Katsas and Rao, Circuit Judges, and Silberman, Senior Circuit Judge.

Per Curiam:

Part of the electricity transmission grid in northern New Jersey was aging, storm-damaged, and vulnerable to short circuits. In response, PJM Interconnection, LLC ("PJM")—the regional transmission organization responsible for managing the grid in New Jersey—authorized a series of upgrades to facilities owned by the Public Service Electric and Gas Company ("PSE&G"). One set of improvements centered on the transmission corridor between PSE&G's Bergen and Linden switching stations; a second involved repairs to and around PSE&G's Sewaren substation. Together, these two projects cost around $1.3 billion. Initially, PJM assigned most of the projects’ costs to entities that reroute electricity from northern New Jersey into the New York market. Thereafter, the New York-based entities gave up their rights to withdraw electricity from New Jersey, and PJM reassigned their costs to PSE&G.

The Federal Energy Regulatory Commission ("FERC" or "the Commission") approved both rounds of cost allocations. The petitions for review in these two cases are about whether these cost allocations were "just and reasonable" under the Federal Power Act, 16 U.S.C. §§ 824d(a), 824e(a), and whether FERC's orders were "arbitrary [and] capricious" in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2)(A). In effect, they are about who must pay the bill.

I.

The thirteen petitions for review before us challenge twenty FERC orders, involve numerous parties, implicate a series of related legal issues, and arise from a complex procedural history. We begin by setting out the regulatory and factual background needed to understand these petitions.

A.

The Federal Power Act gives FERC "jurisdiction over facilities that transmit electricity in interstate commerce," Old Dominion Elec. Coop. v. FERC , 898 F.3d 1254, 1255 (D.C. Cir. 2018), and requires that the rates charged for such transmission be "just and reasonable," 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." Old Dominion , 898 F.3d at 1255. "[A]lthough the Commission need not allocate costs with exacting precision, the costs assessed against a party must bear some resemblance to the burdens imposed or benefits drawn by that party." Pub. Serv. Elec. & Gas Co. v. FERC ("Artificial Island "), 989 F.3d 10, 13 (D.C. Cir. 2021) (cleaned up).

Utilities, independent system operators, and regional transmission organizations must seek approval from FERC for new rates through the process outlined in section 205 of the Federal Power Act. See 16 U.S.C. § 824d(d) – (e). Section 206 permits "the Commission [to] investigate—on its own initiative or based on a third-party complaint—whether an existing rate is ‘unjust, unreasonable, [or] unduly discriminatory.’ " Artificial Island , 989 F.3d at 13 (quoting 16 U.S.C. § 824e(a) ). "[U]ndue discrimination occurs [where] entities [that] are similarly situated" are charged different rates for no discernable reason. Mo. River Energy Servs. v. FERC , 918 F.3d 954, 958 (D.C. Cir. 2019) (cleaned up). In a section 206 proceeding, if FERC finds the existing rate is "unjust, unreasonable, [or] unduly discriminatory," it must "determine the just and reasonable rate." 16 U.S.C. § 824e(a).

B.

These petitions arise out of the legal relationships between the parties as well as the FERC-approved method by which PJM allocates the costs of major infrastructure projects on its transmission grid.

1.

PJM is the regional transmission organization responsible for coordinating the transmission of electricity in the mid-Atlantic region, which stretches from North Carolina to New Jersey. The dominant electricity provider in northern New Jersey is PJM-member PSE&G. Across the Hudson River, the New York grid is managed by the New York Independent System Operator, Inc. ("NYISO"). Electricity in New York City is transmitted and sold by the Consolidated Edison Company of New York, Inc. ("ConEd") and the New York Power Authority ("NYPA"), among other utilities.

The PJM and NYISO grids are interconnected, with large quantities of electricity flowing between New Jersey and New York across the jurisdictional line. Two of the longstanding connections between these grids are central to the petitions before us. First, beginning in the 1970s, PSE&G entered into an electricity swapping agreement with ConEd. The parties clarified the terms of this "wheeling agreement" most recently in a 2009 settlement. See PJM Interconnection, LLC , 132 FERC ¶ 61,221 (2010) [ConEd-PSE&G Settlement Order]. Under the settlement, ConEd agreed to redirect 1,000 megawatts of electricity from upstate New York into PSE&G's transmission network in northern New Jersey; in return, PSE&G agreed to route the same amount of electricity from New Jersey into New York City. Id. at P 23. This wheeling agreement allowed ConEd to serve its customers in New York City without having to build a new transmission line into the city. See id. at P 2.

Second, because the prices of electricity on the PJM and NYISO grids sometimes diverge, a handful of "merchant transmission facilities" have sprung up to capitalize on the arbitrage opportunity. Two such facilities—Linden VFT, LLC ("Linden") and Hudson Transmission Partners, LLC ("Hudson")—are petitioners here. When prices in New Jersey are lower, Linden and Hudson reroute electricity from New Jersey into the New York market and resell it at a profit.¹ In order to provide reliable, on-demand service to their New York customers, Linden and Hudson have historically held "firm transmission withdrawal rights," which permit them to extract an agreed-upon amount of electricity from the PJM grid at (almost) any time.

2.

One of PJM's primary responsibilities is overseeing the coordinated development of the mid-Atlantic grid and apportioning the costs of major grid improvements among its member utilities.

In 2011, FERC's "Order No. 1,000" directed each planning region to select an ex ante "method, or set of methods, for allocating the costs of new transmission facilities selected in [its] regional transmission plan," and to submit their chosen method for FERC's approval. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities , 136 FERC ¶ 61,051 at P 558 (2011) [Order No. 1,000]; see id. at P 603. The Commission gave each region leeway to design its own cost allocation method, id. at PP 605–06, but set out six general cost allocation principles that are binding on all planning regions. As relevant here, Order No. 1,000 requires that every region's cost allocation method reflect the Federal Power Act's cost causation principle (Principle 1), and that the costs of any new project be assigned only to parties within the project's planning region, unless a party outside the region agrees to assume costs (Principle 4). Id. at PP 622, 657. Order No. 1,000 required each region to use its ex ante cost allocation method only for "regional plan" projects—that is, projects undertaken to meet the region's minimum transmission capacity and grid reliability criteria. See Old...