N.Y. Power Auth. & Hudson Transmission Partners, LLC v. Fed. Energy Regulatory Comm'n

109 F.4th 550

NEW YORK POWER AUTHORITYAND HUDSON TRANSMISSION PARTNERS, LLC, Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent

PJM Interconnection, L.L.C.

and PPL Electric Utilities Corporation, Intervenors

No. 20-1283

Consolidated with 20-1352

United States Court of Appeals, District of Columbia Circuit

Argued December 11, 2023

Decided July 26, 2024

On Petitions for Review of Orders of the Federal Energy Regulatory Commission

Lucas C. Townsend argued the cause for petitioners. With him on the joint briefs were Gary D. Levenson, Lawrence G. Acker, Gary D. Bachman, and William R. Hollaway, Ph.D.

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

John Longstreth argued the cause for respondent-intervenor PPL Electric Utilities Corporation. With him on the brief was Donald A. Kaplan. Steven M. Nadel entered an appearance.

Before: Rao, Walker and Childs, Circuit Judges.

Rao, Circuit Judge:

When Hudson Transmission Partners owned firm rights to draw electricity from the PJM grid, it was assessed costs for certain improvements. Hudson relinquished its firm rights in 2017. The question presented here is whether, under the PJM Open Access Transmission Tariff ("PJM Tariff"), Hudson must continue paying the previously assessed costs for (1) upgrades to lower voltage facilities and (2) economic projects.

The Federal Energy Regulatory Commission ("FERC") correctly found that Hudson must continue to pay for these costs. The PJM Tariff dictates that prior assessments for lower voltage facility upgrades are fixed and unaffected by a change in firm rights, and the costs of economic projects are validly allocated to entities like Hudson that benefit from the energy savings. We accordingly deny the petitions for review.

I.

This case is a sequel to Consolidated Edison Co. of New York, Inc. v. FERC ("ConEd") and involves several of the same parties. See 45 F.4th 265 (D.C. Cir. 2022) (per curiam). That decision discusses the regulatory background and the relationship between the various energy providers in detail, but we recount the facts necessary to evaluate the issues presented here.

A.

PJM Interconnection ("PJM") manages the electric grid in a region stretching from Illinois to New Jersey, overseeing a network of member utilities that deliver energy from generators to consumers. The utilities own the grid's electrical infrastructure, but PJM exercises operational control over the transmission of electricity and coordinates with several "merchant transmission facilities," like Hudson. Unlike utilities, which sell electricity to customers within PJM's grid, merchant transmission facilities pay to draw power from PJM's grid and sell it to customers outside the PJM region. See PJM Interconnection, L.L.C., Opinion No. 503, 129 FERC ¶ 61,161 at P 2 & n.3 (2009); TransEnergie U.S., Ltd., 91 FERC ¶ 61,230, 61,835-36 (2000).

As part of its managerial responsibilities, PJM helps prepare the Regional Transmission Expansion Plan ("Regional Plan"), which schedules improvements to PJM's transmission facilities to accommodate changing energy needs. Because upgrades to one part of the grid often benefit other users, PJM can spread the costs among grid participants in accordance with Schedule 12 of the PJM Tariff. Two types of improvements are relevant here: reliability upgrades and economic projects. In its landmark Opinion No. 503, FERC concluded that merchant transmission facilities with firm rights could be assigned a share of the costs for these improvements. Opinion No. 503 at PP 73, 80.

The method for calculating cost assignments for reliability upgrades has changed significantly in the last decade. Before 2013, PJM assigned these upgrade costs using a violation-based distribution factor analysis, a "snapshot" approach designed to determine which entities were drawing power from specific facilities at a given time and contributing to violations of reliability standards. See PJM Interconnection, L.L.C., 142 FERC ¶ 61,214 at PP 348, 379, 427 (2013); PJM Interconnection, L.L.C., Opinion No. 494, 119 FERC ¶ 61,063 at P 2 n.3 (2007). Upgrade costs would then be assigned to participants in proportion to their contribution to the reliability violation. Because the violation-based method was tied to energy usage at a particular point in time and the calculations were fixed, FERC determined that the method failed to account for the constant changes to the grid. See PJM Interconnection, L.L.C., 138 FERC ¶ 61,230 at P 37 (2012). In 2013, PJM switched to a solution-based distribution factor. This calculation method projects who will benefit from upgrades based on relative usage, and it permits PJM to update and reassign costs annually. PJM Interconnection, 142 FERC ¶ 61,214 at PP 379, 416.

When PJM changed to the new cost calculation method, Schedule 12 was revised, but these revisions also included a kind of saving clause stating "nothing" in the revised Schedule 12 "shall change the assignment of cost responsibility" for reliability upgrades calculated using the old violation-based method, "[e]xcept as specifically set forth herein." PJM Tariff, Sched. 12(a)(v).

B.

Petitioner Hudson is a merchant transmission facility that interconnects with PJM. It owns an eight-mile-long cable that runs under the Hudson River from New Jersey to New York. When energy prices are lower in New Jersey, Hudson routes electricity across the river and sells it at a profit. On the New Jersey side, Hudson connects to a PJM member utility, while in New York, Hudson's "anchor" customer is the New York Power Authority, a government-run electrical utility. The New York Power Authority is responsible for the charges that Hudson incurs to obtain electricity from PJM.

In 2010, Hudson contracted with PJM for firm rights, entitling Hudson to draw a guaranteed amount of energy from PJM's grid. At that time, several merchant transmission facilities held firm rights, and ConEd held the equivalent of firm rights. Hudson, ConEd, and the other facilities were each assigned a percentage of the cost responsibility for improvements. Pre-2013 cost assessments for reliability upgrades—employing the old violation-based calculation method—were memorialized in Schedule 12's Appendix ("Appendix").

Faced with rising costs for various improvement projects, ConEd let its rights expire in 2017. A provision in the Tariff allowed PJM to reallocate ConEd's remaining cost responsibility if ConEd terminated its contract, and so PJM shifted a portion of ConEd's cost responsibilities onto Hudson. See id. Sched. 12(b)(xi)(B).

Also unable to keep up with these escalating costs, Hudson sought—and FERC approved—the conversion of its firm rights into non-firm rights. PJM Interconnection, L.L.C., 161 FERC ¶ 61,262 at P 1 (2017). This relieved Hudson of its obligation to pay for ongoing reliability upgrades calculated using the solution-based method, including $633 million in costs formerly assigned to ConEd. See PJM Interconnection, L.L.C., 162 FERC ¶ 61,197 at P 28 (2018). We affirmed that decision in ConEd. See 45 F.4th at 286-90. But neither FERC nor our court addressed whether Hudson, after relinquishing its firm rights, was obligated under the PJM Tariff to continue paying for other previously assessed costs.

C.

The question in this case is whether Hudson remains responsible for the balance of two kinds of previously assessed costs. First, Hudson claims it is no longer required to pay for reliability upgrades to "lower voltage facilities" that are listed in the Appendix. Lower voltage facilities are smaller segments of electrical infrastructure that improve grid reliability. Before 2013, Hudson was assigned a share of the cost responsibility for upgrades to these facilities, including a $975 million set of upgrades in New Jersey that was completed in 2016. Hudson claims that its remaining share of these upgrades is approximately $136 million, to be paid out over the next 40 years.

Second, Hudson insists its lack of firm rights eliminates its obligation to pay for nine "economic projects." When demand for energy outstrips transmission facilities' ability to provide it, the grid is forced to "draw on more expensive generation closer to the areas of high demand, which ultimately raises costs to consumers." Int'l Transmission Co. v. FERC, 988 F.3d 471, 473 (D.C. Cir. 2021). Economic projects aim to ameliorate these inefficiencies. PJM allocates the costs of economic projects to "Zones" based on their share of cost savings from the improvements over the first fifteen years of the projects' lives. See PJM Tariff, Sched. 12(b)(v)(C). PJM previously assessed Hudson cost responsibility for nine of these projects.

D.

Based on its interpretation of the Tariff, PJM concluded that after Hudson converted to non-firm rights, it was no longer responsible for paying for lower voltage facility upgrades and economic projects. PJM filed a proposal with FERC to revise Schedule 12 of the Tariff to that effect.¹ Several parties intervened to oppose the amendments, including some of PJM's member utilities.

FERC rejected PJM's proposed changes. PJM Interconnection, L.L.C., 170 FERC ¶ 61,295 at P 24 (2020). FERC first found that Hudson must continue to pay the previously assessed costs for lower voltage facilities. According to the Tariff, regional upgrade charges in the Appendix—including Hudson's responsibility for the lower voltage facilities—are fixed and unchangeable unless Schedule 12 "specifically" states otherwise. PJM Tariff, Sched. 12(a)(v). FERC determined that nothing in Schedule 12 explicitly changed this cost responsibility. PJM Interconnection, 170 FERC ¶ 61,295 at P 28. FERC also reasoned that costs for economic projects are allocated to "transmission owners whose load benefits from these investments." Id. at P 30. Even without firm rights, Hudson benefits from the...