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Verso Corp. v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

July 31, 2018

Verso Corporation, Petitioner
v.
Federal Energy Regulatory Commission, Respondent Marquette Board of Light and Power, et al., Intervenors

          Argued April 6, 2018

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

          David W. D'Alessandro argued the cause for petitioner Michigan Public Service Commission. William F. Demarest Jr. argued the cause for petitioners Tilden Mining Company L.C. and Empire Iron Mining Partnership. With them on the joint briefs were Kelly A. Daly, M. Denyse Zosa, Steven A. Neeley Jr., Sylvia J.S. Bartell, Lauren D. Donofrio, Assistant Attorney General, Office of the Attorney General for the State of Michigan, Jennifer U. Heston, Saulius K. Mikalonis, Christopher R. Jones, Elizabeth W. Whittle, Thomas J. Waters, Christine C. Ryan, Phyllis G. Kimmel, Robert C. Fallon, and Andrew B. Young. Steven D. Hughey, Assistant Attorney General, Office of the Attorney General for the State of Michigan, Francis A. Taylor Jr., and A. Hewitt Rose III, entered appearances.

          Holly E. Cafer, Senior Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were James P. Danly, General Counsel, Robert H. Solomon, Solicitor, and Nicholas M. Gladd, Attorney.

          William L. Massey argued the cause for intervenor Public Service Commission of Wisconsin. On the joint brief of intervenors were Cynthia S. Bogorad, David E. Pomper, Rory McGarry, Justin M. Vickers, Regina Y. Speed-Bost, and Debra Ann Palmer.

          Before: Rogers, Srinivasan and Wilkins, Circuit Judges.

          OPINION

          Wilkins, Circuit Judge

         In Louisiana Public Service Commission v. Federal Energy Regulatory Commission, this Court affirmed FERC's denial of refunds in a cost-allocation case, upholding its discretion to deny refunds where a flaw in rate design caused the costs to be borne disproportionately among customers. See 883 F.3d 929 (D.C. Cir. Mar. 6, 2018). This case presents a similar scenario with an opposite result: here, after finding the rate-distribution methodology unjust and unreasonable upon a Section 206 complaint, FERC ordered refunds to customers who paid too much, funded by surcharges on customers who paid too little. Petitioners - who were subjected to surcharges - challenge FERC's orders as violating the filed-rate doctrine and the prohibition on retroactive rate increases. They also argue that FERC's decisions were supported by insufficient evidence and that FERC's reliance on the evidence it did employ was arbitrary and capricious.

         We conclude that the reallocation at issue here does not constitute an impermissible retroactive rate increase. FERC reasonably determined that the prior rate methodology was unjust and unreasonable, and its reliance on certain evidence in reaching this conclusion was appropriate. Having established that the existing rate was unjust and unreasonable, and having determined that a different methodology would comply with cost-causation principles, FERC had authority to order refunds and corresponding surcharges under Section 206 and its broad remedial authority under Section 309. Accordingly, we deny the Petitions for review.

         I.

         This case involves system support resource ("SSR") costs in the territory of the American Transmission Company ("ATC") under the Midcontinent Independent System Operator, Inc. ("MISO") Tariff. To ensure system stability, MISO requires energy producers in its territory to notify MISO prior to ceasing operation. MISO then evaluates the importance of the would-be retired facility and may require continued operation if necessary for the reliability of energy supply. Such providers are designated SSRs, and they are compensated for the cost of continued operation under SSR agreements with MISO.

         For most of the MISO service area, SSR costs have long been shared by customers based on the load served. Midwest Indep. Transmission Sys. Operator, Inc. Pub. Utils. with Grandfathered Agreements in the Midwest Iso Region, 108 FERC ¶ 61, 163, ¶ 61, 968, P 372 (Aug. 6, 2004). Under this allocation methodology, each load-serving entity ("LSE") pays for the reliability resources in proportion to its reliability needs.

         For the ATC area, however, the MISO Tariff allocated SSR costs pro rata among all customers. See id. at P 368. FERC originally approved the ATC pro rata allocation as part of the separate tariff for ATC's territory in Michigan's Upper Peninsula and Wisconsin. See Wis. Elec. Power Co. Am. Transmission Co., LLC Madison Gas & Elec. Co. Wis. Pub. Serv. Corp. Wis. Power & Light Co., 97 FERC ¶ 61, 337, ¶ 62, 582 & n.4 (Dec. 21, 2001). However, FERC incorporated ATC into the MISO system around the same time that it approved ATC's SSR-cost-allocation methodology. See Am. Transmission Co., LLC, 97 FERC ¶ 62, 182, ¶ 64, 269 (Nov. 28, 2001). The MISO Tariff continued the pro rata allocation methodology for the ATC area after it became part of MISO. Specifically, Section 38.2.7.k of the Tariff provided that "any costs of operating an SSR Unit allocated to the footprint of [ATC] shall be allocated to all LSEs within the footprint of [ATC] on a pro rata basis." See Midcontinent Indep. Sys. Operator, Inc. Pub. Serv. Comm'n of Wis., 148 FERC ¶ 61, 071, ¶ 61, 443, P 12 (July 29, 2014) ("July 29, 2014 Order"). Only the ATC area was subject to such a specified methodology: for the rest of the MISO area, the Tariff provided only that reliability costs were allocated to the LSEs "which require[] the operation" of reliability resources. Id. at P 18. In other words, SSR costs for all non-ATC service areas were allocated to the LSEs that actually benefited from the reliability resources.

         The instant Petitions arise from SSR agreements regarding three facilities in the ATC service area. MISO filed the first SSR agreement using the ATC pro rata allocation in October 2012, for the continued operation of a City of Escanaba, Michigan facility, which FERC accepted. See Midwest Indep. Transmission Sys. Operator, Inc., 142 FERC ¶ 61, 170, ¶ 61, 812, P 11 (Mar. 4, 2013). In early 2014, MISO filed an SSR agreement requiring the continued operation of a Presque Isle facility located in Marquette, Michigan, with costs allocated to customers pro rata. FERC accepted the proposed Presque Isle SSR Agreement on April 1, 2014. Midcontinent Indep. Sys. Operator, Inc., 147 FERC ¶ 61, 004, ¶ 61, 013, PP 5, 12 (Apr. 1, 2014). MISO also submitted an SSR agreement regarding the continued operation of a White Pine Electric Power, LLC unit, which FERC accepted on June 13, 2014. Midcontinent Indep. Sys. Operator, Inc., 147 FERC ¶ 61, 199, ¶ 62, 114, PP 1, 3, 11 (June 13, 2014).

         On April 3, 2014, two days after FERC accepted the Presque Isle SSR Agreement, the Public Service Commission of Wisconsin ("Wisconsin Commission" or "PSCW") filed a complaint under Section 206 of the Federal Power Act, 16 U.S.C. § 824e, to challenge the allocation of the Presque Isle SSR costs as unjust and unreasonable. The Complaint relied on a study that MISO conducted, at the request of stakeholders, to assess which load-serving entities in the ATC footprint actually benefited from the continued operation of the Presque Isle facility. PSCW Complaint at 3 & n.8, FERC Docket No. EL14-34-000 (Apr. 3, 2014). The preliminary load-shed analysis showed that 42 percent of the benefiting load of the Presque Isle ...


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