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Ameren Services Co. v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

June 22, 2018

AMEREN SERVICES COMPANY, AS AGENT FOR UNION ELECTRIC COMPANY D/B/A AMEREN MISSOURI, AMEREN ILLINOIS COMPANY D/B/A AMEREN ILLINOIS AND AMEREN TRANSMISSION COMPANY OF ILLINOIS, ET AL., PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT MIDCONTINENT INDEPENDENT SYSTEM OPERATOR, INC., ET AL., INTERVENORS

          Argued November 8, 2017

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

          Michael J. Thompson argued the cause for petitioners MISO Transmission Owners and intervenor Midcontinent Independent System Operator, Inc. On the joint briefs were Jim Holsclaw, Matthew R. Dorsett, Christopher D. Supino, Brooksany Barrowes, and Marcia Hook. Wendy N. Reed and Matthew J. Binette entered appearances.

          Nicholas M. Gladd, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the briefs were Robert H. Solomon, Solicitor, and Elizabeth E. Rylander, Attorney. Beth G. Pacella, Attorney, entered an appearance.

          Before: Tatel, Griffith and Srinivasan, Circuit Judges.

          OPINION

          SRINIVASAN CIRCUIT JUDGE.

         In 2011, the Federal Energy Regulatory Commission issued Order 1000, which aims, among other things, to encourage the development of "interregional" electricity transmission projects-projects spanning more than one geographic region. The interregional component of Order 1000 rested on the belief that certain interregional projects might meet the needs of transmission providers and customers more efficiently and effectively than regional projects, but that prevailing incentives and coordination mechanisms did not adequately encourage regional transmission providers to pursue interregional projects.

         To that end, Order 1000 calls for regional providers to jointly evaluate interregional projects. As part of that process, providers must adopt cost-allocation methodologies for dividing up the costs of a joint project. The primary goal of Order 1000's cost-allocation provisions is to assure that the relative costs borne by a particular transmission provider be commensurate with the relative benefits gained by the provider from the project.

         This case concerns one transmission provider's proposed interregional cost-allocation methodology. Midcontinent Independent System Operator (MISO), an organization that operates transmission facilities on behalf of providers across fifteen states in the Midwest, proposed to conduct cost allocation for interregional projects using what's called a cost-avoidance method. The share of costs allocated to MISO under that method corresponds to the benefits to MISO of its regional projects that would be displaced by the interregional project. In identifying which regional projects should be regarded as displaced by an interregional project, MISO proposed to exclude any project that had already been approved by the MISO board.

         The Commission rejected MISO's cost-allocation approach. In the Commission's view, excluding approved regional projects from the analysis would result in a failure to account for the full potential benefits of an interregional project. The transmission providers that make up MISO filed a petition for review in this court. We deny the petition.

         I.

         A.

         Electric transmission in the United States is largely managed by regional transmission organizations (RTOs) and independent system operators (ISOs). Those entities operate the electric transmission systems for a geographic region on behalf of the local utilities (known as transmission providers) in a region. MISO operates transmission facilities in the midwestern United States on behalf of more than two dozen transmission providers, petitioners here.

         For the past several decades, the Federal Energy Regulatory Commission, acting under its authority to fix just and reasonable rates under section 206 of the Federal Power Act has issued orders requiring RTOs and ISOs to adopt practices meant to encourage competition in the market for electricity. E.g., Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, 136 FERC ¶ 61, 051 at PP 1-5 (2011). Order 1000, among the most recent of those orders, requires ISOs and RTOs to consider and evaluate interregional projects-projects embracing more than one region-and set certain parameters for allocating the costs of those interregional projects among providers. Id. The Commission's aim is to induce the construction of interregional projects "if such facilities address the needs of the transmission planning regions more efficiently or cost-effectively" than regional projects. Id. at 111.

         Order 1000's cost-allocation provisions seek to further that goal. Establishing both a mechanism and set of principles for cost allocation, Order 1000 calls for neighboring ISOs and RTOs to reach agreements on cost allocation for interregional projects that avoid free rider problems, that improve transparency with respect to the costs of interregional projects, and that otherwise align regional and interregional planning processes. The guiding principle behind Order 1000's cost-allocation provisions is that the costs of interregional projects should be "allocated in a way that is roughly commensurate with benefits." Id. at 178.

         This court considered a petition for review raising a variety of challenges to Order 1000. S.C. Pub. Serv. Authority v. FERC, 762 F.3d 41 (D.C. Cir. 2014) (per ...


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