Long Island Power Authority v. FERC ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 13, 2021 Decided March 4, 2022
No. 20-1033
LONG ISLAND POWER AUTHORITY AND LONG ISLAND
LIGHTING COMPANY, D/B/A LIPA,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
AMERICAN ELECTRIC POWER SERVICE CORPORATION, ET AL.,
INTERVENORS
Consolidated with 20-1035, 20-1273
On Petitions for Review of Orders
of the Federal Energy Regulatory Commission
Michael F. McBride argued the cause for petitioners Long
Island Power Authority, et al. Eric J. Konopka argued the
cause for petitioner Linden VFT, LLC. On the briefs were
Richard P. Bress, David L. Schwartz, and Joseph B. Nelson.
Anand R. Viswanathan, Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
2
With him on the brief were Matthew R. Christiansen, General
Counsel, and Robert H. Solomon, Solicitor.
John Longstreth argued the cause for respondent-
intervenors. With him on the brief were Gary E. Guy, Donald
A. Kaplan, Cara J. Lewis, Richard P. Sparling, Bradley R.
Miliauskas, Morgan E. Parke, Evan K. Dean, Pauline Foley,
Paul M. Flynn, Miles H. Mitchell, Stacey Burbure, Robert
Adkins, David Yost, Attorney General, Office of the Attorney
General for the State of Ohio, Werner L. Margard, Assistant
Attorney General, Steven D. Hughey and Spencer A. Sattler,
Assistant Attorneys General, Office of the Attorney General
for the State of Michigan, Daniel E. Frank, Allison E. Speaker,
Kriss E. Brown, Aspassia V. Staevska, Christian A. McDewell,
Gurbir S. Grewal, Attorney General, Office of the Attorney
General for the State of New Jersey, Paul Youchak, Deputy
Attorney General, Christopher R. Jones, Molly Suda, and
Christopher J. Barr. William M. Keyser III, Steven M. Nadel,
and Alex Moreau, Deputy Attorney General, Office of the
Attorney General for the State of New Jersey, entered
appearances.
Before: HENDERSON, KATSAS, and WALKER, Circuit
Judges.
Opinion of the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: This case arises from a long-
running dispute over how to allocate the costs of high-voltage
facilities to transmit electricity within the mid-Atlantic
planning region. The question is difficult because high-voltage
projects afford two different kinds of benefits—local benefits
that accrue primarily to utilities close to the project at issue,
and regional benefits that accrue throughout the grid. The
Seventh Circuit has twice set aside cost allocations that ignored
3
the local benefits, Illinois Commerce Comm’n v. FERC, 576
F.3d 470 (7th Cir. 2009) (Illinois Commerce I); Illinois
Commerce Comm’n v. FERC, 756 F.3d 556 (7th Cir. 2014)
(Illinois Commerce II), and we have set aside cost allocations
that ignored the regional benefits, Old Dominion Elec. Coop.
v. FERC, 898 F.3d 1254 (D.C. Cir. 2018).
This case involves a contested settlement covering high-
voltage projects approved between 2007 and 2013. The
settlement allocates their costs through hybrid formulas that
account for both local and regional benefits. In that respect, it
tracks the allocation formula for high-voltage projects
approved after 2013, which is not challenged here.
The Federal Energy Regulatory Commission approved the
settlement over the objection of two utilities that transmit
electricity from the mid-Atlantic region to New York. These
utilities argue that the approval was inconsistent with the
Seventh Circuit’s decisions, with FERC’s own precedent, and
with an underlying cost-causation principle. One of the utilities
also argues that FERC erroneously assigned it costs based on a
flawed interpretation of the settlement. We agree with the
second contention but not the first.
I
A
The Federal Power Act requires utilities to charge “just
and reasonable” rates for the transmission of electricity in
interstate commerce. 16 U.S.C. § 824d(a). To be just and
reasonable, rates must “reflect to some degree the costs actually
caused by the customer who must pay for them.” Midwest ISO
Transmission Owners v. FERC, 373 F.3d 1361, 1368 (D.C. Cir.
2004) (cleaned up). This “cost causation principle” requires
“comparing the costs assessed against a party to the burdens
4
imposed or benefits drawn by that party.” Id. If FERC
determines that a particular rate is unjust or unreasonable, it
must “determine the just and reasonable rate.” 16 U.S.C.
§ 824e(a).
B
PJM Interconnection, LLC is the regional transmission
organization (RTO) for an area encompassing much of the mid-
Atlantic and part of the Midwest. PJM takes its name from
Pennsylvania, New Jersey, and Maryland, the first three states
in which it operated, but its territory now extends as far west as
Illinois. As an RTO, PJM coordinates the movement of
electricity across the region. It operates transmission facilities
owned by member utilities, approves the construction of new
facilities, and files tariffs allocating among its members the
costs of the facilities.
This case involves high-voltage transmission facilities
within the PJM region. For over a decade, member utilities
disputed how to allocate the cost of these projects, which
provide both local and regional benefits. The facilities most
obviously benefit nearby utilities that use them directly, but
they also provide “backbone infrastructure” that improves
reliability and reduces congestion regionwide. PJM
Interconnection, L.L.C., 119 FERC ¶ 61,063, P 80 (2007)
(Opinion No. 494). A geographic asymmetry exacerbated the
dispute: Given the location of generators, electricity must flow
longer distances to reach consumers in the eastern part of PJM
than to reach their western counterparts. And because high-
voltage facilities work best to transmit electricity over long
distances, they are more useful in the eastern part. See Ill. Com.
II, 756 F.3d at 558; Ill. Com. I, 576 F.3d at 475.
Initially, PJM allocated the cost of its high-voltage
facilities based on what FERC calls the violation method (or,
5
less concisely, the violation-based distribution-factor method).
This method assumes that new projects are approved in
response to violations of reliability standards at overburdened
facilities. And it allocates costs based on use of those facilities
at the time of each violation. The violation method thus deems
utilities using overburdened facilities to have “cause[d]” the
relevant problem and to “benefit from” upgrades that eliminate
it. See Opinion No. 494, 119 FERC ¶ 61,063, P 2 n.3.
In 2007, FERC ordered PJM to replace its violation
method with a “postage stamp” method. This method allocates
the cost of a new facility in proportion to each utility’s sale of
electricity, regardless of where the facility is located or how
much each utility uses it. The Commission reasoned that the
postage-stamp method accounts for the regional benefits of
high-voltage facilities, incentivizes their development, and
avoids the trouble of quantifying the specific benefits that each
facility provides to each utility. Opinion No. 494, 119 FERC
¶ 61,063, PP 79–82.
In Illinois Commerce I, the Seventh Circuit set aside
FERC’s order. It reasoned that FERC had failed to make “even
the roughest of ballpark estimates” of the regional benefits said
to justify the postage-stamp method and had also failed to
explain why quantifying the local benefits—as it continued to
do for low-voltage projects—was now too difficult. 576 F.3d
at 475–78. Moreover, PJM’s geographic asymmetry made the
distinction between local and regional benefits important:
Because nearly all the high-voltage facilities were built in the
eastern part of the grid, fully regionalizing their costs would
substantially overcharge the western utilities. Id. at 475–76.
On remand, FERC again ordered the postage-stamp
method. PJM Interconnection L.L.C., 138 FERC ¶ 61,230(2012) (Remand Order). It concluded that the violation method
6
was unjust and unreasonable because it ignores both regional
benefits and the changing use of individual facilities over time.
Id. PP 38–41. The Commission then concluded that the
postage-stamp method was just and reasonable because it
accounts for the significant, though difficult to quantify,
“system-wide benefits” to the PJM grid. Id. P 49. On the
record before it, FERC considered only the violation and
postage-stamp methods, but it encouraged PJM stakeholders to
develop “hybrid” or other allocation methods. Id. P 2.
The Seventh Circuit set aside the Remand Order in Illinois
Commerce II. The court again faulted FERC for giving neither
a cost-benefit analysis nor an explanation of why such an
analysis was infeasible. 756 F.3d at 561. And it again
concluded that the postage-stamp method was “guaranteed to
overcharge the western utilities, as they will benefit much less
than the eastern utilities from eastern projects that are designed
to improve the electricity supply in the east.” Id.
C
While the Illinois Commerce litigation was ongoing,
FERC promulgated a regulation known as Order No. 1000,
which restructured arrangements for the coordinated
transmission of electricity. Transmission Planning and Cost
Allocation by Transmission Owning and Operating Public
Utilities, 136 FERC ¶ 61,051 (2011). Among other things,
Order No. 1000 requires RTOs and their member utilities to
establish tariff formulas allocating the costs of new
transmission facilities in advance. Id. P 558.
In response, PJM and its utilities proposed a hybrid
formula for new high-voltage facilities: allocate half the costs
under the postage-stamp method and half under a new, flow-
based method (also called a solution-based distribution-factor
method). The flow-based method assigns costs based on how
7
much each utility uses the facility in question over time.
Approving the hybrid formula, FERC concluded that it struck
a “reasonable balance” between the “broad regional benefits
and specifically identifiable benefits” of high-voltage facilities.
PJM Interconnection, L.L.C., 142 FERC ¶ 61,214, P 417
(2013) (Compliance Order). FERC also noted that the proposal
reflected a “reasonable compromise” to resolve the “intensely
practical difficulties” that had provoked extended discord
within PJM. Id. P 420 (cleaned up). All the member utilities
supported the compromise, and no party challenged it in court.
The new formula applied only to high-voltage projects that
PJM approved on or after February 1, 2013. See id. PP 1, 381,
433. The Compliance Order thus narrowed the Illinois
Commerce litigation to projects approved between FERC’s
2007 postage-stamp order and January 31, 2013. The parties
dub these 32 projects the “Vintage Projects.” Twenty-nine of
them remain in service, and three have been cancelled. Their
total cost was about $2.7 billion.
D
Following the Compliance Order and Illinois Commerce
II, FERC encouraged interested parties to reach a settlement on
how to allocate the costs of the Vintage Projects. PJM
Interconnection, L.L.C., 149 FERC ¶ 61,233, P 10 (2014). In
2016, several parties proposed a settlement that uses three
formulas to assign the costs. Each of them, like the formula
approved for post-2013 projects, has a hybrid structure
including a postage-stamp component and a usage-based
component. Which formula applies depends on when the costs
were incurred and whether PJM had cancelled the project.
First, for Vintage Project costs incurred in 2016 or later,
the settlement uses the same formula that FERC had approved
for new transmission projects—i.e., allocate half the costs
8
through the postage-stamp method and half through the flow-
based method. For convenience, we refer to this approach as
the “going-forward formula.”
Second, the settlement makes a series of adjustments for
Vintage Project costs incurred before 2016, which PJM
previously had allocated under the postage-stamp method. The
adjustments seek to bring the allocations in line with “what
would have been credited or paid” had PJM adopted the going-
forward formula from the start. J.A. 181. We refer to these
adjustments as the “historical formula.”
Third, for the cancelled projects, the settlement allocates
half the costs through the postage-stamp method and half
through the violation method. We refer to this approach as the
“cancelled-projects formula.”
This proposal received wide support from PJM
stakeholders. All the Illinois Commerce petitioners joined it,
as did many other transmission owners and state regulatory
agencies. Together, the supporting or unopposed stakeholders
account for virtually all the energy consumption within PJM.
The petitioners here opposed the settlement. Linden VFT,
LLC owns a merchant transmission facility that transmits
power from PJM to New York. The Long Island Power
Authority and its affiliate the Long Island Lighting Company
(collectively, LIPA) hold long-term transmission rights over a
similar facility. Under the settlement’s hybrid allocations,
these parties would pay about $30 million more for the Vintage
Projects than they would pay under a pure postage-stamp
method. Linden and LIPA argued that the settlement was
inconsistent with Illinois Commerce, with FERC’s Remand
and Compliance Orders, and with the cost-causation principle.
9
FERC approved the settlement over these objections. PJM
Interconnection, L.L.C., 163 FERC ¶ 61,168 (2018)
(Settlement Order). Incorporating the reasoning from its
Compliance Order, FERC concluded that the going-forward
formula allocates costs consistent with the regional and local
benefits that each transmission owner receives from each
individual facility. Id. P 39. FERC approved the historical
formula because it roughly recreates the cost allocations that
would have occurred had PJM used the going-forward formula
from the start of each project. Id. P 40. And the Commission
concluded that the cancelled-projects formula appropriately
substitutes the violation method for the flow-based method
because no ongoing usage data existed for cancelled projects.
Id. P 45. Finally, FERC concluded that the settlement does not
make the petitioners worse off relative to the expected outcome
of further litigation, which would not likely have replaced the
hybrid allocations with a pure postage-stamp method. Id. PP
41–43.
LIPA and Linden moved for rehearing of the Settlement
Order. Linden also asked FERC to clarify that it was not liable
to pay adjustments under the historical formula. The
Commission denied both motions. PJM Interconnection,
L.L.C., 169 FERC ¶ 61,238 (2019) (Rehearing Order).
LIPA and Linden petitioned for judicial review. Several
transmission owners and state regulatory commissions, as well
as PJM, have intervened in support of FERC. We have
jurisdiction to review the petitions under 16 U.S.C. § 825l(b).
II
The Administrative Procedure Act requires us to set aside
FERC orders that are “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.” 5 U.S.C.
§ 706(2)(A). A decision is not arbitrary if the agency has
10
“examined the relevant considerations and articulated a
satisfactory explanation for its action, including a rational
connection between the facts found and the choice made.” Old
Dominion, 898 F.3d at 1260 (cleaned up). Because ratemaking
is imprecise and APA review is deferential, we do not require
the Commission to allocate costs with “exacting precision.” Id.
(cleaned up). But we do set aside cost allocations that are either
unreasonable or inadequately explained. See id.
Illinois Commerce and Old Dominion illustrate these
principles in the context of high-voltage transmission projects.
As explained above, the Seventh Circuit twice has set aside a
pure postage-stamp allocation, on the ground that it
unreasonably ignores the significant local benefits accruing to
eastern PJM utilities but not to western ones. In Old Dominion,
we confronted a PJM tariff amendment that would have
required a pure flow-based allocation for certain high-voltage
projects. 898 F.3d at 1257–59. We set it aside as unreasonably
ignoring the significant regional benefits accruing throughout
the PJM grid. Id. at 1261–63. Both courts described the
contested cost allocations as “grossly disproportionate” to the
benefits received by individual utilities. Id. at 1261 (quoting
Ill. Com. II, 756 F.3d at 565).
LIPA and Linden contend that the Settlement Order and
its hybrid allocations are likewise arbitrary. We disagree.
A
FERC may approve a contested settlement “if the record
contains substantial evidence upon which to base a reasoned
decision or the Commission determines there is no genuine
issue of material fact.” 18 C.F.R. § 385.602(h)(1)(i). FERC
reads this language to allow approval when the “overall result
of the settlement is just and reasonable,” even if “individual
aspects” of it “may be problematic.” Trailblazer Pipeline Co.,
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85 FERC ¶ 61,345, 62,342 (1998). In that circumstance, FERC
must further conclude that the challenger “would be in no
worse position” under the settlement “than if the case were
litigated.” Trailblazer Pipeline Co., 87 FERC ¶ 61,110, 61,439
(1999). FERC found each of the three hybrid cost allocations
here to be just and reasonable, but it also invoked the
Trailblazer framework and found that LIPA and Linden would
not have been better off litigating the merits. We uphold all
these findings, which is more than enough to justify the overall
settlement. 1
FERC adequately justified its approval of each formula.
Start with the going-forward formula, which allocates costs
through a mix of the postage-stamp and flow-based methods.
FERC approved the formula based on reasoning in its 2013
Compliance Order, which had approved the same formula for
future high-voltage transmission projects. Settlement Order,
163 FERC ¶ 61,168, P 39; Rehearing Order, 169 FERC
¶ 61,238, PP 41–45. Doing so was not arbitrary. As FERC had
earlier explained, the postage-stamp component takes account
of “the full spectrum of benefits associated with high-voltage
facilities, including difficult to quantify regional benefits” such
as improved reliability, reduced congestion, and greater
carrying capacity. Compliance Order, 142 FERC ¶ 61,214,
P 414. We too have recognized that high-voltage transmission
systems provide “significant regional benefits” to the PJM
network. Old Dominion, 898 F.3d at 1260. As for the flow-
based component, FERC reasonably looked to usage data as a
proxy for specific benefits—in other words, it looked to this
data “to identify the subset of customers that benefit from a
1
We thus need not consider whether FERC may approve a
settlement without addressing the merits of each contested rate, even
though the Federal Power Act requires “[a]ll rates and charges made”
to be just and reasonable, 16 U.S.C. § 824d(a).
12
facility simply through electrical proximity.” Compliance
Order, 142 FERC ¶ 61,214, P 417. And FERC’s decision to
approve a hybrid formula incorporating both measures was
undoubtedly reasonable given the various benefits of high-
voltage facilities. Indeed, it is compelled by precedents finding
it arbitrary either to ignore local benefits by using a pure
postage-stamp method (Illinois Commerce) or to ignore
regional benefits by using a pure flow method (Old Dominion).
As for the selection of a 50:50 ratio for the hybrid formula, the
materials we have cited make clear that regional and local
benefits are both substantial, thus requiring a significant weight
for each component of the formula. And any debate over the
choice between a 50:50 ratio and, say, a ratio of 60:40 one way
or the other would “amount to a quibble about exacting
precision,” rather than “a wholesale departure from the cost-
causation principle.” Old Dominion, 898 F.3d at 1261 (cleaned
up).
The historical formula follows neatly from the going-
forward formula. As FERC explained, the historical formula
requires adjustments to approximate the cost allocations that
would have occurred had PJM applied the going-forward
formula from the start of each Vintage Project. Settlement
Order, 163 FERC ¶ 61,168, P 40; Rehearing Order, 169 FERC
¶ 61,238, P 48. LIPA and Linden do not challenge this finding.
And because the going-forward formula reasonably matches
costs to benefits, so does the historical formula.
Finally, FERC reasonably approved the cancelled-projects
formula. For these projects, there was no ongoing usage data
to support application of the flow-based method. Unable to
measure changing usage over time, the parties substituted the
violation method to measure which utilities caused the
reliability violations that necessitated the projects. Settlement
Order, 163 FERC ¶ 61,168, P 45; Rehearing Order, 169 FERC
13¶ 61,238, P 52. Under the circumstances, that was a reasonable
way to assess usage issues, for the cost-causation principle
compares costs to “the burdens imposed or the benefits drawn”
by individual utilities. Midwest ISO Transmission Owners,
373 F.3d at 1368. And as explained above, the 50:50 weighing
of local burdens and benefits (as measured by the violation
method) and regional benefits (as measured by the postage-
stamp method) was also reasonable.
Our determination that each formula in the settlement is
just and reasonable is reason enough to uphold it, but we also
note that FERC reasonably concluded LIPA and Linden would
not have done better through litigation. The challengers do
their best to obscure this point, but what they seek is application
of a pure postage-stamp method—or at least a hybrid formula
with a more heavily weighted postage-stamp component. The
Seventh Circuit has twice set aside a pure postage-stamp
formula for the Vintage Projects. We have little doubt that, if
faced once again with a pure or almost pure postage-stamp
formula, it would call strike three.
B
LIPA and Linden make several attacks on FERC’s
reasoning, but none is persuasive.
First, LIPA and Linden contend that the settlement
violates Illinois Commerce II, which they say requires a cost-
benefit analysis to quantify project benefits. It does not. The
Seventh Circuit discussed cost-benefit analysis at length, but
its holding was narrower. The court set aside the postage-
stamp method because, in treating all benefits as regional, it
was “guaranteed to overcharge the western utilities” and to
produce a “grossly disproportionate” cost allocation. 756 F.3d
at 561, 564–65. As we later explained, the Illinois Commerce
decisions hold that a postage-stamp regime goes “too far” in
14
weighing regional benefits over local ones, but “nothing in
those decisions casts doubt on” FERC’s view that high-voltage
projects have substantial regionwide benefits. Old Dominion,
898 F.3d at 1261. And given that view, FERC had at least “an
articulable and plausible reason to believe” that a hybrid, 50:50
formula would make project costs “at least roughly
commensurate with” project benefits—which is good enough
under Illinois Commerce II. See 756 F.3d at 562 (cleaned up).
Second, LIPA and Linden contend that FERC could not
approve the going-forward formula simply because it matches
the one used for new high-voltage projects. Instead, they
contend, the Commission had to separately consider the
formula as applied to each Vintage Project. But while FERC
may create different rules for different kinds of projects, see
Pub. Serv. Elec. & Gas Co. v. FERC, 989 F.3d 10, 18 (D.C.
Cir. 2021), “a regulator need not always carve out exceptions
for arguably distinct subcategories of projects,” Old Dominion,
898 F.3d at 1262. Nor must a regulator always consider cost-
allocation rules on a project-by-project basis, which would
unravel the framework of ex ante tariffs established by Order
No. 1000 and approved by this Court. S.C. Pub. Serv. Auth. v.
FERC, 762 F.3d 41, 82–83 (D.C. Cir. 2014). Instead, FERC
must ensure only that there is “some resemblance” between
costs and benefits. Pub. Serv. Elec. & Gas Co., 989 F.3d at 13–
14. And without evidence that the Vintage Projects are
different from other high-voltage transmission facilities within
PJM, the Commission could reasonably extend to the Vintage
Projects the previously approved, unchallenged formula that
now generally governs newer projects. 2
2
Linden has filed a separate challenge to that formula as
applied to two of the newer projects. Consol. Edison Co. v. FERC,
No. 15-1183 (D.C. Cir. filed June 25, 2015). We express no view on
the merits of that case.
15
Third, LIPA and Linden contend that the Settlement Order
failed to explain what they characterize as a departure from the
decision to make the Compliance Order purely prospective.
The Compliance Order applied to projects approved after
January 2013, and it stated that “administrative complications
created by implementing the hybrid method should be limited,
since this method will apply on a prospective basis only.” 142
FERC ¶ 61,214, P 433. But the order did not disfavor any
further applications of the same formula. Instead, it stressed
that the Order No. 1000 compliance process remained ongoing,
and the governing formulas remained subject to change. Id. PP
431–32. So there was no inconsistency when FERC, after five
years of experience with the hybrid formula, allowed the
parties to extend it to the Vintage Projects. See Settlement
Order, 163 FERC ¶ 61,168, P 39. Nor was there any lack of
explanation on this point. As FERC later noted, the
Compliance Order’s “prospective application” did “not
preclude the parties and the Commission from using a just and
reasonable cost method in a settlement to resolve a remanded
proceeding.” Rehearing Order, 169 FERC ¶ 61,238, P 46.
Fourth, LIPA and Linden contend that the Settlement
Order impermissibly departed from the 2012 Remand Order,
which rejected the violation method “as the sole basis for
allocating costs” of high-voltage projects. 138 FERC ¶ 61,230,
P 37. That decision reasoned that the violation method does
not account for either (1) the specific benefits that utilities
receive from using the facilities over time or (2) the facilities’
regionwide benefits. Id. PP 37–47. In approving the
settlement, FERC reasonably addressed both points. As it
explained, accounting for ongoing usage over time is
impossible for cancelled projects, and the postage-stamp
component of the hybrid formula adequately accounts for
regionwide benefits. Settlement Order, 163 FERC ¶ 61,168, P
45; Rehearing Order, 169 FERC ¶ 61,238, P 54.
16
Finally, LIPA and Linden contend that FERC prevented
them from contesting the settlement in a live hearing. But
FERC has discretion to resolve disputed issues on a written
record. Minisink Residents for Envt’l Pres. & Safety v. FERC,
762 F.3d 97, 114 (D.C. Cir. 2014). Here, the Commission
relied on the extensive written records compiled in this
proceeding and in the Order No. 1000 compliance proceeding.
Moreover, LIPA and Linden had ample opportunity to object
through written submissions, which they did in nearly 20
filings including five expert affidavits. FERC did not abuse its
discretion in approving the settlement on a written record.
III
Linden further contends that, under the settlement, it need
not make any of the payments set forth in the historical
formula. We agree.
The historical formula imposes monthly Transmission
Enhancement Charge adjustments (TEC adjustments)
beginning in January 2016 and continuing through December
2025. The “[e]ffective [d]ate” of these TEC adjustments is
January 1, 2016. J.A. 100. For merchant transmission
facilities, the TEC adjustments are based on “Firm
Transmission Withdrawal Rights,” which are guaranteed rights
to transmit electricity. PJM Tariff, sched. 12(b)(x)(B)(2).
Linden surrendered its withdrawal rights on January 1, 2018,
almost five months before FERC approved the settlement. The
parties agree that Linden thus need not pay TEC adjustments
for 2018 to 2025. They disagree over whether Linden must pay
TEC adjustments for 2016 and 2017.
Section 4(c) of schedule 12-C of the PJM tariff imposes
the TEC adjustments. Section 4(c)(i)(2) provides the following
“adjustment” to the adjustments:
17
If all Responsible Customers in a Zone or Merchant
Transmission Facility are no longer subject to
Transmission Enhancement Charges under the PJM
Tariff during the period in which Transmission
Enhancement Charge Adjustments are collected, then,
during the portion of that period that such Responsible
Customers are not subject to Transmission
Enhancement Charges, the payments from or credits
to such Responsible Customers shall cease .…
J.A. 101–02. Linden is the only responsible customer in its
merchant facility. According to Linden, the “period in which
[TEC] Adjustments are collected” began when FERC approved
the settlement, because PJM did not and could not collect any
payments before then. Therefore, Linden reasons, it was “no
longer subject to” TEC adjustments during any of that period,
and so its “payments … shall cease.” FERC responds that TEC
adjustments began to accrue—and thus were “collected”—as
soon as the settlement became effective in January 2016. In
resolving this dispute over tariff interpretation, we must
enforce unambiguous tariff language, but defer to FERC’s
reasonable interpretation of ambiguous text. Colo. Interstate
Gas Co. v. FERC, 599 F.3d 698, 701 (D.C. Cir. 2010).
The plain meaning of “collected” unambiguously supports
Linden. Section 4(c)(i)(2) concerns the collection of
“adjustments”—i.e., financial liabilities for which payment can
be obtained. In that context, “collect” means “[t]o call for and
obtain payment of.” Collect, American Heritage Dictionary
(5th ed. 2018); accord Collect, Oxford English Dictionary (2d
ed. 1989) (“[t]o gather (contributions of money, or money due,
as taxes, etc.) from a number of people”). FERC has not
identified a single example, in a dictionary or otherwise, where
“collect” means to accrue liability. Nor have we found any.
18
This strongly suggests that “collect” simply cannot bear that
meaning. See DHS v. MacLean, 574 U.S. 383, 394 (2015).
Context confirms that “collect” here means collect. As
FERC notes, schedule 12-C imposes liability for TEC
adjustments beginning on its “[e]ffective [d]ate” of January 1,
2016. PJM Tariff, sched. 12-C §§ 2–3. But schedule 12-C also
plainly distinguishes the concepts of accrual and collection.
For although it imposes liability beginning on the effective
date, it permits collection only after an “implementation date”
defined as “the date of a FERC order … authorizing PJM to
begin collecting” TEC adjustments. Id. § 3 (emphasis added).
Schedule 12-C’s procedures underscore this distinction.
During the interim period between the effective and
implementation dates, PJM had to “track and accumulate the
differences between” what it was collecting under the existing
rate and what the settlement would require if FERC approved
it. PJM Tariff, sched. 12-C § 3. After the implementation date,
PJM would issue “credits or charges” that equaled “the
aggregate of such differences.” Id. Schedule 12-C thus
recognizes that utilities began accruing liability as of the
settlement’s effective date, but that PJM would not “begin
collecting” until FERC approved the settlement.
FERC contends that the settlement agreement, which
states that “PJM shall collect” adjustments “[e]ffective as of
January 1, 2016,” J.A. 86–88, shows that collection began as
of then. But this language was not incorporated into PJM’s
tariff, and it is flatly inconsistent with the tariff provisions
expressly linking collection to the implementation date rather
than the effective date. Because the tariff is unambiguous on
this point, it is controlling. See Colo. Interstate, 599 F.3d at
701.
19
IV
Linden asks us to vacate FERC’s order holding it liable for
TEC adjustments. Vacatur is the normal remedy under the
APA, which provides that a reviewing court “shall … set aside”
unlawful agency action. 5 U.S.C. § 706(2). Nonetheless, we
have held that remand without vacatur is sometimes
appropriate, depending on the seriousness of the agency error
and the disruptive consequences of vacatur. See Allied-Signal,
Inc. v. NRC, 988 F.2d 146, 150–51 (D.C. Cir. 1993).
For the legal error identified above, vacatur is clearly
warranted. The “seriousness” of agency error turns in large
part on “how likely it is the agency will be able to justify its
decision on remand.” Heartland Reg’l Med. Ctr. v. Sebelius,
566 F.3d 193, 197 (D.C. Cir. 2009) (cleaned up). And
disruptive consequences matter “only insofar as the agency
may be able to rehabilitate its rationale.” Comcast Corp. v.
FCC, 579 F.3d 1, 9 (D.C. Cir. 2009). Here, because the
controlling tariff provision is unambiguous, FERC cannot
rehabilitate its preferred interpretation on remand.
The intervenors contend that a remand without vacatur
would have been warranted had we set aside the entire
settlement on the ground that FERC’s approval was
inadequately reasoned. Having upheld the settlement, we need
not consider that argument. We note only that the concerns
raised by the intervenors, positing a highly disruptive judicial
intervention based on a likely curable agency error, have no
application to the narrow legal error that we have identified.
V
For these reasons, we set aside FERC’s ruling that Linden
must pay TEC adjustments, and we remand for any further
20
proceedings that may be necessary to implement this ruling. In
all other respects, we deny the petitions for review.
So ordered.