Old Dominion Electric Coop. v. FERC , 898 F.3d 1254 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 19, 2018 Decided August 3, 2018
No. 17-1040
OLD DOMINION ELECTRIC COOPERATIVE,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
LSP TRANSMISSION HOLDINGS, LLC, ET AL.,
INTERVENORS
Consolidated with 17-1041
On Petitions for Review of Orders of
the Federal Energy Regulatory Commission
Jonathan S. Franklin argued the cause for petitioners.
With him on the briefs were Michael A. Yuffee, Adrienne E.
Clair, and Rebecca L. Shelton.
Larisa M. Vaysman and Michael R. Engleman were on the
brief for intervenors LSP Transmission Holdings, LLC, et al.
in support of petitioners.
2
Lona T. Perry, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief was Robert H. Solomon, Solicitor.
Morgan Parke, Stacey L. Burbure, Kenneth G. Jaffe, Neil
H. Butterklee, Gary E. Guy, Amanda Riggs Conner, Randall V.
Griffin, Richard P. Bress, David L. Schwartz, Vilna Waldron
Gaston, and Sandra E. Rizzo were on the brief for intervenors
FirstEnergy Companies, et al. in support of respondent.
Kenneth R. Carretta and Elias G. Farrah entered appearances.
Before: HENDERSON, KAVANAUGH, * and KATSAS, Circuit
Judges.
Opinion for the Court filed by Circuit Judge KATSAS.
KATSAS, Circuit Judge: In the past, electric utilities in the
mid-Atlantic region have shared the costs of high-voltage
transmission lines, which benefit the entire region. In 2015,
some of these utilities proposed to eliminate cost sharing for
projects undertaken only to satisfy an individual utility’s
planning criteria, including projects that involve high-voltage
lines. The Federal Energy Regulatory Commission approved
this change and applied it to deny cost sharing for projects to
rebuild two high-voltage lines. The petitioners, whose local
zone now must bear the entire cost of these two projects,
contend that FERC’s decisions were unlawful or inadequately
explained.
*
Judge Kavanaugh was a member of the panel when this case was
argued but did not participate in the opinion.
3
I
A
The Federal Power Act gives FERC jurisdiction over
facilities that transmit electricity in interstate commerce. See
16 U.S.C. § 824(b)(1); 42 U.S.C. § 7172(a)(1)(B). Under the
Act, electric utilities must charge “just and reasonable” rates.
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. See Ala. Elec. Co-op., Inc. v.
FERC, 684 F.2d 20, 27 (D.C. Cir. 1982). We often frame this
principle as one that ensures “burden is matched with benefit,”
so that FERC “generally may not single out a party for the full
cost of a project, or even most of it, when the benefits of the
project are diffuse.” BNP Paribas Energy Trading GP v.
FERC, 743 F.3d 264, 268 (D.C. Cir. 2014); see Midwest ISO
Transmission Owners v. FERC, 373 F.3d 1361, 1368–69 (D.C.
Cir. 2004). This cost-causation principle “add[s] flesh to [the]
bare statutory bones” of the just-and-reasonable-rate
requirement. K N Energy, Inc. v. FERC, 968 F.2d 1295, 1300
(D.C. Cir. 1992).
To promote more efficient coordination among electric
utilities, FERC has promulgated a regulation known as “Order
No. 1000.” Transmission Planning and Cost Allocation by
Transmission Owning and Operating Public Utilities, 136
FERC ¶ 61,051 (2011). It imposes two requirements relevant
here. First, utilities in each planning region must jointly
produce a regional transmission plan to determine what new
facilities would best meet regional needs for electricity. Id.
P 148. Second, in their respective tariffs, utilities must include
a formula “for allocating the costs of new transmission
facilities selected in the regional transmission plan for purposes
4
of cost allocation.” Id. P 558. This formula must satisfy six
general principles, the first of which is the cost-causation
principle: “The cost of transmission facilities must be allocated
to those within the transmission planning region that benefit
from those facilities in a manner that is at least roughly
commensurate with estimated benefits.” Id. P 622. Order No.
1000 requires each utility to show, through compliance filings,
that its cost-allocation formula is consistent with the six
specified principles. Id. P 603.
This case involves disputes within a planning region
encompassing much of the Mid-Atlantic and part of the
Midwest. In this region, the transmission of electricity is
overseen by PJM Interconnection, LLC, which controls but
does not own the facilities of its member utilities. (“PJM”
refers to Pennsylvania, New Jersey, and Maryland—the first
three states in which PJM operated.) The region is subdivided
into zones that correspond to areas served by each individual
utility. The utilities are governed by the PJM Operating
Agreement, which sets forth the respective rights and duties of
PJM and its members, and the PJM Open Access Transmission
Tariff, which details the terms on which the utilities provide
service.
To comply with the regional-planning requirement of
Order No. 1000, PJM-member utilities maintain a Regional
Transmission Expansion Plan. Schedule 6 of the Operating
Agreement specifies what kind of projects must be included in
this Regional Plan. As relevant here, Schedule 6 designates
three categories of projects for inclusion in the Plan: (1)
projects to satisfy PJM’s own planning and reliability criteria;
(2) projects to satisfy reliability criteria developed by standard-
setting organizations such as the North American Electric
Reliability Corporation (“NERC”); and (3) projects to satisfy
planning criteria established by individual utilities. The
5
utilities submit their individual planning criteria both to FERC,
on a document called Form 715, and to PJM.
Schedule 12 of the Tariff addresses the cost-sharing
requirements of Order No. 1000. Before 2015, Schedule 12
required regional cost sharing for all “Regional Facilities,”
which it defined as projects that were (a) included in the
Regional Plan to satisfy any of the planning criteria described
above and (b) particular kinds of high-voltage projects.
Schedule 12 also establishes the cost-allocation formula for
such Regional Facilities. Half of these costs are allocated on a
pro rata basis, based on the level of customer demand within
each zone, regardless of where the specific project at issue is
located. This method of cost allocation is called the “postage
stamp” approach. The remaining costs are allocated based on
an estimate of which zones most directly benefit from the
project at issue, as made under what is called a “distribution
factor (‘DFAX’) analysis.” In contrast, the costs of lower-
voltage facilities, which generally do not qualify as “Regional
Facilities,” are allocated solely under a DFAX analysis.
As required by Order No. 1000, PJM submitted this cost-
allocation methodology to FERC, which approved it in March
2013. PJM Interconnection, LLC, 142 FERC ¶ 61,214,
PP 412–26 (2013) (“PJM Compliance Order”). In so doing,
FERC specifically found that “high-voltage transmission
facilities have significant regional benefits that accrue to all
members of the PJM transmission system.” Id. P 413. Further,
it found that the proposed hybrid cost-allocation method for
high-voltage facilities, incorporating both postage-stamp and
DFAX components, would satisfy the cost-causation principle
“that costs be allocated in a manner that is roughly
commensurate with benefits received.” Id. According to
FERC, the postage-stamp component “capture[d] the full
spectrum of benefits associated with high-voltage facilities,
6
including difficult to quantify regional benefits, such as
improved reliability, reduced congestion, reduced power
losses, greater carrying capacity, reduced operating reserve
requirements, and improved access to generation.” Id. P 414.
B
Petitioners are three Virginia-based members of PJM—
Old Dominion Electric Cooperative, Dominion Energy
Services, Inc., and Virginia Electric & Power Co. d/b/a
Dominion Energy Virginia (collectively “Dominion”). In July
2013, Dominion proposed to rebuild an aging high-voltage
transmission line between Elmont and Cunningham, Virginia.
The project initially did not qualify for cost sharing because it
was unnecessary to satisfy the extant planning and reliability
criteria of PJM, NERC, or Dominion.
In September 2014, Dominion adopted its own “end of
life” planning criteria, submitted the criteria on Form 715 to
FERC, and presented them to a PJM planning committee.
Dominion concluded that replacing the Elmont-Cunningham
line was necessary to satisfy these new criteria. PJM reviewed
the project and agreed.
In March 2015, PJM initiated the first of three proceedings
at issue here—the “Elmont-Cunningham Proceeding”—by
filing with FERC proposed cost allocations for the Elmont-
Cunningham project. Under Schedule 12’s hybrid
methodology for high-voltage facilities, nearly half of the costs
would be allocated to Dominion; the remaining costs would be
spread among 23 other utilities, with shares ranging from
roughly 8% to 0.1%. Dayton Power and Light Co., an Ohio-
based utility, intervened in the proceeding and objected.
Dayton, which would be responsible for roughly 1% of the
costs, complained that Dominion had unilaterally imposed
costs on other utilities by adopting new end-of-life criteria.
7
Six days after PJM initiated the Elmont-Cunningham
Proceeding, a group of member utilities opposed to the
proposed cost sharing initiated the second proceeding at
issue—the “Cost-Allocation Proceeding.” The utilities
proposed to amend Schedule 12 of the Tariff to prohibit cost
sharing for any project included in the Regional Plan only to
satisfy individual utilities’ planning criteria. Under the
proposed amendment, all costs for such projects would be
“allocate[d] … to the local zone of the transmission owner that
filed the planning criteria,” regardless of whether the project
produced regional benefits. J.A. 55. Dominion opposed the
amendment as inconsistent with the cost-causation principle.
FERC initially rejected the utilities’ proposed amendment
on two grounds. In part, FERC concluded that the amendment
violated Order No. 1000 by creating a category of projects
selected for cost allocation but not subject to the approved cost-
allocation formula. See PJM Interconnection, LLC, 151 FERC
¶ 61,172, P 22 (2015). FERC also concluded that the
amendment was inconsistent with its earlier finding that high-
voltage transmission lines provide “significant regional
benefits that accrue to all members of the PJM transmission
system.” Id. P 23.
Meanwhile, in the Elmont-Cunningham Proceeding,
FERC ordered a technical conference to address how PJM
satisfies its regional-planning obligations under Order No.
1000. PJM Interconnection, LLC, 152 FERC ¶ 61,197 (2015).
In that order, FERC rejected Dayton’s process-based argument
against the proposed cost sharing. Specifically, FERC found
that “Dominion followed the appropriate procedures to update
its local planning criteria,” by presenting them both to the PJM
planning committee and to FERC. Id. P 15.
 8
After the technical conference, FERC reversed course and
accepted the tariff amendment. PJM Interconnection, LLC,
154 FERC ¶ 61,096 (2016) (“Cost-Allocation Order”). First,
FERC concluded that the amendment did not violate Order No.
1000 because “not all projects included in the [Regional Plan]
are selected for purposes of cost allocation,” and so the
amendment merely created a “new category of projects”
included in the Regional Plan but not selected for cost
allocation. Id. P 13 & n.16. FERC further reasoned that
projects included in the Regional Plan only to satisfy individual
utilities’ planning criteria “are not needed to meet PJM regional
criteria or NERC reliability standards,” but instead are included
“only to ensure that such projects are developed in a manner
that is consistent with” the Regional Plan. Id. P 13. FERC also
found that the proposal would not undermine the competitive-
bidding process because only projects “located solely within a
transmission owner’s zone” and having their costs “allocated
solely to that zone” would be restricted from competitive
bidding. Id. P 14. Finally, FERC held that the amendment did
not produce an unjust and unreasonable allocation of costs
because, of the 303 projects previously included in the
Regional Plan to address only individual utilities’ planning
criteria, 98% of them had all of their costs allocated to the local
zone. Id. P 16.
On the same day, FERC rejected PJM’s proposed cost
allocation for the Elmont-Cunningham project. PJM
Interconnection, LLC, 154 FERC ¶ 61,097 (2016) (“Elmont-
Cunningham Order”). FERC found that the project “must go
into service within three years or less in order to avoid several
regional Reliability Criteria violations, and PJM followed the
stakeholder process outlined in its Operating Agreement.” Id.
P 27. But FERC rejected regional cost sharing as inconsistent
with the tariff amendment that it had simultaneously approved
in its Cost-Allocation Order. Id. P 28.
 9
Commissioner LaFleur dissented in part from both orders.
In the Cost-Allocation Proceeding, she would have narrowed
the amendment to “preserv[e] the current regional cost
allocation for certain high voltage projects, even if those
projects are selected solely to address local planning criteria.”
Cost-Allocation Order, 154 FERC ¶ 61,096 (LaFleur, Comm’r,
dissenting in part). She reasoned that FERC’s prior compliance
finding—“high-voltage transmission facilities have significant
regional benefits that accrue to all members of the PJM
transmission system”—did not depend on the type of planning
criteria underlying the particular project at issue. See id.
(quoting PJM Compliance Order, 142 FERC ¶ 61,214, P 413).
Moreover, although the “overwhelming majority of projects
approved to address local planning criteria” produced only
local benefits, they were “lower voltage facilities” for which
costs had never been regionally shared. Id. For the same
reasons, Commissioner LaFleur also dissented from the
rejection of cost sharing for the Elmont-Cunningham line. See
Elmont-Cunningham Order, 154 FERC ¶ 61,097 (LaFleur,
Comm’r, dissenting in part).
Before FERC issued these decisions, PJM had initiated the
third and final proceeding at issue—the “Cunningham-Dooms
Proceeding.” It involved Dominion’s proposal to rebuild a
high-voltage line from Cunningham to Dooms, Virginia, as
required by Dominion’s end-of-life criteria. In July 2016,
FERC applied its Cost-Allocation Order to reject PJM’s
proposed cost allocation, once again over Commissioner
LaFleur’s dissent. See PJM Interconnection, LLC, 156 FERC
¶ 61,030 (2016).
After unsuccessfully seeking rehearing of the three orders,
Dominion timely sought judicial review in this Court.
10
II
Before addressing Dominion’s challenge to FERC’s
decision to accept the tariff amendment, we must first
determine what the amendment says and how it operates. On
that question, Intervenors LSP Transmission Holdings, LLC
and Northeast Transmission Development, LLC contend that
the amendment, properly construed, violates Order No. 1000
by refusing to apply the approved cost-allocation formula to
projects selected for cost allocation. FERC initially adopted
this argument, 151 FERC ¶ 61,172, P 22, but later rejected it,
154 FERC ¶ 61,096, P 13.
FERC contends that we should not address an argument
raised only by intervenors. As a general matter, an intervenor
“may join only on a matter that has been brought before the
court by a petitioner.” E. Ky. Power Co-op., Inc. v. FERC, 489
F.3d 1299, 1305 (D.C. Cir. 2007) (quotation marks omitted).
But the intervenors here challenge the same tariff amendment
as does Dominion, and their argument under Order No. 1000 is
closely related to Dominion’s argument under the cost-
causation principle. Moreover, the intervenors’ argument turns
on the proper construction of the amendment—a question
antecedent to determining whether FERC permissibly
approved it.
The amendment requires the costs of projects included in
the Regional Plan to satisfy only Form 715 planning criteria to
be allocated entirely to the zone of the utility that filed the
criteria, “[n]otwithstanding” other provisions of Schedule 12.
Tariff, Schedule 12(xv) (J.A. 72). The intervenors contend that
the “notwithstanding” proviso should be read to apply only
after a project has been deemed a Regional Facility, and
therefore selected in the Regional Plan for cost sharing. Under
that interpretation, the amendment would violate Order No.
11
1000, which requires utilities to have in place “a regional cost
allocation method for any transmission facility selected in a
regional transmission plan for purposes of cost allocation.”
136 FERC ¶ 61,051, P 690.
FERC ultimately concluded that the amendment creates a
category of projects included in the Regional Plan but not
selected for cost sharing. See Cost-Allocation Order, 154
FERC ¶ 61,096, P 13. We agree. In denoting which facilities
are to be selected for cost sharing, Schedule 12 distinguishes
between “Required Transmission Enhancements,” which are
included in the Regional Plan, and “Regional Facilities”
selected for cost sharing. See Tariff, Schedule 12(b)(i) (J.A.
58–59). The amendment qualifies this scheme by stating that
some “Required Transmission Enhancements”—those
included in the Regional Plan to satisfy only individual
utilities’ planning criteria—do not qualify for cost sharing. See
Tariff, Schedule 12(b)(xv) (J.A. 71–72). Because the
amendment applies to “Required Transmission
Enhancements,” which are not necessarily selected for cost
sharing, it does not create a category of facilities selected for
cost sharing but exempted from the approved cost-sharing
formula.
Although we reject the intervenors’ proposed construction
of the amendment, their argument does highlight something
unusual about Order No. 1000—it requires a pre-approved
formula for projects “selected” by member utilities for regional
cost sharing, and it requires the formula to be consistent with
the cost-causation principle, but it appears largely silent on
which projects may or must be selected for cost sharing. We
elaborate on that point below.
12
III
Dominion contends that FERC arbitrarily violated the
cost-causation principle by accepting the tariff amendment and
applying it to prevent any cost sharing for the two high-voltage
projects at issue here. As noted above, the cost-causation
principle requires “comparing the costs assessed against a party
to the burdens imposed or benefits drawn by that party.”
Midwest ISO Transmission Owners, 373 F.3d at 1368.
Under the arbitrary-and-capricious standard of review, we
uphold FERC decisions if the agency has “examined the
relevant considerations and articulated a satisfactory
explanation for its action, including a rational connection
between the facts found and the choice made.” FERC v. Elec.
Power Supply Ass’n, 136 S. Ct. 760, 782 (2016) (alterations
adopted) (quoting Motor Vehicle Mfrs. Ass’n of the U.S., Inc.
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).
Because this standard is deferential, we do not require FERC,
in applying the cost-causation principle, to “utilize a particular
formula,” Ala. Elec. Co-op., 684 F.2d at 27, or to “allocate
costs with exacting precision,” Midwest ISO Transmission
Owners, 373 F.3d at 1369. However, we have set aside orders
when FERC’s allocation of costs was either unreasonable, see
Pac. Gas & Elec. Co. v. FERC, 373 F.3d 1315, 1322 (D.C. Cir.
2004), or inadequately explained, see Sithe/Indep. Power
Partners v. FERC, 285 F.3d 1, 4–5 (D.C. Cir. 2002). So too
have other reviewing courts. See, e.g., Ill. Commerce Comm’n
v. FERC, 756 F.3d 556, 565 (7th Cir. 2014); Ill. Commerce
Comm’n v. FERC, 576 F.3d 470, 477–78 (7th Cir. 2009).
A
Application of the cost-causation principle is simple here,
because this critical point is undisputed: high-voltage power
lines produce significant regional benefits within the PJM
13
network, yet the amendment categorically prohibits any cost
sharing for high-voltage projects like those at issue here.
In the various proceedings below, no party challenged, and
FERC did not disavow, any of its findings in the PJM
Compliance Order. There, in approving the original Tariff, the
Commission found that “high-voltage transmission facilities
have significant regional benefits that accrue to all members of
the PJM transmission system.” 142 FERC ¶ 61,214, P 413.
According to FERC, these benefits include “improved
reliability, reduced congestion, reduced power losses, greater
carrying capacity, reduced operating reserve requirements, and
improved access to generation.” Id. P 414. FERC invoked
these benefits in concluding that the postage-stamp component
of the original cost-sharing formula—weighted at 50%—
appropriately captured the “widespread, although difficult to
quantify benefits” of high-voltage facilities. Id. P 413. And it
held that Schedule 12’s original cost-allocation formula was
therefore consistent with the cost-causation principle. See id.
Historically, FERC has pressed this view even farther. For
years prior to Order No. 1000, FERC took the position that the
cost of high-voltage transmission lines within PJM should be
shared based entirely on the postage-stamp method, on the
theory that “everyone benefits from high-capacity transmission
facilities because they increase the reliability of the entire
network.” Ill. Commerce Comm’n, 576 F.3d at 474. The
Seventh Circuit twice set aside that position as going too far,
see id. at 476–78; Ill. Commerce Comm’n, 756 F.3d at 565, but
nothing in those decisions casts doubt on the unchallenged,
narrower findings in the PJM Compliance Order.
Given the significant regional benefits of high-voltage
transmission lines, FERC’s decision to approve the amendment
was arbitrary. As explained above, the amendment denies cost
14
sharing for all projects included in the Regional Plan only to
satisfy the planning criteria of individual utilities—including
for high-voltage lines. The amendment thus produces a severe
misallocation of the costs of such projects. Here, for example,
under the methodology previously endorsed by FERC as fairly
matching costs to benefits, Dominion was estimated to enjoy
only about 47% of the benefits from the Elmont-Cunningham
project, and 43% of the benefits from the Cunningham-Dooms
project. Yet, under FERC’s orders approving and applying the
amendment, Dominion would have to pay all of the costs of
both projects. This does not amount to a quibble about
“exacting precision,” Midwest ISO Transmission Owners, 373
F.3d at 1369, or a tempering of the cost-causation principle in
pursuit of “competing goals,” S.C. Pub. Serv. Auth. v. FERC,
762 F.3d 41, 88 (D.C. Cir. 2014). Rather, it involves a
wholesale departure from the cost-causation principle, which
would “shift a grossly disproportionate share of [the] costs” of
these high-voltage projects into a single zone. Ill. Commerce
Comm’n, 756 F.3d at 565.
B
In the administrative proceedings, FERC did not attempt
to justify its orders as a lawful departure from the cost-
causation principle. Instead, FERC asserted three possible
grounds for reconciling its orders with that principle. None of
them is persuasive.
First, FERC noted that, of the 303 projects previously
included in the Regional Plan based only on individual utilities’
planning criteria, 98% of them produced only local benefits.
Therefore, FERC reasoned, allocating all of the costs of these
projects to the local utility at least roughly matched costs to
benefits. See Cost-Allocation Order, 154 FERC ¶ 61,096,
P 16.
15
FERC’s statistics misleadingly aggregate two very
different categories of projects. As Commissioner LaFleur
explained, the 98% of projects that produced no regional
benefits involved low-voltage facilities. See Cost-Allocation
Order, 154 FERC ¶ 61,096 (LaFleur, Comm’r, dissenting in
part). Moreover, the Tariff had always allocated costs for these
projects under the DFAX method, which resulted in all costs
being allocated locally. See Tariff, Schedule 12(b)(ii)(A) (J.A.
60–61). So, there never was any cost sharing for the 98% of
owner-criteria projects that are low-voltage facilities. Rather,
the entire purpose and effect of the amendment was to
eliminate cost sharing for the other 2% of projects—which
involve high-voltage facilities that FERC has recognized
produce significant regional benefits.
Of course, a regulator need not always carve out
exceptions for arguably distinct subcategories of projects. But
here, it is undisputed that high-voltage and low-voltage
projects are significantly different with regard to which utilities
benefit from them. Moreover, FERC itself has long recognized
these differences in making appropriate cost allocations—
including for PJM. See, e.g., PJM Compliance Order, 142
FERC ¶ 61,214, PP 413–17; Ill. Commerce Comm’n, 576 F.3d
at 474–76. Thus, FERC could hardly say that trying to
distinguish between high- and low-voltage facilities was not
worth the trouble. Nor did FERC express any concern that
Schedule 12, as originally approved, had proven inaccurate,
administratively unwieldy, or otherwise problematic in
distinguishing the two kinds of facilities. Rather, FERC’s
reasoning would replace a cost-allocation formula about which
FERC had expressed no concerns with another one that is less
accurate overall, as well as grossly inaccurate with respect to
high-voltage projects, in return for no countervailing
regulatory benefit.
16
In a variation on this theme, FERC invokes the cost-
allocation regime for another planning region in the Midwest.
See Midwest Indep. Transmission Sys. Operator, Inc., 142
FERC ¶ 61,215 (2013) (“MISO”), aff’d, MISO Transmission
Owners v. FERC, 819 F.3d 329 (7th Cir. 2016). In that region,
80% of the projects at issue historically had at least 75% of
their costs allocated locally. Id. P 487. FERC then approved
allocating all of these costs locally, and it concluded that the
revised cost allocation was “roughly commensurate with the
benefits.” Id. P 518. FERC asserts that our case is even more
straightforward, because 98% of the projects at issue had 100%
of their costs allocated locally.
Again, however, FERC combines dissimilar categories of
projects. As explained above, the 98% of projects highlighted
by FERC are low-voltage ones with no regional benefits,
whereas the 2% of projects targeted by the amendment are
high-voltage ones conceded by FERC to have significant
regional benefits. Moreover, the MISO order was supported
by a finding that the benefits of the projects at issue there were
“realized primarily in the pricing zone in which the project is
located.” 142 FERC ¶ 61,215, P 520. Here, by contrast,
FERC’s only relevant finding was that the projects impacted
by the amendment produced “significant regional benefits.”
PJM Compliance Order, 142 FERC ¶ 61,214, P 413. In short,
for purposes of cost causation, the local “baseline reliability
projects” at issue in MISO are unlike the regional high-voltage
facilities at issue here. See Midwest ISO Transmission Owners,
819 F.3d at 335 (“Baseline reliability projects differ from
multi-value projects, which are larger, have a regional focus,
and benefit from regional cost sharing.”).
Second, FERC reasoned that projects included in the
Regional Plan to satisfy only individual utilities’ planning
criteria “are not needed to meet PJM regional criteria or NERC
17
reliability standards.” Cost-Allocation Order, 154 FERC
¶ 61,096, P 13. That is true, but the cost-causation principle
focuses on project benefits, not on how particular planning
criteria were developed. See, e.g., S.C. Pub. Serv. Auth., 762
F.3d at 87; Midwest ISO Transmission Owners, 373 F.3d at
1368; K N Energy, 968 F.2d at 1300. Moreover, Form 715 is
not limited to projects with purely local benefits. To the
contrary, it implements Section 213(b) of the Federal Power
Act, which requires utilities to inform FERC of all “potentially
available transmission capacity and known constraints.” 16
U.S.C. § 824l(b). In addition, under FERC regulations, utilities
must submit “a detailed description of the transmission
planning reliability criteria used to evaluate system
performance.” New Reporting Requirement Implementing
Section 213(b) of the Federal Power Act, 58 Fed. Reg. 52,420,
52,421 (Oct. 8, 1993); see 18 C.F.R. § 141.300(a). Neither the
statute nor the implementing regulation limits reportable
criteria to those involving projects with only local benefits.
Finally, FERC appears to claim affirmative support from
its conclusion that the amendment is consistent with Order No.
1000. See Cost-Allocation Order, 154 FERC ¶ 61,096, P 13 &
n.16. As explained above, Order No. 1000 requires cost-
sharing only for projects “selected in a regional plan for
purposes of cost allocation,” 136 FERC ¶ 61,051, P 539, and
the amendment effectively prevented the two projects at issue
from being selected. However, compliance with Order No.
1000 does not necessarily ensure compliance with the cost-
causation principle—a pre-existing, more general rule that, in
order to ensure just and reasonable rates, FERC must make
some reasonable effort to match costs to benefits. See, e.g.,
BNP Paribas Energy, 743 F.3d at 268. Indeed, Order No. 1000
itself recognized the cost-causation principle as a pre-existing
and generally applicable rule. See 136 FERC ¶ 61,051, P 504.
As explained above, we fail to see how a categorical refusal to
18
permit any regional cost sharing for an important category of
projects conceded to produce significant regional benefits can
be reconciled with the background principle. To the contrary,
the cost-causation principle prevents regionally beneficial
projects from being arbitrarily excluded from cost sharing—a
necessary corollary to ensuring that the costs of such projects
are allocated commensurate with their benefits.
IV
We are sensitive to the concern, pressed by Dayton and the
other amici supporting FERC, that individual utilities should
not have free rein to impose unjustified costs on an entire
region by unilaterally adopting overly ambitious planning
criteria. However, nothing we say here prevents PJM or its
member utilities from amending the Tariff, the Operating
Agreement, or PJM’s own planning criteria to address any
problem of prodigal spending, to establish appropriate end-of-
life planning criteria, or otherwise to limit regional cost
sharing—as long as any amendment respects the cost-causation
principle. Indeed, the cost-causation principle, by allocating
project costs consistent with project benefits, creates the best
incentives for PJM member utilities themselves to agree on
when to invest their scarce resources in transmission
improvements. Likewise, nothing we say prevents FERC from
trimming excessive spending in the course of exercising its
overarching mandate to ensure just and reasonable rates. See
16 U.S.C. § 824d(a). Nor do we limit the ability of PJM or
FERC to assess whether individual projects are in fact
appropriate under the governing planning or reliability criteria.
Finally, nothing we say constrains PJM’s or FERC’s ability to
require competitive-bidding processes for regionally beneficial
projects.
19
Instead, we hold only that FERC did not adequately justify
its approval of the amendment at issue here, which prohibited
cost sharing for a category of high-voltage projects conceded
to have significant regional benefits, and which did so only
because those projects reflected the planning criteria of
individual utilities. The legal or economic merit of Dominion’s
particular end-of-life planning criteria, and the appropriateness
of the Elmont-Cunningham and Cunningham-Dooms projects
under those criteria, remain open issues on remand.
* * * *
The Commission acted arbitrarily and capriciously in
approving the tariff amendment and applying it to the Elmont-
Cunningham and Cunningham-Dooms projects. We therefore
grant the petitions for review, set aside the orders under review
to the extent that they approved the amendment and applied it
to the two projects, and remand for further proceedings
consistent with this opinion.
So ordered.