LSP Transmission Holdings II v. FERC ( 2022 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 27, 2022 Decided March 22, 2022
No. 20-1422
LSP TRANSMISSION HOLDINGS II, LLC,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC
COMPANY AND AVANGRID NETWORKS, INC.,
INTERVENORS
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
Michael R. Engleman argued the cause for petitioner. With
him on the briefs were Robert C. Fallon and Christina Switzer.
Amber L. Stone argued the cause for intervenor
Massachusetts Municipal Wholesale Electric Company in
support of petitioner. With her on the brief was Scott H.
Strauss.
Carol J. Banta, Senior Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were Matthew R. Christiansen, General Counsel, and
2
Robert H. Solomon, Solicitor.
Before: ROGERS and PILLARD, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
RANDOLPH.
RANDOLPH, Senior Circuit Judge: LSP Transmission
Holdings II, LLC, is an independent electric transmission
developer. It regularly bids on proposals to build transmission
projects throughout the United States. LSP brings this petition
for judicial review of a decision of the Federal Energy
Regulatory Commission concerning ISO New England’s1
compliance with Commission Order No. 1000.
Among other things, Order No. 1000 required “the removal
from Commission-jurisdictional tariffs and agreements of
provisions that grant a federal right of first refusal to construct
transmission facilities selected in a regional transmission plan
for purposes of cost allocation.” See Transmission Planning and
Cost Allocation by Transmission Owning and Operating Public
Utilities, 136 FERC ¶ 61,051, P. 225 (2011). Instead of a right
of first refusal, the Commission directed incumbent transmission
providers to engage in competitive selection of
developers—which meant describing the project, soliciting
proposals, and evaluating bids. See id.; see also S.C. Pub. Serv.
Auth. v. FERC, 762 F.3d 41, 72–73 & n.6 (D.C. Cir. 2014). But
the Commission recognized an exception central to this dispute:
1
ISO New England is a private, non-profit regional transmission
organization that administers New England’s energy markets and
operates “the region’s bulk power transmission system.” Braintree
Elec. Light Dep’t v. FERC, 550 F.3d 6, 9 (D.C. Cir. 2008) (internal
quotation marks omitted).
3
if the time needed to solicit and conduct competitive bidding
would delay the project and thereby threaten system
“reliability,” then competitive bidding would not be required.
136 FERC ¶ 61,051, P. 329.
In approving ISO New England’s tariff revisions in 2013,
the Commission reaffirmed “that in certain instances time
constraints may not allow for the open solicitation of
reliability-related transmission projects without risking
reliability to the system.” ISO New Eng. Inc., 143 FERC
¶ 61,150, P. 235 (2013) [hereinafter Compliance Order]. The
Commission listed criteria to govern whether a right of first
refusal applied to reliability projects, one of which was that “the
reliability project must be needed in three years or less to solve
reliability criteria violations.” Id. P. 236. The three-year limit
is less than what ISO New England sought—it wanted to exempt
projects needed within five years. Id. PP. 220, 237. The
Commission rejected that proposal, concluding that such an
extended time-frame for designating a project as an urgent
system-reliability need “would effectively preclude the benefits
of competition in selecting the more efficient or cost-effective
projects.” Id.By 2019, the Commission had become concerned that ISO
New England and other utilities were acting inconsistently with
the competitive selection requirements of Order No. 1000 and
later orders. See ISO New Eng. Inc., 169 FERC ¶ 61,054 (2019)
[hereinafter Show Cause Order]. The Commission, invoking
Section 206 of the Federal Power Act (“FPA”), 16 U.S.C.
§ 824e, directed ISO New England to:
(1) demonstrate how it is complying with the
immediate need reliability project criteria; (2)
demonstrate that the provisions in its tariff, as
implemented, containing certain exemptions to the
4
requirements of Order No. 1000 for immediate need
reliability projects remain just and reasonable; and (3)
consider additional conditions or restrictions on the use
of the exemption for immediate need reliability
projects to appropriately balance the need to promote
competition for transmission development and avoid
delays that could endanger reliability.
Id. P. 1.
Particularly troubling to the Commission was the number of
ISO New England projects with estimated “need-by dates”
occurring within the three-year window, but before the projects
would become operational. Id. P. 8. Need-by dates are
estimated dates when a project would be needed to guarantee
system reliability. In-service dates are the projected dates when
a completed project would be fully operational. ISO New
England explained that a need-by date can predate an in-service
date because ISO New England uses “a more conservative set of
assumptions” about when a project will be necessary to prevent
reliability shortfalls.
LSP intervened in the § 206 proceeding. In its comments,
LSP emphasized that since 2016, ISO New England had
exempted from competition “virtually every . . . reliability need”
project—that is, thirty of thirty-one such projects. J.A. 303.
LSP urged the Commission to eliminate or limit the competition
exception for system reliability projects.
The Commission found “insufficient evidence” that ISO
New England was incorrectly implementing Order No. 1000 and
its progeny. ISO New Eng., 171 FERC ¶ 61,211, PP. 1, 55
(2020) [hereinafter Termination Order]. The Commission saw
no error in ISO New England’s use or calculation of need-by
dates, which the Commission thought provided for
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contingencies and ensured reliable service. Id. PP. 56–59.
There was no dispute that ISO New England followed the
Compliance Order. Id. P. 60. For those same reasons, the
Commission denied LSP’s rehearing petition. See ISO New
Eng., 172 FERC ¶ 61,293 (2020) [hereinafter Rehearing Order].
I.
The Commission seeks to convince us that LSP does not
have standing and that even if it does, the Commission’s
decision is immune from judicial examination.
A.
As to standing, the Commission asks how LSP could have
suffered an Article III injury when the Commission “made no
changes to the existing, previously-approved planning criteria.”
The law has long been clear: to establish injury, LSP had only
to show that it “was ready, willing and able to perform” and that
Order No. 1000 and the tariff “deprived the company of the
opportunity to compete” for the work. O’Donnell Constr. Co.
v. District of Columbia, 963 F.2d 420, 423 (D.C. Cir. 1992); see
Carney v. Adams, 141 S. Ct. 493, 499–500, 503 (2020); Ne. Fla.
Chapter of Associated Gen. Contractors v. City of Jacksonville,
508 U.S. 656, 666 (1993). LSP met these requirements. It
demonstrated its readiness when its subsidiary bid on the only
one of thirty-one recent reliability projects open to competitive
bidding. Yet because of the Commission’s criteria, there was no
competitive bidding for the thirty other transmission projects.
LSP accordingly has suffered an Article III injury.
LSP Transmission Holdings, LLC v. FERC, 700 F. App’x
1, 2 (D.C. Cir. 2017) (per curiam), has no bearing on this case.
We held that LSP lacked standing to claim that a utility
wrongfully excluded it “from competition based on state and
6
local laws.” Id. We so held because LSP failed to identify a
“specific project that [the utility] has approved for regional cost
allocation in a state whose law gives an incumbent a right of
first refusal . . ..” Id. The situation here is quite different.
There can be no doubting LSP’s assertion that it has been denied
the ability to bid on the thirty identified projects as a result of
ISO New England’s implementation of the Compliance Order.
B.
The Commission’s argument that its ruling is immune from
judicial questioning rests on the Supreme Court’s interpretation
of the Administrative Procedure Act, 5 U.S.C. § 701(a)(2), in
Heckler v. Chaney, 470 U.S. 821 (1985). Its action here is
reviewable. The Commission invoked § 206 of the Federal
Power Act, 16 U.S.C. § 824e, and issued a show cause order
under 18 C.F.R. § 385.209(a). Show Cause Order P. 1 & n.2.
Proceedings under FPA § 206 result in “substantive adjudicative
decisions.” Pub. Citizen, Inc. v. FERC, 7 F.4th 1177, 1196 n.4
(D.C. Cir. 2021). Compare 16 U.S.C. § 824e(a), with 5 U.S.C.
§ 554(c). The Commission published notice of the proceeding
in the Federal Register “with interventions due within 21 days
of publication.” Termination Order P. 5. Multiple
organizations, including LSP, timely moved to intervene and
filed comments. Id. PP. 5–8. The Commission considered and
addressed these comments in concluding that no further action
was needed. Id. PP. 12–63.
As for the order itself, the Commission resolved the matter
on the merits. See Citizens to Pres. Overton Park, Inc. v. Volpe,
401 U.S. 402, 410 (1971). It explained that further action was
unnecessary because ISO New England had complied with
Order No. 1000 and its Tariff. Termination Order PP. 55–60.
The order terminating the proceeding is replete with invocations
of agency precedent and reasons for retaining the exemption
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criteria. Id.The Commission’s ruling thus bears all the indicia of a
substantive decision produced after a contested proceeding
involving not only ISO New England but also numerous
intervenors. It is therefore subject to judicial review.
II.
On the merits, LSP’s main argument is that the Commission
should have required ISO New England to use in-service dates
rather than need-by dates to determine whether a reliability
project would be exempt from Order No. 1000’s competitive-
selection requirement. LSP claims that using need-by dates has
led to nearly all reliability projects being exempt from
competition, even though the projects did not come on line for
years after their need-by dates had passed—a situation LSP
describes as the exception swallowing the rule.
The Commission recognized that need-by dates “often
occur” well before in-service dates. Rehearing Order P. 31.
And it addressed the contention that need-by dates are inferior
to in-service dates. Relying on a prior decision, the Commission
explained why “it is proper to use the date a reliability need
must be addressed rather than the expected in-service date of the
project chosen . . ..” Id. P. 29; see PJM Interconnection, L.L.C.,
156 FERC ¶ 61,030, P. 24 (2016), vacated on other grounds by
Old Dominion Elec. Coop. v. FERC, 898 F.3d 1254 (D.C. Cir.
2018).
An agency “need not repeat itself incessantly” and can
dispose of claims by relying upon prior actions provided the
agency’s earlier reasoning has not been rendered invalid.
Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir. 1993); see also
Lichoulas v. FERC, 606 F.3d 769, 777 (D.C. Cir. 2010). Using
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need-by dates rather than expected in-service dates to decide if
a project falls within the Compliance Order’s needed-within-
three-years-or-less requirement, the Commission said,
accomplishes the purpose of getting urgent projects fulfilled
expeditiously. Rehearing Order P. 30. Most concerning to the
Commission was that measuring by in-service dates could delay
urgently needed projects that would take more than three years
to complete because such projects would be subject to the
competitive-bidding process. Id.2 In explaining the foundation
for using need-by dates, the Commission adequately addressed
LSP’s objection.
We see nothing irrational in the Commission’s response to
LSP’s general criticism of ISO New England’s use of more
conservative assumptions regarding its system capacity and
future management. Id. P. 28. The Commission explained that
ISO New England’s methodology—and specifically its use of
need-by dates—helps ensure “reliable service to load under a
wide range of operating conditions . . ..” Termination Order P.
58. And the Commission noted that “the use of more
conservative study assumptions in transmission planning is
consistent with applicable North American Electric Reliability
Corporation (NERC) Reliability Standards.” Rehearing Order
P. 28.
Also, according to LSP, the Commission improperly
2
“Using the anticipated in-service date instead of the need-by
date could lead to the perverse result where the immediate need
reliability project exemption would apply to a project needed in three
years if it could be placed in service within three years, but that the
more time-consuming competitive proposal window process would be
required to address a reliability solution needed in one year if it could
not be placed in service within three years. Use of the needed by date
prevents such an inappropriate outcome.” Rehearing Order P. 30.
9
departed from the precedent set in Order No.1000 and later
orders. LSP’s evidence of this is that the overwhelming
majority of ISO New England’s reliability projects fell within
the exception from competition. In response, the Commission
reaffirmed the decisional process for designating a project as an
urgent reliability need—finding that the “criteria appropriately
balance reliability and competition.” Rehearing Order P. 23.
The Commission noted that “the frequency” of the exception’s
invocation “does not alone provide sufficient evidence that the
Tariff is unjust and unreasonable.” Id. The Commission
pointed to a recent instance where a reliability-project
solicitation was conducted competitively. Id. P. 24. And the
Commission determined that ISO New England had correctly
applied the Compliance Order’s criteria. Id.LSP frames its argument in terms of requiring the
Commission to follow its precedents. But LSP urges the
Commission to abandon its current rules because far too many
projects are winding up exempt from competition. LSP may
have a point. If a theory does not work in practice, there is
usually something wrong with the theory. See JOHN STUART
MILL, AUTOBIOGRAPHY 79 (J. Bennett ed., 2017) (1873). Yet
LSP did not challenge the Commission’s finding that ISO New
England had not violated the Commission’s tariff. And although
the number of reliability projects so far exempted from
competitive bidding exceeded those open to competition, the
appropriate balance struck—between competitive procurement
and quick redress of reliability needs—is the sort of policy
judgment left to the Commission. See Fresno Mobile Radio,
Inc. v. FCC, 165 F.3d 965, 971 (D.C. Cir. 1999).
The petition for judicial review is denied.