FL Muni Power Agcy v. FERC, No. 01-1381 (D.C. Cir. 2003)

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 19, 2002 Decided January 21, 2003

No. 01-1381

Florida Municipal Power Agency,

Petitioner

v.

Federal Energy Regulatory Commission,

Respondent

Florida Power & Light Company,

Intervenor

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Robert A. Jablon argued the cause for petitioner. With

him on the briefs was Daniel I. Davidson.

Judith A. Albert, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

the brief were Cynthia A. Marlette, General Counsel, and

Dennis Lane, Solicitor.

Clifford (Mike) Naeve was on the brief for intervenor.

Before: Sentelle, Henderson and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: Granted access to Florida Power &

Light's electricity transmission lines for the purpose of estab-

lishing network transmission service, Petitioner Florida Mu-

nicipal Power Agency challenges three decisions of the Feder-

al Energy Regulatory Commission rejecting its request for

pricing credits. Finding the Commission's decisions sup-

ported by substantial evidence and neither arbitrary nor

capricious, we deny the petition.

I.

After determining that utilities were discriminatorily deny-

ing power suppliers access to electricity transmission lines,

the Federal Energy Regulatory Commission issued Order

No. 888 requiring public utilities that own, control, or operate

transmission facilities to file open access tariffs under which

they agree to provide non-discriminatory access to their

transmission networks in addition to the point-to-point service

they had been offering. Promoting Wholesale Competition

Through Open Access Non-Discriminatory Transmission

Services by Public Utilities; Recovery of Stranded Costs by

Public Utilities and Transmitting Utilities, Order No. 888,

F.E.R.C. Stats. & Regs. p 31,036, 61 Fed. Reg. 21540, 21541

(1996), clarified, 76 F.E.R.C. p 61,009 and 76 F.E.R.C.

p 61,347 (1996), modified, Order No. 888-A, F.E.R.C. Stats. &

Regs. p 31,048, 62 Fed. Reg. 12,274 (1997), order on reh'g,

Order No. 888-B, 81 F.E.R.C. p 61,248, 62 Fed. Reg. 64,688

(1997), order on reh'g, Order No. 888-C, 82 F.E.R.C. p 61,046

(1998), aff'd Transmission Access Policy Study Group v.

FERC, 225 F.3d 667 (D.C. Cir. 2000) (per curiam) ("TAPS"),

aff'd, New York v. FERC, 535 U.S. 1 (2002). In point-to-point

transmission service, utilities pay for energy transmission

from designated points of receipt to designated points of

delivery. TAPS, 225 F.3d at 725 n.12. As Order No. 888

explains, however, "[n]etwork service allows more flexibility

by allowing a transmission customer to use the entire trans-

mission network to provide generation service for specified

resources and specified loads without having to pay multiple

charges for each resource-load pairing." Order No. 888, 61

Fed. Reg. at 21,547 n.65. Thus, unlike point-to-point service,

network service permits a utility using another utility's trans-

mission lines "to fully integrate load [(the total demand for

service on a utility system)] and resources on an instantane-

ous basis in a manner similar to the transmission owner's

integration of its own load and resources." Id. at 21,547.

Three additional features of Order No. 888 are relevant to

this case. First, the order requires load ratio pricing for

network transmission service, a form of transmission that

"provides the customer with the same full system ability for

transmitting power as the transmission owner." TAPS, 225 F.3d at 725. "Under load ratio pricing, the costs of the

transmission system are allocated on the basis of the ratio of

the network customer's load to the transmission provider's

entire load on its transmission system." Respondent's Br. at

7.

The second relevant principle from Order No. 888 respond-

ed to arguments made by utility customers (like Petitioner

Florida Municipal Power Agency (FMPA)) that because some

customers sell power in a way that does not bear on network

resources--known as behind-the-meter generation--load ra-

tio pricing's use of total load for determining a customer's

rate might require payment for unneeded network transmis-

sion. TAPS, 225 F.3d at 725-26. These transmission cus-

tomers thought they should therefore receive pricing credits

for all behind-the-meter facilities. Id. FERC agreed in part.

Although holding that customers were entitled to pricing

credits for facilities "integrated" into the transmission net-

work, the Commission cautioned that "[t]he fact that a trans-

mission customer's facilities may be interconnected with a

transmission provider's system does not prove that the two

systems comprise an integrated whole such that the transmis-

sion provider is able to provide transmission service to itself

or other transmission customers over those facilities--a key

requirement of integration." Order No. 888, 61 Fed. Reg. at

21,630 (emphasis in original). "[F]or a customer to be eligible

for a credit," FERC explained, "its facilities must not only be

integrated with the transmission provider's system, but must

also provide additional benefits to the transmission grid in

terms of capability and reliability, and be relied upon for the

coordinated operation of the grid." Order No. 888-A, 62 Fed.

Reg. at 12,330. In other words, FERC would determine

credits on a case-by-case basis.

Third, Order No. 888 adopts the principle of "comparabili-

ty," meaning that the same integration standard that applies

to transmission customers for the purpose of determining

eligibility for pricing credits also applies to transmission

providers for rate determination purposes. Order No. 888, 61

Fed. Reg. at 21,630 n.452. Thus, if a transmission provider

includes a facility in its rate base, then its transmission

customers may receive rate credits for any similarly situated

facilities.

Running parallel to the development of Order No. 888, and

in many respects providing a basis for it, this case began in

1993 when FMPA, a nonprofit public agency that provides

point-to-point electric power supply to its twenty-nine mem-

ber cities that sell retail electricity to the public, developed a

plan for offering network transmission service. FMPA re-

quested the right to purchase transmission service from

Intervenor Florida Power & Light, owner of the state's

largest transmission system. When Florida Power rejected

that request, FMPA filed a complaint with FERC. Granting

FMPA's request for network transmission service, FERC

ordered the parties to agree on rates, conditions, and terms of

service within sixty days. Fla. Mun. Power Agency v. Fla.

Power & Light Co., 65 F.E.R.C. p 61,125 (1993), reh'g dis-

missed, 65 F.E.R.C. p 61,372 (1993).

When FMPA and Florida Power failed to reach an agree-

ment, FERC issued a final order addressing cost-of-service

issues. Fla. Mun. Power Agency v. Fla. Power & Light Co.,

67 F.E.R.C. p 61,167 (1994) ("FMPA I"). Foreshadowing

Order No. 888, FERC adopted Florida Power's load ratio

pricing proposal, but agreed that in certain circumstances

FMPA might be entitled to pricing credits for facilities that

are "integrated" into Florida Power's network. The Commis-

sion explained:

If FMPA has transmission facilities that will operate

as part of the integrated transmission system, a

credit would be reasonable. Indeed, this is in line

with Florida Power's position that it is redefining

the native load served by the Florida Power trans-

mission system to include all of FMPA's resources

and loads. If FMPA owns grid facilities that are

now used to integrate the same resources and loads,

those facilities are part of the integrated transmis-

sion system, and Florida Power must include an

appropriate credit for any such grid facilities when it

submits its compliance filing in this case.



Id. at 61,482 n.76.

In 1996, acting on several requests for rehearing, FERC

rejected FMPA's argument that Florida Power had improper-

ly refused to grant FMPA pricing credits, holding that none

of FMPA's facilities was integrated into Florida Power's

network. Fla. Mun. Power Agency v. Fla. Power & Light, 74

F.E.R.C. p 61,006 (1996) ("FMPA II"). At the same time,

FERC recognized the comparability principle that later found

its way into Order No. 888: "Just as FMPA cannot obtain

credit for facilities not used by Florida Power to provide

service, so Florida Power cannot charge FMPA for facilities

not used to provide transmission service." Id. at 61,010 n.48.

In FMPA II, FERC rejected FMPA's request to supple-

ment the record to include evidence relating to a facility

FMPA operates in Lake Worth, Florida, as well as evidence

relating to the "Rate Case." Id. at 61,007. The latter refers

to a separately docketed FERC proceeding that began in

1993 when Florida Power filed a proposed tariff adjustment

that would have affected the prices it charged transmission

users, including FMPA. Fla. Power & Light Co., 64 F.E.R.C.

p 61,361 (1993). Although Florida Power and FMPA reached

a settlement, that settlement did not resolve FMPA's claim

that Florida Power's rate base should be adjusted to exclude

facilities that are not "integrated" with the rest of Florida

Power's transmission system. Fla. Power & Light Co., 92

F.E.R.C. p 61,241 (2000). This issue, referred to as a "re-

served issue," remains pending before the Commission. Re-

spondent's Br. at 10. In FMPA II, therefore, FERC denied

FMPA's request that "if the Commission rejects the proposed

credits for FMPA facilities, Florida Power be directed to

exclude from its transmission rates the cost of transmission

facilities that FMPA believes are not part of the integrated

grid...." FMPA II, 74 F.E.R.C. at 61,010 n.48. "This

issue," the Commission explained, "is among the rate issues

being litigated in the Rate Case, and the parties have agreed

that all rate issues will be resolved in the Rate Case." Id.

Finally, in FMPA III, the Commission denied FMPA's

second petition for rehearing. Fla. Mun. Power Agency v.

Fla. Power & Light, Co., 96 F.E.R.C. p 61,130 (2001). Reject-

ing FMPA's request for pricing credits, FERC again held

that FMPA failed to demonstrate that its facilities were

integrated into Florida Power's network. Id. at 61,545.

FERC also ruled that FMPA's contention that the Commis-

sion should "reduce the Florida Power rate base to be

consistent with a disallowance of FMPA facilities that are

necessary to connect generation and load," fell outside the

scope of the instant proceeding. Id. Noting FMPA's argu-

ment that the rate base reduction issue "was among the

reserved issues in the settlement proceeding," FERC ex-

plained that "the reservation of an issue in one proceeding

does not operate to transfer such issue to another proceed-

ing." Id.

II.

FMPA now challenges the Commission's denial of pricing

credits in FMPA I, FMPA II, and FMPA III. We review

FERC's orders under the arbitrary and capricious standard

and uphold FERC's factual findings if supported by substan-

tial evidence. See, e.g., Pacific Gas & Elec. Co. v. FERC, 306 F.3d 1112, 1115 (D.C. Cir. 2002); Process Gas Consumers

Grp. v. FERC, 292 F.3d 831, 836 (D.C. Cir. 2002). "The

'substantial evidence' standard," we have explained, "requires

more than a scintilla, but can be satisfied by something less

than a preponderance of the evidence." FPL Energy Me.

Hydro LLC v. FERC, 287 F.3d 1151, 1160 (D.C. Cir. 2002)

(internal citation omitted).

FMPA argues that the Commission erred by excluding

evidence from the Rate Case, or alternatively, that it improp-

erly refused to consolidate the Rate Case with the FMPA

cases. As to its first argument, FMPA claims not that the

excluded evidence pertains directly to the integration of its

facilities, but rather that FERC has allowed Florida Power to

include facilities in its rate base that are identical to FMPA

facilities in terms of network benefits. According to FMPA,

because the comparability principle requires equal treatment

of transmission providers and users, the Commission must

grant FMPA credit for facilities similar to ones the Commis-

sion allowed Florida Power to include in its rate base. We

disagree.

To begin with, FMPA never argues--fatally for its posi-

tion--that Rate Case evidence directly establishes that its

facilities are integrated into Florida Power's network. More-

over, even if FERC treats FMPA facilities differently from

similar Florida Power facilities, the Commission's denial of

pricing credits does not violate the comparability principle for

an obvious reason: FERC has yet to rule on FMPA's request

for reductions in Florida Power's rate base. See Petitioner's

Br. at 16 (noting that the Commission has not ruled on

reductions in Florida Power's rate base). "As a theoretical

matter," FMPA concedes, "FERC could order relief in the

Rate Case." Petitioner's Br. at 20. Theoretical? That

FERC "could order relief in the Rate Case" is dispositive.

Until FERC resolves FMPA's request for reductions in Flori-

da Power's rate base (one of the "reserved issues"), FERC's

denial of pricing credits cannot violate the comparability

principle. FERC's exclusion of Rate Case evidence was thus

not an abuse of discretion.

 Nor did FERC improperly refuse to consolidate the Rate

Case with the FMPA proceedings. Administrative agencies

enjoy "broad discretion" to manage their own dockets, Tele-

comm. Resellers Assoc. v. FCC, 141 F.3d 1193, 1196 (D.C. Cir.

1998), and FMPA offers no reason to believe that FERC

abused that discretion in this case. Even if, as FMPA claims,

FERC has unreasonably delayed deciding the Rate Case, the

place for resolving that issue is there, not here.

FMPA next argues that FERC ignored evidence demon-

strating the integration of its facilities with those of Florida

Power's. This contention appears to rest almost entirely on

FERC's statement in FMPA III that "FMPA has not demon-

strated, nor does FMPA even argue, that its facilities meet

the [integration] test." FMPA III, 96 F.E.R.C. at 61,545.

"These statements," FMPA insists, "show that FERC was

unaware of and, therefore, could not have considered basic

evidence and argument of integration." Petitioner's Br. at

21. Other statements in FMPA III, however, indicate that

FERC understood FMPA's arguments and its evidence, but

found them insufficient to justify granting credits. "The key

issue in the case," the Commission wrote in FMPA III, "is

whether FMPA's facilities are integrated with Florida Pow-

er's transmission system.... In FMPA II, the Commission

found that a credit was not appropriate." FMPA III, 96

F.E.R.C. at 61,543. The Commission also discussed its core

finding in FMPA II that FMPA's facilities are "interconnect-

ed with Florida Power's facilities[,] ... not integrated" with

them. Id. Because FMPA presented no new evidence of

integration in FMPA III--a point FMPA counsel conceded at

oral argument--FERC's reliance on findings and conclusions

from FMPA II was entirely appropriate.

So what did FERC mean when it said that FMPA neither

argued nor presented sufficient evidence of integration? We

have no idea. The Commission's brief provides no explana-

tion, nor was agency counsel able to do so at oral argument.

This enigma is not fatal, however, for under our deferential

standard of review, we uphold agency decisions if supported

by substantial evidence, "notwithstanding their expository

shortcomings." Pan-Alberta Gas, Ltd. v. FERC, 251 F.3d 173, 176 (D.C. Cir. 2001).

Here, substantial evidence supports FERC's denial of pric-

ing credits. Florida Power's expert testified that five of the

seven FMPA cities at issue--Key West, Lake Worth, Clewi-

ston, Green Cove Springs, and Jacksonville Beach--"are in-

terconnected only with the [Florida Power] transmission sys-

tem" and that each city is essentially a " 'dead-end' off the

[Florida Power] system, in that ... power delivered from the

Florida Power transmission system necessarily must be con-

sumed wholly within the city." Third Adjemian Aff. p 7. The

expert also testified that the five FMPA facilities provide no

benefit to the Florida Power network: "[W]hile the internal

facilities enable each utility to distribute power within its own

system, the facilities in no way reduce [Florida Power's] costs

in integrating the loads of each city with all of FMPA's other

network resources because they do not impact the facilities

required by [Florida Power] to transmit power to and from

these utilities." Id. p 16. Although FMPA's other two cit-

ies--Ft. Pierce and Vero Beach--interconnect to Florida

Power's network at multiple points, Florida Power's expert

testified that those "facilities do not reduce [Florida Power's]

costs in providing network transmission service because the

[Ft. Pierce-Vero Beach] line has a negligible electrical impact

on [Florida Power's] ability to transmit power to and from the

two cities." Id. p 18. It is true, as FMPA points out, that the

expert also testified that "a negligible amount of power can

flow over the line," but the expert further explained that this

flow provided no benefit to Florida Power because "even

without the line, [Florida Power] is able to deliver power to

retail customers in that area and to transmit power to [Flori-

da Power's] other load centers in South Florida." Third

Adjemian Aff. p 19. According to FMPA, Florida Power

relied on the Ft. Pierce-Vero Beach line during a planned

transmission system outage, but Florida Power presented

evidence that the line may not actually have assisted its

network and that it had sufficient capacity to serve its

customers during the outage. See Fourth Adjemian Aff. at

p p 2-7; Birch Aff. p p 7, 10.

 Based on this and other record evidence, FERC concluded

that "[t]he transmission facilities of most FMPA members are

interconnected with the Florida Power transmission system

at single points that are used only to transfer power between

the Florida Power transmission system and each FMPA

member's transmission system." FMPA II, 74 F.E.R.C. at

61,010. The Commission further explained:

While the FMPA facilities may serve a transmission

function on the FMPA side of the interconnection

point between FMPA and the Florida Power system,

they are not used by Florida Power to provide

transmission service to FMPA or any other party.

Nor are they used to transmit Florida Power's pow-

er to its non-FMPA customers.



Id. Crediting Florida Power's expert regarding the Ft.

Pierce-Vero Beach lines, FERC also concluded that the lines

were not integrated because they provided, at best, "unneed-

ed redundancy" with Florida Power's network. Id. The

Commission explained, "[a]n integrated transmission system

(as opposed to two interconnected transmission systems) is

comprised of transmission facilities operated as part of the

same network, integrating all resources and loads on that

network." Id.

To be sure, FMPA points to some contradictory evidence.

See Petitioner's Br. at 22-23 (arguing that FMPA facilities

benefit Florida Power by increasing reliability and that the

Ft. Pierce-Vero Beach lines allow Florida Power to sell

power in South Florida, increase Florida power grid capacity,

and effect Florida Power planning). The question we must

answer, however, is not whether record evidence supports

FMPA's version of events, but whether it supports FERC's.

Ark. Elec. Energy Consumers v. FERC, 290 F.3d 362, 367

(D.C. Cir. 2002) (explaining court's limited role in reviewing

FERC decision under "substantial evidence" standard). Ap-

plying our deferential standard of review--a particularly def-

erential standard where, as here, FERC decided between

"disputing expert witnesses," Wis. Valley Improvement Co. v.

FERC, 236 F.3d 738, 746-47 (D.C. Cir. 2001)--we have no

doubt that the Commission's decision to deny credits is

supported by substantial evidence. See supra pp. 9-11.

FMPA's remaining challenges are equally unpersuasive.

FMPA says that FERC failed to consider evidence regarding

Key West. But the lone document FMPA cites never men-

tions Key West; instead, it discusses FMPA's general argu-

ments regarding integration which FERC addressed in

FMPA II. See Fourth Malmsjo Aff. p 19. FMPA says that

FERC improperly rejected its motion to lodge Florida Pow-

er's proposal to buy the Lake Worth utility (allegedly showing

that Florida Power would have included Lake Worth in its

rate base) and ignored Breaker Diagrams showing the config-

uration of Florida Power's system. But because both the

Lake Worth evidence and the Breaker Diagrams relate to

Florida Power's rate base, not to the integration of FMPA's

facilities, FERC properly excluded them for the same reason

that it properly excluded the rest of the Rate Case evidence.

See supra pp. 7-8. FMPA says that the Commission applies

the integration standard inconsistently, but we rejected just

that argument in TAPS. See TAPS, 225 F.3d at 726-27

(describing FERC's discussion of integration in FMPA I and

FMPA II as "completely consistent with the Commission's

resolution of the credits issue in the proceedings before us").

Finally, FMPA argues that FERC's recently published

Standard Market Design Notice of Proposed Rule Making,

see Remedying Undue Discrimination Through Open Access

Transmission Service and Standard Electricity Market De-

sign, 67 Fed. Reg. 55452 (Aug. 29, 2002) ("SMD-NPRM"),

"appears to reflect a significant shift in Commission policy,"

Petitioner's Rep. Br. at 6-10, regarding the integration stan-

dard, thus requiring remand pursuant to Williston Basin

Interstate Pipeline Co. v. FERC, 165 F.3d 54, 62-63 (D.C.

Cir. 1999) (holding that agency's adoption of new rule during

judicial proceeding requires immediate remand of pending

cases involving discarded rule). The NPRM, however, ex-

pressly states that it does not resolve any issues relating to

integration. "Which facilities will or will not be under a

[Regional Transmission Organization's] operational control,"

the Commission explained, "does not predetermine transmis-

sion pricing, cost allocation, or rate design determina-

tions...." SMD-NPRM, 67 Fed. Reg. at 55,500 n.173. In

any event, and unlike the rule at issue in Williston, FERC

has yet to finalize the NPRM. Even if, as FMPA suspects,

FERC is applying the NPRM in other proceedings, adversely

affected parties in those cases may challenge the Commis-

sion's actions pursuant to 16 U.S.C. s 825l(b).

The petition for review is denied.

So ordered.