North Carolina Utilities Comm'n v. FERC, No. 12-1881 (4th Cir. 2014)
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NCUC challenged incentives granted by FERC to VEPCO to encourage investment in transmission infrastructure projects. The court held that FERC properly exercised its broad discretion in declining to apply the 2010 policy change in its Rehearing Order and in evaluating VEPCO's application for incentives. Accordingly, the court granted FERC's grant of incentives to VEPCO under section 219 of the Federal Power Act (FPA), 16 U.S.C. 824s(c).
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PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-1881 NORTH CAROLINA UTILITIES COMMISSION, Petitioner, OLD DOMINION ELECTRIC COOPERATIVE; NORTH CAROLINA ELECTRIC MEMBERSHIP CORPORATION, Intervenors, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, VIRGINIA ELECTRIC AND POWER COMPANY, Intervenor. Appeal from the Federal Energy Regulatory Commission. 1207) Argued: December 10, 2013 Decided: (ER08- January 24, 2014 Before DUNCAN, WYNN, and THACKER, Circuit Judges. Affirmed by published opinion. Judge Duncan wrote the opinion, in which Judge Wynn and Judge Thacker joined. ARGUED: Kimberly Weaver Duffley, NORTH CAROLINA UTILITIES COMMISSION, Raleigh, North Carolina, for Petitioner. Lona Triplett Perry, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Respondent. ON BRIEF: Louis S. Watson, Jr., General Counsel, NORTH CAROLINA UTILITIES COMMISSION, Raleigh, North Carolina, for Petitioner. David L. Morenoff, Acting General Counsel, Robert H. Solomon, Solicitor, FEDERAL ENERGY REGULATORY COMMISSION, Washington, D.C., for Respondent. Michael C. Regulinski, DOMINION RESOURCES SERVICES, INC., Richmond, Virginia; J. Tracy Walker, IV, David Martin Connelly, MCGUIREWOODS LLP, Richmond, Virginia, for Intervenor Virginia Electric and Power Company. 2 DUNCAN, Circuit Judge: The North Carolina Utilities Commission ( NCUC ) challenges incentives granted by the Federal Energy Regulatory Commission ( FERC ) to Virginia Electric Power Company d/b/a Dominion Virginia Power ( VEPCO ) to encourage investment in transmission infrastructure projects. NCUC argues that FERC violated § 219 of the Federal Power Act ( FPA ) and abused its discretion by granting these incentives in 2008 and by denying its petition for rehearing in 2012. Constrained by the standard of review, we affirm. I. We begin with a brief description of authority to grant the incentives at issue. FERC s statutory Under the Federal Power Act, FERC exercises general jurisdiction over all rates, terms, and conditions of interstate service provided by public utilities. electric transmission See 16 U.S.C. § 824(b). Congress amended the FPA in 2005 by passing the Energy Policy Act ( EPAct ) to create a national increasing efficiency and innovation. energy the reliability of the focused on Pub. L. 109-58, 119 Stat. 594 (2005); S. Rep. 109-78 at 1 (2005). about policy In response to concerns country s aging transmission system, § 219 of the FPA required FERC to promulgate a rule establishing incentive-based rate 3 treatments for qualifying projects to spur infrastructure investment. 16 U.S.C. § 824s(c). 1 After notice and comment, FERC adopted a final rule establishing a three-prong test for evaluating applications for incentives under § 219. Promoting Transmission Investment Through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222, at P 326 (2006), order on reh'g, Order No. 679-A, FERC Stats. & Regs. ¶ 31,236 (2007), order on reh'g, Order No. 679-B, 119 FERC ¶ 61,062 (2007); codified at 18 C.F.R. § 35.35 ( Orders No. 679, 679-A, & 679-B ). First, the utility must show that its infrastructure project will increase reliability or reduce congestion. demonstrate Order No. 679 ¶ 42. project. a nexus Id. ¶ 48. between the Second, the utility must requested incentive and the Finally, the utility must prove that its resulting rates with the incentive remain just and reasonable. Id. ¶ 59. We briefly explain each prong. A. The requirement of prong one--a showing of either increased reliability or reduced congestion--is largely self-explanatory with one proviso relevant here. 1 A utility can qualify for a The incentives take the form of basis point adders. Each basis point is equivalent to a 1/100% increase in a utility s return on equity (ROE), meaning that, for example, a 100 basis point adder translates into a 1% rise in a utility s ROE. 4 rebuttable presumption that its infrastructure project will either ensure reliability or reduce transmission congestion if it resulted from a regional planning process that consideration of reliability and cost reduction. included Order No. 679 ¶ 58; Order No. 679-A ¶ 5. B. The analysis under prong two--determining whether the nexus requirement is met--is more challenging. A utility must demonstrate that the incentive will materially affect investment decisions by showing that it is tailored to [the project s] risks and challenges. 679-A ¶ 21. Order No. 679 ¶ 26; see also Order No. Significantly here, a utility need not prove it would not undertake the project without the incentive. No. 679 ¶ 48. Order FERC determined that a but-for test would erect too high of an evidentiary hurdle. Order No. 679-A ¶ 25. FERC has further clarified the parameters of the nexus test through adjudication. In Baltimore Gas & Electric Company, 120 FERC ¶ 61,084 (2007), FERC held that a project meets the nexus test if it is determination, (1) the increase not FERC project s in reliability considers scope transfer or routine. all ¶ 54. relevant measured capability; reduced Id. in (2) congestion To make factors dollar this including: investment or its impact on regional costs; and (3) project specific challenges including siting risks, political pressure, 5 and difficulties in securing financing. Id. ¶ 52. FERC also held projects resulting from a regional planning process qualify as not routine reliability. because of their impact on regional Id. ¶ 58. 2 FERC s approach to applying the nexus test has evolved over time. Initially, when a utility included multiple, unrelated projects in a single application, FERC evaluated the projects in the aggregate to determine Order No. 679-A ¶ 27. provide sufficient whether the nexus test was met. While the utility was still required to explanation and support to allow the Commission to evaluate each element of the package, because an incentive for one project might lower the risk of another in the same application, FERC sought to ensure that the package of incentives as a whole would appropriately address the utility s risk overall. Id. In 2010, however, in PJM Interconnection, Inc., 133 FERC ¶ 61,273 (2010), and Oklahoma Gas and Electric Company, 133 FERC ¶ 61,274 (2010), FERC announced that it would no longer apply the nexus test in the aggregate to unrelated projects presented in a 2 After FERC issued the final order in this case, it determined that it would no longer use the Baltimore Gas routine/non-routine analysis as a proxy for satisfying the nexus test to applications received after November 2012. Promoting Transmission Investment Through Pricing Reform, 141 FERC ¶ 61,129 (2012). 6 single application. meet the nexus Instead, a utility would be required to test for Interconnection, 133 FERC each individual ¶ 61,273, at ¶ 45. would be applied in this and future cases. project. PJM This new policy Id. C. Finally, under the third prong of the Order No. 679 test, a utility must demonstrate that its resulting rates are just and reasonable under § 219(d). This requirement clarifies that a utility seeking a § 219 incentive remains constrained by the requirement that its rates be just and reasonable under § 205 of the FPA. Order No. 679 ¶ 8. Under the FPA, a utility must obtain approval through a rate-setting process in order to raise its rates to incorporate an incentive. Id. ¶ 77. A utility meets this requirement if its return on equity (ROE) with the requested incentive falls within a zone of reasonableness. 3 Id. ¶ 91. application With this explanation in mind, we turn now to FERC s of the three prongs of Order No. 679 s test to VEPCO s application in its 2008 declaratory proceeding. 3 This zone is determined through the same one-step discounted cash flow analysis ( DCF ) used in any rate proceeding before FERC. Order No. 679 ¶ 92. The DCF compares the utility s ROE with those of proxy companies and accounts for other factors, such as risk. Id. 7 II. A. On July 1, 2008, VEPCO, a member of PJM Interconnection LLC ( PJM ), 4 sought incentives for eleven transmission projects with a total estimated cost of $877 million. VEPCO requested a 125 basis point adder for a bundle of seven projects, a mix of new construction and improvements to existing infrastructure. VEPCO requested an additional 150 basis point adder for a bundle of four larger-scale projects. After numerous notice other of VEPCO s parties moved filing to was published, intervene. NCUC NCUC originally protested the grant of incentives to six of the projects. appeal, NCUC continues to challenge five. and On Four of the five projects were part of VEPCO s application for a 125 basis point adder: The Lexington Tie Project, Idylwood-to-Arlington Reconductor ( Idylwood Project ), the Garrisonville Project, and the Pleasant View-to-Hamilton Project ( Pleasant View Project ). The fifth, the Proactive Transformer Replacement Project ( PTRP ), was part of VEPCO s application for a 150 basis point 4 PJM is one of the voluntary Regional Transmission Organizations ( RTOs ) authorized by FERC to facilitate the transmission of electricity between owners of transmission lines that comprise an integrated regional grid. Regional Transmission Organizations, 65 Fed. Reg. 810, 811-12 (2000). 8 adder. We briefly describe each challenged project before turning to the proceedings below. 1. The Lexington Reconductor ( RTEP ) are Tie PJM projects. Project Regional The RTEP and Idylwood-Arlington Transmission is the Expansion product of a Plan long-term planning process by PJM to identify areas where infrastructure upgrades or improvements are needed to ensure compliance with national and regional reliability standards. The Lexington Tie Project requires the installation of upgraded line breakers at VEPCO s Lexington substation at an estimated cost of $6 million. The Idylwood Project requires replacement of existing conductors on 230 kV transmission lines with triple-circuit structures and high-temperature/high-capacity conductors. As RTEP projects, they enjoy a rebuttable presumption that the requirements of prong one are met. The Garrisonville and Pleasant View Projects are not RTEP projects, lines. and a the construction of new transmission The Garrisonville Project will result in a five mile underground million. involve transmission line at an estimated cost of $120 The Pleasant View Project involves the construction of twelve-mile transmission line, two of which would constructed underground, at an estimated cost of $90 million. 9 be VEPCO s Proactive Transformer Replacement Project ( PTRP ) is also not a RTEP project. It requires the replacement of thirty-two 500/230 kV transformers located in nine transformer banks in seven substations at an estimated cost of $110 million. 2. At the proceedings below, VEPCO supported its application with twenty-four exhibits seeking to demonstrate why each of the eleven projects merited § 219 incentives. NCUC challenged the five projects on appeal under the first two prongs of Order 679 s test. Under prong one, NCUC disputed only the Proactive Transformer Replacement Project ( PTRP ) arguing that it would not increase reliability. 5 NCUC protested the grant of incentives to each of the five projects challenged on appeal under prong two contending that they failed to meet the nexus requirement. We consider each challenge in turn. a. Under prong one, VEPCO argued that its PTRP would increase regional reliability transformer failure. by significantly reducing the risk of VEPCO based its application, in part, on a 5 At the initial hearing, NCUC challenged the Pleasant View and Garrisonville Projects under prong one arguing that they would not increase regional reliability. This argument is not before us on appeal however because NCUC declined to raise it in its petition for rehearing. See Mt. Lookout-Mt. Nebo Prop. Prot. Ass n v. FERC, 143 F.3d 165, 173 (4th Cir. 1998) 10 Probabilistic Risk Analysis ( PRA ) conducted by PJM as part of its regional planning process. VEPCO used this data to identify aging transformers with a higher risk of failure to target for replacement. there If one of these transformers failed, VEPCO argued, would be a decrease of between transformation capacity at each substation. the PJM s PRA actually determined 33% to 66% in NCUC responded that that VEPCO s current transformer network was sufficiently reliable because VEPCO had more than result, the PJM transformer required did not network number of spare recommend in its any planning transformers. upgrades process. As a to VEPCO s NCUC argued, therefore, that VEPCO should not be able to rely upon the PRA to support its application for an incentive. FERC found that VEPCO carried its prong-one burden of proving the PTRP would increase reliability agreeing that absent the project, there was multiple service areas. a risk of outages for customers in Virginia Electric and Power Company, 124 FERC ¶ 61,207 (2008) ( Incentives Order ), at ¶ 37. FERC also noted that the standard industry practice of relying on spares can result in delays in restoring service. Id. ¶ 38. Therefore, FERC rejected NCUC s argument that PJM s decision not to include this project in its RTEP project list meant the PTRP would not enhance reliability. 11 b. Under prong two of the Order No. 679 test, VEPCO presented evidence that each of its projects was non-routine under Baltimore Gas and, therefore, met the nexus test. i. The Lexington Tie Project merited incentive treatment, VEPCO contended, because it would ensure reliability along a major interface identified the the construction substation construction. nexus in test be Eastern risks, taken Interconnection. including out of service also requirement the VEPCO that temporarily during VEPCO argued that the Idylwood Project met the because it faced significant local opposition. Construction would take place along a heavily used portion of the Washington & Old Dominion Trial in a densely populated area. VEPCO s construction permits had been denied twice and a third application was pending. NCUC responded that, to the contrary, these projects were routine. In NCUC s view, VEPCO s current ROE was sufficient to attract investment in the Lexington Tie and Idylwood projects as evidenced by their small scale and the fact that they were already underway. FERC rejected NCUC s Lexington Tie Idylwood Baltimore Gas. Lexington Tie and As and RTEP arguments, Projects projects, Idylwood were FERC Projects 12 finding that non-routine concluded, would both enhance the under both the regional reliability. additional Id. ¶ arguments 100. that Further, these FERC projects credited were VEPCO s non-routine because of ongoing local opposition and construction challenges. Id. ¶¶ 100, 110. ii. In contending that both the Garrisonville and Pleasant View Projects qualified as non-routine, VEPCO pointed out that it had agreed to construct the Garrisonville line and part of the Pleasant View line underground in response to significant local opposition. Underground construction raised the risk of these projects, VEPCO argued, because of changeable elevation, tricky soil conditions, and the required use of new technology. NCUC responded these projects were not economically efficient as planned because these lines could be constructed above ground Virginia at a lower Commission had cost. NCUC approved pointed entirely out that the above-ground construction for the Pleasant View Line demonstrating that VEPCO decided to build underground solely to appease local officials. At the very least, NCUC contended, VEPCO s wholesale customers should not be required to subsidize the incremental cost of underground construction. In light of the on-going local opposition to these projects, construction challenges, and their beneficial impact on regional reliability, FERC concluded that VEPCO s decision to 13 build underground did not disqualify these projects from incentive treatment and that VEPCO satisfied the nexus test for the full price of both projects. Id. ¶¶ 77, 85. iii. Finally, VEPCO argued that the PTRP was non-routine because its proactive required deviated coordination necessitated capital. should approach across significant from the industry multiple investment in standard, substations, skilled labor and and As it had under prong one, NCUC replied that the PTRP not qualify for incentive treatment because VEPCO s supply of spare transformers was more than adequate. FERC rejected NCUC s argument in this regard as well, concluding that the fact that this project was not included in PJM s RTEP was incentives. insufficient Id. ¶ 72. to disqualify Overall, FERC it from held that meriting VEPCO s application satisfied the nexus requirement both as a package and for each individual project. Id. ¶ 48. FERC ultimately granted VEPCO s application in full. ¶ 1. Id. NCUC filed a petition for rehearing on September 29, 2008. B. 1. In its request for rehearing, NCUC reiterated its objections to the incentives for the five challenged projects and identified other errors in 14 FERC s order as well. In particular, it contended FERC misunderstood the PTRP s scope because it twice incorrectly stated that the project involved the replacement of only nine, not thirty-two, transformers. 2. For after reasons oral that argument, remain FERC unsatisfactorily failed to issue explained its Order even Denying Rehearing until almost four years after its initial order on May 22, 2012. Virginia Electric and Energy Company, 139 FERC ¶ 61,143 (2012) ( Rehearing Order ). In its Rehearing Order, FERC considered whether to grant rehearing to apply the intervening 2010 policy change to the nexus test announced in PJM and Okla. Gas. be argued that if a similar request FERC stated it can for incentives were submitted to the Commission at this time, the result might be different in light of the Commission s evolving policy respect to application of the Order No. 679 nexus test. 11. with Id. ¶ Nevertheless, FERC decided against rehearing on that basis for three reasons. First, PJM and Okla. Gas expressly stated that the change to the nexus requirement would be applied only prospectively. Id. ¶ 11. Second, VEPCO legitimately relied on the application of the nexus test as interpreted at the time of the Incentives Order. Id. ¶ 12. regulatory that uncertainty would And, FERC feared that the result from shifting an earlier position four years after the fact could deter reliance 15 on § 219 confirm incentives the additional grant more of arguments broadly. VEPCO s raised grounds for rehearing. Id. incentives, FERC on rehearing proceeded finding failed that to to the provide On July 20, 2012, NCUC timely appealed under 16 U.S.C. § 825l(b). III. We will affirm FERC s conclusions unless they are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, or unsupported by substantial evidence. Appomattox River Water Auth. v. FERC, 736 F.2d 1000, 1002 (4th Cir. 1984); 16 U.S.C. § 825l(b). Substantial evidence is more than a mere scintilla, but less than a preponderance. T-Mobile Ne. LCC v. City Council of Newport News, Va., 674 F.3d 380, 385 (4th Cir. 2012). When we are required to review an agency s complex predictions based on special expertise, our review is at its most deferential. Ohio Valley Envtl. Coal. v. Aracoma Coal Co., 556 F.3d 177, 192 (4th Cir. 2009) (citing Balt. Gas & Elec. Co. v. Natural Res. Def. Council, 462 U.S. 87, 103 First, it (1983)). IV. NCUC makes two primary arguments on appeal. argues that FERC erred by declining to grant rehearing to apply 16 the 2010 policy change with respect to the nexus test. Second, it contends that FERC abused its discretion by granting VEPCO incentives based on the five challenged projects. We address these arguments in turn. 6 A. Preliminary, however, we must determine jurisdiction to entertain this appeal. whether we have FERC argues that under 16 U.S.C. § 825l(b), we lack jurisdiction to consider NCUC s argument that FERC should have granted rehearing to apply the 2010 change to the nexus test because NCUC did not challenge its decision in a renewed petition for rehearing before filing this appeal. the Under 16 U.S.C. § 825l, [n]o objection to the order of Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do. The self-evident purpose of this requirement is to allow FERC the opportunity to correct its own errors, if 6 NCUC also argues that FERC s Incentives Order and Rehearing Order both failed to adequately address its arguments and to provide sufficient reasoning to facilitate appellate review in violation of SEC v. Chenery, Corp., 332 U.S. 194 (1947). We agree that at times FERC erred in characterizing NCUC s arguments but find no evidence that FERC failed to address []important challenge[s] to its reasoning as would be required to remand here. K N Energy, Inc. v. FERC, 968 F.2d 1295, 1303 (D.C. Cir. 1992). Therefore, we find these arguments to be without merit. 17 any, prior to court intervention. F.2d 764, requirement exhaustion 773-74 (D.C. strictly of based See ASARCO, Inc. v. FERC, 777 Cir. 1985). on administrative the We interpret time-honored remedies. Consol. this doctrine Gas of Supply Corp. v. FERC, 611 F.2d 951, 959 (4th Cir. 1979) (quoting Fed. Power Comm n v. Colo. Interstate Gas Co., 348 U.S. 492, 500 (1955)). It is hardly surprising that NCUC did not argue in its September 28, 2008 reevaluate VEPCO s rehearing incentives petition under the that 2010 FERC should policy change. Given that NCUC filed its petition two years before FERC issued PJM and Okla. Gas, absent extraordinary prescience it could not have done so. In any case, we find that NCUC had reasonable grounds for failing to file a renewed petition for rehearing under § 825l(b). When FERC reaffirms a prior result in a rehearing order but provides a new rationale about which the petitioner had no prior notice, the petitioner has reasonable grounds for challenging the FERC s new justification on appeal without first filing a renewed petition for rehearing. See Columbia Gas Transmission Corp. v. FERC, 477 F.3d 739, 741-742 (D.C. Cir. 2007). To interpret § 825l(b) otherwise would permit an endless cycle of applications of rehearing and denials, limited only by FERC s ability to think up new rationales. 18 So. Natural Gas Co. v. FERC, 877 F.2d 1066, 1072 (D.C. Cir. 1989) (quoting Boston Gas Co. v. FERC, 575 F.2d 975, 978 (1st Cir. 1978)). Gas, for discounted example, rate FERC initially agreement under rejected the In Columbia the petitioners Gas Act Natural ( NGA ) based on the inclusion and scope of the agreement s section 5 waivers. 477 F.3d at 740. On rehearing, FERC affirmed its decision but added a new reason for rejecting the agreement, that the gas company had acted improperly by offering discounts only to its biggest customers. Id. directly to the D.C. Circuit. That court held that it had jurisdiction to evaluate the The petitioners appealed parties challenge to FERC s finding of discrimination because the rehearing order did not change the outcome and FERC had not yet revealed rationale when the parties requested rehearing. Similarly here, the conclusions of the its new Id. May 22, 2012 Rehearing Order and the August 29, 2008 Incentives Order were identical. In both, FERC determined that VEPCO merited incentives for each of its eleven infrastructure projects. The only new analysis FERC provided in its Rehearing Order was its decision not to reopen the case to apply the 2010 policy change. NCUC had no way to anticipate that FERC would consider whether to grant rehearing to apply its changed approach to the nexus 19 test. 7 Given that NCUC had already waited four years for a response to its initial petition, we have little difficulty concluding that it had reasonable grounds for failing to file a renewed petition. 8 rehearing Having found that we have jurisdiction to consider whether FERC erred by failing grant rehearing to apply the 2010 policy change in this case, we now review that decision for abuse of discretion. B. When an agency announces a new policy while a case is pending, the decision regarding whether to apply that new policy on rehearing is committed, agency s sound discretion. in the first instance, to the Nat l Posters, Inc. v. NLRB, 720 F.2d 1358, 1364 (4th Cir. 1983) (quoting NLRB v. Food Store Emp. Union, 417 U.S. 1, 10 n.10 (1974)). In reviewing reliance interests. that discretion, we consider the parties See ARA Serv., Inc. v. NLRB, 71 F.3d 129, 7 NCUC s lack of notice also disposes of FERC s additional argument that NCUC could have amended its petition to urge FERC grant rehearing to apply its new approach to the nexus test after the 2010 policy change was issued. 8 FERC seeks to differentiate this case from Columbia Gas by arguing that its decision not to apply the 2010 policy change was distinct from the merits of the case and did not represent a new justification for VEPCO s incentives. However, as FERC itself argued, § 825l(b) does not differentiate between FERC s decision regarding what policy to apply and its assessment of the merits of a case. We find no reason, therefore, to alter our analysis under § 825l(b). 20 135 (4th Cir. 1995). When a new policy represents an abrupt change of administrative course, the parties reliance on the old standard cautions against retroactive application. Id. NCUC contends, however, that any alleged reliance interest here was unreasonable because PJM and Okla. Gas represent merely a clarification of the nexus test and not a policy change. points to the Rehearing Order where FERC stated that NCUC its approach to the nexus test is evolving, Rehearing Order ¶ 11, and to the PJM decision itself where FERC noted that it had not uniformly applied the nexus test since issuing Order No. 679. 133 FERC ¶ 61,273, at ¶ 44. In the very next paragraph of PJM, however, FERC explicitly stated that it was announcing a change [to] Commission policy with respect to application of the nexus test to groups of projects. unconnected projects in the Id. ¶ 45. aggregate, Instead of assessing FERC would require a utility to demonstrate [a] nexus between the incentive sought and the specific investment being made project by project. Id. This is a clear change in policy given that, in Order No. 679-A, FERC stated that it would apply the nexus test in the aggregate to projects presented in a single application. ¶ 27. test Order No. 679-A And, in the 2008 Incentives Order, FERC applied the nexus in the aggregate to the 21 eleven projects in VEPCO s Incentives Order ¶ 49. 9 application. Under these circumstances, VEPCO was entitled to rely on the consistent application of administrative rules. Se. Mich. Gas Co. v. FERC, 133 F.3d 34, 38 (D.C. Cir. 1998). FERC also appropriately considered doctrinal stability when determining certainly whether entitled to grant to rehearing consider here. the Agencies broader are regulatory implications of their decisions and we will not second guess their reasonable conclusions. See id. For these reasons, we find no error in FERC s decision not to grant rehearing to apply the 2010 policy change to the nexus test. C. We now turn to NCUC s challenges to the merits: that the Lexington Tie, Idylwood, Garrisonville, and Pleasant View Projects fail the nexus requirement; and that FERC s finding that the merited incentive evidence. reweigh Proactive Transformer treatment Replacement is not Project supported by ( PTRP ) substantial We consider each argument mindful that we may not the evidence. We determine 9 only whether FERC FERC also found that VEPCO s application met the nexus test for each individual project. Incentives Order ¶ 48. It is unclear therefore whether the outcome would actually be different had FERC opted to grant rehearing. However, because we find that FERC s decision was reasonable, we do not need to determine whether any error would be harmless. 22 examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a rational between the facts found and the choice made. connection Motor Vehicle Mfrs. Ass n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). 1. NCUC argues the Lexington Tie and Idylwood Projects fail to meet the nexus requirement because their pre-incentive ROE was sufficient to attract investment. In light of the small scale of these projects and the fact that they were already underway when the incentives issued, NCUC contends, VEPCO failed to show that the incentives decisions. would materially Order No. 679-A ¶ 25. affect its investment We disagree. In Order No. 679-B, FERC stated that there was no size cutoff for projects when under the nexus test. determining Id. ¶ 18. eligibility for incentives Instead, FERC would evaluate each project on a case-by-case basis. Id. Moreover, as we have noted previously, a utility need not prove that but-for a § 219 incentive, it would not undertake a project. A ¶ 20. run Order No. 679- FERC found that such a high evidentiary hurdle would counter to Congress s directive to drive money improving the country s aging transmission infrastructure. into Id. There is therefore nothing to prevent a utility from qualifying 23 for incentives given that based they construction. on could projects help that attract are already financing or underway, accelerate Order No. 679 ¶ 35. Finally, we have no trouble holding that FERC s finding that both substantial projects satisfy evidence. the Both nexus the test Lexington is supported Tie Projects meet many of the Baltimore Gas factors. and by Idylwood They resulted from a regional planning process, faced ongoing and significant local opposition, and involved construction challenges based on changeable elevation and the Incentives Order, ¶¶ 100, 106. use of new technology. See Therefore, we affirm. 2. NCUC next argues that the Garrisonville and Pleasant View Projects fail to meet the nexus test because they economically efficient as required by § 219(a). 824s(b)(1). expensive underground The basis of this alternative--namely, construction--exists contention above for is ground both are 16 U.S.C. § that a rather utility not lines. less than We find no error in FERC s analysis. Fatal to NCUC s argument is the fact that neither § 219 nor Order No. 679 require FERC to only grant incentives to the least expensive approach to a project. To the contrary, FERC expressly rejected a requirement that utilities provide a costbenefit analysis, concluding that consumers would be adequately 24 protected by the requirement that incentive-based rates remain just and reasonable. its three-prong Order No. 679 ¶ 59. test for incentives Instead, FERC created that, in its view, fulfilled [Congress s] command by . . . removing impediments to new investment or otherwise attract that investment. Order No. 679-A ¶ 3. In some respects, it appears NCUC is asking us to determine whether Order No. 679 is a permissible 219]. See Chevron U.S.A., Inc. v. Natural Res. Def. Council Inc., 467 U.S. 837, 843 (1984). construction of [§ However, NCUC has repeatedly claimed that it is only challenging FERC s finding that these projects meet the nexus test, not the reasonableness of the rule itself. the Therefore, rather than evaluating Order No. 679 under familiar FERC s Chevron grant we simply incentives of test, to VEPCO supported by substantial evidence. will for determine these whether projects was FERC concluded that these projects satisfied the nexus test based on construction risks, ongoing local reliability. opposition, and their Incentives Order, ¶¶ 77, 85. impact on regional We affirm. 3. NCUC s granted for VEPCO s Proactive Transformer Replacement Project ( PTRP ). It argues that final challenge FERC s decision is is to not the incentive supported by substantial evidence because FERC misunderstood the scope of the project and 25 the meaning of the Probabilistic Risk Analysis ( PRA ) relied upon by VEPCO in its application. We agree with NCUC that FERC s error in describing the PTRP in the Incentives Order and its failure to correct its mistake in the Rehearing Order are troubling. Twice in the Incentives Order, FERC referred to the project as the replacement of "nine 500/230 kV transformers." Incentives Order ¶¶ 9, 68. In fact, VEPCO proposed to replace thirty-two transformers across nine transformer banks in seven substations. of course, has an outsized impact That one missing word, on the project s scope. However, based on the record as a whole, we are persuaded that FERC understood the nature of the PTRP. FERC quoted the correct estimated cost of the project, $110 million, and cited to a VEPCO exhibit transformers. remand for that listed each Id. ¶ 37, n.17. FERC to correct of the thirty-two targeted Therefore, we will not require its error and reevaluate PTRP s eligibility for incentive treatment under § 219. 10 NCUC s meaning of additional challenge--that the PRA--asks PJM s us to FERC misunderstood reweigh the the evidence. VEPCO used the PRA preformed by PJM as a starting point for its 10 FERC explained that it was quoting from VEPCO s original application that contained this error. However, VEPCO subsequently corrected its application. It remains unclear why FERC failed to do the same. 26 own analysis, which FERC credited, to identify thirty-two aging transformers to replace. FERC determined the PTRP would increase reliability because reliance on spares can mean delays in restoring service. Incentives Order ¶ 38. Further, FERC concluded the PTRP satisfied the nexus test because it was an innovative and large-scale undertaking. NCUC clearly disagrees with however these findings. This analysis is more than sufficient for us to affirm FERC s finding that the PTRP met prongs one and two of the Order No. 679 test. V. In sum, we hold that in this case, FERC properly exercised its broad change in discretion its in declining Rehearing application for incentives. Order to and apply in the 2010 evaluating policy VEPCO s FERC s grant of incentives to VEPCO under § 219 is therefore AFFIRMED. 27
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