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Entergy Services, Inc. v. Federal Regulatory Commission

December 10, 2004

ENTERGY SERVICES, INC., PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT SOUTHERN COMPANY SERVICES, INC., ET AL., INTERVENORS



On Petitions for Review of an Order of the Federal Energy Regulatory Commission

Before: Sentelle, Tatel and Roberts, Circuit Judges.

The opinion of the court was delivered by: Sentelle, Circuit Judge

Argued September 10, 2004

Opinion for the Court filed by Circuit Judge SENTELLE. Concurring opinion filed by Circuit Judge TATEL.

Electricity utility companies Entergy Services, Inc., Southern Company Services, Inc., and Nevada Power Company, Inc., petition for review of various orders of the Federal Energy Regulatory Commission in which the Commission held that certain costs incurred by customers connecting generators to petitioners' networks must be "spread" across all customers and not "directly assigned" to the respective generator companies. Specifically, the Commission found that because the connection facilities in each case were located "at or beyond" the point of connection to the network, they constituted "network upgrades" not directly assignable to individual generators.

Petitioners contend (1) that the Commission's orders should be reversed because they are unsupported by substantial evidence, and (2) that the Commission's orders should be reversed because the "At or Beyond" rule constitutes an arbitrary departure from Commission precedent. Because we agree with Intervenor Tenaska, Inc. that Entergy and Southern lack standing to pursue their claims, we limit our review to the objections advanced by Nevada Power. However, because we hold that the order from which Nevada Power petitions has not adequately explained the Commission's apparent departure from prior practice, we vacate and remand that order for further proceedings.

I. Background

A. Regulatory Background

Petitioners in this case–Entergy Services, Inc. ("Entergy"), Southern Company Services, Inc. ("Southern"), and Nevada Power Co. ("Nevada Power")–are electricity utility companies that own transmission systems providing electricity to large geographic regions. In order to foster a more competitive, efficient market for electricity, federal regulation requires that such "transmission providers" open their networks to transmission customers–other sellers of electricity seeking to supply power to their own customers. See Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996), 61 Fed. Reg. 21,540 ("Order No. 888"), on reh'g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048, 62 Fed. Reg.12,274 (1997), on reh'g, Order No. 888-B, 81 F.E.R.C. ¶ 61,248 (1997), on reh'g, Order No. 888-C, 82 F.E.R.C. ¶ 61,046 (1998), aff'd, Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom., New York v. FERC, 535 U.S. 1 (2002).

In implementation of Order No. 888, the Commission promulgated a pro forma Open Access Transmission Tariff ("OATT") that sets forth the minimum terms and conditions under which transmission providers may offer their services to would-be customers. See Order No. 888-A at 30,503-43 (including the final OATT); 18 C.F.R. § 35.28(c)(1) (requiring public utilities owning, controlling, or operating facilities transmitting electricity in interstate commerce to "have on file with the Commission a tariff of general applicability for transmission services" or a tariff approved by the Commission consistent with Order No. 888).

Under this tariff regime, some costs incurred by an interconnecting customer are borne by the respective customer, while other costs are spread across all customers on the network. In general, when a Generator of electricity connects to a Transmission Provider's network consistent with Order No. 888, the Transmission Provider cannot require the Generator to bear costs incurred for the development of equipment that benefits all users of the network. Duke Energy Co., 95 F.E.R.C. ¶ 61,279 at 61,980 (2001). Such costs, spread across all customers, are known as "network upgrades." The Generator must initially finance the costs, but upon completion of the interconnection project the Transmission Provider spreads the cost among all customers and rebates to the Generator its initial investment by providing it with transmission credits against its tariff expenses. By contrast, when a new Generator incurs cost developing equipment of no benefit to the existing customers, the costs are assigned to the Generator alone. This is known as "direct assignment," and the equipment is known as "direct assignment facilities."

The specific tariff and other interconnection details are finalized in an Interconnection Agreement ("IA") between the Transmission Provider and the Generator. IAs are drafted by the parties and are submitted to the Commission for approval.

B. Factual Overview

The consolidated cases before this court arise from the Commission's disapproval of four IAs submitted for its approval.

Entergy submitted an unexecuted IA to the Commission on November 14, 2001. Amelia Energy Center, LP ("Amelia") was the other party to the agreement. At issue were two connection facilities: (1) a new Switching Station section to accommodate two new 230 kV radial power lines from the Generators; and (2) the re-routing of three existing power lines. The Commission held that the IA could not directly assign costs for the facilities at issue to Amelia, because the facilities were located "at or beyond" the point of interconnection with the grid, and as such provided benefit to all users. See Entergy Gulf States, Inc., 98 F.E.R.C. ¶ 61,014 (2002), reh'g denied, 99 F.E.R.C. ¶ 61,095 (2002). On June 14, 2002, the Commission accepted Entergy's proposed termination of the IA; prior to termination, the IA was of indefinite duration.

Southern submitted two IAs for Commission approval. It submitted its first IA, between its Alabama Power transmission system and Blount County Energy, LLC ("Blount"), on November 30, 2001. At issue was a replacement breaker at the Miller Steam Plant substation. The Commission held that the cost of the breaker could not be directly assigned to the Generator, in light of the "At or Beyond" rule. Southern Company Services, Inc., Letter Order, Docket No. ER02-430-000 (Jan. 25, 2002), reh'g denied, 100 F.E.R.C. ¶ 61,246 (2002). On January 24, 2003, the Commission accepted Southern's request to terminate the Blount IA; prior to termination, the IA was of a forty-year term, subject to prior termination by mutual assent.

Southern submitted its second IA, between its Georgia Power transmission system and Athens Development, LLC ("Athens"), on June 5, 2002. At issue were three 115 kV breakers at two Georgia Power substations. The Commission held that the cost of the breakers could not be directly assigned to Athens, in light of the "At or Beyond" rule. Southern Company Services, Inc., Letter Order, Docket No. ER02-2015-000 (July 30, 2002), reh'g denied, 101 F.E.R.C. ¶ 61,309 (2002). On August 9, 2002, Southern filed a "Notice of Cancellation" regarding the Athens IA. See Southern Company Services, 103 F.E.R.C. ¶ 61,279 (2003). The IA was cancelled effective January 6, 2003, when the parties submitted a revised IA. Prior to cancellation, the original IA was of a term of no less than ten years, subject to exceptions.

Nevada Power submitted an unexecuted IA to the Commission on May 29, 2002. GenWest, LLC ("GenWest") was the other party to the agreement. At issue was a "one line terminal" to be added to Nevada Power's Harry Allen 500 kV Switchyard. The Commission held that the cost of the one line terminal could not be directly assigned to GenWest, in light of the "At or Beyond" rule. Nevada Power Co., 100 F.E.R.C. ¶ 61,077 at 61,302 (2002) (" Nevada Power I "), reh'g denied, 101 F.E.R.C. ¶ 61,036 (2002) ...


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