Xcel Energy Services Inc. v. FERC

41 F.4th 548
CourtCourt of Appeals for the D.C. Circuit
DecidedJuly 19, 2022
Docket20-1295
StatusPublished
Cited by11 cases

This text of 41 F.4th 548 (Xcel Energy Services Inc. v. FERC) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Xcel Energy Services Inc. v. FERC, 41 F.4th 548 (D.C. Cir. 2022).

Opinion

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 10, 2021 Decided July 19, 2022

No. 20-1295

XCEL ENERGY SERVICES INC., PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT

Consolidated with 20-1426

On Petitions for Review of Orders of the Federal Energy Regulatory Commission

Bryan Killian argued the cause for petitioner. With him on the briefs were Stephen M. Spina and Joseph Lowell.

Lopa Parikh, Jeremy C. Marwell, Margaret E. Peloso, and Matthew X. Etchemendy were on the brief for amicus curiae Edison Electric Institute in support of petitioner.

Jared Fish, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Matthew R. Christiansen, General Counsel, and 2 Robert H. Solomon, Solicitor. Susanna Y. Chu, Attorney, entered an appearance.

Before: HENDERSON, MILLETT, and WALKER, Circuit Judges.

Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge: Electricity grids are natural monopolies. To prevent utilities such as grid operators from abusing their market power, Congress has given the Federal Energy Regulatory Commission the responsibility to ensure that rates and rules under its jurisdiction are “just and reasonable[.]” 16 U.S.C. § 824d(a). The issue in this case is whether the Commission reasonably used that authority to reject a rule the agency found would risk favoring a vertically integrated operator’s own power plants over those of its rivals.

The Public Service Corporation of Colorado is a grid owner and subsidiary of petitioner Xcel Energy Services, Inc. (collectively, “PS Colorado”). The utility is vertically integrated in that it both operates an electricity transmission network and owns power plants that generate about 60% of the power on its grid.

In 2020, PS Colorado filed an application with the Commission to change how it processes power plant requests to interconnect—that is, to plug in—to its grid. Under Commission rules, grid operators generally must consider requests to connect on a first-come, first-served basis. PS Colorado proposed a fast-track process for generators looking to replace an existing power plant with a new one on the same site. (By generators, we mean both power plants and owners and developers of powers plants.) The company reasoned that this fast-track process would avoid wasteful grid-impact 3 studies and would allow new power plants to join the network more quickly. PS Colorado noted that the agency had granted virtually identical requests filed by other grid operators.

The Commission denied PS Colorado’s request. It held that the proposal risked unduly preferring the company’s own power plants over would-be entrants to its grid. While the Commission had granted similar interconnection proposals in the past, all of those had been filed by independent grid operators, which are operators that do not also own generators on their networks. The agency was less concerned in those cases that the operator would have a reason to prefer some generators over others.

We hold that the Commission reasonably explained its rejection of PS Colorado’s proposal. There was nothing arbitrary or capricious about its decision to bar a vertically integrated grid operator from adopting a rule that could favor its own generators and so cement its dominant market position. The Commission’s holding is consonant with decades of agency policy reflected in orders upheld by the Supreme Court and our court. The Commission also reasonably applied a different rule to a vertically integrated grid operator than it did to independent grid operators because vertically integrated operators have distinct competitive incentives.

We therefore deny the petitions for review.

I

A

The Federal Power Act gives the Commission the authority to regulate “both the transmission and the wholesale marketing of electricity in interstate commerce” to protect the public interest. Public Citizen, Inc. v. FERC, 7 F.4th 1177, 4 1182–1183 (D.C. Cir. 2021). In that capacity, the Commission oversees prices for interstate electricity “and all rules and practices affecting such prices.” FERC v. Electric Power Supply Ass’n, 577 U.S. 260, 266 (2016).

Section 205 of the Act mandates that electrical utilities’ rates and rules within the Commission’s jurisdiction be “just and reasonable,” and it bars regulated utilities from “mak[ing] or grant[ing] any undue preference or advantage to any person or subject[ing] any person to any undue prejudice or disadvantage[.]” 16 U.S.C § 824d(a), (b). Such utilities must seek permission from the Commission to make any changes to their rates or rules. Id. § 824d(d). A utility seeking a rate or rule adjustment under Section 205 bears the burden of showing that its proposal is just and reasonable. Emera Maine v. FERC, 854 F.3d 9, 24 (D.C. Cir. 2017).

B

Throughout most of the 20th century, electricity in the United States was generated, transmitted, and distributed by vertically integrated monopolies. See Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1363 (D.C. Cir. 2004) (Roberts, J.). Prodded in part by parallel efforts in Congress, in the mid-1990s the Commission undertook efforts to boost competition in the market for wholesale electricity. See Transmission Access Policy Study Group v. FERC, 225 F.3d 667, 682 (D.C. Cir. 2000) (per curiam), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002). As part of that process, the Commission determined that vertically integrated grid operators were unduly discriminating against independent generators. As owners of both transmission wires and power plants, these grid operators had the incentive and ability to favor their own generators over those of rivals either by 5 “refus[ing] to deliver energy produced by competitors or [by] deliver[ing] competitors’ power on terms and conditions less favorable than those they appl[lied] to their own transmissions.” New York, 535 U.S. at 8–9.

To redress that problem, the Commission’s Order No. 888 required grid operators to provide unaffiliated power plants with equal access to their grids. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, 61 Fed. Reg. 21,540 (May 10, 1996) (“Order No. 888”). By “remedy[ing] undue discrimination in access to the monopoly owned transmission wires[,]” id. at 21,541, the Commission sought to promote vigorous competition between generators.

To ensure that generators received equal access to transmission grids, the agency required operators to offer standard terms and conditions for transmission service, outlined in a pro forma tariff designed by the Commission. Order No. 888, 61 Fed. Reg. at 21,618; Transmission Access Policy, 225 F.3d at 682. The Commission permitted grid operators to alter these standard terms only if they could show that “such deviations are ‘consistent with, or superior to’ the terms in the pro forma tariff.” Sacramento Mun. Util. Dist. v. FERC, 428 F.3d 294, 296 (D.C. Cir. 2005) (quoting Order No. 888, 61 Fed. Reg. at 21,619).

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41 F.4th 548, Counsel Stack Legal Research, https://law.counselstack.com/opinion/xcel-energy-services-inc-v-ferc-cadc-2022.