On August 10, 2015, the United States Court of Appeals for the 9th Circuit, in Northwest Requirements Utilities v. FERC, denied several petitions for review of Federal Energy Regulatory Commission (FERC) orders requiring Bonneville Power Administration (“Bonneville”)—a federal agency that markets electricity and operates a large portion of the transmission grid in the Pacific Northwest—to provide transmission service on terms “not unduly discriminatory or preferential.” FERC issued the underlying orders pursuant to Section 211A of the Federal Power Act (FPA), which was enacted by Congress in the Energy Policy Act of 2005 and allows FERC to require a transmission utility not otherwise subject to FERC jurisdiction (such as governmental entities like Bonneville and electric cooperatives) to provide transmission service on terms not unduly discriminatory or preferential.
The court did not reach the merits of the orders, which were FERC’s first exercise of its Section 211A authority. Instead, the court found that Bonneville’s wholesale electricity customers did not have “statutory standing” to challenge FERC’s orders because their interests — namely, reducing Bonneville’s costs (which are passed on to them by statutory mandate) by reducing access to Bonneville’s transmission system — did not align with the purpose of Section 211A to increase access to transmission and increase wholesale competition.
While the broader implications of this decision are yet to be determined, the court’s holding could make it more difficult for petitioners who object to FERC orders issued pursuant to Section 211A to mount a challenge to those orders on appeal if their economic or policy interests are not sufficiently aligned with the open access and competitive purposes of Section 211A.
Bonneville markets electricity generated at federal hydroelectric dams in the Pacific Northwest. Bonneville’s customers are primarily public and private utilities that purchase wholesale electricity to serve customer load, including “preference customers,” who have a statutory preference to buy wholesale electricity from Bonneville. Bonneville also operates a large portion of the transmission grid in the Pacific Northwest and provides transmission services and interconnection to public and private power generators. Bonneville is a federal agency, but is self-funded, recovering its costs through rates charged to customers. An increase in Bonneville’s operating costs, therefore, can result in increased rates for Bonneville’s wholesale customers.
In response to a substantial increase in wind generation on Bonneville’s transmission system and anticipated high water levels in the Columbia River Basin (where Bonneville’s dams are located), Bonneville promulgated an Environmental Redispatch Policy (“ER Policy”) in May 2011 (to remain in effect until March 2012) to allow Bonneville to curtail transmission customers’ generation resources during “overgeneration events.” During such events, environmental limits placed on Bonneville’s hydroelectric resources prevented it from “spilling” excess water flows (rather than sending them through the hydroelectric generating units) to avoid generating additional electricity from those resources. In these circumstances, Bonneville was left with more electricity than the transmission system could accommodate. Bonneville argued that it could not curtail its own generation during such overgeneration events because of the environmental limits on spilling excess flows, requiring it instead to curtail the generation of others on its system. Under the ER Policy, Bonneville curtailed wind generation for more than 200 hours in May and June 2011, resulting in wind generators losing millions of dollars in production tax credits.
In June 2011, a group of wind generators filed a complaint at FERC against Bonneville, seeking an order requiring Bonneville to revise its ER Policy to comport with the undue discrimination standards of Section 211A of the FPA. Section 211A gives FERC authority to order a transmitting utility that is not otherwise subject to its jurisdiction to provide transmission service “(1) at rates that are comparable to those that the unregulated transmitting utility charges itself; and (2) on terms and conditions . . . comparable to those under which the unregulated transmitting utility provides transmission services to itself and that are not unduly discriminatory or preferential.”
The wind generators argued that the ER Policy contravened the undue discrimination standards of Section 211A because it provided an undue preference for Bonneville’s own generation, and discriminated against the generation of others, by curtailing non-Bonneville generation in favor of Bonneville’s own hydroelectric generation. Several wholesale energy customers of Bonneville and trade associations intervened at FERC to oppose the relief requested by the wind generators, arguing that, if FERC were to order that Bonneville pay additional compensation to wind generators to remedy any undue discrimination, it would result in higher costs to be passed on to Bonneville’s customers.
In December 2011, FERC concluded that the ER Policy resulted in noncomparable transmission service that treated non-Bonneville wind generators unfairly. FERC ordered Bonneville to file tariff revisions to address the comparability concerns raised by the wind generators on a prospective basis. FERC later denied rehearing.
In February 2013, Bonneville, certain wholesale customers of Bonneville and the intervening trade associations filed petitions for review of FERC’s orders in the 9th Circuit. Bonneville, however, complied with FERC’s orders and voluntarily dismissed its petitions before briefing. On appeal, the remaining Petitioners argued that FERC exceeded its statutory authority in issuing the nondiscrimination mandate because Section 211A of the FPA permits only regulation of “transmission services” and not the redispatch or curtailment of generation, and that FERC did not provide sufficient reasoning and consider all the relevant evidence in reaching its decision.
9th Circuit Decision
The 9th Circuit denied Petitioners’ appeal without reaching the merits of their claims, finding that Petitioners lacked “statutory standing” to challenge FERC’s orders. While the court found that Petitioners satisfied the constitutional standing requirements of Article III (injury in fact, causation and redressibility), the court nonetheless concluded that Petitioners could not satisfy the requirement that they have “statutory standing.” To demonstrate statutory standing, petitioners must demonstrate that they are “aggrieved” by the FERC orders at issue within the meaning of both Section 313(b) of the FPA and Section 10 of the Administrative Procedure Act (APA). “Aggrievement” under the APA requires that “the interest sought to be protected by the complainant . . . be arguably within the zone of interests to be protected or regulated by the statute in question.”
The court held that the interests that Petitioners sought to protect were not sufficiently aligned with the interests that Congress sought to protect when it enacted Section 211A of the FPA to satisfy the “zone of interests test” and establish statutory standing. The court found that Section 211A was “designed to foster an open and competitive energy market by promoting access to transmission service on equal terms.” The interests of Bonneville’s wholesale energy customers were different, according to the court, because they sought to reduce Bonneville’s costs by reducing access to its transmission system during overgeneration events, rather than seeking to “open access and increase competition” as Congress intended. This, according to the court, created a likelihood that Petitioners would “frustrate rather than further” the statutory objectives of Section 211A, rendering Petitioners “unreliable litigants” who are unable to satisfy the “zone-of-interests” test for statutory standing.
Potential Impact on Future Appeals
The court’s holding suggests that, for a party not directly the subject of a FERC order under Section 211A to demonstrate statutory standing to appeal, it must be seeking to “open access and increase competition,” rather than “reduce access.” This holding, particularly if followed by other courts, could limit statutory standing in appeals of FERC orders issued pursuant to Section 211A to only the unregulated transmission utility subject to FERC’s order, or parties who assert that FERC’s action in the challenged orders did not go far enough to open access to the transmission system and increase competition. Parties claiming to be “aggrieved” by Section 211A orders who are not directly the subject of the order and whose interests do not sufficiently align with the statutory purpose of Section 211A may need to rely on another party — such as the unregulated transmitting utility directly subject to the Section 211A order — to mount a challenge on appeal.