On August 19, 2015, the United States Court of Appeals for the 7th Circuit denied two wind generators’ (“Generators”) petitions for review of various Federal Energy Regulatory Commission (FERC) orders assigning the corrected costs of additional interconnection network upgrades to the Generators. The originally calculated costs, which were computed by the grid operator, Midcontinent Independent System Operator, Inc. (MISO), were made in error. The 7th Circuit noted that FERC, acting in accordance with its policy under Order No. 2003,1 did not act arbitrarily or capriciously in assigning the corrected costs to the Generators.
As part of the interconnection process, MISO conducted several interconnection studies to analyze the reliability impacts of the Generators’ 150 MW wind projects and provide them with potential interconnection costs. MISO’s studies initially indicated that the Generators’ projects would require roughly $6 million in additional network upgrades, and the Generators proceeded with the execution of interconnection agreements (IAs) on that basis. The dispute arose soon thereafter when MISO notified the Generators that its studies contained a significant error—MISO overlooked a higher-queued project that would need upgrades as a result of the Generators’ interconnection. As a result, the correct cost of interconnection network upgrades required an additional $11.5 million, for a total of $17.5 million. At this point, MISO informed the Generators that they could either agree to fewer MWs (120 as opposed to 150) or pay the corrected costs in order to interconnect. The Generators rejected both options and instead looked to FERC for guidance, which ultimately ruled that the Generators were responsible for the corrected costs.
In their petitions for review, the Generators argued that their original decision to interconnect was based on a faulty contract—the IA—and thus a new agreement was needed. The court ruled, however, that FERC properly viewed the dispute from a regulatory framework, since the Generators were not “free to contract as they wish[ed]” and had to, at all times, “structure their [IAs with MISO] within [FERC’s] elaborate regulatory regime.”2 The court stated that, even if it “focus[ed] on the contract-like aspects” of the dispute, the Generators “had the option of connecting to the grid at [120 MW], paying, or walking away” after “they learned of the additional upgrades that were necessary to avoid overloading the system.”3 Instead, the Generators deferred to FERC on the matter, which relied on “substantial evidence and was not arbitrary.”4
The court further rejected the Generators’ argument that FERC’s decision violated the filed-rate doctrine. The filed rate, the Generators claimed, was the initial interconnection costs of roughly $6 million, which were “memorialized” in the original IAs. The Generators argued that the original costs included the “expectation, based on the filed rate, that all actual network upgrades and the circumstances that could lead to other potential network upgrades [had] been identified”—such as the higher-queued project later recognized by MISO.5 The court instead found that the “filed rate doctrine protects parties not from misquoted rates, but from discriminatory or fraudulent” rates and, as such, does not apply to the Generators’ case.
The Generators also sought review of FERC’s decision to implement a specific pricing option under MISO’s open access transmission tariff with respect to the payment of the additional interconnection network upgrades. Under the initially executed IAs, the Generators had agreed to a pricing option (Option 1) that was later eliminated in a separate FERC proceeding brought by MISO. A new pricing option (Option 2) was thus implemented for any future IAs between MISO and the Generators (e.g., the amended IAs that included the additional upgrades that the Generators refused to sign), although FERC chose to grandfather Option 1 pricing for the original network upgrades under the initial IAs and applied Option 2 pricing to only the additional upgrades later identified by MISO. The Generators preferred Option 2 pricing across the board, claiming that FERC’s finding was contrary to its prior decisions. The court agreed with FERC’s decision to grandfather Option 1 pricing to the original costs, since it “provided regulatory certainty” and served the Federal Power Act’s “purpose of preserving the expectations of [the] parties.”6
Though the court ultimately ruled in FERC’s favor, it touched on a number of hypotheticals in the decision, noting that the outcome of the FERC proceedings—and the court’s decision—might have been different had “the record before FERC demonstrated that the difference in the interconnection costs turned a profitable enterprise into a losing one for [the Generators].”