The D.C. Circuit threw into doubt FERC’s station-power policies with a May 4, 2010 ruling, holding that FERC has not explained adequately its authority to prevent states from imposing retail-delivery or other charges for power that generators use for their heating, lighting, air conditioning and office equipment purposes—called “station power”—when that power is deemed to be self-supplied using a monthly netting of what the station delivers to and takes off of the grid. The Court vacated and remanded FERC orders regarding station-power tariff provisions and directed further proceedings, leaving open the possibility that FERC could justify its station-power policies on remand. Generators’ use of station power became an issue of debate in the wake of Order 888’s unbundling of vertically integrated utilities.

This controversy began when independent generator Duke filed a complaint asking FERC to compel the California Independent System Operator (CAISO) to adopt in its tariff a monthly netting interval for generators’ local use of station power. The complaint came on the heels of FERC’s approval of monthly netting in other markets—which the D.C. Circuit later affirmed in Niagara Mohawk Power Corp. v. FERC. Investor-owned utility Southern California Edison (SCE) opposed Duke’s complaint, arguing that states—not FERC—have jurisdiction over retail energy sales. Finding that no retail sale actually takes place when a generator is a net-positive seller over the course of a month, FERC ordered CAISO to revise its tariff to adopt the monthly netting interval, which FERC characterized as standard.

FERC later approved the revised CAISO tariff over the continued objections of SCE. On rehearing of that approval, FERC also rejected SCE’s alternative request that it be allowed to assess stranded-cost or consumption charges—rather than retail-delivery charges—on net-positive generators for their use of station power. SCE appealed FERC’s actions.

On appeal, the D.C. Circuit distinguished this case from its prior ruling in Niagara Mohawk upholding a monthly-netting methodology. The Court explained that in Niagara Mohawk, the petitioner did not contest FERC’s authority to prescribe a netting period for retail sales, objecting only to a monthly rather than hourly netting period. Resting on that concession, the Court denied the appeal because it “could discern no principled basis for distinguishing those two periods as it related to FERC’s jurisdiction.” In contrast, SCE’s petition placed the question of FERC’s jurisdiction squarely before the Court.

Acknowledging FERC’s “undeniable right” to approve a netting methodology for transmission purposes, the Court found that FERC had not adequately explained its authority to direct a netting methodology for the purpose of calculating retail charges for station power. Indeed, the Court complained “we do not understand why FERC is empowered to conclude that a retail sale has not taken place unless it can claim the transaction is, instead, a wholesale sale or a transmission. . . . Unless a transaction falls within FERC’s wholesale or transmission authority, it doesn’t matter how FERC characterizes it. And, of course, FERC’s assertion doesn’t ever purport to answer petitioner’s argument that the utilities are, in any event, entitled to impose a consumption charge.”

The Court thus vacated and remanded FERC’s orders regarding CAISO’s station-power tariff provisions, directing further proceedings. In doing so, the Court left open the possibility that FERC could adequately explain its authority to impose its monthly netting “standard” for station power and continue to apply it.