In Transmission Agency of Northern California v. FERC (495 F.3d 663 (D.C. Cir. 2007) (TANC)), the DC Circuit Court of Appeals found that FERC did not have the authority under the Federal Power Act (FPA) to impose a refund requirement on the rates of a non-public utility, such as municipally owned utilities and electric cooperatives. FERC has interpreted this decision as not allowing it to impose a refund obligation on the revenue requirements of non-public utilities that are included in FERC-jurisdictional rates. But, most non-public utilities that have applied to include their revenue requirement in an FERC-jurisdictional rate have voluntarily committed to pay refunds of all amounts found to be in excess of the just and reasonable rate. See, e.g., City of Riverside, California, 128 FERC ¶ 61,207, at n.35 (2009); Midwest Indep. Transmission Sys. Operator, Inc., 135 FERC ¶ 61,131, at n.92 (2011). Through recent decisions, FERC has made this practice of voluntarily committing to provide refunds a condition of allowing the revenue requirements of non-public utilities to go into effect within 60 days of the filing of the revenue requirement.

Prior to FERC instituting its current policy, several non-public utilities, despite the general practice, submitted (either directly or via an RTO/ISO) revenue requirements to be included in a FERC-jurisdictional rate without agreeing to provide refunds if the proposed revenue requirement was found to be unjust and unreasonable. Lively Grove Energy Partners, LLC (140 FERC ¶ 61,252, at P 47, n.59 (2012) (Lively Grove)) involved (in addition to the rates submitted by Lively Grove Energy Partners, LLC) proposed rate schedules submitted by several non-public utilities (Prairie Power, Inc., American Municipal Power, Inc., Southern Illinois Power Cooperative, Illinois Municipal Electric Agency, Kentucky Municipal Power Agency, Missouri Joint Municipal Electric Utility Commission, Northern Illinois Municipal Power Agency and Indiana Municipal Power Agency) for Reactive Supply and Voltage Control in the Midwest Independent Transmission System Operator, Inc. (MISO), without a refund commitment. In its decision on September 28, 2012, FERC instituted an investigation of the non-public utilities’ proposed revenue requirements under FPA Section 206 and ruled that the effective date would be the date that FERC approves a revenue requirement following the hearing and settlement judge procedures that had been initiated. As hearing and settlement judge procedures can take years to complete, FERC’s order would severely delay when the non-public utilities would be able to collect their revenue requirements. But, FERC did offer the non-public utilities in Lively Grove the option to agree to provide refunds (as other non-public utilities have done) and thereby establish a different refund-effective date. The non‑public utilities in Lively Grove accepted FERC’s offer and agreed to provide refunds of the amounts determined to be in excess of the just and reasonable rate. In response, FERC modified the effective date of the revenue requirements to be the day the non-public utilities submitted their compliance filing agreeing to the refund commitment.

Similar to the non-public utilities in Lively Grove, Tri-County Electric Cooperative, Inc. (Tri-County), via a filing made by the Southwest Power, Inc. (SPP), submitted its proposed revenue requirement to be included in the SPP Annual Transmission Revenue Requirement without agreeing to provide refunds of those rates found to be in excess of the just and reasonable rate. But, unlike in Lively Grove, FERC, on March 30, 2012, initially accepted the revenue requirement, subject to hearing and settlement judge procedures to determine its justness and reasonableness, and allowed the revenue requirement to go into effect without any refund commitment. Acting on requests for rehearing protesting this lack of refund protection (Southwest Power Pool, Inc., 142 FERC ¶ 61,135, at PP 13-16 (2013) (SPP)), FERC, on February 21, 2013, admitted that it “erred” in allowing the proposed revenue requirement to go into effect without a commitment to refund the difference between the as-filed rate and the rate ultimately found to be just and reasonable by FERC. FERC found that, absent a refund commitment, it would not be just and reasonable to allow SPP to continue to pass through the Tri-County revenue requirement prior to a FERC order establishing a just and reasonable rate following the hearing and settlement judge procedures. Therefore, FERC ordered, pursuant to its authority under FPA section 206, SPP to submit a compliance filing either (a) removing the Tri-County revenue requirement from SPP’s Tariff and ceasing collecting the revenue requirement until FERC issues an order following the hearing and settlement judge procedures or (b) providing a voluntary commitment by Tri-County to refund the difference between the proposed revenue requirement and the rate ultimately determined by FERC to be just and reasonable following the hearing and settlement judge procedures. Tri-County has since provided a voluntary refund commitment.

As can be seen from FERC’s decisions in Lively Grove and SPP, FERC will now only allow a non-public utility revenue requirement contained in a FERC-jurisdictional rate to go into effect if the non-public utility commits to provide refunds. Absent such a commitment, the non-public utility will be forced to wait until FERC issues an order approving the proposed revenue requirement as just and reasonable (which could take years). As an increasing number of non-public utilities join RTOs and ISOs and participate in the FERC-regulated markets, it is important to protect ratepayers from paying unjust and unreasonable rates. By providing non-public utilities with the choice of agreeing to refund commitments or delaying the effective date of their proposed revenue requirements until FERC approves them as just and reasonable, the effect of FERC’s decisions in Lively Grove and SPP is to provide, to the maximum extent possible, the same protections to ratepayers that are available in the case of public utility rate filing, which FERC can make subject to refund. Thus, FERC is working to ensure that ratepayers are not harmed by the increasing involvement of non-public utilities in RTOs and ISOs and FERC-regulated markets.