Energy > AG Speaking Energy > Appellate Court Upholds FERC Decisions on CAISO Must-Offer Cost Allocation
06 Nov '13

The U.S. Court of Appeals for the District of Columbia Circuit this week upheld two Federal Energy Regulatory Commission (FERC) orders allocating the costs associated with mitigating transmission constraints on a Southern California transmission path to multiple neighboring utilities.

Under its FERC Tariff, the California Independent System Operator (CAISO) allocates the costs of relieving transmission constraints through the dispatch of must-offer generation in one of three ways, depending on whether must-offer resources were committed to satisfy local, zonal, or system reliability requirements. Following an evidentiary hearing, an Administrative Law Judge at FERC concluded in 2005 that cost responsibility would fall entirely upon the local load serving entity, Southern California Edison, when must-offer resources were dispatched to relieve constraints on “South of Lugo,” a system of 500 kV transmission paths that feeds power into the Los Angeles basin. FERC affirmed the ALJ’s decision in 2006.

FERC reversed itself in 2007 however, finding that South of Lugo provides regional reliability benefits that support designating constraints on the path as zonal for purposes of cost allocation. In doing so, FERC also required CAISO to update the portion of its Tariff that set forth criteria for determining whether a constraint is a local, zonal, or system constraint for purposes of allocating must-offer cost responsibility. South of Lugo did not fit within the criteria established for a zonal designation in CAISO’s Tariff as it was written at that time. Under a zonal designation, the neighboring Cities of Anaheim, Azusa, Banning, Colton, and Riverside (Cities) would be allocated a share of must-offer costs. The Cities sought rehearing from FERC, which was denied in 2011.  

 The Cities filed a Petition for Review of the 2007 and 2011 FERC orders at the D.C. Circuit, arguing that FERC acted in an arbitrary and capricious manner when it determined that the Cities benefited from the dispatch of must-offer resources to mitigate constraints on South of Lugo and, accordingly, that FERC’s orders were inconsistent with established cost causation principles.

 In a per curiam opinion, the D.C. Circuit on November 5 denied the Cities’ Petition for Review. The court concluded that, although FERC had reversed its earlier decision to allocate costs to Southern California Edison only, the agency adequately explained its actions in light of the evidence in the record. The court was not troubled that FERC had directed changes to CAISO’s Tariff at the rehearing stage of the proceeding, concluding that FERC’s accompanying explanations were sufficient to justify the modifications. More broadly, the court’s opinion reflects the considerable deference that is afforded to FERC on issues of cost allocation.

 The case is City of Anaheim, California et al. v. FERC (No. 11-1442).