On May 19, 2017, the U.S. Court of Appeals for the D.C. Circuit issued a decision in TNA Merchant Projects, Inc. v. Federal Energy Regulatory Commission (FERC or the “Commission”),1 holding that FERC has the authority to order a nonjurisdictional utility, such as Bonneville Power Administration (BPA), to return funds that it received due to an error by the Commission. The court also chose not to disturb FERC’s original finding that a generator must have a rate on file if it is providing reactive power service—even if it is supplying that service for free.
Chehalis Power Generating, L.P. (“Chehalis”) provided reactive power service to BPA free of charge until 2005. In 2005, Chehalis filed a rate schedule with FERC under Section 205 of the Federal Power Act (FPA) setting forth the rates that it would henceforth charge BPA for reactive power service. Chehalis’ submittal referred to the rate schedule as an “initial” rate, because Chehalis had not previously charged for reactive power service. However, FERC decided to treat Chehalis’ reactive power schedule as a “changed rate,” reasoning that an initial rate schedule must “involve a new customer and a new service.”2 The distinction between an “initial” and a “changed” rate is significant, because, under FPA Section 205, FERC can permit a rate change to go into effect while it considers whether the rate is just and reasonable. If FERC then determines that the rate is too high, it may order refunds of the difference between the rate charged and the just and reasonable rate. However, FERC interprets this refund authority under Section 205 to be limited to “changed” rates—initial rates are not subject to refund under FPA Section 205.
FERC found Chehalis’ proposed rate for reactive power service to be unjust and unreasonable, and thus directed it to refund the excess revenues it had collected. Chehalis appealed. The D.C. Circuit remanded the case to FERC, directing the Commission to explain why Chehalis’ proposed rate schedule for reactive power qualified as a “changed rate” when Chehalis had not previously filed a rate for reactive power.3 FERC eventually concluded that, although Chehalis’ rate schedule was a “changed rate,” because Chehalis should have filed a rate schedule when it started providing reactive power service—even if the rate was zero—its precedent on the issue was unclear. As such, FERC found that “it would be appropriate” for Chehalis to recover the refunds that it had paid to BPA.4 However, because BPA is a nonjurisdictional utility, FERC concluded that it lacked the authority to order BPA to return the refunded amounts.5
TNA Merchant Projects, Inc. v. FERC
It is well established that FERC lacks jurisdiction under the FPA to order a nonjurisdictional utility (e.g., a governmental entity, such as BPA, a municipal utility or a cooperative) to pay refunds to its customers.6 However, in the D.C. Circuit’s recent TNA decision, the court drew a distinction between refunds and recoupment, explaining that FERC’s lack of refund authority under FPA Section 205 does not prevent it from correcting its own mistakes by authorizing Chehalis to recoup the money it paid to BPA due to FERC’s error and ordering BPA to return the money. The court observed that FPA Section 309, which grants FERC broad remedial authority, “affords [FERC] broad authority to ‘remedy its errors’ and correct unjust situations.”7 The court cited its 2016 decision in Xcel Energy Servs. Inc. v. FERC, which likewise emphasized the Commission’s authority to correct its own errors.8
TNA is, in many ways, a companion case to Xcel. In Xcel, the court found that FERC’s inability to establish a retroactive refund date does not prohibit FERC from correcting its own mistakes, either by retroactively suspending rates under FPA Section 205 or by invoking its authority under FPA Section 309. In both cases, the court refused to accept FERC’s claim that it was statutorily prohibited from undoing the damage done by its own orders.
In addition to finding that FERC had the authority to order recoupment, the court did not disturb FERC’ s finding that Chehalis should have filed an initial rate schedule even when it was not charging for reactive power service. The court reasoned that, at this point in the proceedings, weighing in on that dispute would not affect the rights of the parties one way or the other.
The court remanded the case to FERC to determine the amount of recoupment to which Chehalis is entitled.
1TNA Merch. Projects, Inc. v. FERC, No. 13-1008 (D.C. Cir. May 19, 2017), https://www.ferc.gov/legal/court-cases/opinions/2017/13-1008opn.pdf.
2Chehalis Power Generating, L.P., 112 FERC ¶ 61,144, at P 23 (2005).
3TNA Merch. Projects, Inc. v. FERC, 616 F.3d 588, 593 (D.C. Cir. 2010).
4Chehalis Power Generating, L.P., 145 FERC ¶ 61,052, at P 14 (2013).
5Chehalis Power Generating, L.P., 153 FERC ¶ 61,194 (2015).
6Transmission Agency of N. Cal. v. FERC, 495 F.3d 663, 674 (D.C. Cir. 2007); Bonneville Power Admin. v. FERC, 422 F.3d 908, 926 (9th Cir. 2005).
7TNA Merch. Projects, Inc. v. FERC, No. 13-1008, at 9 (D.C. Cir. May 19, 2017).
8Xcel Energy Servs. Inc. v. FERC, 815 F.3d 947, 956 (D.C. Cir. 2016).