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November 12, 2015

FERC Judge's Recommendation To Limit Retail Customer Standing Faces Uphill Battle

The Federal Power Act creates a sometimes uneasy dichotomy between wholesale power and transmission rates on the one hand, and retail rates on the other, with the former subject to oversight of the Federal Energy Regulatory Commission and the latter left to the states.[1]Determining the boundaries between federal and state authority can prove vexing—the Supreme Court’s currently having sub judice an appeal challenging FERC’s authority over end-user participation in wholesale demand response markets being just one notable example.[2] What generally has not been controversial, however, is FERC’s position on whether retail customers have standing to bring complaints before the agency involving FERC-jurisdictional matters. The Commission has been fairly consistent in interpreting the FPA to confer standing on those customers based on the impact of its decisions on the power rates they pay at retail.

One FERC ALJ apparently doesn’t see things that way. In an order issued on October 13, 2015, Judge Cintron certified to the Commission the issue of whether retail rate customers have standing to challenge wholesale rates at FERC, accompanied by a recommendation that the Commission answer that question in the negative and state that “a different interpretation would interfere with state jurisdiction over retail rates.[3] That certification caught the attention of a wide variety of consumer representatives, including the National Association of Utility Consumer Advocates (NASUCA), who have filed strenuous objections to Judge Cintron’s recommendations.  They rightly contend that the Judge’s position would result in a radical departure from Commission precedent, and would bar participation of the parties who often have the most at stake in FERC rate disputes. For those reasons, the Commission is very unlikely to accede to the Judge’s recommendations.

Judge Cintron’s certification arises in a case involving AEP’s 2013 and 2014 informational filings associated with its formula rates for transmission service in the Southwest Power Pool (SPP). Two AEP subsidiaries, Public Service Company of Oklahoma (PSO) and Southwestern Electric Power Company (SWEPCO), provide transmission service in the SPP region, and their transmission revenue requirements are among the costs that the SPP uses to set transmission rates to entities that take wholesale transmission service.

Martha Peine is an Arkansas retail customer of Carroll County Electric Cooperative (CCEC), which in turn is a member of  the Arkansas Electric Cooperative Corporation (AECC), a wholesale transmission customer in the SPP. In 2013 and 2014, Ms. Peine requested detailed information relating to AEP’s filings, invoking a provision in AEP’s Formula Rate Implementation Protocols (AEP Protocols) that requires AEP to respond to reasonable information requests by “Interested Parties” within a specified time. Ms. Peine also filed “Formal Challenges” to AEP’s 2013 and 2014 formula rate updates.

On August 19, 2015, the Commission issued an order establishing hearing and settlement judge procedures relating to Ms. Peine’s challenges, and Chief Judge Wagner appointed Judge Cintron as the Settlement Judge shortly thereafter. Ms. Peine then filed a Motion for Leave to Intervene Out of Time, which Judge Cintron granted on September 15, 2015. Judge Cintron also asked Trial Staff, AEP and Ms. Peine to file memoranda addressing the issue of whether Ms. Peine, as a retail customer, had standing under the Federal Power Act to file a complaint against wholesale rates.[4]

Trial Staff supported Ms. Peine’s position that she did have standing, and AEP’s memorandum skirted the legal issue, arguing instead that permitting a retail customer to file a complaint in its formula rate proceedings was not in the public interest, as retail ratepayers conducting unqualified inspections and investigations amounted to an audit, duplicating the role already performed by the Commission. AEP complained that it had already incurred over $200,000 in expenses responding to Ms. Peine’s data requests.[5]

In her October 13, 2015 Order, Judge Cintron certified the following questions to the Commission:

Shouldn’t section 306 of the Federal Power Act (FPA) be interpreted in pari materia with section 201 of the FPA? Section 201 gives the Commission jurisdiction over wholesale rates and interstate transmission; therefore, retail ratepayers would not have the right to file complaints against wholesale rates.

Wouldn’t an expansive interpretation of Section 306 of the FPA (allowing retail ratepayers or end users to file complaints against interstate wholesale rates) violate the delicate balance of federalism; in other words, by giving complaint authority to retail rate customers, is the Commission interfering with states’ rights by asserting jurisdiction over retail rates?[6]

She followed the questions with the recommendation “that the Commission answer these questions by stating retail ratepayers are not permitted to bring an FPA section 205 complaint against wholesale sellers of electricity.[7] Additionally,” she said, “it is recommended that the Commission state that a different interpretation would interfere with state jurisdiction over retail rates.”[8]

In support of her recommendations, Judge Cintron stated that while FPA Section 205 allows the filing of complaints concerning the lawfulness of rates, and Section 206 provides that “any person” may file an FPA complaint, those provisions must be read in conjunction with Section 201, which states that “[t]he provisions of this Part shall apply to the transmission of electric energy in interstate commerce and to the sale of electric energy at wholesale in interstate commerce, but . . . shall not apply to any other sale of electric energy . . .”:

Reading these provisions together, it does not logically follow that any person may file a section 205 complaint.  Though the FPA provides that any person may file a complaint, that person must implicitly possess FPA section 201 standing to file such a complaint.  Retail ratepayers, by definition, do not purchase wholesale electricity—they purchase retail electricity.  Thus, retail ratepayers cannot have standing to file a section 205 complaint.  The FPA does not provide retail ratepayers standing to file section 205 complaints with the Commission. [9]

Judge Cintron rejected Trial Staff’s argument that Ms. Peine had standing by virtue of the fact that interstate transmission rates flowed through to the retail rates she paid for electricity, stating that “Though her payment is indirectly related to interstate electricity, the bill is an intrastate bill and not an interstate bill.  A remote financial connection to interstate transmission exists, but this financial connection is distinct from a jurisdictional connection required under FPA section 201.”[10]

Judge Cintron also dismissed Staff’s reliance on Potomac-Appalachian Transmission Highline, LLC, 140 FERC ¶61,229 (2012)(PATH), which held that “A complaint regarding a transmission rate can, under Commission rules, be filed by any person, including an end-use customer that will pay… some portion of that rate when flowed through to its retail bill.” PATH, according to Judge Cintron, was distinguishable because the precedents the Commission relied on in that decision “address indirect customers’ standing as it relates to intervention (by individual persons or otherwise), or other situations where the Commission notes the necessity in addressing indirect customers’ interests. None of [those] cases contain facts where an FPA section 205 proceeding’s complainant is an individual retail ratepayer….”[11]

Judge Cintron also found that the formula rate protocols in PATH conferred broader standing than those in AEP’s case. Both sets of protocols allowed “Interested Parties” to participate in the processes to review formula rate updates.  The PATH protocols stated that “Interested Parties” included “any entity having standing under section 206 of the FPA. As Judge Cintron noted, “The Commission went on to determine that [individual retail customers] had standing under section 206 of the FPA and therefore qualified as Interested Parties under the PATH protocols.” 

While the AEP protocols themselves did not define “Interested Parties,”  a 2007 filing by AEP stated that “Each year, after the Posting Date…, AEP will convene a meeting…to afford interested parties (e.g., Transmission Customers and affected state and federal regulatory authorities) an opportunity to discuss and become better informed regarding the Annual Update….”[12] In Judge Cintron’s view, this indicated that the AEP protocols were “intended to be narrower,” and, as Ms Peine was not a transmission customer, “she is not an Interested Party.”[13]

As noted, Judge Cintron’s Certification Order has triggered strongly worded objections from consumer interests. The most detailed were filed by a group that includes the Electric Consumers Resource Council (ELCON), the American Forest and Paper Association, the Association of Businesses Advocating Tariff Equity (ABATE), and industrial energy consumer groups from several states (collectively the Industrial Consumers).[14] They argue that the language of the FPA and Commission rules supports standing, as do longstanding Commission precedents; that Judge Cintron’s recommendation ignores the consumer protection purpose of the FPA; and that standing does not interfere with states’ rights, but rather is essential to avoid a regulatory gap.[15]

On November 3, 2015, NASUCA filed a letter saying that it concurs with the Industrial Consumers’ arguments, and urging the Commission to provide notice and an opportunity for other parties to comment on the Certification issues without having to seek intervenor status in the AEP case.[16]Also on November 3rd, Chief Judge Wagner denied the Industrial Consumers’ Motion to Intervene, but granted their Motion to Participate as Amicus Curiae, stating that  “the Certification of Question raises important questions that go to the heart of the Commission’s policy in allowing retail ratepayers to participate in proceedings concerning wholesale rates.”[17]

While it is conceivable that the Commission at one time could have interpreted the FPA as Judge Cintron recommends, the Industrial Consumers are correct that endorsing that position now would necessitate reversal of an almost unbroken line of FERC precedents stretching back over 30 years. As the Industrial Consumers point out, the Commission made that very point in rejecting utilities’ opposition to retail consumer complaints in PATH. In that case, the individuals had sought to participate in the annual update proceedings for the PATH transmission line formula rates, invoking their rights as “Interested Parties” under the PATH protocols. As discussed above, those protocols defined “Interested Parties” to include “any entity having standing under Section 206 of the Federal Power Act.” They complained to FERC when the utilities refused to respond to their data requests, disputing their “Interested Party” status.

Ruling in the individual customers’ favor, the Commission held that the language of FPA Sections 206 and 306, as well as Commission Rule 206, make it clear that the only limitation on standing to file Section 206 complaints is that the issues must relate to or affect the complainant:

…Section 206 of the Federal Power Act permits the Commission to act, “after a hearing on its motion, or upon complaint.”  Section 306 of the Federal Power Act states that “any person” may file a complaint.  Moreover, Rule 206 of the Commission’s Rules of Practice and Procedure permit “any person” to file a complaint and requires that the complainant to “set forth the business, commercial, economic, or other issues presented by the action or inaction as such relate to or affect the complainant.”\  Ms. Haverty’s and Ms. Newman’s status as consumers taking service in the area in question and subject to paying the rates charged by PATH through the Formula Rates are sufficient to qualify each individual to file a complaint and therefore qualifies each as an Interested Party under the Formula Rate Protocols.[18]

The Commission also distinguished North Star Steel Co. v. Arizona Public Serv. Co., 116 FERC ¶61,022 (2007)(North Star), a case cited by the utilities as barring the individuals’ standing on the ground that they were not in privity with the utilities. North Star involved a complaint for refunds by an industrial customer that bought power from an electric cooperative that, in turn, bought wholesale power at inflated rates from Arizona Public Service Company (AEPCo.) and others during the California energy crisis of 2001-2002. In dismissing the complaint, the Commission said that it “agree[d] Respondents that there is no privity of contract between North Star and Respondents”  because the customer did “not identify any transaction or contract for the wholesale sale of electricity between Respondents and North Star.”[19] The Commission added that the Western System Power Pool Agreement, to which AEPCo. was a party, contained a provision stating that it did not confer any rights on third party beneficiaries. As a result, North Star could not “step into the shoes” of AEPCo.[20]

The Commission in PATH stated that North Star did not apply, since the PATH complainants  “are not, as in North Star Steel, attempting to rely on a power pool agreement to which they are not a signatory and which expressly limits third party participation.”[21] The Commission added that the complainants:

are acting in order to protect their interests pursuant to a tariff that expressly allows challenges to its Annual Updates by any person who qualifies under section 206 jurisdiction.  The Commission has consistently ruled that section 206 does indeed give such “indirect customers” standing before this agency.  We see no reason to treat the Formula Rate Protocols’ reference to section 206 as producing a different result.[22]

In a footnote, the Commission cited cases dating back to 1982 as evidence of its consistent position regarding standing to file Section 206 complaints.[23]

There is room to argue that the Commission’s attempt to distinguish North Star is flawed, as the complaining party in that case in fact did not “attempt[] to rely on a power pool agreement to which they are not a signatory…” Instead, the respondents in North Star invoked the power pool agreement defensively, asserting that the third party beneficiary language supported their argument against standing.  Indeed, the complainant in North Star relied on the “any person” phrase in Rule 206 that the Commission itself found persuasive in PATH to support retail customer standing.[24]

In any event, while the more intellectually honest approach might have been to overrule North Star, the Commission was correct in PATH in noting that it had found retail customer standing in cases dating back to the early 1980s. Moreover, Judge Cintron herself mischaracterized PATH as holding that the complainants had standing because of the breadth of the “Interested Party” definition in the PATH protocols.[25] In actuality, the Commission held the exact opposite, that the complainants qualified as an “Interested Party” under the protocols because they had standing to file complaints under FPA Section 206.[26]

It also seems unlikely that the Commission will find merit in Judge Cintron’s attempts to distinguish the long line of precedents cited in PATH for the proposition that retail customers have standing to file complaints at FERC. While Judge Cintron may be correct that some of those precedents dealt with intervention rather than complaints,  recent decisions negate the significance of that distinction.[27]  She may also be correct that some of the precedents involved “situations where the Commission notes the necessity in addressing indirect customers’ interests,”[28] but there is no indication in the other precedents that that was a necessary element of the Commission’s decision in favor of standing.

Neither is it apparent that the Commission’s  decisions to grant standing turned on the fact that some of the cases involved groups of customers rather than individual ratepayers; the “any person” references in the statutes and regulation are equally applicable to groups and individuals. And, contrary to Judge Cintron’s reasoning, the fact that AEP’s 2007 filing included the phrase “e.g., Transmission Customers and affected state and federal authorities” after “interested parties” is not evidence of an intent to limit the scope of “interested parties” to those individuals or entities.

Finally, as to Judge Cintron’s claim that none of the precedents involved FPA Section 205 proceedings, in addition to being of questionable relevance (since Ms. Peine evidently relied on FPA Section 206),[29] again there is no apparent reason why the analysis of standing should be any different with respect to complaints under FPA Section 205 as opposed to Section 206

In view of the overwhelming weight of authority supporting standing by retail customers to file complaints challenging FERC jurisdictional rates, the Commission is unlikely to be swayed by Judge Cintron’s recommendation that the Commission “state that a different interpretation would interfere with state jurisdiction over retail rates.”[30] The FPA clearly contemplates that FERC will decide rate matters that ultimately affect retail rates, and the fact that retail ratepayers may participate in the FERC proceedings where those decisions are made does not exacerbate the tension that already exists between federal and state ratemaking authority. Indeed, the Commission may find merit in the Industrial Consumers’ argument that in many cases they may offer a useful perspective that no other parties are likely to share.[31]

NASUCA and the other consumer interests who are seeking to address the questions raised in Judge Cintron’s Certification would have much to be concerned about if the Commission were to agree with her recommendations, as their influence in future commission proceedings could be substantially diminished. Based on the weakness of the Judge’s position, they have little to fear.

 

[1] 16 U.S.C.§824(a).

[2] Federal Energy Regulatory Comm’n v. Electric Power Supply Ass’n, Docket No. 14-840 et al. (S. Ct., argued October 14, 2015).

[3] American Electric Power Serv. Corp.,153 FERC ¶63,002 (October 13, 2015)(Certification Order). Judge Cintron issued an Errata to the Certification Order on October 28, 2015 in Docket No. ER07-1069-006.

[4] Certification Order at P7.

[5] Id. at P13.

[6] Id. at P1.

[7] It is unclear from the Certification Order whether Judge Cintron intended to make a purposeful distinction between complaints under FPA Sections 205 and Section 206. If so, she does not explain why the standing issue would be different under the two sections. Section 205 refers to complaints in the context of the filing by utilities of new rates. Section 206 authorizes complaints against existing rates.

[8] Id. at P2.

[9] Id. at P15 (footnote omitted).

[10] Id. at P16.

[11] Id. at P 18 (citations omitted).

[12] Id. at P19 (footnote omitted)

[13] Id. at P19.

[14] Docket No. ER07-1069-006, Motion to Intervene Out-of-Time, or in the Alternative, Participate as Amicus Curiae, and Comments of the Electricity Resources Council (“ELCON”) and Joint Consumers (October 28, 2015)(ELCON Motion).

[15] Id. at 15-27.

[16] Docket No. ER07-1069-006, NASUCA Letter (November 3, 2015). Two large California-based industrial consumer groups have also filed in support of the Industrial Consumers’ Motion. Late-Filed Motion to Intervene, or Alternative Motion for Amicus Curiae Status and Comments of the Energy Producers and Users Coalition and the California Large Energy Consumers Association (November 4, 2015). In addition to endorsing the Industrial Consumers’ positions, the California petitioners note that they effectively have no recourse to challenge FERC-approved cost allocations before the California PUC under Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986) and Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988).

[17] Docket No. ER07-1069-006, Order of Chief Judge Denying Motion to Intervene Out of Time, and Granting Motion to Participate as Amicus Curiae (November 3, 2015).

[18] PATH, 140 FERC ¶61,229 at P105.

[19] North Star, 116 FERC ¶61,022 at P11.

[20] Id. at P12.

[21] PATH, 140 FERC ¶61,229 at P107.

[22] Id. at P13(footnote omitted).

[23] PATH, 140 FERC ¶61,229 at P107 n. 121.

[24] Docket No. EL06-68-000, Combined Answer of North Star to the Motions to Dismiss of All Respondents (June 7, 2006) at 6 (respondents position is “inconsistent with the Commission’s regulations, which clearly provide that a complaint may be brought by ‘any person’”)(footnote omitted).

[25] Certification Order at P19.

[26] PATH, 140 FERC ¶61,229 at P105.

[27] North Carolina Waste Awareness and Reduction Network, Inc. v. Duke Energy Carolinas, LLC, 151 FERC ¶61,079 (2015)(retail customers have standing to file Section 206 complaints); Association of Businesses Advocating Tariff Equity, 148 FERC ¶61,049 (2014)(same).

[28] Certification Order at P18.

[29] Ms. Peine’s complaints are not in the FERC elibrary public docket. However, the Industrial Consumers assert that she relied on Section 206. ELCON Motion at 13-14 n.3.

[30] Id. at P2.

[31] While the Industrial Consumers may overstate their case in asserting that denying them standing will create a regulatory gap, there is merit to the notion that utilities generally have the right to pass through FERC-approved rates to their retail customers, which reduces their incentive to challenge rate increases at FERC and makes it nearly impossible for retail customers to challenge FERC-approved rates before state commissions. ELCON Motion at 24-25.

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