New Court Decision Opens Door to Broader Assertion of Jurisdiction by FERC over Governmental Entities

The U.S. Court of Appeals for the D.C. Circuit issued a decision recently finding that the Federal Energy Regulatory Commission (“FERC”) had authority to order the Bonneville Power Administration (“BPA”) to pay money to a public utility.  This holding is significant because BPA is a governmental entity exempt from FERC’s jurisdiction under most provisions of the Federal Power Act (“FPA”).

In TNA Merchant Projects, Inc. v. FERC, No. 13-1008, an issue arose before FERC as to whether a generator interconnected to BPA’s transmission system charged a just and reasonable rate to BPA for reactive power.  Commonly, interconnection agreements modeled upon FERC’s pro forma Larger Generator Interconnection Agreement include a provision requiring a generator to be compensated by a transmission provider for reactive power service.  But, the Court’s decision notes that there was no such provision in the interconnection agreement between BPA and the generator, which had been supplying reactive power to BPA without charging BPA for this service.  The generator, which was subject to FERC’s jurisdiction, eventually filed a rate at FERC for the reactive power service and FERC found the rate to be excessive.  FERC treated the rate as a “changed” rate, rather than an “initial” rate, and ordered the generator to refund a portion of the revenues it collected from BPA.  Following a challenge to FERC’s decision by the generator, FERC altered its course.  FERC found that it would be appropriate for the generator to recoup amounts previously refunded to BPA but that FERC lacked authority under the FPA to order BPA to repay the funds at issue.

When reaching the conclusion that it lacked jurisdiction, FERC relied on, among other things, a key decision issued previously by the U.S. Court of Appeals for the Ninth Circuit.  That Ninth Circuit decision acted on an appeal by BPA of FERC orders purporting to require governmental entities to pay refunds for their sales of electric energy during the Western energy crisis of 2000-2001.  There, the Ninth Circuit held that FERC lacked authority under the FPA to order governmental entities to pay refunds for their sales of electric energy.

The D.C. Circuit distinguished the Ninth Circuit’s decision on the ground that the instant case does not involve a refund of a rate charged by BPA but instead involves the “recoupment” of a refund erroneously made a generator whose rate is regulated by FERC.  While the two situations can be distinguished factually, the D.C. Circuit’s decision should be of concern to governmental entities which are non-jurisdictional public power utilities for at least two primary legal reasons.  First, the D.C. Circuit relied on Section 309 of the FPA to conclude that FERC had authority, which the Ninth Circuit refused to do.  Section 309 states that FERC “shall have power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter.”  The D.C. Circuit decision therefore potentially opens the door to a broader assertion of jurisdiction by FERC over governmental entities than has occurred in the past by using this FPA provision as a bootstrap.  Second, in the past when a public utility wanted to collect money it alleged was owed by a governmental entity under a contract for services provided by the public utility, it typically would take the governmental entity to court to collect the amount owed.  Going forward, public utilities might try to use the D.C. Circuit decision to sidestep a court action by asking FERC to order a payment by a governmental entity directly.

For further information, please contact Debbie Swanstrom at DSwanstrom@jsslaw.com.