Commissioner James Danly Dissent Regarding AEP Energy Partners, Inc.

Commissioner James Danly Statement
December 30, 2021
Docket No. ER22-633-000

Today, the Commission grants yet another plainly unlawful retroactive waiver, this time to permit PJM Interconnection, L.L.C. (PJM) to ignore the fact that AEP Energy Partners, Inc. (AEP) missed a deadline, thereby awarding AEP rollover rights to continue receiving transmission service on the terms it currently enjoys.[1]  The problem is that the missed deadline is part of PJM’s filed tariff.  The Commission waives the deadline, saves the day, and avoids the irritating complications of the filed rate doctrine.  We have seen this drama many times before and it is always disappointing.[2]

Unambiguous, uninterrupted and controlling judicial precedent holds that a utility can only charge the rate on file.  This is called the filed rate doctrine.[3]  It is a core tenet of utility regulation.  The Commission also has no authority to permit utilities to charge rates other than those on file unless there is advance notice that the rate may change or the Commission has approved a tariff allowing the utility to charge different rates prospectively.  This is called the rule against retroactive ratemaking.[4]  This rule is also a core tenet of utility regulation and is a necessary adjunct to the filed rate doctrine.  There would be little point in having rates on file if rate changes can be retroactively imposed.  Both the filed rate doctrine and the rule against retroactive ratemaking also apply to   non-rate terms and conditions in filed tariffs.[5]

As the D.C. Circuit very recently explained, “[t]he filed rate requirement is stringent and admits of no equitable adjustments by the Commission or this court.”[6]  Because this rule is so hard and fast, the Commission cannot retroactively waive the filed rate, even in the most compelling circumstances, including emergencies.  The Commission, however, has been in the practice of routinely granting retroactive waivers and it usually does so without even acknowledging that it has engaged in retroactive ratemaking.[7]  In many of these cases, no one opposes the waiver and thus no one can appeal the Commission’s order.  But the absence of opposition does not make the unlawful lawful.

In this case, AEP never mentions the fact that the waiver it seeks is retroactive.  The PJM Tariff provides that “the existing customer [AEP] must notify [PJM] no later than one year prior to the end of the term of its firm transmission contract that it is exercising its transmission reservation priority and will take transmission service for an additional term of five years or longer . . . .”[8]  AEP’s transmission contract expires on December 31, 2021.  Therefore, AEP was required to notify PJM whether it intended to exercise its transmission reservation priority by December 31, 2020.  That date has been known to AEP since it signed the contract.  The tariff further provides the consequences for missing the tariff deadline.  They are that “[AEP] shall forfeit the transmission reservation priority associated with the contract.”[9]

The majority finds that the waiver is prospective because the contracts do not expire until December 31, 2021.  That is tomorrow.  Therefore, the waiver of a   December 31, 2020 deadline—364 days ago—is prospective.  In support, the majority cites two cases where the Commission prospectively waived a 90-day notice requirement for transactions that had not yet closed and asserts that these cases “find[] that a requested waiver of a tariff notice provision within the relevant notice period was prospective.” [10]  This is an overly simplistic restatement of their holdings.  The tariff provision at issue in those cases required 90 days of notice before a party could close a transaction.  The specific date of the notice requirement (90 days in advance of closing) was unknown because closing had not yet occurred.  Closing was at some indeterminate point in the future.  If the Commission denied the waivers, the parties would simply have to provide 90 days’ notice.  If granted, the parties could provide notice shortly before closing, whenever closing may occur.  By granting the waiver, the Commission is informing all parties that the Commission will not require 90 days of notice before closing.  Instead, they can close at any time.

These cases do not mean, however, that every “requested waiver of a tariff notice provision within the relevant notice period [is] prospective.”  In this case, we have a fixed and certain tariff deadline—December 31, 2020.  If the Commission does not waive the PJM Tariff deadline, the contract terminates by its own terms on December 31, 2021.  By granting the waiver, the Commission is revoking the December 31, 2020 deadline in the PJM Tariff.  That is unlawful retroactive ratemaking.  The contract is set to expire tomorrow but will now continue notwithstanding the missed deadline.

One key test whether a waiver is retroactive and therefore unlawful is whether a tariff violation already has occurred that must be “excused” via the waiver.  In the 90-day notice cases, the parties seeking to close a transaction have missed no deadlines in seeking waiver of the 90-day notice requirement before closing has occurred.  If closing already has occurred when they seek waiver, they are too late.  In this case, the  December 31, 2020 deadline to exercise rollover rights already has come and gone.  Waiver would “excuse” that violation by writing the fixed and lapsed deadline out of the PJM Tariff.

Finding that AEP’s waiver is prospective because the contracts have not yet expired would allow the Commission to invalidate every notice deadline in every tariff because “notice” always happens before the act.  That is the point of “notice.”  But the filed rate doctrine dictates that you can only lawfully waive the notice period before the notice deadline has lapsed.

Denying the waiver does lead to the result that AEP’s contract will expire.  That is what the contract and the PJM Tariff provide.  The PJM Tariff does not have to include a one-year notice requirement to exercise rollover rights, but it does.  PJM chose to include the deadline, and it is an approved part of the filed rate.  The provision provides no notice that the deadline can be waived or is otherwise optional.  Waiving that deadline today thus plainly violates the rule against retroactive ratemaking. 

The majority’s holding to grant waiver only serves to further hollow out the filed rate doctrine.  If jettisoning a deadline that has already lapsed is not retroactive ratemaking, what is?  The Commission could always say it is “prospectively” deciding that the rate on file should not be applied to past events, “starting today.”  Eventually, another appellate court will rule that “retroactive” means “retroactive,” plain and simple.  Until then, rates on file are only as certain as the next waiver request. 

I disagree not only with the outcome in this case but also the process.  The standard four criteria that the Commission applies—incoherently, I might add—are of no consequence whatever if the requested waiver is retroactive.[11]  AEP’s alleged “good faith” is impossible when it seeks an unambiguously unlawful retroactive waiver.  The “limited in scope” criterion has turned out to be subjective and meaningless, as all waivers the Commission wants to grant are deemed as such no matter how vast the scope of the waiver.[12]  The “concrete problem” criterion is nonsense—the problem in any retroactive waiver proceeding is always that the filed rate requires something the requesting party seeks to overrule.  And the no “undesirable consequences” element is absurd on its face as any change to the filed rate necessarily has an effect on every other customer who expected the filed rate to be as filed and approved and now suddenly it becomes something else.  What about all of the other parties that also would like to use the transmission service PJM and AEP just renewed for themselves? 

I will continue to expect every request for waiver of a filed rate to discuss Oklahoma Gas and clearly explain why the request is not retroactive.  To do otherwise is to intentionally obscure a fundamental, threshold issue with which we must grapple.  I will address this issue in every single case granting an unlawful retroactive waiver, and I will continue to do so until a court of competent jurisdiction eventually reins in the Commission’s abuse of authority.

For these reasons, I respectfully dissent.