August 17, 2020
Docket No. ER20-1068-000
I dissent in part from today’s order because the record before us is clear that Ohio law requires The Dayton Power and Light Company (Dayton) to be a member of a Transmission Organization. As a result, there is nothing for the Commission to incentivize by awarding an additional ROE for Transmission Organization membership. Consistent with Commission precedent, that alone should be more than enough for us to reject this aspect of Dayton’s filing.
Nevertheless, the Commission orders another round of briefing on the question of whether Dayton is required to be a member of a Transmission Organization, including on specific issues that the parties have already addressed. Where the law is as clear as it is here, I see no reason to give Dayton a second bite at the apple after it has already failed to adequately prove an essential element of its case for the requested incentive. Under those circumstances, our role is to answer the legal questions presented to us, not to punt those questions to another day.
* * *
Section 219 of the Federal Power Act (FPA) requires the Commission to establish an incentive for a utility that “joins” a “Transmission Organization.”[1] Section 3(29) of the FPA, in turn, defines a Transmission Organization as “a Regional Transmission Organization, Independent System Operator, independent transmission provider, or other transmission organization finally approved by the Commission for the operation of transmission facilities.”[2] To implement Congress’s directive in section 219, the Commission issued Order No. 679, which established an ROE adder for a transmission owner that joins a “Transmission Organization.”[3] That incentive has come to be known as an “RTO Participation Adder,”[4] even though, strictly speaking, the statutory definition of “Transmission Organization” is not limited only to RTOs or ISOs. The Commission has applied the RTO Participation Adder expansively, granting the incentive not just for joining a Transmission Organization, but also for remaining in one indefinitely.[5] Indeed, under the Commission’s current policy, it presumes that any transmission owner in a Transmission Organization is eligible for an ROE adder, although that presumption is subject to rebuttal.[6]
But even that expansive interpretation has its limits. Consistent with the Commission’s “longstanding policy that rate incentives must be prospective and that there must be a connection between the incentive and the conduct meant to be induced,”[7] the Commission has, so far at least, refused to create a generic RTO Participation Adder that is categorically available to all transmission-owning members of an RTO or other Transmission Organization.[8] As a result, Commission precedent provides that parties may rebut the presumption that a transmission-owning member of a Transmission Organization is entitled to an RTO Participation Adder based on the specific circumstances of each individual proceeding.
The U.S. Court of Appeals for the Ninth Circuit recently addressed an argument along those lines. In that case, the Commission took the still-hard-to-fathom position that Order No. 679 did not require it to consider the voluntariness of a utility’s membership in a Transmission Organization and that it could summarily grant the RTO Participation Adder even where the relevant transmission owner was required to remain in the RTO.[9] The court rejected the Commission’s position, finding that it was a plainly erroneous interpretation of Order No. 679 and an arbitrary and capricious application of the Commission’s policy on incentives.[10] In particular, the Court admonished the Commission that its “policy that incentives should only be awarded to induce future behavior” was still very much in place following Order No. 679 and that granting an incentive for involuntary RTO participation would appear to violate that policy.[11]
On remand from that decision, the Commission, for the first time, addressed whether California law required the transmission owner to be a member of CAISO, concluding that it did not.[12] Although I dissented from the Commission’s earlier approach of summarily granting RTO Participation Adders to transmission owners that had no choice but to remain in a Transmission Organization,[13] I agreed with the conclusion that California law did not require the transmission owner’s participation in CAISO and, as a result, I concurred in the decision to award the RTO Participation Adder.[14] Nevertheless, I noted that the Commission’s reasoning supported the seemingly obvious conclusion that an RTO Participation Adder is inappropriate where a transmission owner is required to be a member of a Transmission Organization, leaving nothing for the adder to incentivize.[15]
This case forces the Commission to confront that issue directly. Dayton has requested an RTO Participation Adder and the Ohio Entities[16] have responded that granting the adder would be inappropriate because Dayton’s participation in PJM or another Transmission Organization is statutorily required.[17] I agree with the Ohio Entities. Ohio law gives Dayton no choice but to remain in a Transmission Organization. Accordingly, awarding Dayton an RTO Participation Adder is inconsistent with the Commission’s longstanding policy that incentives must incentivize something and, therefore, arbitrary and capricious.[18]
Section 4928.12 of the Ohio Code prohibits any entity from owning transmission facilities within the state “unless that entity is a member of, and transfers control of those facilities to, one or more qualifying transmission entities.”[19] Ohio law then proceeds to define a qualifying transmission entity as one that meets all of nine defined criteria,[20] including, first and foremost, that the “transmission entity is approved by the Federal Energy Regulatory Commission.”[21]
That first criterion is all we need to resolve this issue. As noted, the Commission’s regulations provide that the RTO Participation Adder will be presumptively available to an entity that joins a Transmission Organization, which the FPA (and the Commission’s regulations) define to include not just RTOs and ISOs, but also other transmission entities approved by the Commission.[22] Nothing in this record explains how Dayton could comply with its obligation under Ohio law to be a member of and transfer control of its facilities to a transmission entity approved by the Commission without also meeting the criteria to be eligible for the RTO Participation Adder. But if Ohio law effectively requires Dayton to be a member of a Transmission Organization, then an ROE adder, by definition, “will not induce [Dayton’s] continuing participation in transmission organizations.”[23] Under those circumstances, forcing Dayton’s customers to pay several hundred thousand dollars a year[24] because Dayton is a member of PJM would be inconsistent with the Commission’s longstanding policy that incentives must incentivize something.
Dayton responds to the Ohio Entities’ arguments with a hypothetical in which it would leave PJM, give certain administrative duties to another RTO, and appoint a third organization as its reliability coordinator—a situation that would, according to Dayton, comply with Ohio law.[25] As an initial matter, the relevant Ohio law requires Dayton to both be a member of and transfer operational control of its facilities to a transmission entity approved by the Commission.[26] That means that whatever form the contemplated “delegation” to the other RTO (or other non-RTO Transmission Organization) took, it would need to include formal membership and actual transfer of operational control, which would make Dayton presumptively eligible for the RTO Participation Adder.[27] But that brings us right back to where we were at the end of the previous paragraph, with Dayton having no choice under Ohio law but to be a member of a Transmission Organization, meaning that there is nothing for the RTO Participation Adder to incentivize.
Instead, the decision purportedly being influenced by the RTO Participation Adder in Dayton’s hypothetical is not whether to remain in a Transmission Organization generally—since even Dayton’s hypothetical would seem to have it be a member of such an organization—but whether to leave a particular Transmission Organization, in this case, PJM, and enter some seemingly less advantageous arrangement. That too is a dead end for Dayton. Nothing in FPA section 219 or our precedent supports awarding an RTO Participation Adder on the basis that it induces participation in a particular Transmission Organization, rather than just a Transmission Organization generally.[28]
In any case, it is far from clear that any arrangement short of full RTO membership would satisfy the other eight criteria enumerated in Ohio law. As explained in the Ohio Entities’ protests, those criteria include that the transmission entity must, among other things, have an independent board, minimize pancaked transmission rates, be of sufficient scope to “substantially” increase economical supply options, and be capable of “maintaining real-time reliability of the electric transmission system, ensuring comparable and nondiscriminatory transmission access and necessary services, minimizing system congestion, and further addressing real or potential transmission constraints.”[29] Dayton has not provided any reason to believe that its hypothetical alternative arrangement could meet these criteria, which seem clearly designed to describe an RTO or, at the very least, an RTO-like entity that would constitute a Transmission Organization under the FPA and the Commission’s regulations. As such, the record indicates that Dayton’s membership in a Transmission Organization is required by Ohio law and there is nothing for the RTO Participation Adder to incentivize.[30]
Today’s order provides no response to these arguments or any reason to doubt this straightforward reading of the principal legal issues. Instead, the Commission simply orders the parties to rebrief those issues, including ones that Dayton has already addressed directly.[31] We don’t ordinarily give parties that fail to adequately address the key legal questions a second bite at the apple, especially where the legal issues are as clear as they are in this case. Commissioner Danly should be commended for recognizing this point and for his concern about the impacts of Dayton’s proposal on customers.[32] But, while I share his concern for customers, I believe that our role as Commissioners requires us to answer legal questions as they are presented, rather than putting them off in the hopes of a more favorable outcome down the road.
My dispute with the majority on this point may seem minor. After all, the Commission may ultimately reject Dayton’s request for the RTO Participation Adder, potentially for the reasons stated above. But the Commission’s decision to punt on the legal questions in today’s order is concerning for two reasons. First, the burden of proof in this filing, now made pursuant to section 205 of the FPA,[33] is squarely on Dayton, meaning that it is Dayton’s obligation to demonstrate that it is entitled to the RTO Participation Adder. The Commission’s decision to require additional briefing appears to suggest that even the majority agrees that Dayton has not adequately addressed the legal issues that are essential to its ability to carry that burden. And, unlike disputed issues of material fact, which may require the development of an additional record before an administrative law judge, legal issues, by definition, require no such record and are to be resolved by the Commission, aided by the FPA’s burden of proof rules. Applying those rules here, it is clear that Dayton has not carried its burden and that the only reasonable thing to do is reject its request for an RTO Participation Adder. I recognize that the Commission has come under criticism from some who would prefer that transmission owners receive higher ROEs, but when the law and facts require it, sometimes you have to say no.
Second, what makes that outcome particularly concerning is that today’s order grants Dayton its requested effective date of May 3, 2020, for all accepted incentives, including the RTO Participation Adder.[34] I am concerned that the second-bite-at-the-apple approach taken in this order creates an asymmetric risk for the very customers that Congress intended to protect by putting the burden of proof on a utility that seeks to increase its rates. If Dayton’s arguments prove no more convincing on the second go around, then customers will not have to pay the higher rates. But, as explained in the previous paragraph, that is the result to which they are already entitled given Dayton’s failure to adequately address the critical legal question and resulting failure to meet its burden of proof. However, if Dayton ultimately succeeds where it has failed to date, and receives the RTO Participation Adder, its customers will be forced to pay that adder as of the May 3, 2020 date requested in Dayton’s original filing, even though that filing, and the related pleadings, failed to carry Dayton’s burden. I see no principled reason for putting that asymmetric risk on customers where Dayton so patently failed to meet its burden of proof.
Perhaps, given Commissioner Danly’s concurrence, this approach will lead to a better outcome for customers in this case, although that remains to be seen. But, even so, I cannot avoid the conclusion that this type of procedural gambit creates an asymmetric risk for customers that is inconsistent with the burdens of proof established by the FPA. As such, even if the approach ultimately helps reach a better result in this particular instance, I cannot support it out of concern for the harm that legitimizing it may ultimately do in other cases down the road.
For these reasons, I respectfully dissent in part.
[1] 16 U.S.C. § 824s(c) (2018).
[2] 16 U.S.C. § 796(29).
[3] See 18 C.F.R. § 35.35(b)(2) (defining “Transmission Organization”); id. § 35.35(e) (codifying the RTO Participation Adder); see also Promoting Transmission Inv. through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, at P 326, order on reh’g, Order No. 679-A, 117 FERC ¶ 61,345 (2006), order on reh’g, 119 FERC ¶ 61,062 (2007).
[4] See, e.g., N.Y. Indep. Sys. Operator, Inc., 171 FERC ¶ 61,119, at P 2 (2020).
[5] In Order No. 679, the Commission explained that the basis for granting the RTO Participation Adder to “entities that have already joined, and that remain members of” a Transmission Organization “is a recognition of the benefits that flow from membership in such organizations and the fact continuing membership is generally voluntary,” 116 FERC ¶ 61,057 at P 331, with that voluntariness presumably being the reason that the RTO Participation Adder provides some incentive under those circumstances.
[6] Id. P 326.
[7] Cal. Pub. Utils. Comm’n v. FERC, 879 F.3d 966, 977 (9th Cir. 2018) (CPUC v. FERC); id. (explaining that “[t]his policy is incorporated in Order 679”).
[8] Order No. 679, 116 FERC ¶ 61,057 at P 326.
[9] CPUC v. FERC, 879 F.3d at 972.
[10] Id. at 974; see also id. (“When membership is not voluntary, the incentive is presumably not justified.”).
[11] CPUC v. FERC, 879 F.3d at 977-78.
[12] Pac. Gas & Elec. Co., 168 FERC ¶ 61,038, at P 42 (2019).
[13] S. Cal. Edison Co., 161 FERC ¶ 61,309 (2017) (Glick, Comm'r, dissenting).
[14] Pac. Gas & Elec. Co., 168 FERC ¶ 61,038 (Glick, Comm’r, concurring).
[15] Id. (Glick, Comm’r, concurring at P 3).
[16] The Ohio Entities are the Public Utilities Commission of Ohio’s Office of the Federal Energy Advocate (Ohio Commission) and the Ohio Consumers’ Counsel.
[17] Ohio Consumers’ Counsel Protest at 25-29; Ohio Commission Protest at 6-7.
[18] Cf. CPUC v. FERC, 879 F.3d at 978 (explaining that awarding the RTO Participation Adder in that proceeding “was a departure from FERC’s longstanding policy that incentives should only be awarded to induce voluntary conduct”).
[19] Ohio Rev. Code § 4928.12(A).
[20] Id. § 4928.12(B).
[21] Id. § 4928.12(B)(1).
[22] See supra P 3.
[23] CPUC v. FERC, 879 F.3d at 977.
[24] Dayton Answer at 9 (suggesting that the RTO Participation Adder would permit it to recover an additional $650,000 in the first year it is available).
[25] Id. at 7-8.
[26] Ohio Rev. Code § 4928.12(A) (providing that “no entity shall own or control transmission facilities . . . unless that entity is a member of, and transfers control of those facilities to, one or more qualifying transmission entities”).
[27] Order No. 679, 116 FERC ¶ 61,057 at P 327 (“An entity will be presumed to be eligible for the incentive if it can demonstrate that it has joined an RTO, ISO, or other Commission-approved Transmission Organization, and that its membership is on-going.”).
[28] See 16 U.S.C. § 824s(c) (requiring the Commission to adopt an incentive for “each transmitting utility or electric utility that joins a Transmission Organization” (emphasis added)); see generally Order No. 679, 116 FERC ¶ 61,057 at PP 326-332 (describing the benefits of Transmission Organization membership generally).
[29] See, e.g., Ohio Consumers’ Counsel Protest at 26-27; see also Ohio Rev. Code § 4928.12(B)(1)-(9) (providing the full list of criteria).
[30] Dayton also suggests that the RTO Participation Adder is appropriate because the adder will support its “financial integrity and ability to borrow at reasonable rates.” Dayton Answer at 9. Taken seriously, that suggestion would support any increase in ROE irrespective of whether it has any relationship to the conduct it is supposed to incentivize, which, quite obviously, is not what Congress had in mind when it required that the incentive rates approved under section 219 be just and reasonable. See 16 U.S.C. § 824s(d).
[31] One of the Commission’s questions set for hearing is whether there is “an arrangement under which Dayton could withdraw from an RTO and comply with the Ohio law, while not being eligible for an RTO Participation Adder.” The Dayton Power and Light Company, 172 FERC ¶ 61,140 at Appendix (2020) (Order). As noted, Dayton already proposed what it apparently believes to be such an arrangement, see Dayton Answer at 7-8, but which is unconvincing for the reasons addressed above, see supra PP 10-12. I see no reason to require parties to revisit that issue a second time.
[32] See Order, 172 FERC ¶ 61,140 (Danly, Comm’r, concurring at P 2).
[33] 16 U.S.C. § 824d.
[34] Order, 172 FERC ¶ 61,140 at P 2.