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DC Circuit vacates FERC Western refund decision, rejects Duke challenge to upgrade network orders

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A federal appeals court on Tuesday vacated decisions of the Federal Energy Regulatory Commission seeking refunds from Tucson Electric Power, Public Service Co. in New Mexico and other electricity wholesalers for allegedly unreasonably overcharging electricity during a 2020 Western heat wave.

The U.S. Court of Appeals for the District of Columbia Circuit ruled that FERC violated Mobile Sierra doctrine when it ordered the power sellers to make the refunds to the buyers.

FERC has set a $1,000/MWh “soft” offer cap for wholesale spot market sales of electricity in the Western Electricity Coordinating Council region. Ccompanies that make sales above the offering’s cap must justify them to FERC, according to agency guidance. In a series of decisions in 2022, FERC ordered PNM and the other companies to issue refunds for sales the agency deemed insufficiently justified.

Some of the companies that appealed FERC’s refund order include El Paso Electric, PacifiCorp, Tri-State Generation and Transmission, Shell Energy North America, Tenaska Power Services, Macquarie Energy, Brookfield Renewable Trading and Marketing and TransAlta Energy Marketing (USA).

During Mobile Sierra Under the doctrine, FERC must presume that freely negotiated contracts between independent parties are fair and reasonable, unless the agency finds that the rates seriously harm the public.

“There is no dispute in this case that the prices for which FERC ordered refunds were prices mutually agreed upon by the sellers and their customers in a competitive market,” the court said. “Yet the commission did nothing Mobile Sierra public interest analysis before changing these negotiated rates by ordering the refunds in question here.”

The court rejected FERC’s argument that it could order repayment without enforcement Mobile Sierra analysis because the order that imposed the soft offer ceiling was part of the seller’s submitted price. FERC also argued that its refund order did not change the sellers’ agreement because they themselves incorporated the soft offer cap order.

“The Commission’s argument fails for a simple reason: Even assuming that the soft-cap order was incorporated into the sellers’ tariffs and contracts, the Commission did not substitute Mobile Sierra presumption in the soft-cap order itself, and so that the presumption continues to apply to the sellers’ agreement,” the court said.

In its ruling, the court did not address arguments by the California Public Utilities Commission and Southern California Edison that FERC failed to properly calculate the refunds, saying the issue was moot.

Former FERC Commissioner James Danly distanced himself from the decisions. “I would apply Mobile Sierra presumption for the current contract sale and not require TransAlta … to pay refunds for the ‘premium’ amount above the price index freely negotiated by TransAlta and the willing purchasers because it has not been shown that the public interest is seriously harmed by contract interest,” said he i a decision.

Court rejects Duke’s upgrade cost challenge

In a separate decision Tuesday, the D.C. Circuit upheld the FERC order requires Duke Energy Progress to reimburse two renewable energy developers for the cost of making grid upgrades needed to bring their projects online.

Under FERC’s interconnection rules, generators pay for initial upgrade costs, but they are reimbursed by the transmission provider. The dispute centered on whether the compensation claim applies to upgrades that an “affected system operator” – a neighboring transmission supplier not directly connected to the generator interconnection – must make.

Duke argued that it was not necessary to reimburse Invenergy and BayWa’s affiliates for the $20 million to $30 million in grid upgrades needed to bring a solar project online in neighboring PJM Interconnection territory in North Carolina.

However, the court found that FERC reasonably interpreted its interconnection requirements in its decisions.

Among other things, the court dismissed Duke’s argument that its customers would not benefit from the upgrades, saying the utility failed to raise that issue at FERC.

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