ELR Citation: ELR 20103
No(s). 06-1426 (D.C. Cir. May 8, 2009)

The D.C. Circuit denied a petition challenging the Federal Energy Regulatory Commission 's (FERC's) approval of the Electric Reliability Organization's (ERO's) method for allocating costs based on net energy for load. The ERO was created under §215 of the Federal Power Act to establish and enforce electric reliability standards for the nation’s bulk-power system. The ERO's proposed method for distributing costs among customers of electric energy is based on net energy for load, which allocates costs on the basis of energy consumption alone. A petitioner argued that the proposed method departs from FERC's traditional two-part transmission rate precedent and would inequitably distribute the ERO's costs among electric energy customers. The petitioner sought a cost allocation method that, like FERC's traditional transmission rate structure, is composed of a demand charge and an energy charge. The demand component, which incorporates the capacity costs of generation, reflects the fixed investment that load-serving entities must make in order to meet peak customer demand. The energy component incorporates the variable costs of operating and generating electric power. However, FERC determined that the ERO's proposed method equitably allocates its costs among electric energy users. Given the highly deferential standard of review for matters of ratemaking, FERC's decision was neither arbitrary nor capricious under the Administrative Procedure Act. And FERC adequately explained any departure from its transmission rate precedent.