Summary
The D.C. Circuit upheld FERC’s determination that NorthWestern Corporation’s proposed Schedule 3 rate for regulation service was not just and reasonable. The court affirmed FERC’s adjustments to the rate calculation, its treatment of fuel and outage-related costs, and its order requiring NorthWestern to refund over-collections to Schedule 3 customers. The court concluded that FERC’s decision was reasonable and reasonably explained under the Administrative Procedure Act.
Topics
Practice areas
Questions Presented
- Whether FERC reasonably excluded regulation-down capacity from the numerator of NorthWestern's proposed cost-calculation ratio.
- Whether FERC reasonably used the Gates Station's 150-megawatt nameplate capacity as the denominator of the cost-calculation ratio.
- Whether FERC adequately explained its refusal to permit recovery of fuel costs under Schedule 3.
- Whether FERC reasonably required separate Section 205 filings for recovery of costs associated with the 2012 outage and any future outages.
- Whether FERC reasonably classified NorthWestern's proposed rate as an over-collection warranting refunds rather than merely a cost-allocation dispute.
Holdings
- FERC reasonably excluded the megawatts associated with regulation-down capacity from the numerator of NorthWestern's proposed cost-calculation ratio because NorthWestern failed to demonstrate that Schedule 3 customers should bear those costs or that the costs could not be recovered through other means.
- FERC reasonably used the Gates Station's 150-megawatt nameplate capacity as the denominator of the cost-calculation ratio.
- FERC reasonably rejected NorthWestern's proposal to recover fuel costs under Schedule 3 rather than Schedule 4.
- FERC reasonably required NorthWestern to make separate Section 205 filings to recover costs associated with the 2012 outage and any future purchased regulation service during outages.
- FERC reasonably treated NorthWestern's proposed Schedule 3 rate as an over-collection from Schedule 3 customers and ordered refunds.
Key quotations
“The arbitrary and capricious standard requires that an agency's decision be reasonable and reasonably explained.” (1179)
“NorthWestern therefore had to justify its entire revised and redesigned rate, including all of the rate's components, as FERC explained.” (1183)
“Because FERC concluded that NorthWestern's proposed Schedule 3 rate was too high, FERC naturally also concluded that NorthWestern had overcharged, and therefore over-collected from, its Schedule 3 customers.” (1185)
Factual background
NorthWestern previously purchased 60 megawatts of regulation service from other utilities and passed those costs through to customers. It later built the 150-megawatt Dave Gates Generating Station and proposed a revised Schedule 3 rate based on recovering a proportion of the station's revenue requirement, along with fuel and outage-related costs. FERC reduced the rate, required separate filings for certain outage costs, and ordered refunds after finding that NorthWestern's proposed rate was not just and reasonable.
Procedural history
NorthWestern filed a proposed revised Schedule 3 rate under Section 205 of the Federal Power Act to recover costs associated with its Gates Generating Station. An administrative law judge found several components of the proposed rate unjust and unreasonable, and FERC affirmed, ordered refunds, and denied rehearing. NorthWestern then timely petitioned the D.C. Circuit for review under the Administrative Procedure Act.