On May 19, 2017, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) issued a decision in which it held in part that FERC erred by determining that it lacked authority under the Federal Power Act (“FPA”) to order a non-jurisdictional entity to repay refunds that it should not have received.  The D.C. Circuit made clear that although the FPA prohibits FERC from ordering a non-jurisdictional entity to provide a refund to another entity, FPA Section 309 vests FERC with broad remedial authority, including authority to grant recoupment when it is justified and FERC otherwise has jurisdiction over the disputed funds.

This decision is the latest iteration in a challenge that has gone back and forth between FERC and the D.C. Circuit.  Prior to 2005, Chehalis Power Generating, L.P., (“Chehalis”), an electric generating facility, provided free reactive power to the Bonneville Power Administration (“Bonneville”).  Bonneville is a federal agency within the Department of Energy and the owner and operator of a significant portion of the electric transmission system in the Pacific Northwest.  In May 2005, Chehalis filed a proposed “initial” rate with FERC that would allow Chehalis to charge Bonneville for its reactive power services for the first time.  As relevant to the D.C. Circuit’s recent opinion, FERC concluded that Chehalis’s proposed rates constituted a “changed” rate that was “unjust and unreasonable” in violation of the FPA.  Because FERC’s refund authority applies to “changed” rates rather than “initial” rates, FERC ordered Chehalis to refund a portion of the revenues, approximately $2 million, back to Bonneville.

The classification of the filing as an “initial” or “changed” rate was litigated before FERC, the D.C. Circuit, and again before FERC on remand, and just as the D.C. Circuit was about to take up the matter again, FERC requested a voluntary remand to reconsider whether its refund order was appropriate.  In October 2013, FERC reiterated a previous holding that, even though Chehalis provided reactive power to Bonneville for free before 2005, it should have nonetheless filed a rate to that effect, rendering its 2005 proposed rate a “changed” rate.  However, FERC noted, because precedent on that point was unclear, FERC reasoned that its decision should apply to Chehalis prospectively, and not retroactively.  As such, FERC stated “it would be appropriate for Chehalis to recover the amounts previously refunded to [Bonneville], with interest.”

In a subsequent order, FERC reaffirmed the appropriateness of recoupment, but stated that it lacked the authority to order such relief because its FPA Section 205 refund authority did not extend to non-jurisdictional entities like Bonneville.  Chehalis’s corporate parent, TNA Merchant Projects, Inc., petitioned the D.C. Circuit for review of FERC’s orders.

On review, the D.C. Circuit acknowledged FERC’s limitations regarding non-jurisdictional entities like Bonneville because FPA Section 201(f) exempts them from much of FERC’s authority, particularly FERC’s Section 205 “just and reasonable” and refund authority.  As the court noted, “[t]he case law is clear that § 205, when read in conjunction with § 201(f), bars FERC from ordering a non-jurisdictional entity to provide a refund to another entity.”  However, the D.C. Circuit continued, it did not follow that FERC was similarly barred from granting a “recoupment” of an inappropriately-ordered refund.

The court noted that FPA Section 309 provides FERC with broad remedial authority when FERC otherwise has jurisdiction over a subject matter.  Because FERC had jurisdiction over the money that it ordered Chehalis to pay Bonneville as a refund in its earlier order, the court concluded that FERC retained such jurisdiction to order Bonneville to return the funds when FERC later determined that its initial refund order was mistaken.

The D.C. Circuit upheld FERC’s determination that recoupment of the money was appropriate for Chehalis, but reversed FERC’s determination that it lacked authority to order such relief.  The court remanded the case back to FERC to consider how it should apportion its recoupment order, since, despite considering the equities of the case, nothing less than full recoupment was considered.

The D.C. Circuit’s opinion can be found here.