On June 21, 2017, the United States Circuit Court of Appeals for the Sixth Circuit (“Sixth Circuit”) upheld FERC’s determination that American Transmission Systems (“ATS”) and Duke Energy Ohio, Inc. (“Duke”) are not required to pay for projects that the Midcontinent Independent System Operator, Inc. (“MISO”) approved after ATS and Duke announced separately that they would be withdrawing from MISO, but prior to their actual departures.

ATS and Duke announced their withdrawals from MISO in July 2009 and May 2010 respectively.  Under Article Five of MISO’s Tariff, a utility cannot withdraw from MISO any earlier than the last day of the year following the year it gives notice.  Accordingly, ATS was not eligible for official withdrawal from MISO until December 31, 2010, and Duke was not eligible until December 31, 2011.

During the interim period between ATS and Duke announcing their withdrawals and their respective actual withdrawal dates, MISO authorized some network expansion projects referred to as Multi-Value Projects in the MISO Tariff.  MISO also proposed a new provision to its Tariff (“Schedule 39”), which provided that ex-members could be charged for the costs of Multi-Value Projects approved before their departure.  FERC issued an order on Schedule 39 holding that MISO could only apply Schedule 39 to ATS and Duke to the extent it was consistent with their preexisting obligations under the MISO Tariff.  At the time ATS and Duke announced their withdrawals from MISO, the Tariff stated that “a Party that withdraws from [MISO] shall remain responsible for all financial obligations incurred pursuant to the Tariff while a Member.”  FERC thus determined that the filed-rate doctrine and the rule against retroactive ratemaking prevented MISO from using Schedule 39 to charge ATS and Duke for the Multi-Value Projects.  A group of MISO transmission owners appealed FERC’s decision in Sixth Circuit.

The Sixth Circuit agreed with FERC.  The Sixth Circuit emphasized language in the MISO Tariff that provides for allocation of Multi-Value Project costs based on “annual revenue requirements” to MISO transmission owners that “withdraw energy” from the system.  The Sixth Circuit reasoned that: (1) there would be no revenue requirements to allocate to ATS or Duke because both would be withdrawn from MISO prior to commencing construction on the Multi-Value Projects; and (2) ATS and Duke would no longer “withdraw energy” from MISO after departure.  The Sixth circuit thus concluded that ATS and Duke did not incur financial obligations related to the Multi-Value Projects prior to withdrawal.

The Sixth Circuit opinion is available here.