On July 14, 2017, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) vacated in part the Federal Energy Regulatory Commission’s (“FERC”) orders approving a Joint Dispatch Agreement (“JDA”) between Duke Energy Carolinas, LLC (“Duke”) and Progress Energy Carolinas, Inc. (“Progress”).  Specifically, the D.C. Circuit found that FERC failed to articulate a satisfactory explanation for approving the provisions of the JDA that provide for disparate treatment of wholesale ratepayers.  As discussed below, the D.C. Circuit remanded the matter to FERC, directing it to reconsider the relevant JDA provisions and provide a reasoned explanation for its approval of the JDA.

Previously, Duke and Progress were required by the North Carolina Utilities Commission (“NCUC”) to enter into the JDA as a condition of their 2011 merger. The JDA provisions at issue distinguished between native-load and non-native-load customers, and provided that only native-load customers would be entitled to the most reliable and lowest cost power.  Additionally, as a condition of a previous merger involving Duke, the NCUC had already reserved the right to decide for itself whether to recognize a Duke customer’s native load status as it pertained to retail ratemaking, accounting and reporting.

The City of Orangeburg, South Carolina (“Orangeburg”), a prospective Duke wholesale energy customer, appealed FERC’s approval of the JDA.  Orangeburg, which had been denied recognition as a native load customer by NCUC in 2008, argued that NCUC’s regulatory regime implemented by the JDA resulted in a usurpation of FERC’s exclusive jurisdiction over wholesale power sales.  Orangeburg argued further that the JDA would “arbitrarily divide Duke’s and [Progress]’s wholesale sales into native load and non-native load categories and permit [NCUC] to decide which wholesale customers fall into each category,” thus enabling Duke, Progress, and NCUC to unduly discriminate against wholesale customers.

FERC raised two arguments in response to Orangeburg’s appeal.  First, FERC argued that Orangeburg lacked standing to appeal FERC’s order approving the JDA.  Second, FERC argued that the allocation of the lowest cost energy under the JDA to the native load customers is not unduly discriminatory because Order No. 2000 acknowledges the authority of state commissions to “require a utility to sell its lowest cost power to native load.”

The D.C. Circuit rejected both of FERC’s arguments.  First, the D.C. Circuit found that Orangeburg had standing because FERC’s approval of the JDA caused Orangeburg to suffer the lost opportunity of purchasing wholesale power on its desired terms, and the resulting injury can be redressed by vacation of the FERC order.  Second, as to the merits of Orangeburg’s petition, the D.C. Circuit found that FERC’s reliance on Order No. 2000 was insufficient to provide a justified explanation for approving a JDA that applied disparate treatment to wholesale customers.  Specifically, the D.C. Circuit found that FERC’s interpretation of Order No. 2000 erroneously suggests that NCUC has authority to regulate interstate wholesale power sales, which is the exclusive jurisdiction of FERC.  The D.C. Circuit found that FERC failed to “articulate a satisfactory explanation for its action,” and therefore remanded the proceeding to FERC for further explanation of its approval of the JDA.

The D.C. Circuit opinion is available here.