On June 8, 2018, the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) upheld FERC’s re-examination of an order regarding the effective rate for network upgrades in an Interconnection Agreement (“IA”) with the PJM Interconnection, L.L.C. (“PJM”).  A power developer, West Deptford Energy, LLC (“West Deptford”), requested interconnection with PJM.  After the negotiations for the IA commenced, PJM’s effective rate changed, triggering a dispute between the parties as to the appropriate effective rate for the IA: the rate in effect at the start of negotiations or the rate in effect at the time the IA was completed. The D.C. Circuit agreed with FERC’s finding that the governing rate is the rate in effect at the time the IA was completed.

In 2006, West Deptford requested interconnection with PJM.  At that time, PJM’s Open Access Transmission Tariff (“Tariff”) enabled PJM to seek reimbursement for a previously constructed network upgrade from a new applicant for interconnection, if the proposed project met certain criteria.   While West Deptford’s request was still pending, in August 2008, FERC accepted changes to PJM’s Tariff, limiting the period in which PJM could seek reimbursement for previously constructed network upgrades to a period of five years from the execution date of the IA for the project that initially necessitated the upgrade.  In 2011, PJM provided West Deptford with an IA that required West Deptford to pay the full cost of the upgrade, pursuant to the terms of the Tariff in effective at the time that the IA was first requested.  West Deptford protested FERC’s decision and argued that application of old Tariff terms violated both the filed rate doctrine and FERC’s prior precedent which enforced use of the Tariff terms at the time of IA execution or filing.

In 2011, FERC issued an order rejecting West Deptford’s protest and found that the old Tariff terms governed since they were in effect in 2006 when West Deptford submitted its interconnection request.  West Deptford filed for rehearing and FERC denied the rehearing request.  On appeal, the D.C. Circuit vacated FERC’s order upon finding that FERC did not provide a reasoned explanation for its departure from prior precedent.  On remand, FERC reversed its prior position and concluded that currently effective Tariff provisions would determine West Deptford’s responsibility to pay for the network upgrade.  FERC stated that: (1) it was not sufficiently clear that West Deptford had sufficient notice that older terms would govern its IA, and (2) the new terms were “plainly prospective.”  Several generators appealed FERC’s decision to the D.C. Circuit and argued that FERC’s decision was arbitrary and capricious because the Commission failed to justify why it concluded that West Deptford’s payments should be calculated under PJM’s revised cost allocation rule.

On review for the second time, the D.C. Circuit upheld FERC’s determination.  The D.C. Circuit agreed with FERC’s assessment and upheld FERC’s determination that date the IA is executed is the proper date for determining cost responsibility in an IA.  The D.C. Circuit found FERC reasonably supported its determination.

A copy of the D.C. Circuit opinion is available here.