On May 3, 2023, a divided FERC voted 3-1 to deny a widely-supported complaint by multiple utilities in the Southwest Power Pool (“SPP”) region arguing that the absence of the new 15% generation Planning Reserve Margin (“Reserve Margin”) from the SPP tariff rendered that tariff unjust and unreasonable. The Reserve Margin dictates exactly how much electric generating capacity load-serving utilities must own or have under contract to serve customers. The complaining utilities argued that customers in SPP could be harmed by the costs associated with the rapid increase in the Reserve Margin with little corresponding reliability benefit and asked FERC to keep closer tabs on the process. The utilities’ request for additional FERC oversight was opposed only by SPP itself. As a result of the decision, SPP is free to change the Reserve Margin without any oversight by FERC or approval by a single state commission. FERC further held that a complaint alleging that a key rate is missing from a tariff in violation of section 205 of the Federal Power Act and the Commission’s Rule of Reason fails to state a claim upon which relief could be granted.
Under FPA section 205, the filed rate doctrine, and the Commission’s “Rule of Reason,” a rate, term, or condition of wholesale service that significantly impacts wholesale rates “must” be stated in the tariff of the applicable utility (here, SPP). A recent decision by SPP to increase the Reserve Margin highlighted the consequences of its absence from the SPP tariff and compelled the complaining utilities to ask FERC to directly oversee both the level of the Reserve Margin and the schedule for any changes to it. FERC’s decision conceded that the Reserve Margin has a direct impact on wholesale rates, but nonetheless refused to order that the 15% value be included in the SPP Tariff. FERC reasoned that the tariff already contains a sufficient level of detail on the process for conducting a study that serves as an input to a Reserve Margin determination. While SPP’s “Regional State Committee” has advisory input on the Reserve Margin, FERC acknowledged this was a federal issue and did not base its decision on any role the states may play.
Before addressing the merits of the complaint, FERC held – in what appears to be a first of its kind holding – that a complaint that a key rate or term of service has been omitted from a tariff may not be actionable under FPA section 206. While ruling on the specific facts of the case, FERC held that the complaint’s allegation that a key rate or term is missing from the tariff must necessarily be rejected “for failing to state a claim upon which relief can be granted.” FERC argued that to grant Complainants’ requested relief “would go beyond merely adding new details about SPP’s existing process, which is a common remedy to a rule of reason claim” and “would establish an altogether different type of rate than the one currently on file.” The Commission’s holding appears to raise questions about whether it will entertain Rule of Reason grievances under section 206, and whether utilities or their customers have standing to argue that a key wholesale rate is left out of a FERC-jurisdictional RTO tariff in violation of the filed rate doctrine and Rule of Reason.
FERC Commissioner James Danly dissented from the decision, arguing in part that, “[c]lear and unambiguous tariff provisions are essential to provide ratepayer protection, right wrongs, and provide relief from (the now, seemingly, inevitable) failures that arise when administrating regional transmission organization (RTOs) tariffs.”
A copy of FERC’s order in Docket No. EL23-40-000 can be found here. Troutman Pepper represented some of the complainants in the case.