The Federal Energy Regulatory Commission recently ruled that it lacks authority to waive tariff restrictions against retroactive adjustment of transmission service charges in order to enable a transmission provider to recover transmission upgrade costs from customers that benefit from such upgrades. In so doing, the FERC reversed an earlier decision in which it had granted such a waiver. Southwest Power Pool, Inc., 166 FERC ¶ 61,160 (2019).

FERC Initially Waived Tariff Restriction on Retroactive Bill Adjustment

Pursuant to the Open Access Transmission Tariff of the Southwest Power Pool, the costs of certain transmission network upgrades may be assigned directly to a customer whose transmission service request causes the network upgrade to be built (the sponsor). However, the sponsor may be entitled to revenue credits to offset such directly-assigned costs. Such revenue credits are funded by and recoverable from transmission customers taking new transmission service from SPP that could not have been provided but for the network upgrades in question. Under the Tariff, SPP collects credit payment obligations from new transmission service customers and disburses revenue credits to the sponsors until the amount of directly assigned costs has been reduced to zero.

Tariff sheets providing for direct assignment of transmission network upgrade costs and for associated revenue crediting were added to the Tariff by SPP in 2008. Nevertheless, for a variety of reasons, it was not until November 2016 that SPP began to collect the credit payment obligations from transmission customers and distribute those obligations to entitled upgrade sponsors.

In general, the Tariff requires adjustments to transmission service bills rendered by SPP to be made “within one year after rendition of the bill reflecting the actual data for such service.” Because SPP had not collected and remitted credit payment obligations prior to 2016 (other than in limited cases), SPP sought a waiver of the time limits on retroactive adjustment of transmission service bills so that it could bill responsible transmission customers from the date of the first impact on directly assigned upgrade costs and “claw back” revenues that were previously distributed to transmission owners. This waiver was granted by the FERC in July 2016.  Southwest Power Pool, 156 FERC ¶ 61,020 (2016) (the Waiver Order).

FERC Changed Its Decision After Ruling By Court of Appeals in Unrelated Case

Following the issuance of an order denying rehearing, the Waiver Order was appealed to the U.S. Court of Appeals for the D. C. Circuit. While this appeal was pending, the Court affirmed a FERC ruling in an unrelated proceeding that Section 205 of the Federal Power Act bars the waiver of tariff limitations restricting retroactive adjustment of transmission service bills. Old Dominion Electric Coop. v. FERC, 892 F. 3d 1223 (DC Cir. 2018). Based on that ruling, the FERC sought a voluntary remand of the Waiver Order so that it could reconsider its earlier decision to grant a waiver to SPP. On remand, the FERC reversed the Waiver Order and denied SPP’s request.

FERC Concluded That Waiver Is Precluded by The Filed Rate Doctrine

The Tariff provision imposing a one-year limitation on retroactive billing is deemed to be part of SPP’s filed rate schedule for transmission service. In its order denying the requested waiver, the FERC explained that it lacks statutory authority to waive the relevant provision because:

regulated utilities are forbidden to charge rates for services other than those on file with the Commission, a prohibition that has become known as the filed rate doctrine. The related rule against retroactive ratemaking also 'prohibits the Commission from adjusting current rates to make up for a utility’s over- or under-collection in prior periods.’

The FERC further explained that “enforcing a tariff provision that places a time limitation on the correction of invoices (e.g., a time bar provision) is consistent with the filed rate doctrine,” regardless of the potential consequences. Because adjustment of bills for transmission service by SPP more than one year after the bill for such service was rendered is barred by the Tariff, the FERC refused to consider equitable considerations weighing in favor of the requested waiver:

We need not reach arguments that denial of SPP’s waiver request will result in extra litigation, including SPP’s statement that it may have difficulties recovering the money already paid out. Because we find that [the Tariff restriction] is part of the filed rate and that waiver of that provision under the circumstances here would violate the filed rate doctrine, such equitable considerations do not bear on our determination. For the same reason, we need not reach any of the parties’ cost causation, contractual, tariff violation, or equitable arguments.

Commissioners Cheryl A. LaFleur and Richard Glick submitted separate concurring opinions in which they stated that although they believe the result of the FERC order was inequitable, they supported the order based on their understanding that the FERC lacks the requisite statutory authority to grant the waiver.

FERC Found That Customers Had No Prior Notice of Potential Rate Adjustment

The FERC recognized that although there may be a limit on the time during which bills for transmission service may be adjusted, that time limit is inapplicable if the affected ratepayers have sufficient notice at the time the original bill was rendered that the approved rate was subject to change. With specific regard to SPP, the FERC concluded that there was no evidence of any such notice to its transmission customers because (a) there was no prior agreement between SPP and the parties that were subject to the revenue crediting adjustment that their bills for transmission service might be adjusted at a later date, and (b) there was no pending judicial appeal that might have alerted parties to potential retroactive changes in the filed rate.

FERC Ordered Payment of Refunds To Remedy Its Error

In addition to reversing the Waiver Order and denying SPP’s request for waiver of specified Tariff provisions, the FERC ordered SPP to provide refunds, and to file a report detailing how it proposed to make the requisite refunds. The FERC did not specify how such refunds were to be calculated, but required the report to expand the record by providing detailed information affecting calculation of refunds, including “the amount of refunds of credit payment obligations paid and refunds of credit payment obligations received that each of the entities will receive for the historical period up to one year prior to the date SPP initially rendered bills to customers for credit payment obligations.” It therefore appears that the FERC may expect that SPP will recoup revenue credit payment obligations received by sponsors, thereby leaving all of the affected entities in the position they would have occupied if the waiver had never been granted.

RTOs/ISOs Urged To Consider Providing Greater Flexibility In Tariffs

In order to provide certainty to transmission service customers, many open access transmission tariffs contain limits on the time period during which bills for transmission service can be adjusted or corrected, similar to that in the Tariff. In a footnote to its order, the FERC contrasted the limitation against retroactive adjustment of bills in the Tariff with a provision in the New York Independent System Operator Inc.’s Market Administration and Control Area Services Tariff under which the FERC may order the reopening of an invoice after it is considered final, even if the RTO/ISO lacks the authority itself to adjust the bill.  See, e.g., GDF Suez Energy Resources, NA v. New York Independent System Operator, Inc., 149 FERC ¶ 61,257 (2014). Commissioners LaFleur and Glick encouraged RTOs/ISOs to consider adoption of language similar to that in the NYISO tariff to ensure that customers who benefit from transmission upgrades may be required to pay for them, and that upgrade sponsors can receive the funds to which they are otherwise entitled.