IN THE UNITED STATES COURT OF . - Southwest Power Pool

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 15 of 62GLOSSARY OF ABBREVIATIONSTerm /AbbreviationDefinitionAECIAssociated Electric Cooperative, Inc.APSCArkansas Public Service CommissionCIGColorado Interstate Gas Co. v. FERC, 599F.3d 698, 701 (D.C. Cir. 2010)Commission or FERCFederal Energy Regulatory CommissionESAEntergy System AgreementFPAFederal Power ActInitial OrderMidwest Independent Transmission SystemOperator, Inc., 136 FERC ¶ 61,010 (2011)(R.73, JA )JOAJoint Operating Agreement between MISOand SPPMISOMidwest Independent Transmission SystemOperator, Inc.MISO-PJM JOAJoint Operating Agreement between MISOand PJMMallinger Aff.Affidavit of Thomas J. Mallinger on Behalfof the Midwest Independent TransmissionSystem Operator, Inc. (R.1, JA )Monroe Aff.SPP Protest at Exhibit A, Affidavit of CarlA. Monroe on Behalf of Southwest PowerPool, Inc. (R.41, JA )NAESBNorth American Energy Standards BoardNERCNorth American Electric ReliabilityCorporationxiv

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 16 of 62OATT or tariffOpen Access Transmission TariffOrder No. 888Promoting Wholesale Competition ThroughOpenAccessNon-DiscriminatoryTransmission Services by Public Utilities;Recovery of Stranded Costs by PublicUtilities and Transmitting Utilities, OrderNo. 888, 1991-1996 FERC Stats. & Regs.,Regs. Preambles ¶ 31,036 (1996), order onreh’g, Order No. 888-A, 1996-2000 FERCStats. & Regs., Regs. Preambles ¶ 31,048,order on reh’g, Order No. 888-B, 81 FERC¶ 61,248 (1997), reh’g denied, Order No.888-C, 82 FERC ¶ 61,046 (1998), aff’d inpart and remanded in part sub nom.Transmission Access Policy Study Group v.FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’dsub nom. New York v. FERC, 535 U.S. 1(2002)Order No. 890Preventing Undue Discrimination andPreference in Transmission Service, OrderNo. 890, 2006-2007 FERC Stats. & Regs.,Regs. Preambles ¶ 31,241, order on reh’g,Order No. 890-A, 2006-2007 FERC Stats. &Regs., Regs. Preambles ¶ 31,261 (2007),order on reh’g and clarification, Order No.890-B, 123 FERC ¶ 61,299 (2008), order onreh’g and clarification, Order No. 890-C,126 FERC ¶ 61,228 (2009), order onclarification, Order No. 890-D, 129 FERC ¶61,126 (2009).Order No. 2000 andOrder No. 2000-ARegionalTransmissionOrganizations,Order No. 2000, 1996-2000 FERC Stats. &Regs., Regs. Preambles ¶ 31,089 (1999),order on reh’g, Order No. 2000-A, 19962000 FERC Stats. & Regs., Regs. Preambles¶ 31,092 (2000), petitions for reviewxv

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 17 of 62dismissed sub nom. Pub. Util. Dist. No. 1 v.FERC, 272 F.3d 607 (D.C. Cir. 2001)PetitionMISO’s Petition for Declaratory Order (R.1,JA )PJMPJM Interconnection, L.L.C.Rehearing OrderMidwest Independent Transmission SystemOperator, Inc., 138 FERC ¶ 61,055 (2012)(R.84, JA )RTOsRegional transmission organizationsSPPSouthwest Power Pool, Inc.SPP ProtestMotion to Intervene and Protest ofSouthwest Power Pool, Inc., Docket No.EL11-34-000 (May 9, 2011) (R.41, JA )SPP Rehearing RequestRequest for Rehearing or, in the Alternative,Clarification of Southwest Power Pool, Inc.,Docket No. EL11-34-000 (Aug. 1, 2011)(R.77, JA )xvi

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 18 of 62JURISDICTIONAL STATEMENTIn the orders under review, the Federal Energy Regulatory Commission(“Commission” or “FERC”) granted the Midwest Independent TransmissionSystem Operator, Inc.’s (“MISO”) Petition for Declaratory Order (“Petition”)concerning the interpretation of section 5.2 of the Joint Operating Agreement(“JOA”) between MISO and Southwest Power Pool, Inc. (“SPP”). The JOA is afiled rate schedule of both MISO and SPP, bearing the designations “Midwest ISOSecond Revised Rate Schedule FERC No. 6” and “Southwest Power Pool, Inc.,Second Revised Rate Schedule FERC No. 9,” respectively. Terms and conditionsof the JOA, including any proposed changes thereto, are subject to the FERC’sjurisdiction under the Federal Power Act (“FPA”). See 16 U.S.C. §§ 824d and824e.The Commission issued an order granting MISO’s Petition on July 1, 2011.Midwest Independent Transmission System Operator, Inc., 136 FERC ¶ 61,010(2011) (“Initial Order”) (R.73, JA ). In accordance with section 313(a) of theFPA, SPP timely sought rehearing of the Initial Order. 16 U.S.C. § 825l(a). OnJanuary 26, 2012, the Commission denied rehearing. Midwest IndependentTransmission System Operator, Inc., 138 FERC ¶ 61,055 (2012) (“RehearingOrder”) (R.84, JA ). SPP timely filed a petition for review with this Courtpursuant to section 313(b) of the FPA. 16 U.S.C. § 825l(b). The orders under1

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 19 of 62review are final orders and, therefore, this Court has jurisdiction pursuant tosection 313(b) of the FPA. Id.2

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 20 of 62APPLICABLE STANDARDS OF REVIEWThe Administrative Procedure Act, 5 U.S.C. § 706(2)(A), provides thatagency actions are unlawful if they are “arbitrary, capricious, an abuse ofdiscretion, or otherwise not in accordance with law.” Application of this standardrequires that an agency’s decision be set aside if it lacks a coherent and rationalconnection between the facts found and the choices made. Fla. Gas TransmissionCo. v. FERC, 604 F.3d 636, 639 (D.C. Cir. 2010).Further, an agency actsarbitrarily and capriciously when it “ignores important arguments or evidence,”Natural Resources Defense Council v. EPA, 822 F.2d 104, 111 (D.C. Cir. 1987),fails to address all material issues of fact or law presented on the record, 5 U.S.C. §557(c), or offers no explanation “why it rejected evidence that is contrary to itsfindings.” Carpenters & Millwrights v. National Labor Relations Board, 481 F.3d804, 809 (D.C. Cir. 2007). Factual findings by an agency are conclusive “if, butonly if, they are ‘supported by substantial evidence’ in the record.” Mo. Pub. Serv.Comm. v. FERC, 337 F.3d 1066, 1070 (D.C. Cir. 2003) (citing 15 U.S.C.§ 717r(b)) (emphasis added); see also Federal Power Act, § 313(b), 16 U.S.C.§ 825l(b).An agency order that does not respond to serious and legitimateobjections cannot be said to be the product of reasoned decision-making. See, e.g.,PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005).3

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 21 of 62STATEMENT OF ISSUES1.Whether the Commission’s interpretation of section 5.2 of the JOAbetween MISO and SPP, to allow MISO to use SPP’s transmission system to provideservice to MISO’s own internal loads, was arbitrary and capricious and not theproduct of reasoned decision-making.2.Whether the Commission’s reliance on “course of performance”evidence consisting of a single past use of section 5.2 that SPP showed to beconsistent with SPP’s, not MISO’s, interpretation of the JOA rendered theCommission’s decision in favor of MISO arbitrary and capricious, not the product ofreasoned decision-making, and unsupported by substantial evidence in the record.3.Whether the Commission’s refusal to consider SPP’s extrinsic evidenceregarding common industry usage of the term “contract path” used in the JOA andthe negotiating intentions of SPP was arbitrary and capricious and not the product ofreasoned decision-making.4.Whether the Commission’s finding that the “context” of section 5.2supported MISO’s interpretation, not SPP’s, was arbitrary and capricious, not theproduct of reasoned decision-making, and unsupported by substantial evidence in therecord.5.Whether the Commission’s finding that SPP’s proposed interpretationof section 5.2 would mean that the provision only benefitted third parties when it in4

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 22 of 62fact would enable the parties to the JOA to make purchases from, and sales to, others,rendering its decision arbitrary and capricious, not the product of reasoned decisionmaking, and unsupported by substantial evidence in the record.6.Whether the Commission’s refusal to conduct a hearing or otherinvestigation to consider the extrinsic evidence of the meaning of section 5.2 of theJOA, including the common industry usage of the term “contract path,” the parties’intentions in negotiating the JOA, and the parties’ course of conduct, was arbitraryand capricious and not the product of reasoned decision-making.STATUTES AND REGULATIONSThe relevant statutory provisions are reproduced in a separate addendumbound with this brief, as permitted by D.C. Circuit Rule 28(a)(5).STATEMENT OF THE CASEBoth MISO and SPP operate as FERC-approved regional transmissionorganizations (“RTOs”), pursuant to Order No. 2000.1 In Order No. 2000, FERCencouraged the formation of RTOs as a way to promote greater competition withinthe electric industry. To that end, vertically integrated utilities ceded functional1Regional Transmission Organizations, Order No. 2000, 1996-2000 FERCStats. & Regs., Regs. Preambles ¶ 31,089 (1999), order on reh’g, Order No.2000-A, 1996-2000 FERC Stats. & Regs., Regs. Preambles ¶ 31,092,(2000), petitions for review dismissed sub nom. Pub. Util. Dist. No. 1 v.FERC, 272 F.3d 607 (D.C. Cir. 2001).5

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 23 of 62control of their transmission assets to independent RTOs, who were then tomanage and operate these assets on a regional basis.Utilities that join an RTO are commonly referred to as “transmission-owningmembers” of the RTO. Their transmission assets, once control is ceded to theRTO, become embedded within the RTO’s footprint and operated on an integratedbasis as a single system pursuant to the RTO’s open-access transmission tariff(“OATT” or “tariff”).With the development of RTOs came the need for mechanisms andagreements to coordinate the provision of transmission services across andbetween RTO boundaries. Such regional boundaries exist not only between RTOs,but also between RTOs and the service territories of non-RTO electric utilities,often referred to as bordering “control areas” or “balancing authority” areas.22See Promoting Wholesale Competition Through Open Access NonDiscriminatory Transmission Services by Public Utilities; Recovery ofStranded Costs by Public Utilities and Transmitting Utilities, Order No. 888,1991-1996 FERC Stats. & Regs., Regs. Preambles ¶ 31,036, at 31,726-27(1996), order on reh’g, Order No. 888-A, 1996-2000 FERC Stats. & Regs.,Regs. Preambles ¶ 31,048, order on reh’g, Order No. 888-B, 81 FERC¶ 61,248 (1997), reh’g denied, Order No. 888-C, 82 FERC ¶ 61,046 (1998),aff’d in part and remanded in part sub nom. Transmission Access PolicyStudy Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. NewYork v. FERC, 535 U.S. 1 (2002); see also Order No. 2000 at 31,167; OrderNo. 2000-A at 31,382.6

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 24 of 62The JOA is a coordination agreement between two neighboring RTOs, SPPand MISO.It was designed primarily to promote the cooperative sharing ofreliability practices and data between SPP and MISO so that the respectivetransmission systems may be operated in a reliable manner.3 As part of thisagreement, the parties also provided, in section 5.2, for the shared use of eachother’s contract path transmission capacities when each of the RTOs has a“contract path to the same entity.”In May 2011, Entergy announced plans to join MISO. Entergy Arkansas,one of several Entergy operating subsidiaries, was the first to propose moving intoMISO. Entergy Arkansas had provided notice in 2005 that it would exit theEntergy System Agreement (“ESA”)4 effective December 31, 2013.The announcement to join MISO followed an order of the Arkansas PublicService Commission (“APSC”) requiring Entergy Arkansas to submit to the APSCsuccessor arrangements that would govern future operations. In connection withthe anticipated integration of Entergy Arkansas into MISO, Entergy and MISO3See Motion to Intervene and Protest of Southwest Power Pool, Inc., DocketNo. EL11-34-000, at Exhibit A, Affidavit of Carl A. Monroe on Behalf ofSouthwest Power Pool, Inc. ¶ 18 (May 9, 2011) (“SPP Protest” and “MonroeAff.”) (R.41, JA ); see also Sw. Power Pool, Inc., 106 FERC ¶ 61,110, atP 203 (2004).4The ESA provides for the joint planning and operation of all Entergyoperating companies across the Entergy system. See Initial Order at P 2(R.73, JA ).7

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 25 of 62publicly proposed to use SPP’s system to enable power to flow to this new, internalportion of MISO. When SPP made clear that it did not agree that the “contractpath” provision under section 5.2 permitted the use contemplated by MISO andEntergy, MISO filed the Petition.The negotiation of the section 5.2 contract path capacity sharing provisionoccurred in 2004 – i.e., seven years before Entergy Arkansas and MISO announcedtheir integration plans. Therefore, the parties could not have had in mind thespecific facts posited in MISO’s Petition or MISO’s planned use of section 5.2 tointegrate a distant utility system with which MISO is weakly interconnected as anew portion of the internal system of MISO. Whether, in fact, section 5.2 can berelied upon in the manner urged by MISO lies at the core of the instant dispute.MISO’s contention, which the Commission accepted in the orders underreview, is that section 5.2 may be invoked to allow MISO to use SPP’s system toreach and serve the new load that will be internal to MISO following the plannedintegration of Entergy Arkansas. MISO would serve its expanded system,including Entergy Arkansas’s remote load which will become part of that system,using SPP’s transmission capacity and interconnections with Entergy Arkansas.In contrast, SPP contends that section 5.2 has never been applied in themanner urged by MISO and accepted by the Commission. In SPP’s view, section5.2’s reference to the parties’ “contract paths to the same entity” logically applies8

USCA Case #12-1158Document #1397716Filed: 10/02/2012Page 26 of 62only when SPP and MISO both have contract paths to the same third party entity.The provision enables MISO and SPP to deal with third parties – for purchases andsales – sharing each other’s contract path capacity to do so. Under SPP’sinterpretation, following Entergy Arkansas becoming an embedded part of theinternal MISO system, MISO will not have a “contract path to” Entergy Arkansaswithin the meaning of section 5.2, because Entergy Arkansas will not be a thirdparty and MISO cannot have a contract path “to” itself. Entergy Arkansas will bepart of MISO. Sec

Oct 02, 2012 · South Mississippi Electric Power Association Southwest Power Pool, Inc. Southwestern Power Administration Southwestern Power Resources Association Sunflower Electric Power Corporation and Mid-Kansas Electric Company, LLC Tennessee Valley Authority The Detroit Edison Company The Empire District Electric