Verso Corp. v. Fed. Energy Regulatory Comm'n

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 6, 2018 Decided July 31, 2018

No. 15-1098

VERSO CORPORATION,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

MARQUETTE BOARD OF LIGHT AND POWER, ET AL.,

INTERVENORS

Consolidated with 16-1205, 16-1212, 16-1226, 16-1228,

16-1385, 16-1388, 16-1389, 16-1391, 16-1397, 16-1404

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

David W. D’Alessandro argued the cause for petitioner

Michigan Public Service Commission. William F. Demarest

Jr. argued the cause for petitioners Tilden Mining Company

L.C. and Empire Iron Mining Partnership. With them on the

joint briefs were Kelly A. Daly, M. Denyse Zosa, Steven A.

Neeley Jr., Sylvia J.S. Bartell, Lauren D. Donofrio, Assistant

Attorney General, Office of the Attorney General for the State

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of Michigan, Jennifer U. Heston, Saulius K. Mikalonis,

Christopher R. Jones, Elizabeth W. Whittle, Thomas J. Waters,

Christine C. Ryan, Phyllis G. Kimmel, Robert C. Fallon, and

Andrew B. Young. Steven D. Hughey, Assistant Attorney

General, Office of the Attorney General for the State of

Michigan, Francis A. Taylor Jr., and A. Hewitt Rose III,

entered appearances.

Holly E. Cafer, Senior Attorney, Federal Energy

Regulatory Commission, argued the cause for respondent.

With her on the brief were James P. Danly, General Counsel,

Robert H. Solomon, Solicitor, and Nicholas M. Gladd,

Attorney.

William L. Massey argued the cause for intervenor Public

Service Commission of Wisconsin. On the joint brief of

intervenors were Cynthia S. Bogorad, David E. Pomper, Rory

McGarry, Justin M. Vickers, Regina Y. Speed-Bost, and Debra

Ann Palmer.

Before: ROGERS, SRINIVASAN and WILKINS, Circuit

Judges.

Opinion for the Court filed by Circuit Judge WILKINS.

WILKINS, Circuit Judge: In Louisiana Public Service

Commission v. Federal Energy Regulatory Commission, this

Court affirmed FERC’s denial of refunds in a cost-allocation

case, upholding its discretion to deny refunds where a flaw in

rate design caused the costs to be borne disproportionately

among customers. See 883 F.3d 929 (D.C. Cir. Mar. 6, 2018).

This case presents a similar scenario with an opposite result:

here, after finding the rate-distribution methodology unjust and

unreasonable upon a Section 206 complaint, FERC ordered

refunds to customers who paid too much, funded by surcharges

3

on customers who paid too little. Petitioners – who were

subjected to surcharges – challenge FERC’s orders as violating

the filed-rate doctrine and the prohibition on retroactive rate

increases. They also argue that FERC’s decisions were

supported by insufficient evidence and that FERC’s reliance on

the evidence it did employ was arbitrary and capricious.

We conclude that the reallocation at issue here does not

constitute an impermissible retroactive rate increase. FERC

reasonably determined that the prior rate methodology was

unjust and unreasonable, and its reliance on certain evidence in

reaching this conclusion was appropriate. Having established

that the existing rate was unjust and unreasonable, and having

determined that a different methodology would comply with

cost-causation principles, FERC had authority to order refunds

and corresponding surcharges under Section 206 and its broad

remedial authority under Section 309. Accordingly, we deny

the Petitions for review.

I.

This case involves system support resource (“SSR”) costs

in the territory of the American Transmission Company

(“ATC”) under the Midcontinent Independent System

Operator, Inc. (“MISO”) Tariff. To ensure system stability,

MISO requires energy producers in its territory to notify MISO

prior to ceasing operation. MISO then evaluates the

importance of the would-be retired facility and may require

continued operation if necessary for the reliability of energy

supply. Such providers are designated SSRs, and they are

compensated for the cost of continued operation under SSR

agreements with MISO.

For most of the MISO service area, SSR costs have long

been shared by customers based on the load served. Midwest

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Indep. Transmission Sys. Operator, Inc. Pub. Utils. with

Grandfathered Agreements in the Midwest Iso Region, 108

FERC ¶ 61,163, ¶ 61,968, P 372 (Aug. 6, 2004). Under this

allocation methodology, each load-serving entity (“LSE”) pays

for the reliability resources in proportion to its reliability needs.

For the ATC area, however, the MISO Tariff allocated

SSR costs pro rata among all customers. See id. at P 368.

FERC originally approved the ATC pro rata allocation as part

of the separate tariff for ATC’s territory in Michigan’s Upper

Peninsula and Wisconsin. See Wis. Elec. Power Co. Am.

Transmission Co., LLC Madison Gas & Elec. Co. Wis. Pub.

Serv. Corp. Wis. Power & Light Co., 97 FERC ¶ 61,337,

¶ 62,582 & n.4 (Dec. 21, 2001). However, FERC incorporated

ATC into the MISO system around the same time that it

approved ATC’s SSR-cost-allocation methodology. See Am.

Transmission Co., LLC, 97 FERC ¶ 62,182, ¶ 64,269 (Nov. 28,

2001). The MISO Tariff continued the pro rata allocation

methodology for the ATC area after it became part of MISO.

Specifically, Section 38.2.7.k of the Tariff provided that “any

costs of operating an SSR Unit allocated to the footprint of

[ATC] shall be allocated to all LSEs within the footprint of

[ATC] on a pro rata basis.” See Midcontinent Indep. Sys.

Operator, Inc. Pub. Serv. Comm’n of Wis., 148 FERC

¶ 61,071, ¶ 61,443, P 12 (July 29, 2014) (“July 29, 2014

Order”). Only the ATC area was subject to such a specified

methodology: for the rest of the MISO area, the Tariff

provided only that reliability costs were allocated to the LSEs

“which require[] the operation” of reliability resources. Id. at

P 18. In other words, SSR costs for all non-ATC service areas

were allocated to the LSEs that actually benefited from the

reliability resources.

The instant Petitions arise from SSR agreements regarding

three facilities in the ATC service area. MISO filed the first

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SSR agreement using the ATC pro rata allocation in October

2012, for the continued operation of a City of Escanaba,

Michigan facility, which FERC accepted. See Midwest Indep.

Transmission Sys. Operator, Inc., 142 FERC ¶ 61,170,

¶ 61,812, P 11 (Mar. 4, 2013). In early 2014, MISO filed an

SSR agreement requiring the continued operation of a Presque

Isle facility located in Marquette, Michigan, with costs

allocated to customers pro rata. FERC accepted the proposed

Presque Isle SSR Agreement on April 1, 2014. Midcontinent

Indep. Sys. Operator, Inc., 147 FERC ¶ 61,004, ¶ 61,013, PP

5, 12 (Apr. 1, 2014). MISO also submitted an SSR agreement

regarding the continued operation of a White Pine Electric

Power, LLC unit, which FERC accepted on June 13, 2014.

Midcontinent Indep. Sys. Operator, Inc., 147 FERC ¶ 61,199,

¶ 62,114, PP 1, 3, 11 (June 13, 2014).

On April 3, 2014, two days after FERC accepted the

Presque Isle SSR Agreement, the Public Service Commission

of Wisconsin (“Wisconsin Commission” or “PSCW”) filed a

complaint under Section 206 of the Federal Power Act, 16

U.S.C. § 824e, to challenge the allocation of the Presque Isle

SSR costs as unjust and unreasonable. The Complaint relied

on a study that MISO conducted, at the request of stakeholders,

to assess which load-serving entities in the ATC footprint

actually benefited from the continued operation of the Presque

Isle facility. PSCW Complaint at 3 & n.8, FERC Docket No.

EL14-34-000 (Apr. 3, 2014). The preliminary load-shed

analysis showed that 42 percent of the benefiting load of the

Presque Isle facility was in Wisconsin; however, the MISO

Tariff assigned 92 percent of the SSR costs to Wisconsin

ratepayers based on the pro rata allocation methodology. Id. at

3-4.

On July 29, 2014, FERC granted the Wisconsin

Commission’s Complaint. See July 29, 2014 Order, 148 FERC

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¶ 61,071. FERC concluded that the Wisconsin Commission

“met its burden . . . to show that the ATC pro rata cost

allocation provision in MISO’s Tariff is unjust, unreasonable,

unduly discriminatory, or preferential because . . . it does not

follow cost causation principles.” Id. at P 59. Relying on the

preliminary load-shed study, FERC reasoned that the pro rata

allocation “would allocate 92 percent of the Presque Isle SSR

costs to LSEs located in Wisconsin even though . . . such LSEs

only receive 42 percent of the reliability benefit.” Id. at P 61.

This evidence “demonstrat[ed] that the methodology d[id] not

reflect a proper allocation of costs.” Id. FERC explained that

the “preliminary nature of the load-shed study” was not

problematic for its analysis because the data showed that “the

current ATC pro rata cost allocation [] bears little, if any,

relation to the benefits provided” from the reliability

agreement. Id.

By way of remedy, the July 29, 2014 Order directed MISO

to remove the pro rata provision from the Tariff, “thereby

extending to the ATC footprint the general SSR cost allocation

Tariff language, which requires MISO to allocate SSR costs to

‘the LSE(s) which require(s) the operation of the SSR Unit for

reliability purposes.’” July 29, 2014 Order, 148 FERC

¶ 61,071, P 66. FERC further determined that the assessment

encapsulated in the preliminary load-shed study was

appropriate, but required MISO to submit a final load-shed

study within 30 days. Id. Finally, and most critically for this

Petition, FERC ordered refunds to reallocate the SSR costs in

the ATC footprint dating from the filing of the Section 206

Complaint. Id. at P 68.

Within weeks, FERC also addressed the Escanaba and

White Pine SSR Agreements that similarly allocated costs on a

pro rata basis. See Midcontinent Indep. Sys. Operator, Inc.,

148 FERC ¶ 61,116, P 12 (Aug. 12, 2014) (“Escanaba Initial

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Order”); Midcontinent Indep. Sys. Operator, Inc., 148 FERC

¶ 61,136, P 7 (Aug. 21, 2014) (“White Pine Initial Order”).

FERC directed MISO to conduct load-shed studies and submit

revised proposals allocating the costs of continued operation of

each of these units in accordance with the results. Escanaba

Initial Order, 148 FERC ¶ 61,116, P 37; White Pine Initial

Order, 148 FERC ¶ 61,136, P 44. FERC also ordered refunds

dated to April 16, 2014, for White Pine and June 15, 2014, for

Escanaba. See Pub. Serv. Comm’n of Wis., 156 FERC

¶ 61,205, P 12 (Sept. 22, 2016) (“September 22, 2016 Order”).

MISO completed a second load-shed study as directed by

the July 29, 2014 Order and submitted compliance filings

regarding each of the three SSR facilities. Pub. Serv. Comm’n

of Wis., 150 FERC ¶ 61,104, PP 8-9, 12-13, 15-16 (Feb. 19,

2015) (“February 19, 2015 Order”). The second load-shed

study attributed approximately 86 percent of the SSR benefits

to Local Balancing Authorities (“LBAs”) located in Wisconsin.

See J.A. 984-85. These results were far closer to the original

allocation – where 92 percent of the costs were allocated to

Wisconsin customers – than were the results of the preliminary

load-shed study upon which the Wisconsin Commission

Complaint and the July 29, 2014 Order relied.

FERC reviewed the compliance filings, among other

proceedings, in an order dated February 19, 2015. See Pub.

Serv. Comm’n of Wis., 150 FERC ¶ 61,104. In the February

19, 2015 Order, FERC reaffirmed its prior finding that MISO’s

pro rata allocation of SSR costs in the ATC area was unjust,

unreasonable, unduly discriminatory, or preferential under

Section 206 of the Federal Power Act. Id. at P 2. During this

time, MISO divided one of the LBAs that spanned areas of

Michigan and Wisconsin to “provid[e] a more granular

identification of reliability events in the Wisconsin-Michigan

boundary area.” MISO Tariff Filing at 2, FERC Docket No.

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ER14-2952 (Sept. 26, 2014), J.A. 1163; see also Feb. 19, 2015

Order, 150 FERC ¶ 61,104, PP 17-18. Accounting for the

newly divided LBAs, approximately 99 percent of the

reliability benefits were attributed to Michigan LSEs, while

Wisconsin LSEs received the remaining 1 percent. Feb. 19,

2015 Order, 150 FERC ¶ 61,104, P 19. FERC determined that

MISO’s proposed reallocation based on LBA boundaries “can

produce results that are not consistent with MISO’s Tariff or

cost causation principles by failing to allocate SSR costs to the

LSEs that benefit from those SSR Units.” Id. at P 2.

Accordingly, FERC required further compliance filings

allocating the costs from the Presque Isle, White Pine, and

Escanaba SSR Units to the benefitting LSEs directly. Id. This

required MISO to revise its study methodology to identify the

LSEs relying on the SSR resources. Id. at P 113. By order

dated May 3, 2016, FERC accepted MISO’s revised

SSR-cost-allocation methodology and ordered MISO to

prepare a refund report describing how MISO would effectuate

that methodology in the previously ordered refunds.

Midcontinent Indep. Sys. Operator, Inc., 155 FERC ¶ 61,134,

P 37 (May 3, 2016).

On September 22, 2016, FERC issued the final order under

review in these Petitions. See Sept. 22, 2016 Order, 156 FERC

¶ 61,205. FERC denied requests for rehearing of its decision

to order refunds for the Presque Isle, White Pine, and Escanaba

SSR costs from April 3, 2014, April 16, 2014, and June 15,

2014, respectively. Id. at P 40. Turning to the remedy, FERC

explained that it “ha[d] established a policy of not ordering

refunds in rate design and cost allocation cases,” but this policy

“is not a strict requirement in every cost allocation case.” Id.

at PP 41, 43. Instead, FERC’s approach would vary based on

equitable considerations. “[P]rimary” bases disfavoring

refunds include “the unfairness that results from retroactive

implementation of a new rate for both utilities and customers

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who cannot alter their past actions in light of that new rate, and

[] the potential for under-recovery.” Id. at P 44. FERC

reasoned that “neither of these grounds applies here,” because

no party “identified any particular decisions made in reliance

on the previous SSR cost allocation methodology,” and “MISO

can calculate the exact amount of SSR costs that should be

assessed to each LSE that underpaid in order to refund LSEs

that overpaid,” based on its records. Id. at PP 45-47.

Accordingly, FERC concluded, the equitable considerations

with respect to the three SSR units at issue “require a narrow

exception to the Commission’s general policy of not providing

refunds in a cost allocation case.” Id. at PP 50-51. FERC

ordered that the refunds “will be implemented through

surcharges to LSEs that paid too little under the previous

methodology.” Sept. 22, 2016 Order, 156 FERC ¶ 61,205,

P 51.

Petitioners – customers “that paid too little” and are now

subject to surcharges – challenge FERC’s authority to impose

surcharges as part of its remedy, contending that it amounts to

an impermissible retroactive rate increase. They also contend

that FERC’s decision was arbitrary and capricious because the

difference between the allocation rejected and the allocation

ultimately approved was insignificant.

II.

“Under the Federal Power Act, [FERC] must ensure that

all rates charged for the transmission or sale of electric energy

are ‘just and reasonable.’” Maine v. Fed. Energy Regulatory

Comm’n, 854 F.3d 9, 15 (D.C. Cir. 2017) (quoting 16 U.S.C.

§ 824e(a)). The scope of judicial review of such

determinations is “narrow”: courts afford “great deference” to

FERC’s rate decisions, and we “may not substitute our own

judgment for that of the Commission.” Fed. Energy

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Regulatory Comm’n v. Elec. Power Supply Ass’n, 136 S. Ct.

760, 782 (2016). That said, a reviewing court must “at least

assure itself that the Commission’s reason for its decision is

both rational and consistent with the authority delegated to it

by Congress.” Xcel Energy Servs. Inc. v. Fed. Energy

Regulatory Comm’n, 815 F.3d 947, 952 (D.C. Cir. 2016). The

courts review FERC’s decisions under the familiar

arbitrary-and-capricious standard of the Administrative

Procedure Act, and this review requires “a reasoned

explanation” “where an agency departs from established

precedent.” Transmission Agency of N. Cal. v. Fed. Energy

Regulatory Comm’n, 495 F.3d 663, 672 (D.C. Cir. 2007); see

5 U.S.C. § 706.

A.

Petitioners challenge FERC’s determination that the pro

rata methodology for distributing SSR costs was unjust and

unreasonable, contending that there was no new evidence or

change in circumstances to justify this conclusion, that the

results of the final load-shed study undermined FERC’s

reasoning, and that FERC “fail[ed] to consider the historical

basis” for that methodology, such that its orders lacked

reasoned decision-making. Pet’rs’ Br. 48-55. None of these

objections is persuasive.

FERC must undertake a two-step inquiry regarding a

Section 206 challenge. See Maine, 854 F.3d at 21. The first

step involves reviewing the rate subject to a Section 206

complaint to determine whether it is unjust, unreasonable,

unduly discriminatory, or preferential. Id. (citing 16 U.S.C.

§ 824e(a)). “Only after having made the determination that the

utility’s existing rate fails that test may FERC exercise its

section 206 authority to impose a new rate.” Id. In the orders

now under review, FERC followed this process – first

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determining that the existing allocation was problematic before

considering a replacement. At the time of the Wisconsin

Commission’s Complaint and the July 29, 2014 Order granting

it – in other words, during the first step of the Section 206

process – FERC had before it only the preliminary load-shed

study. The preliminary data showed that the Wisconsin

customers received 42 percent of the reliability benefit of the

SSR facilities, despite being allocated 92 percent of the costs.

Petitioners contend that the preliminary load-shed study is

not sufficient to support FERC’s conclusion that the existing

rate is unreasonable because the study merely confirmed the

difference between a load-shed methodology and the pro rata

methodology. Pet’rs’ Br. 41-45.

Contrary to Petitioners’ view, FERC’s determination that

the pro rata methodology was unjust and unreasonable relied

on new information not previously before the Commission. In

one sense, the eventuality that two different methodologies

would yield different results was reasonably known to the

parties and FERC during the initial decision that the pro rata

methodology was just and reasonable. But just because some

difference between the results of these two methodologies is

predictable does not make the information actually collected

any less telling. See OXY USA, Inc. v. Fed. Energy Regulatory

Comm’n, 64 F.3d 679, 690 (D.C. Cir. 1995) (explaining that

“[no] finding of unforeseeability is required before the

Commission may reach the conclusion that a rate that was

previously just and reasonable is no longer so”). The

preliminary load-shed evidence demonstrated a sizable gap

between the benefits accrued by each LSE and the allocated

cost, supporting FERC’s determination that the pro rata

methodology did not comport with cost-causation principles.

And the actual data underlying FERC’s consideration was not

before it in prior proceedings regarding the ATC

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SSR-cost-allocation methodology. As the February 19, 2015

Order noted, MISO did not previously require load-shed

studies for SSR units in the ATC area – there was no need for

this information in light of the pro rata allocation. See Feb. 19,

2015 Order, 150 FERC ¶ 61,104, PP 12, 15. In any event, the

preliminary load-shed study regarding the Presque Isle,

Escanaba, and White Pine units was new information about

newly designated SSRs. That MISO could have collected

similar information before designating these support resources

does not detract from the new information available through

the load-shed data underlying the Complaint, upon which

FERC relied.

We also are unpersuaded by Petitioners’ argument that the

final load-shed study defeats FERC’s conclusion that the pro

rata methodology was unjust and unreasonable. Petitioners

point out that, according to the second study, the pro rata

methodology was off by only about 6 percent with respect to

the benefits received by Michigan and Wisconsin respectively.

As an initial matter, the load-shed study that FERC actually

accepted showed that the pro rata methodology was an order of

magnitude more inaccurate than the second study had revealed:

the pro rata methodology was off not by 6 percent, but by 91

percent. In any event, Petitioners’ assertion that a 6 percent

difference is insufficient to show that the pro rata methodology

is unreasonable lacks support. See Pet’rs’ Br. 46.

And Petitioners failed to preserve this point, as they did not

argue before the Commission that the final load-shed data

undermined a finding that the pro rata methodology was

outside of the zone of reasonableness. See 16 U.S.C. § 825l(b).

Moreover, since FERC did not rely on a

zone-of-reasonableness analysis, this challenge is inapt: a rate

may be shown to be unreasonable under Section 206 even

without a showing that the rate is entirely outside the zone of

reasonableness. See Maine, 854 F.3d at 24 (“While showing

13

that the existing rate is entirely outside the zone of

reasonableness may illustrate that the existing rate is unlawful,

that is not the only way in which FERC can satisfy its burden

under section 206.”). In addition, whether 6 percent is

significant for the reasonableness analysis is a policy question

for FERC to decide: Petitioners point to no precedent or

evidence to suggest that such a difference could not be

significant for the purposes of the Federal Power Act. Also

unavailing is Petitioners’ position that the difference between

the results of the preliminary load-shed study and the final

study call into question the validity of the evidence. FERC’s

recognition that more accurate data was necessary does not

undermine its reliance on the preliminary study at the time of

the Complaint, or on the final data once the study was

complete. Petitioners identify no support for the proposition

that FERC cannot rely on different evidence at each step of the

Section 206 inquiry.

Finally, we reject Petitioners’ contention that FERC failed

to take into account the historical rationale for the ATC

carve-out. See Pet’rs’ Br. 48-53. To the contrary, FERC

acknowledged the origins of the pro rata methodology as

springing from ATC’s cost-sharing philosophy and explained

its conclusion that ATC’s “original intent” in sharing costs was

“not served by the pro rata sharing of SSR costs . . . because

decisions concerning the operational status of . . . generation

assets are not subject to the ATC transmission planning

process.” July 29, 2014 Order, 148 FERC ¶ 61,071, P 65.

FERC further addressed the historical basis for the ATC’s pro

rata allocation in its February 19, 2015 Order, reasoning that

the new evidence related to cost causation undermined the

propriety of that vestigial methodology. See Feb. 19, 2015

Order, 150 FERC ¶ 61,104, P 76. That FERC rejected

then-protesters’ position – twice – does not mean that it failed

to consider it. Accordingly, we defer to FERC’s rate allocation

14

determination as supported by substantial evidence and

reasoned decision-making.

B.

Having concluded that FERC reasonably determined that

the pro rata allocation was unjust and unreasonable under

Section 206, we turn to Petitioners’ challenge relating to

remedy.

Petitioners posit that the ordered surcharges effect a

retroactive rate increase, violating Section 206 and the

filed-rate doctrine. The Commission argues that because

“[t]his is a cost allocation case,” the limitations surrounding

retroactive rate changes do not come into play, and the remedy

imposed here was otherwise within FERC’s broad power to

effectuate the FPA under Section 309. See Resp’t’s Br. 39-46.

Because Section 206 contemplates surcharges in

cost-allocation cases, FERC’s orders here are within its

remedial authority. And because FERC explained valid

reasons for departing from its usual policy of denying

reallocation, that departure was not arbitrary or capricious.

i.

Section 206 defines FERC’s authority when an existing

rate is found unjust, unreasonable, unduly discriminatory, or

preferential. 16 U.S.C. § 824e. This includes two main tools

at FERC’s disposal. First, Section 206(a) authorizes FERC to

“fix” rates prospectively, after it concludes that a rate is

inappropriate upon a complaint by a market participant or on

FERC’s own impetus. See id. § 824e(a); Xcel, 815 F.3d at 950.

Second, Section 206(b) permits FERC to order refunds where

the previous rate was unfairly high, effectively setting the rate

as of the date that the Section 206 proceeding began – either

15

when FERC instituted an investigation or the date of the

complaint, if instigated by a third party. 16 U.S.C. § 824e(b).

However, no concomitant authority exists to retroactively

correct rates that were too low. See Fed. Power Comm’n v.

Sierra Pac. Power Co., 350 U.S. 348, 353 (1956) (noting that

“[the Section 206] power is limited to prescribing the rate ‘to

be thereafter observed’ and thus can effect no change prior to

the date of the order”). This rule against retroactive rate

increases precludes FERC from ordering remedies that

accomplish a higher rate for a past period. In turn, the filed-rate

doctrine requires market participants to abide by the rates set:

“utilities are forbidden to charge any rate other than the one on

file with the Commission.” W. Deptford Energy, LLC v. Fed.

Energy Regulatory Comm’n, 766 F.3d 10, 12 (D.C. Cir. 2014).

The “rule against retroactive ratemaking” and the filed-rate

doctrine may thus be understood as “corollar[ies]” that make

static the rates paid for energy, once established. NSTAR Elec.

& Gas Corp. v. Fed. Energy Regulatory Comm’n, 481 F.3d

794, 800 (D.C. Cir. 2007). See also Ark. La. Gas Co. v. Hall,

453 U.S. 571, 577 (1981) (explaining the development of the

filed-rate doctrine in the context of the Natural Gas Act).

While Section 206’s limitations and the filed-rate doctrine

thus restrict the remedies that FERC may order, FERC’s

remedial authority is otherwise expansive. Section 309 of the

FPA provides that

The Commission shall have power to perform

any and all acts, and to prescribe, issue, make,

amend, and rescind such orders, rules, and

regulations as it may find necessary or

appropriate to carry out the provisions of this

chapter.

16

16 U.S.C. § 825h. Section 309 accordingly permits FERC to

advance remedies not expressly provided by the FPA, as long

as they are consistent with the Act. See TNA Merch. Projects,

Inc. v. Fed. Energy Regulatory Comm’n, 857 F.3d 354, 359

(D.C. Cir. 2017) (citing Niagara Mohawk Power Corp. v. Fed.

Power Comm’n, 379 F.2d 153, 158 (D.C. Cir. 1967)). This

Court has endorsed FERC’s authority under Section 309 to

recoup erroneous refunds, id. at 362; Canadian Ass’n of

Petroleum Producers v. Fed. Energy Regulatory Comm’n, 254

F.3d 289, 299-300 (D.C. Cir. 2001), to order refunds where the

rate paid exceeds the filed rate, see Towns of Concord,

Norwood, & Wellesley, Mass. v. Fed. Energy Regulatory

Comm’n, 955 F.2d 67, 73 (D.C. Cir. 1992), and to imply a

refund protection where the Commission erred in accepting a

tariff revision that lacked such a commitment, see Xcel, 815

F.3d at 954-56. This variety of remedies indicates the

expansive range afforded by FERC’s Section 309 remedial

power.

The reallocation of SSR costs, including through

surcharges, is well within FERC’s remedial authority under

Section 309, read in harmony with Section 206 and the

filed-rate doctrine. While the surcharges at issue here resulted

in some customers paying more for past services than they were

charged originally, that cost increase to a subgroup of

ratepayers is not a “retroactive rate increase” as such: the

aggregate rate remained the same, divided differently among

the constituent payers. Although such a reallocation is not

expressly contemplated under Section 206, subsection (c)

confirms our interpretation by negative implication. Section

206(c) discusses “shifting costs” between utility companies

within a registered holding company. The provision bars

refunds in circumstances where “refunds . . . might otherwise

be payable” but where the refund order “is based upon a

determination that the amount of such decrease should be paid

17

through an increase in the costs to be paid by other electric

utility companies of [the] registered holding company.” 16

U.S.C. § 824e(c). This statement that surcharges to pay for

refunds are impermissible in specific, limited circumstances

contemplates that the converse is true in all other

circumstances: surcharges to cover retroactive rate design

changes are acceptable when those limited circumstances do

not apply. Reading the Section 206(c) exception in conjunction

with Section 206(b) and against the backdrop of Section 309,

FERC’s authority to order refunds thus must be understood to

encompass surcharges to pay for ordered refunds where the

result is a reallocation of an existing rate. Only that

understanding gives meaning to the Section 206(c) carve-out

prohibiting surcharge-funded refunds as between multiple

utility companies within a single holding company. If FERC

could not ordinarily order surcharge-funded refunds, the

exception would be superfluous.

Petitioners rely heavily on this Court’s decision in City of

Anaheim, California v. Federal Energy Regulatory

Commission to argue that surcharges are unlawful, but that

decision is inapt. See 558 F.3d 521 (D.C. Cir. 2009). City of

Anaheim involved a Section 206 complaint by wholesale

electricity generators alleging that the FERC-approved rate for

must-offer generation was too low. FERC agreed, ordered a

rate increase, and applied it retroactively, with surcharges to

make up the difference. We rejected FERC’s action as an

impermissible retroactive rate change: long-standing

precedent holds that rate changes may be prospective only. Id.

at 523-25. Because the rate change increased what customers

paid during the past period of depressed rates, it made no

difference that FERC ordered the higher rates through

forward-looking surcharges. City of Anaheim thus stands for

the unremarkable proposition that FERC cannot order through

surcharges what it could not otherwise accomplish directly.

18

But reallocation is a different animal altogether, and the

surcharges ordered here are part and parcel of that reallocation.

As FERC explained in its September 22, 2016 Order, “City of

Anaheim involved the Commission’s direct imposition of

retroactive surcharges to effectuate a rate increase,” while in

“the instant case [] the Commission has not changed the SSR

rates.” Sept. 22, 2016 Order, 156 FERC ¶ 61,205, P 48.

Because FERC’s remedial authority allows for rate

reallocation, and Section 206(c) buttresses this understanding,

FERC’s use of surcharges to effectuate the reallocation is

squarely within FERC’s authority.

Petitioners also argue that the Section 309 cases relied

upon by FERC in its September 22, 2016 Order are

distinguishable as involving error by the Commission. Pet’rs’

Br. 38; Pet’rs’ Reply Br. 7-8 (citing TNA, 857 F.3d at 360). But

Section 309 grants FERC broad remedial power regardless of

whether a mistake by FERC creates a reason to use it. The

provision itself allows for “any and all acts” “necessary or

appropriate” to carry out the FPA’s statutory ends, 16 U.S.C.

§ 825h, not merely to fix mistakes by the Commission. See

Niagara Mohawk, 379 F.2d at 158 (explaining that the

“necessary or appropriate” clause is “not restricted to

procedural minutiae, and . . . authorize[s] an agency to use

means of regulation not spelled out in detail, provided the

agency’s action conforms with the purposes and policies of

Congress and does not contravene any terms of the Act”). And,

as described above, this Court has validated FERC’s Section

309 authority in myriad contexts, with and without a predicate

error. Because Section 206 supports, rather than negates,

FERC’s authority to order rate reallocations, the statute does

not restrict FERC’s Section 309 authority for the remedy

ordered here.

19

Finally, Petitioners invoke the Chenery doctrine. They

claim that FERC’s reliance on Section 309 in its brief “is an

impermissible post hoc rationalization of counsel,” since

“FERC did not rely on FPA Section 309 below,” and

Intervenors’ use of Section 206(c) to inform the interpretation

of Section 206(a) and Section 309 similarly “is improper.”

Pet’rs’ Reply Br. 2, 5-6, 11-12. See Sec. & Exch. Comm’n v.

Chenery Corp., 332 U.S. 194, 196 (1947) (limiting a reviewing

court to “the grounds invoked by the agency” when judging the

“propriety” of a “determination or judgment which the

administrative agency alone is authorized to make”). Neither

of these arguments hold water. While FERC did not explicitly

mention Section 309 in the challenged orders, it repeatedly

cited Niagara Mohawk, a Section 309 case about the scope of

permissible remedies, and Xcel Energy, a Section 309 case

about refund commitments. See, e.g., Escanaba Initial Order,

148 FERC ¶ 61,116, P 38 n.49; Feb. 19, 2015 Order, 150 FERC

¶ 61,104, P 90 n.220; Sept. 22, 2016 Order, 156 FERC

¶ 61,205, PP 49, 61 & n.126. By these references, FERC

invoked its Section 309 authority, even if not by name.

Moreover, Section 206(c) is only further textual support for the

conclusion that Section 206(a) does not preclude and Section

309 affords FERC the remedial authority used here. Chenery

poses no obstacle when we consider a party’s interpretation of

other statutory provisions to bolster the interpretation of the

statutory language at issue. See Am.’s Cmty. Bankers v. Fed.

Deposit Ins. Corp., 200 F.3d 822, 835 (D.C. Cir. 2000).

ii.

Having established that FERC has the statutory authority

to order a reallocation of SSR costs through refunds and

surcharges, we next consider whether FERC acted within its

discretion in doing so here. Petitioners argue that FERC

previously “acknowledged that it has no authority to order

20

retroactive surcharges,” making this action a departure from its

ordinary policy. See Pet’rs’ Br. 36. However, as Petitioners

note, FERC consistently has construed its refund authority to

be equitable and flexible, with appropriate remedies dictated

by the circumstances. Id.

The circumstances here support FERC’s decision to order

refunds paid for by surcharges. In Louisiana Public Service

Commission v. Federal Energy Regulatory Commission, a

reallocation case like this one, this Court validated FERC’s

“previously muddled position” that “it has no generally

applicable policy of granting refunds” where a rate has been

unfairly allocated between multiple constituent payers, but “the

utility has received no net over-recovery.” 883 F.3d at 932. As

the Court explained, FERC’s “default position” with respect to

reallocation refunds relies on two premises: that typically “it

would be difficult for the utility to recover its costs fully”

because “it would be difficult or inequitable to extract

recompense” from customers that paid too little, and that

“customer firms that had made operational decisions in reliance

on one set of rates would be unable to ‘undo’ those transactions

retroactively in light of the new, corrected rates.” Id. at 933.

As FERC explained in the September 22, 2016 Order,

neither of these circumstances are present here. First, there is

no risk of “under-recovery” because “MISO has a record of the

SSR costs paid by each LSE . . . and [] can calculate the exact

amount of SSR costs that should be assessed to each LSE that

underpaid in order to refund LSEs that overpaid” based on the

revised methodology. Sept. 22, 2016 Order, 156 FERC

¶ 61,205, P 47. MISO’s LSE customer population has not

changed, so the calculation of over- and under-payments does

not present any concern of inequitable recovery. Second, no

challenger “identified any particular decisions made in reliance

on the previous SSR cost allocation methodology.” Id. at P 45.

21

While parties protesting the retroactive application of the

changed rate design argued that the reallocation “create[d]

market uncertainty” by disrupting “sellers’ expectations,”

FERC concluded that because “SSR cost-allocation is an

out-of-market process,” “there are no markets involved, there

is no undermining of those markets, nor is there previous

market conduct that would have been adjusted to account for

eventual refunds.” Id. at P 46. In other words, because the SSR

costs cannot be avoided, changing rate design does not

implicate market-reliance concerns.

FERC’s rationale for distinguishing the reallocation at

issue here is particularly compelling in light of the unique

nature of the SSR agreements at issue. Reliability resources

are so designated because they are essential to the reliability of

the system’s energy supply, and SSR agreements are

accomplished in short order so as to avoid any gap in coverage.

As the Commission explained in its September 22, 2016 Order,

SSR agreements “must go into effect quickly to ensure that the

resource continues to operate,” and without an agreement in

place, a designated unit “would otherwise have provided SSR

service on an uncompensated basis while the required Tariff

process took its course.” Sept. 22, 2016 Order, 156 FERC

¶ 61,205, P 52. In addition, MISO is a non-profit that itself

lacks any funding to cover the costs of refunds to the LSEs that

paid too much. See Wis. Pub. Power, Inc. v. Fed. Energy

Regulatory Comm’n, 493 F.3d 239, 245 (D.C. Cir. 2007).

Accordingly, there was no over-recovery due to the pro rata

methodology that would have resulted in a surplus in MISO’s

hands. See Sept. 22, 2016 Order, 156 FERC ¶ 61,205, P 42

(discussing La. Pub. Serv. Comm’n & the Council of the City

of New Orleans, 155 FERC ¶ 61,120 (Apr. 29, 2016)). The

only way that FERC’s ordered refunds may be accomplished is

by collecting the necessary funds from MISO’s customers. As

the Commission reasoned, it is equitable that those customers

22

receiving a windfall from the pro rata methodology pay it back

to effect the reallocation.

FERC’s consideration of these “relevant, significant facts”

distinguished its approach in this case from its usual policy and

the precedent it set in other cases. Cf. PG&E Gas

Transmission, Nw. Corp. v. Fed. Energy Regulatory Comm’n,

315 F.3d 383, 388-90 (D.C. Cir. 2003). Accordingly, we are

satisfied that FERC’s atypical remedy in this case reflects a

reasoned decision-making process and was within the

Commission’s discretion.

* * *

We thus deny the Petitions in full. FERC reasonably

determined that the pro rata allocation of SSR costs in the ATC

footprint was unjust and unreasonable, based upon substantial

evidence. The ordered remedy of refunds funded by surcharges

was within FERC’s remedial authority under Sections 206 and

309 of the FPA, and FERC adequately explained its rationale

in ordering that remedy here.