The D.C. Circuit Court of Appeals overturned FERC on Tuesday in two cases brought by the city and county of San Francisco against Pacific Gas and Electric (NYSE:PCG) for failing to deliver electricity to customers in violation of its wholesale distribution tariff (20-1084).

In one case, the city contested PG&E’s refusal to provide lower-voltage secondary service to many sites within the city. San Francisco filed a complaint with FERC in January 2019 alleging PG&E had consistently refused to make new interconnections at secondary voltage unless the total electricity demand was less than 75 kW.

PG&E instead offered to connect higher-voltage primary service, which requires the installation of transformers and carries higher fixed costs for ratepayers, San Francisco said. The city argued that the practice violated PG&E’s tariff because it requires the utility to offer secondary service when requested and to expand its infrastructure where necessary.

The company argued that it did not categorically deny secondary service in cases where demand exceeded 75 kW and said its denials in some cases were based on technical, safety and reliability concerns.

FERC denied San Francisco’s complaint, ruling that PG&E should decide what level of service is appropriate for customers.

“While the [wholesale distribution tariff] does not preclude a … customer from requesting the level of service that it wishes to take, PG&E, as the wholesale distribution service provider, is ultimately responsible for the safety and reliability of its distribution system,” FERC wrote in its April 2020 order (EL19-38). “Accordingly, we find that it is appropriate for PG&E, as that provider, to have discretion to determine what level of service is both appropriate and available based upon the status and configuration of its existing wholesale distribution system facilities and the nature and location of the interconnection request.”

The initial decision, as well as its order on rehearing that upheld it later in September, were unanimous among the commissioners at the time, which included current Chair Richard Glick (D) and Commissioner James Danly (R).

But in an opinion written by D.C. Circuit Judge Judith Rogers, a three-judge panel found that FERC failed to scrutinize the safety and reliability risks cited by PG&E. The judges also rejected PG&E’s contention that it decides appropriate voltages case by case.

“Evidence before the commission showed that since 2015, many of San Francisco’s new interconnection requests exceeding 75 kW have been denied secondary service by PG&E, and that the proportion of new interconnections above 75 kW receiving primary service has increased since 2015,” the court said. It cited a July 2019 letter written by PG&E to San Francisco saying it was no longer “willing to make additional accommodations” for secondary service.

“The July 1, 2019, letter hardly indicates that PG&E intends to evaluate San Francisco’s applications on a case-by-case basis,” the court wrote.

On rehearing FERC had said the “75-kW threshold is merely a ‘guidepost,’ while reaffirming its position that PG&E makes case-by-case determinations of which voltage to provide,” the court noted.

“Even if the 75-kW threshold is a guidepost, however, that kind of numerical threshold is the type of requirement that the ‘rule of reason’ requires be stated in the tariff,” the court said.

“Because the commission did not adequately explain any operational or engineering rationale justifying PG&E’s 75-kW ‘guidepost’ and did not explain why that guidepost did not need to be in the filed tariff, the court vacates the voltage orders and remands the case to the commission for further proceedings consistent with this opinion,” it said.

Grandfathering Service

In the second case, which was consolidated with the first, San Francisco argued that PG&E had denied service to delivery points that were eligible for it under a tariff grandfathering provision.

In interpreting the provision, PG&E cited the tariff’s reference to Federal Power Act Section 212(h), which prohibits mandatory retail wheeling with certain exceptions.

“No order issued under this chapter shall be conditioned upon or require the transmission of electric energy directly to an ultimate consumer … unless such entity was providing electric service to such ultimate consumer on Oct. 24, 1992,” the FPA says.

PG&E said that meant it had to serve end users it served in 1992 but not those that had moved. San Francisco argued the tariff requires PG&E to serve even those customers that had relocated since 1992.

A FERC administrative law judge interpreted the FPA, given prior FERC orders, as supporting San Francisco’s argument “that grandfathering applies to the class of customers that was eligible to receive wholesale distribution service on Oct. 24, 1992, regardless of where in the city those customers may be located now or in the future.”

FERC reversed the ALJ’s decision, agreeing with PG&E’s interpretation of the tariff’s grandfathering provision.

The court, however, said FERC’s interpretation of the tariff was too narrow and its “attempts to defend its interpretation [were] unpersuasive.”

“That the tariff references ‘points of delivery’ does not necessarily imply that only specific points of delivery may be grandfathered, and those references to ‘points of delivery’ do not change the fact that the tariff expressly references the criteria of Section 212(h)(2),” it said.

The court criticized FERC’s orders in the case as demonstrating a “troubling pattern of inattentiveness to potential anticompetitive effects of PG&E’s administration of its open-access tariff.” Faced with claims that PG&E was refusing service to San Francisco customers, FERC “fell short of meeting its duty to ensure that rules or practices affecting wholesale rates are just and reasonable,” it said.