The D.C. Circuit Court of Appeals on May 27 denied a petition by New York Transmission Owners seeking to overturn a FERC decision rejecting their request to be able to self-fund network upgrades (21-1256). 

A three-judge panel of the court found that FERC “adequately” and “reasonably” explained its rationale for rejecting the TOs’ complaints in 2021 and affirming that decision in 2022 (EL21-66, ER21-1647). (See FERC Upholds Denial of NYTOs’ Cost Allocation Complaint.) 

The TOs had filed two complaints simultaneously under Federal Power Act sections 205 and 206 seeking to change the NYISO tariff to allow them to fund network upgrades on their lines. They argued that the ISO’s current rules, which give generators the right to fund the upgrades needed to interconnect to the grid, impose risks on them for which they are uncompensated. 

Key to FERC’s rejection of the TOs’ arguments in its Section 205 complaint was that risks themselves are not costs, for which they could be entitled to recover under the FPA and the NYISO-TO Agreement. The TOs already recover the costs associated with maintaining and operating the upgrades; the costs of managing and mitigating risks are not “reasonably incurred costs” as defined by the agreement, FERC ruled. 

The court reiterated much of FERC’s reasoning in its order. 

The TOs “did not aim to recover ‘reasonably incurred costs,’” it wrote. “They do not identify any expense they have actually incurred that is uncompensated. Instead, the owners argue that the rules governing upgrade funding should be changed to compensate them for ‘risks’ associated with owning and operating the upgrades. That framing illuminates the owners’ true goal: They hope not to recoup costs already ‘incurred,’ but to anticipatorily recover potential costs that have not yet materialized.” 

The court also rejected the TOs’ “rebrand” of their risks in their judicial appeal as the cost of capital, which they argued should be treated as recoverable. But “the cost of capital is not an expense that the owners shoulder by virtue of operating the transmission grid,” it wrote. “Neither ‘risks,’ nor the ‘cost of capital’ that reflects those risks, are relevant to identifying a utility’s incurred costs.” 

In examining the TOs’ Section 206 complaint, the court found they were “no more successful in challenging FERC’s dismissal.” It said they had not demonstrated that the NYISO tariff was unjust and unreasonable, and that “the commission fully and reasonably addressed” their arguments. 

“FERC consistently explained that its ratemaking approach includes an ‘enterprise-wide’ risk calculation that compensates the owners for any such risks they face,” it wrote. 

The commission is currently examining TO self-funding in other RTOs. It issued an Order to Show Cause in 2024 to MISO, PJM, SPP and ISO-NE, telling them explain how the practice is just and reasonable, as it potentially favors TOs over interconnection customers (EL24-80). (See FERC Issues Show-cause Order on TO Self-funding in 4 RTOs.)