The U.S. Court of Appeals for the District of Columbia Circuit last Friday issued a ruling siding with Idaho Power in its challenge of two previous FERC orders that effectively blocked the power company from entering into a 10-year power deal to sell electricity to Idaho Power’s merchant group (IP Merchant).

In a case involving Arizona Public Service Co.’s (APS) right of first refusal to transmission service under Idaho Power’s open access transmission tariff, the court said that the Federal Energy Regulatory Commission’s interpretation of that provision “defies reason.”

APS is Idaho Power’s incumbent customer and receives service from the Borah/Brady substation in southeastern Idaho, through the Brownlee substation in western Idaho, to the LaGrande substation in northeastern Oregon, the court noted.

FERC in 2000 ordered Idaho Power to provide APS partial interim transmission service for 18 months. The limited term of service was less than the full eight-year term originally requested by APS because the capacity was only temporarily available and contingent on another transmission customer (PacifiCorp) exercising its right under a preexisting contract. FERC also rejected Idaho Power’s claim that APS should not have rollover rights at the end of its term of service. This order effectively restricted APS’s ability to bid to 18-month increments.

Subsequently, IP Merchant on Nov. 8, 2000 submitted a request on Idaho Power’s OASIS for 200 MW of long-term firm point-to-point transmission service running from Dec. 1, 2000 through Dec. 31, 2010.

The following day, APS sent a letter to Idaho Power stating that it was exercising its rollover rights for transmission service for an additional 18-month period from April 1, 2001 through Sept. 30, 2002. APS requested the full 75 MW of service from Borah/Brady to LaGrande for that time period.

Then, IP Merchant on Nov. 15, 2000 submitted a second request on Idaho Power’s OASIS for an additional 200 MW of long-term firm point-to-point transmission service. This service was also from the Idaho Power system to LaGrande for a 10-year period from Jan. 1, 2001 to Dec. 31, 2010.

The following month, Idaho Power advised APS of its right of first refusal and simultaneously informed APS that it was filing a petition for declaratory order at FERC [EL01-22]. In the petition, Idaho Power sought guidance from FERC on how to apply the right of first refusal provisions included in its open access transmission tariff.

Idaho Power said that its interpretation required APS to accept a firm service contract term of a length at least equal to that offered by IP Merchant. Idaho Power also said that due to transmission constraints that impact a portion of the path that APS has requested, but which do not impact the path that IP Merchant sought, APS physically cannot match the firm service contract term desired by IP Merchant. “Therefore, Idaho Power concludes that the IP Merchant Group has priority to the existing transmission capacity at the requested delivery point.”

However, despite the shorter term offered by APS, FERC ultimately ruled in an initial order that APS could roll over its contract. FERC acknowledged that the priority rule was designed to provide a mechanism for allocating transmission capacity when there is insufficient capacity to accommodate all requesters.

But FERC also said that under Order 888-A, the two customers’ requests had to be substantially the same in all respects in order to be competing. In terms of IP Merchant and APS, FERC found that the two requests were not, in fact, substantially the same.

Instead, the Commission found them to be “vastly different,” primarily because they flowed in different directions and used different portions of the Idaho Power system. Since FERC found that the requests were not substantially the same in all respects, it ruled that they were not competing and therefore ordered Idaho Power to give the available 75 MW to APS.

But Idaho Power, in a request for rehearing, said that a central factual premise of FERC’s order — that the two requests flowed in different directions and used different portions of the Idaho Power system — was incorrect. Rather, Idaho Power said, the requests flowed in the same direction over the 80-mile transmission line in dispute. Also, the utility argued that because APS had not matched IP Merchant’s offer, IP Merchant should be the priority applicant.

FERC, however, wasn’t swayed and in May 2001 issued an order rejecting Idaho Power’s request for rehearing. In that order, it awarded the 75 MW of service to APS for the 18-month period ending Sept. 30, 2002.

Idaho Power then took its fight to the Court of Appeals for the District of Columbia Circuit, challenging both FERC orders.

The utility found a sympathetic set of ears at the court of appeals. In its decision, the court noted that Idaho Power’s open access transmission tariff and FERC’s orders creating the applicable pro forma tariff provide that, in order to exercise a right of first refusal, “the existing firm service customer must agree to accept a contract term at least equal to a competing request by a new eligible customer.”

But FERC “has turned the tariff and orders on their heads by suggesting that the competitor must put forward an offer identical to the incumbent’s in order for the competing bids to be ‘substantially the same in all respects,'” the court said. “Under this reasoning, the competitor is not allowed to make a better offer, which of course ensures that the incumbent never loses.”

The court said that this is a “nonsensical construction of the ‘right of first refusal,’ which we reject as arbitrary and capricious.” The court therefore reversed and vacated FERC’s orders.

“The case is remanded to FERC so that appropriate orders may be issued approving Idaho Power’s proposal to enter into a 10-year contract to provide electrical transmission service to IP Merchant Group,” the order went on to say.

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