Golden Spread Electric Cooperative, Inc. v. Federal Energy Regulatory Commission

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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 16, 2003 Decided February 11, 2003
No. 01-1462
GOLDEN SPREAD ELECTRIC COOPERATIVE, INC.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
SOUTHWESTERN PUBLIC SERVICE COMPANY,
INTERVENOR
PETITION FOR REVIEW OF ORDERS OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Robert A. O’Neil argued the cause for petitioner. With
him on the briefs were Mary A. Hekman and Craig W.
Silverstein.
Judith A. Albert, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.

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the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
William M. Dudley argued the cause for intervenor. With
him on the brief was Floyd L. Norton IV.
Before: E DWARDS and SENTELLE, Circuit Judges, and
WILLIAMS , Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS .
WILLIAMS , Senior Circuit Judge: In 1999 the Federal Ener-
gy Regulatory Commission approved a tariff that allowed
Southwestern Public Service Company (‘‘SPS’’) to make sales
to affiliates at whatever price the market would bear. Golden
Spread objected, claiming that this extension of SPS’s author-
ity posed new problems, ones not addressed by the Commis-
sion in prior decisions that allowed SPS to sell at market
rates—but not to sell to its affiliates at all. Finding that
FERC did not adequately explain its reasons for rejecting
Golden Spread’s protest, we remand the case to the agency.
* * *
In 1995 SPS filed a tariff under § 205 of the Federal Power
Act, 16 U.S.C. § 824d, under which SPS could sell power at
market rates, Southwestern Public Service Company, 72
FERC ¶ 61,208 (1995) (the ‘‘1995 Order’’), but could not sell to
its affiliates, id. at 61,968. Finding that the market was
sufficiently competitive to justify the introduction of market-
based rates, id. at 61,966, FERC approved the tariff. But its
approval included a condition that SPS provide a market
analysis every three years, so that the Commission could
assess whether ‘‘then-current competitive conditions continue
to reflect [SPS’s] lack of market power in short-term mar-
kets.’’ Id. at 61,967.
SPS then became the subject of a rather complex transac-
tion, as a result of which a holding company called New
Century Energies, Inc. became the owner of SPS and Public
Service Company of Colorado. The latter has a power mar-
keting affiliate with the allusive moniker ‘‘e prime’’; like SPS,

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e prime was authorized to sell at market rates. See Public
Service Company of Colorado and e prime, 74 FERC
¶ 61,351 (1996). (On consummation of the merger, of course,
it became an affiliate of SPS and subject to the restriction on
SPS’s selling authority.) Another affiliate is New Century
Services, which acts as New Century’s ‘‘service subsidiary’’;
for simplicity’s sake we call both it and the parent New
Century.1
On SPS’s filing of its triennial update on September 1,
1998, Golden Spread intervened, asking FERC to rescind the
earlier grant of authority to sell at market prices. The
parties settled the dispute with an agreement they now call
the Global Settlement, in which Golden Spread agreed to
drop its protest ‘‘without prejudice’’ but secured in exchange
a set of contracts designed to protect it against unfavorable
market conditions. With the parties in agreement, FERC
approved the settlement, and the market-based rate authority
remained in place. Southwestern Public Service Co., 86
FERC ¶ 61,050, clarified, 86 FERC ¶ 61,260 (1999).
Seven days after the approval of the Global Settlement,
New Century filed the tariff application at issue here, which
among other things would allow sales by SPS to affiliates
(including e prime); as with SPS’s non-affiliate transactions,
the rates would be limited only by the market. Golden
Spread once again filed a protest, claiming that the new tariff
could result in rates that were not just and reasonable. It
asked FERC either to reject the new tariff or at least to add
conditions to prevent SPS from manipulating transactions
with its affiliates in such a way as to in fact exert market
power. FERC rejected Golden Spread’s proposals and ap-
proved the tariff, New Century Services, Inc., 86 FERC
¶ 61,307 (1999) (the ‘‘Initial Order’’), later denying Golden
Spread’s request for rehearing, New Century Services, Inc.,
96 FERC ¶ 61,223 (2001) (the ‘‘Rehearing Order’’).
1 After the Commission’s orders here, the parent New Century
merged with Northern States Power Company, forming a new
corporation known as Xcel Energy Inc. See Northern States
Power Co., 90 FERC ¶ 61,020 (2000).

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* * *
In its papers before the Commission Golden Spread ex-
pressed its primary concern rather obscurely. Although we
said in City of Vernon v. FERC, 845 F.2d 1042, 1047 (D.C.
Cir. 1988), that the Commission ‘‘cannot be asked to make silk
purse responses to sow’s ear arguments,’’ we also implicitly
held that a sow’s ear argument deserves at least a sow’s ear
answer; we found the claim there expressed just clearly
enough to have required a real substantive response. Golden
Spread’s claims, sow’s ear though they may be, didn’t get
such a response here.
At the core of its arguments was the idea that under the
new tariff SPS would be able to ‘‘park’’ all of its excess
capacity with affiliates such as e prime, which could then turn
around and sell that capacity at market rates. In times of
shortage for Golden Spread, occasioned by a failure or any
temporary cessation at one of its own generation plants, the
affiliate would be able to exert market power, extracting
supra-competitive prices from Golden Spread.
At the outset this claim poses the question how the orders’
grant to SPS of authority to sell to its affiliates actually
increased Golden Spread’s risks. If e prime can now sell
power at astronomical rates, why could not SPS have done so
before the orders? But Golden Spread makes a case that the
incremental authority plays a critical role. As part of the
Global Settlement, Golden Spread and SPS signed a Replace-
ment Energy Agreement (‘‘REA’’) that allowed either compa-
ny, in the event of failure of its own generation facilities, to
purchase excess energy from the other, at cost-based rates.
The agreement protected Golden Spread from the risk of
having to buy emergency power from SPS at supra-
competitive rates. But Golden Spread argues that the REA
offers it no protection in a situation where SPS has commit-
ted its otherwise excess energy to an affiliate. With the new
authority, it says, SPS can strip itself of ‘‘excess’’ energy,
while at the same time leaving its affiliate free to insist on
excessive prices from Golden Spread. Neither the Commis-

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sion nor SPS (as intervenor) seems to question this porous
interpretation of the REA.
Of course SPS’s possible frustration of the REA would still
pose no great risk to Golden Spread if there were enough
alternative sources of supply with access to the relevant
market. Golden Spread acknowledges that FERC explicitly
determined in the 1995 Order that SPS did not control even
25 percent of either installed or uncommitted capacity in any
of the markets considered. To this Golden Spread responds
that the figures rely on market definitions that are unrealistic
in light of current constraints on power transmission.
Whereas the Commission analyzed SPS’s share of various
broadly defined markets, Golden Spread fears that transmis-
sion congestion would prevent it from securing supplies for its
customers in the Texas panhandle. It points to a publication
of the Public Utility Commission of Texas, Report to The
Texas Senate Interim Committee on Electric Utility Restruc-
turing (July 1998), finding that SPS was the source of 80 per
cent of the power generated in the panhandle, and that
transmission facilities were capable of importing only 10 per
cent of the region’s generating capacity. Id. at 19–21.
The Commission has not directly disputed these claims of
constrained transmission capacity. In the Rehearing Order,
to be sure, it said that there was ‘‘no foundation to Golden
Spread’s complaint that we failed to evaluate potential trans-
mission constraints’’ in the Initial Order, see Rehearing Or-
der, 96 FERC at 61,916, but in fact that assertion rested
solely on the Initial Order’s finding of non-discrimination,
see id.; see also Initial Order, 86 FERC at 62,066 (saying the
applicable open access tariffs assured that ‘‘customers are
treated on a non-discriminatory basis’’). But Golden Spread’s
theory doesn’t depend on discrimination. It depicts SPS
selling (otherwise excess) power at supra-competitive prices
to e prime, which in turn could pass those prices on to Golden
Spread. Golden Spread’s access to non-discriminatory trans-
mission would assure its ability to import such over-priced
power, but wouldn’t supply it with power priced at cost—the
benefit it thought it had secured under the REA.

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In this context there is little purchase to the Commission’s
point that it had subjected the present tariff to the conditions
on affiliate transactions laid out in Detroit Edison Co., 80
FERC ¶ 61,348 at 62,197 (1997). Those conditions require (1)
that the rates for sales to affiliates be no lower than the rate
charged to non-affiliates; (2) that offers to sell power to the
affiliate be simultaneously offered to non-affiliated customers
through an electronic bulletin board; and (3) that the actual
price charged to all affiliates be posted on the board. Id.
These conditions are plainly aimed at protecting retail com-
petitors from underpricing in affiliate sales; they do nothing
to protect Golden Spread from the danger it espies in SPS’s
ability to shift its otherwise uncommitted energy to e prime
at supra-competitive prices. One can imagine circumstances
and interpretations of the REA in which SPS’s duty of non-
discriminatory transmission or the Detroit Edison conditions
could wholly or partially thwart this scenario,2 but a mere
partial solution would not justify the Commission’s brush-off
of Golden Spread’s claim; more importantly, the Commission
has not even attempted any such interpretation of the con-
trolling instruments.
Finally, in its briefs and at oral argument, FERC parried
Golden Spread’s contentions by pointing to the affiliate codes
of conduct imposed on SPS and its affiliates. See, e.g., Open
Access Same–Time Information System (Formerly Real–
Time Information Networks) and Standards of Conduct, 61
Fed. Reg. 21,737 at 21,743–45 (1996). But the Commission
did not advance this argument or make any findings to that
effect in either of the orders. Its ‘‘action must be measured
by what [it] did, not by what it might have done.’’ SEC v.
Chenery Corp., 318 U.S. 80, 93–94 (1943). Similarly, the
Commission’s observation in its brief that its 1995 examina-
tion of the transmission market had shown no ‘‘significant’’
transmission constraints, see Southwestern, 72 FERC at
2 Suppose, for example, that Golden Spread’s demand for equal
treatment with e prime forced a reduction in the latter’s take of
SPS power, which under the REA was interpreted as rendering
some of that power ‘‘excess’’ and consequently available to Golden
Spread.

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61,967, refers to a finding that was four years old at the time
of the Initial Order and that at no time addressed the precise
region identified by Golden Spread.
In short, we find that the Commission has not answered
Golden Spread’s contentions that authority for SPS to sell to
affiliates will frustrate Golden Spread’s contractual protection
against possible SPS market power. Answers may exist in
abundance, but it is up to the Commission to provide them.
The Commission’s orders are
Remanded.

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