UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


WE MA ELEC CO

v.

FERC


92-1665a

D.C. Cir. 1999


*	*	*


Randolph, Circuit Judge: Western Massachusetts Electric 
Company--WMECO--petitions for review of six orders of  the Federal
Energy Regulatory Commission asserting juris- diction over certain
interconnection agreements and ordering  the cost of grid upgrades
associated with the interconnections  to be rolled into WMECO's rate
base rather than be borne  exclusively by the interconnecting
facilities. For the reasons  that follow, we deny the petitions for


I


The Altresco Agreements


Altresco-Pittsfield Limited Partnership1 operates a 165  MW
cogeneration plant located adjacent to a General Electric  facility in
Pittsfield, Massachusetts. In 1988, the Altresco  plant was certified
as a "qualifying facility" under the Public  Utility Regulatory
Policies Act of 1978 (PURPA). See 16  U.S.C. ss 824a-3(j) and 796(17)
& (18). Altresco's certifica- tion as a qualifying facility allows it
to compel electric utilities  to purchase the power it generates and
to require intercon- nection with those purchasing utilities in order
to facilitate  such sales. See 18 C.F.R. s 292.303(a) & (c).


Beginning in 1989, Altresco entered into a series of con- tracts with
WMECO under which Altresco would intercon- nect with WMECO's
transmission grid. The purpose of the 




__________

n 1 Altresco-Pittsfield is now known as Pittsfield Generating Com-
pany, L.P. For the sake of consistency with the Commission's  orders
in this case, we will continue to refer to it as Altresco.


interconnection was to enable WMECO to transmit Altresco- generated
power across its grid to the New England Power  Company (NEPCO); WMECO
would not itself purchase any  of Altresco's output. The agreements
set out the terms and  conditions under which WMECO was to construct,
operate,  and maintain the interconnection. The interconnection itself
 was to be accomplished by means of a radial line from  Altresco's
generating facility to a point on WMECO's grid.  According to studies
performed by WMECO, the Altresco  interconnection required certain
lines and substations on the  grid to be upgraded in order to preserve
the grid's reliability.  Altresco was to bear the $3.9 million2 cost
of the interconnec- tion, including the cost of the upgrades to


Believing that the Altresco interconnection agreements  would be
subject to state rather than federal regulatory  authority, WMECO
filed the agreements with the Massachu- setts Department of Public
Utilities rather than with the  Commission. In 1989 and 1990, WMECO
negotiated trans- mission service agreements with NEPCO under which 
WMECO would wheel Altresco-generated power to NEPCO.  These
transmission agreements were filed with the Commis- sion. The
Commission responded on April 24, 1992, with an  order setting the
transmission rates for hearing and also  asserting jurisdiction over
the interconnection agreements  themselves. See Western Massachusetts
Elec. Co., 59  F.E.R.C. p 61,091, at 61,343 (1992).


WMECO requested a rehearing on the question of the  Commission's
jurisdiction over the interconnection agree- ments, arguing that PURPA
gives state authorities jurisdic- tion over interconnections between
utilities and qualifying  facilities. It further argued that the
agreements did not fall  within the Commission's jurisdiction because
they involved  facilities rather than services, because they were all
pre- operational, and because they did not involve the interstate 
transmission of power.




__________

n 2 This figure includes $2.98 million for grid upgrades, $510,000 for 
the radial line connecting Altresco to the WMECO grid, and  $450,000
for feasibility and engineering studies.


In a November 1992 order, the Commission rejected  WMECO's arguments
and denied its request for rehearing on  the question of jurisdiction.
See Western Massachusetts  Elec. Co., 61 F.E.R.C. p 61,182 (1992). The
Commission  relied on s 205(c) of the Federal Power Act, 16 U.S.C.  s
824d(c), and on 18 C.F.R. s 292.303, the regulation setting  out the
obligation to interconnect. Section 205(c) provides for  Commission
jurisdiction over "all contracts which in any  manner affect or relate
to [transmission] rates, charges,  classifications, and services,
[which are subject to the jurisdic- tion of the Commission]." 16
U.S.C. s 824d(c). The agree- ments "relate to" transmission rates, the
Commission held,  because the purpose of the interconnection was to
facilitate  transmission of Altresco-generated power to NEPCO. 
Therefore the agreements fell within the Commission's juris- diction


The Commission also held that the regulation assigning  jurisdiction
over interconnections to state authorities did not  apply in this case
because WMECO had no obligation to  interconnect under s 292.303.
WMECO was providing only  transmission service; it was not purchasing
any of Altresco's  output. As the Commission saw it, s 292.303 does
not extend  the obligation to interconnect "to utilities located
between the  buyer and the seller that provide transmission service."
61  F.E.R.C. at 61,662. When there is no obligation to intercon- nect,
the regulation providing for state regulatory authority  over
interconnections, 18 C.F.R. s 292.306(a), does not apply.  The
Commission concluded, therefore, that these agreements  were fully


The Commission's orders of April and November 1992  asserting
jurisdiction and denying rehearing are the subject  of WMECO's
December 1992 petition for review in this  Court, No. 92-1665.


The Commission ordered an evidentiary hearing before an  administrative
law judge to determine the "justness and  reasonableness" of assigning
to Altresco all costs associated  with the interconnection agreements.
Western Massachu- setts Elec. Co., 63 F.E.R.C. p 61,039, at 61,197
(1993). In the 


hearing, WMECO argued that the entire cost, including the  cost of the
grid upgrades, was directly related to the intercon- nection and
therefore could properly be assigned to Altresco.  The Commission
staff countered that only the $510,000 cost of  the radial line from
Altresco's plant to the WMECO grid was  assignable to the
interconnection itself. The remaining  amount, in the staff's view,
should be allocated to system  upgrades, upgrades that should be
rolled into the rate base  and recovered from all WMECO customers.


The ALJ ruled that the statute did not support the Com- mission's
interpretation of what constitutes interconnection  costs. See Western
Massachusetts Elec. Co., 64 F.E.R.C.  p 63,028, at 65,127 (1993).
According to the ALJ, nothing in  PURPA or in the Commission's
regulations implementing  PURPA limits interconnection costs to the
cost of radial lines.  Because the local grid upgrades were directly
related to the  interconnection, the ALJ concluded that it was just
and  reasonable for WMECO to assign to Altresco the entire cost 
incurred under the interconnection agreements, including the  cost of


In a December 1996 order, the Commission reversed the  ALJ's initial
decision with regard to the cost of the grid  upgrades. It agreed with
the testimony of staff witness  Tekumalla that the upgrades provided a
system-wide benefit  and concluded that, because "the cost of the
reinforcements  must be treated as grid-related costs rather than as
intercon- nection costs," it was proper for WMECO to recover the cost 
of the upgrades from all customers on the grid through  rolled-in
rates. See Western Massachusetts Elec. Co., 77  F.E.R.C. p 61,268, at
62,120 (1996). The Commission denied  a request for rehearing. See
Western Massachusetts Elec.  Co., 81 F.E.R.C. p 61,152, at 61,692
(1997). The orders  reversing the ALJ and denying rehearing are the
subject of  WMECO's December 1997 petition for review, No. 97-1726.


The Masspower Agreements


Masspower owns a natural-gas-fired cogeneration plant in  Springfield,
Massachusetts. The plant is a qualifying facility  under PURPA. In
1991, WMECO agreed to interconnect 


Masspower's plant with the WMECO transmission grid. The 
interconnection was intended to allow WMECO to purchase a  portion of
Masspower's output and to wheel the rest of it  across its
transmission grid to other purchasers. As with the  Altresco
agreements, the Masspower agreements included  upgrades to the
transmission grid and required the qualifying  facility to bear all
the costs associated with the interconnec- tion, including the cost of
the upgrades. Because, in the  Altresco proceedings, the Commission
had already asserted  jurisdiction over agreements similarly involving
the transmis- sion of qualifying-facility energy to other producers,
WMECO  filed the Masspower agreements and proposed transmission  rates
with the Commission, rather than with the state regula- tory


In support of its cost assignment to Masspower, WMECO  argued that the
grid upgrades were necessitated by the  interconnection and that they
were actually less expensive  than a radial line would have been. The
agreements assigned  all interconnection and grid reinforcement costs
to Masspow- er, and the proposed transmission rates included
additional  charges for customers receiving Masspower energy. Such a 
plan, the Commission held, would result in the over-collection  of
costs, contrary to the Commission's transmission pricing  guidelines.
Accordingly, the Commission ordered WMECO  to file revised charges
assigning the costs of the interconnec- tion--but not of the grid
upgrades--to Masspower. The  Commission denied WMECO's request for
rehearing in Feb- ruary 1994. See Western Massachusetts Elec. Co., 66 
F.E.R.C. p 61,167 (1994). The order to file revised charges  and the
order denying rehearing are the subject of  WMECO's April 1994
petition for review, No. 94-1290.


II


The consolidated petitions present two central questions.  The first is
whether the Commission's assertion of jurisdiction  over the Altresco
and Masspower interconnection agreements  was "inconsistent with the
regulation" or was a "plainly 


erroneous" interpretation of the Commission's regulations.3  See Auer
v. Robbins, 117 S. Ct. 905, 911 (1997) (citing Bowles  v. Seminole
Rock & Sand Co., 325 U.S. 410, 414 (1945)); see  also Robertson v.
Methow Valley Citizens Council, 490 U.S.  332, 359 (1989); United
States v. Larionoff, 431 U.S. 864,  872-73 (1977). The second is
whether the Commission prop- erly determined that WMECO may not assign
the cost of the  grid upgrades to the qualifying facilities.


A


As to the jurisdictional question, three regulatory provi- sions must
be considered: the provision governing a utility's  obligation to
purchase power from a qualifying facility; the  provision governing
indirect purchases from a qualifying facil- ity; and the provision
governing a utility's obligation to  interconnect with a qualifying


The purchase obligation, as contained in s 292.303(a),  states that
"Each electric utility shall purchase ... any  energy and capacity
which is made available from a qualifying  facility: (1) Directly to
the electric utility; or (2) Indirectly to  the electric utility in
accordance with paragraph (d) of this  section." 18 C.F.R. s


Paragraph (d) of s 292.303 governs indirect purchases from  a
qualifying facility. It states:




__________

n 3 WMECO challenges not only the Commission's jurisdiction over  the
Altresco agreements, but also its jurisdiction over the Masspow- er
agreements. Although WMECO "reserve[d] its rights to contest 
jurisdiction as may be necessary and appropriate," the orders in the 
Masspower proceedings do not indicate that the company actually 
contested the Commission's jurisdiction. See, e.g., Western Massa-
chusetts Elec. Co., 63 F.E.R.C. p 61,222, at 62,612 n.4 (1993); 
Western Massachusetts Elec. Co., 66 F.E.R.C. p 61,167, at 61,333 
(1994). Whether WMECO thereby waived the jurisdictional argu- ment is,
however, unnecessary to decide. Because the interconnec- tions
facilitate WMECO's wheeling of qualifying-facility output, the 
analysis is the same for the Altresco and the Masspower agree- ments.
If the Commission had jurisdiction over the Altresco agree- ments, it
also had jurisdiction over the Masspower agreements.


If a qualifying facility agrees, an electric utility which  would
otherwise be obligated to purchase energy or  capacity from such
qualifying facility may transmit the  energy or capacity to any other
electric utility. Any  electric utility to which such energy or
capacity is trans- mitted shall purchase such energy or capacity under
this  subpart as if the qualifying facility were supplying ener- gy or
capacity directly to such electric utility....


18 C.F.R. s 292.303(d).


The obligation to interconnect is contained in paragraph (c)  of s
292.303. This critical provision states: "[A]ny electric  utility
shall make such interconnections with any qualifying  facility as may
be necessary to accomplish purchases or sales  under this subpart." 18
C.F.R. s 292.303(c) (emphasis add- ed).


WMECO contends that the Commission ignored the full  significance of
the italicized language in paragraph (c) when it  asserted
jurisdiction over the Altresco agreements. Accord- ing to WMECO, the
obligation to interconnect applies to all  "purchases or sales under
this subpart," which includes indi- rect sales under paragraph
(d)--that is, situations in which  the interconnecting utility only
provides transmission service  and does not purchase any of the
qualifying facility's output.  Thus, it concludes, the Altresco and
Masspower interconnec- tions should be subject to state, rather than
federal, regulato- ry jurisdiction, even though they involve
transmission, rather  than purchase, by the interconnecting utility.


Whatever force one may ascribe to WMECO's reading, it  has not shown
the Commission's interpretation to be "plainly  erroneous" or
"inconsistent with the regulations." Auer, 117  S. Ct. at 911. In "a
competition between possible meanings  of a regulation, the agency's
choice receives substantial defer- ence" so long as it is "logically
consistent with the language of  the regulation" and "serves a
permissible regulatory pur- pose." Rollins Envtl. Servs. (NJ), Inc. v.
EPA, 937 F.2d 649,  652 (D.C. Cir. 1991). The Commission read the
interconnec- tion obligation in s 292.303(c)(1) to be contingent on
the  obligation to purchase in s 292.303(a). The obligation to 


interconnect applies to any electric utility that is purchasing  all
of the output of a qualifying facility. It does not apply, the 
Commission believed, when that utility transmits the energy  to
another utility. WMECO is not purchasing energy from  Altresco, and
although it is purchasing some of Masspower's  output, it is
transmitting the remainder of that output to  other purchasers. The
Commission reads s 292.303(c) as if it  read "any electric utility
shall make such interconnections  with any qualifying facility as may
be necessary to accomplish  purchases or sales [to it] under this
subpart." The "to it" is  inferred, but properly so, and the
Commission's explanation  offered when it promulgated the regulation


The statute--PURPA--did not by its terms impose upon  electric
utilities an obligation to interconnect with qualifying  facilities;
the explicit obligation imposed by statute was to  purchase their
output. See 16 U.S.C. s 824a-3(a). When the  Commission promulgated
regulations to implement PURPA,  it derived an obligation to
interconnect. Without an intercon- nection obligation, the Commission
reasoned, a qualifying  facility seeking to interconnect with an
unwilling utility would  have to obtain an interconnection order from
the Commission,  after going through the potentially time-consuming
and costly  hearing procedures of s 210 of the Federal Power Act. See 
16 U.S.C. s 824i. The Commission designed s 292.303(c) to  avoid this
problem and thereby reduce the burden on small  power producers. See
Small Power Prod. & Cogeneration  Facilities; Regulations Implementing
Section 210 of the  Public Utility Regulatory Policies Act of 1978,
Order No. 69,  F.E.R.C. Stats. & Regs. (CCH Transfer Binder,
Regulations  Preambles 1977-1981) p 30,128, at 30,873 (1980) ("Order
No.  69"). In its order denying rehearing here, the Commission  made
note of this history. See 61 F.E.R.C. at 61,662 n.17  (citing Order
No. 69, at 30,873). It is therefore not plainly  erroneous or
inconsistent with the regulation to infer that  s 292.303(c)(1)
applies only to purchasing utilities, as  s 292.303(a) clearly does.
The Commission had a solid basis  for its interpretation of the
regulations. The Commission's  reading of s 292.303(c) is also


Federal Power Act. It places the charges for transmission  under the
Commission's jurisdiction, rather than under the  jurisdiction of the
state agency. The Commission also made  this clear when it promulgated
s 292.303(d) in 1980. See  Order No. 69, at 30,872.


WMECO asserts that none of the Altresco agreements  provides for the
transmission of energy, that they are all pre- operational, and that
this defeats the Commission's jurisdic- tion under s 205(c) of the
Federal Power Act. The argument  fails to account for the language of
s 205(c), which gives the  Commission jurisdiction over any contract
that "relates to"  rates and charges for the transmission of electric
energy--as  the Altresco and Masspower agreements surely do. Nor do 
the Commission orders WMECO cites--Coso Energy Devel- opers, 48
F.E.R.C. p 61,044, at 61,213 (1989), and Gamma  Mariah, Inc., 44
F.E.R.C. p 61,442, at 62,399 (1988)--provide  any support for its
reading of s 205(c). In both of those  proceedings, the Commission
declined to assert jurisdiction  because the agreements involved the
inclusion of transmission  facilities as part of the qualifying
facilities themselves, rather  than as part of the interconnecting
public utilities. See 61  F.E.R.C. at 61,664. Those orders therefore
do not control  the Commission's jurisdiction over the Altresco and
Masspow- er agreements, in which the disputed line upgrades will be 
part of WMECO's grid. Cf. American Municipal Power- Ohio, Inc., 57


B


The second question is whether the Commission properly  required WMECO
to roll the cost of the Altresco and Mas- spower grid upgrades into
its transmission rates.


With regard to the Altresco agreements, the Commission  accepted the
position of staff witness Tekumalla, who testified  that any
enhancement of an integrated grid system--such as  the upgrades at
issue here--performs a system-wide function  and provides benefits to
all customers on the grid. Having  considered all the upgrades planned
by WMECO and having  performed a loadflow analysis, Tekumalla provided


three reasons why the upgrades would provide a benefit to all  users
of the transmission grid and not just Altresco. First,  the physical
configuration of the upgrades makes it clear that  their purpose is
not merely to provide a power path from the  Altresco facility to the
WMECO grid--which would benefit  Altresco alone--but to enhance a
system used by many  customers. Second, the loadflow over the upgraded
grid  facilities will not remain constant. When the flow from 
Altresco is lower than expected, then other grid customers  will be
making use of the upgraded grid facilities. Third, it  cannot be
determined for sure that the upgrades would  merely restore the
transfer capability of the WMECO grid to  the precise level that
existed prior to the Altresco intercon- nection. In addition,
Tekumalla considered the testimony of  WMECO's engineer and concluded
that the engineer's posi- tion that only Altresco would benefit from
the upgrades relied  upon a level of precision in planning that would
have been  difficult to achieve, given the variability of loadflow


One element of reasoned decisionmaking is a demonstrable  link between
the facts found and the choice. See Public  Utils. Comm'n of New York
v. FERC, 813 F.2d 448, 451 (D.C.  Cir. 1987). Tekumalla's testimony
provides the link. Teku- malla's characterization of the upgrades was
based on identi- fying the beneficiary of the upgrades. The facts he
cited  demonstrate that customers other than Altresco will make  use
of and benefit from the grid upgrades. The choice made  by the
Commission links up with those facts because it  requires the
beneficiaries of the upgrades to bear the costs.


The Commission's position with regard to assignment of  costs is, so
far as we can tell, part of a consistent policy to  assign the costs
of system-wide benefits to all customers on  an integrated
transmission grid. We have approved the  underlying rationale of this
policy. When a system is inte- grated, any system enhancements are
presumed to benefit  the entire system. See, e.g., Maine Pub. Serv.
Co. v. FERC,  964 F.2d 5, 8-9 (D.C. Cir. 1992); City of Holyoke Gas &
Elec.  Dep't v. FERC, 954 F.2d 740, 742-43 (D.C. Cir. 1992). Before 
the Commission, WMECO did not dispute the fact that its 


transmission grid was integrated. Rather, it attempted to  demonstrate
why the grid upgrades provided no benefit to  any customer except
Altresco. The Commission instead ac- cepted staff witness Tekumalla's
testimony. As we have said,  he testified that WMECO's assumptions
about the allocation  of benefits required a level of precision in
planning that would  be difficult to achieve. The Commission's
presumption of a  system-wide benefit was, in short, based on


WMECO argues that the Commission failed to consider the  cost-shifting
effects of its order to roll in costs of the system  upgrades. It
claims that requiring all grid customers to bear  the cost of the
upgrades unfairly shifts costs properly borne  by the qualifying
facility--which in turn will reap a windfall  as a result. It also
claims that the Commission's decision  creates perverse incentives for
qualifying facilities to ignore  economic efficiency in locating their
plants because they know  that the grid customers will foot the


The Commission did consider the potential for cost shifting,  however,
and found it not to be present in this case. As this  court has often
noted, "we are obliged to defer to [the  Commission's] technical
ratemaking expertise so long as it  has supplied sufficient reasoning
backed up by substantial  evidence." Pennsylvania Elec. Co. v. FERC,
11 F.3d 207,  211 (D.C. Cir. 1993) (quoting Alabama Power Co. v. FERC,
 993 F.2d 1557, 1560 (D.C. Cir. 1993)) (internal quotation  marks
omitted). We think that the Commission's rejection of  WMECO's
cost-shifting argument was adequately supported  by logic and
evidence. In any event, WMECO's arguments  about cost-shifting and
perverse incentives are mistaken. If  a qualifying facility seeking
interconnection for transmission  purposes located its plant far from
the utility's lines knowing  that the interconnection costs would be
spread among the  utility's customers, the utility could simply refuse
to transmit  the power. Although the utility would still have an
obligation  to purchase the qualifying facility's output, see 18
C.F.R.  s 292.303(a), the qualifying facility, rather than the
utility's  customers, would wind up paying for the interconnection. A 
qualifying facility could not afford to take that risk and 


therefore would do all it could to keep the costs of intercon- nection
to a minimum. Of course, a cogenerator such as  Altresco would not
have much of a choice about where to  locate its facility because
cogenerators need to be near their  hosts anyway.


As to the question of cost assignment in the Masspower  case, we also
view the Commission's order as reasonable.  The Commission found that,
in addition to assigning all  interconnection costs to Masspower,
WMECO also intended  to charge grid customers an increased rate for
transmitting  Masspower's output. The Commission believed that such a 
cost-recovery scheme would have resulted in over-collection of  costs,
contrary to the Commission's transmission pricing  guidelines. In its
request for rehearing, WMECO raised the  same objection to the
Commission's order as it did in the  Altresco proceeding: the grid
upgrades do not benefit the  entire system but only restore the grid's
reliability to the  status quo. The Commission was not persuaded to
deviate  from its current policy regarding integrated systems. See 
Appalachian Power Co., 63 F.E.R.C. p 61,151, at 61,978,  supplemental
order, 64 F.E.R.C. p 61,327 (1993). In light of  our holding with
regard to the Altresco agreements, we  cannot say that the Commission
erred in applying its policy to  the Masspower agreements.


For the foregoing reasons, the petitions for judicial review  are
denied.


So ordered.