Nos. 00-568, 00-800 and 00-809 

In the Supreme Court of the United States 

STATE OF NEW YORK, ET AL., PETITIONERS 

v. 
FEDERAL ENERGY REGULATORY COMMISSION, ET AL. 

BOARD OF WATER, LIGHT AND SINKING FUND 
COMMISSIONERS OF THE CITY OF DALTON, GEORGIA, 
PETITIONER 

v. 
FEDERAL ENERGY REGULATORY COMMISSION 

ENRON POWER MARKETING, INC., PETITIONER 

v. 
FEDERAL ENERGY REGULATORY COMMISSION 

ON PETITIONS FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE DISTRICT OF COLUMBIA CIRCUIT 

BRIEF FOR THE FEDERAL ENERGY REGULATORY 
COMMISSION IN OPPOSITION 

DOUGLAS W. SMITH 
General Counsel 

CYNTHIA A. MARLETTE 

Deputy General Counsel 

SUSAN J. COURT 

Associate Solicitor 

TIMM L. ABENDROTH 

Attorney 
Federal Energy Regulatory 

Commission 
Washington, D.C. 20426 
BARBARA D. UNDERWOOD 

Acting Solicitor General 

Counsel of Record 
Department of Justice 
Washington, D.C. 20530-0001 
(202) 514–2217 

QUESTIONS PRESENTED 

In its Order No. 888 rulemaking, the Federal Energy 
Regulatory Commission found that public utilities 
subject to its jurisdiction under the Federal Power Act 
(FPA), 16 U.S.C. 792 et seq., discriminated unlawfully in 
providing access to their electric transmission facilities. 
As a remedy, Order No. 888 requires them to unbundle 
their packaged wholesale electric energy service into 
separate energy sales and transmission services and to 
provide non-discriminatory access to their electric 
transmission systems in order to ensure “open access” 
to the interstate energy transmission grid and thereby 
facilitate competition in the national market for electric 
energy. The questions presented are: 

1. Whether the Commission’s open access regula- 
tions are permissible under Sections 205 and 206 of the 
FPA, 16 U.S.C. 824d and 824e. 

2. Whether the Commission properly concluded that 
Section 201 of the FPA, 16 U.S.C. 824, authorizes the 
Commission to assert jurisdiction over interstate trans- 
mission service involved in a retail sale transaction 
where States have unbundled such transactions into 
separate transmission and sales services, but does not 
require the Commission to assert jurisdiction over 
transmission service that remains bundled with local 
retail sales and distribution service. 

3. Whether Section 201 of the FPA authorizes the 
Commission to assert jurisdiction over facilities that 
may be used both for local distribution to retail cus- 
tomers and for transmission of electric energy to whole- 
sale purchasers. 

(I) 

II 

4. Whether Section 201 of the FPA bars the Com- 
mission from allowing utilities to recover certain 
stranded costs caused by the unbundling of retail elec- 
tric service. 

TABLE OF CONTENTS 

Page 

Opinions below ............................................................................... 
2 

Jurisdiction ...................................................................................... 2 

Statement ........................................................................................ 2 

Argument ........................................................................................ 10 

Conclusion ....................................................................................... 23 

TABLE OF AUTHORITIES 

Cases: 

American Trucking Ass’ns v. Atchison, T. & S.F. 

Ry., 387 U.S. 397 (1967) ........................................................ 

14 

Arkansas Elec. Coop. Corp. v. Arkansas Pub. 

Serv. Comm’n, 461 U.S. 375 (1983) .................................... 

16 

Associated Gas Distribs. v. FERC, 824 F.2d 

981 (D.C. Cir. 1987), cert. denied, 485 U.S. 1006 

(1988) ................................................................................ 

8, 11, 12 

CFTC v. Schor, 478 U.S. 833 (1986) ................................... 

14 

Connecticut Light & Power Co. v. FPC, 324 U.S. 

515 (1945) ............................................................................. 

16, 17 

EEOC v. Commercial Office Prods. Co., 486 U.S. 

107 (1988) ................................................................................. 

13 

FDA v. Brown & Williamson Tobacco Corp., 

120 S. Ct. 1291 (2000) ............................................................ 

14 

FPC v. Florida Power & Light Co., 404 U.S. 453 

(1972) ...................................................................................... 

8, 13 

FPC v. Louisiana Power & Light Co., 406 U.S. 

621 (1972) ................................................................................. 

21 

FPC v. Southern Cal. Edison Co., 376 U.S. 205 

(1964) .................................................................................... 

15, 16 

Mississippi Power & Light Co. v. Moore, 487 U.S. 

354 (1988) ................................................................................. 

14 

Mississippi River Transmission Corp. v. FERC, 

969 F.2d 1215 (D.C. Cir. 1992) ............................................. 21 

(III) 

IV 

Cases—Continued: Page 

Motor Vehicle Mfrs. Ass’n of United States v. 

State Farm Mut. Auto. Ins. Co., 463 U.S. 29 

(1983) ........................................................................................ 14 

NLRB v. United Food & Commercial Workers 

Union, 484 U.S. 112 (1987) .................................................. 

14 

Northern States Power Co. v. FERC, 176 F.3d 

1090 (8th Cir. 1999), cert. denied, 120 S. Ct. 1221 

(2000) ........................................................................................ 15 

Otter Tail Power Co. v. United States, 410 U.S. 

366 (1973) ................................................................................. 

11 

Permian Basin Area Rate Cases, 390 U.S. 747 

(1968) .................................................................................... 

10, 14 

Reiter v. Cooper, 507 U.S. 258 (1993) ................................. 

13 

Statutes: 

Federal Power Act, 16 U.S.C. 792 et seq.: 

Pt. II, 16 U.S.C. 824-824m .................................................... 

2 

§ 201, 16 U.S.C. 824 ...................................... 

6, 13, 14, 15, 20 

§ 201(a), 16 U.S.C. 824(a) ................................................. 

17 

§ 201(b), 16 U.S.C. 824(b) ..................... 

9, 12, 15, 17, 20, 21 

§ 201(b)(1), 16 U.S.C. 824(b)(1) ................................. 

2, 3, 17 

§ 201(c), 16 U.S.C. 824(c) ................................................ 

3, 13 

§ 201(e), 16 U.S.C. 824(e) ................................................. 

2 

§ 201(f), 16 U.S.C. 824(f) .................................................. 

2 

§ 205, 16 U.S.C. 824d ............................................. 

4, 8, 12 

§ 205(b), 16 U.S.C. 824d(b) .............................................. 

3 

§ 205(c), 16 U.S.C. 824d(c) ............................................... 

3 

§ 206, 16 U.S.C. 824e .............................................. 

3, 4, 8, 12 

§ 206(a), 16 U.S.C. 824e(a) ............................................... 

10 

§ 211, 16 U.S.C. 824j ..................................................... 

12, 15 

§ 212(e)(1), 16 U.S.C. 824k(e)(1) ..................................... 

12 

§ 212(h), 16 U.S.C. 824k(h) ................................... 

14, 15, 18 

Natural Gas Act, 15 U.S.C. 717 et seq.: 

§ 1(b), 15 U.S.C. 717(b) ..................................................... 

21 

§ 5(a), 15 U.S.C. 717d(a) ................................................... 11 

V 

Statutes—Continued: Page 

§ 7(c), 15 U.S.C. 717f(c) .................................................... 

21 

42 U.S.C. 7173(c) ....................................................................... 11 

In the Supreme Court of the United States 

No. 00-568 

STATE OF NEW YORK, ET AL., PETITIONERS 

v. 
FEDERAL ENERGY REGULATORY COMMISSION, ET AL. 

No. 00-800 

BOARD OF WATER, LIGHT AND SINKING FUND 
COMMISSIONERS OF THE CITY OF DALTON, GEORGIA, 
PETITIONER 

v. 
FEDERAL ENERGY REGULATORY COMMISSION 

No. 00-809 

ENRON POWER MARKETING, INC., PETITIONER 

v. 
FEDERAL ENERGY REGULATORY COMMISSION 

ON PETITIONS FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE DISTRICT OF COLUMBIA CIRCUIT 

BRIEF FOR THE FEDERAL ENERGY REGULATORY 
COMMISSION IN OPPOSITION 

(1) 

2 

OPINIONS BELOW 

The opinion of the court of appeals (Pet. App. C1- 
C121)1 is reported at 225 F.3d 667. The relevant orders 
of the Federal Energy Regulatory Commission are 
reported as follows: Order No. 888, F.E.R.C. Stats. & 
Regs., Regulations Preambles January 1991-June 1996, 
¶ 31,036; Order No. 888-A, 3 F.E.R.C. Stats. & Regs. 
¶ 31,048; Order No. 888-B, 81 F.E.R.C. ¶ 61,248. Rele- 
vant portions of those orders are reprinted in Pet. App. 
D1-D125, E1-E120, and F1-F21; 00-809 Pet. App. 125a- 
369a, 371a-551a; 00-800 Pet. App. 1a-111a. 

JURISDICTION 

The judgment of the court of appeals (Pet. App. B1- 
B2) was entered on June 30, 2000. A petition for re- 
hearing was denied on August 22, 2000 (Pet. App. A1- 
A2). The petition for a writ of certiorari in No. 00-568 
was filed on October 12, 2000. The petitions in Nos. 
00-800 and 00-809 were filed on November 20, 2000. 
The jurisdiction of this Court is invoked under 28 
U.S.C. 1254(1). 

STATEMENT 

1. Part II of the Federal Power Act (FPA or the 
Act), 16 U.S.C. 824-824m, confers on the Federal En- 
ergy Regulatory Commission (FERC or the Commis- 
sion) jurisdiction over rates, terms, and conditions of 
electric transmission service provided by public utilities 
in interstate commerce.2 Section 201(b)(1) of the FPA 

1 Unless otherwise indicated, references to “Pet. App.” are to 
the appendix to the certiorari petition in No. 00-568. 

2 Section 201(e), 16 U.S.C. 824(e), defines “public utility” as 
“any person who owns or operates facilities subject to the juris- 
diction of the Commission.” Section 201(f), 16 U.S.C. 824(f ), 
excludes from FERC’s jurisdiction companies owned by “the 

3 

authorizes the Commission to exercise jurisdiction over 
“the transmission of electric energy in interstate com- 
merce,” “the sale of electric energy at wholesale in 
interstate commerce,” and “all facilities for such trans- 
mission or sale of electric energy.” 16 U.S.C. 824(b)(1). 
Jurisdiction over “facilities used in local distribution or 
only for the transmission of electric energy in intrastate 
commerce” is left to the States. Ibid. Section 201(c) 
further provides that electric energy is transmitted in 
interstate commerce if it is “transmitted from a State 
and consumed at any point outside thereof.” 16 U.S.C. 
824(c). 

Pursuant to Section 205(c) of the FPA, 16 U.S.C. 
824d(c), public utilities subject to FERC’s jurisdiction 
must file tariff schedules with FERC showing their 
rates and service terms, along with related contracts 
for jurisdictional service. Section 205(b) of the Act 
prohibits such utilities from “grant[ing] any undue 
preference or advantage to any person or subject[ing] 
any person to any undue prejudice or disadvantage.” 16 
U.S.C. 824d(b). Whenever the Commission finds that 
any rate charged by any such utility “for any transmis- 
sion or sale,” or that any utility’s practice “affect[ing] 
such rate” is “unjust, unreasonable, unduly discrimina- 
tory or preferential,” Section 206 of the Act directs 
FERC to prescribe a lawful rate or practice for the 
future. 16 U.S.C. 824e. 

2. In recent years, the electric utility industry has 
evolved from a traditional, heavily regulated industry 
dominated by vertically integrated monopolies into a 
more competitive industry in which customers have 
choices as to their power suppliers. Pet. App. C8-C10. 

United States, a State or any political subdivision of a State,” ex- 
cept as specifically provided. 

4 

A key impediment to developing a competitive whole- 
sale market for electric power is the monopoly owner- 
ship of interstate transmission systems: a utility that 
controls access to transmission services can deny mar- 
ket access to competitors and favor its own generation 
in competing for buyers. Id. at C10. In Order No. 888, 
the Commission found, based on an extensive rule- 
making record, that public utilities were denying or 
providing inferior access by others to their transmis- 
sion service, in violation of the nondiscrimination 
provisions of Sections 205 and 206 of the Act. 00-809 
Pet. App. 213a-218a. 

As a remedy, Order No. 888 requires public utilities 
that own or control transmission facilities to offer 
transmission service to customers on terms comparable 
to the transmission service they use in serving their 
own power customers. Order No. 888 also prescribes 
certain minimum terms and conditions of service neces- 
sary to provide nondiscriminatory open-access service 
and requires utilities to file tariffs setting out those 
terms and conditions. Pet. App. C10-C11, D9. The 
Order further requires the unbundling of electric 
utilities’ wholesale electricity product into separately 
priced sales and transmission services, and requires 
utilities to take transmission service for their own 
wholesale sales and purchases under the same open 
access tariff applicable to others. 00-809 Pet. App. 178a. 

During the course of its rulemaking, the Commission 
addressed several issues concerning its jurisdiction 
over transmission of electric energy in light of the Act’s 
provisions giving the States jurisdiction over local 
distribution and retail sales of electric energy. Among 
those issues was whether federal authority extended to 
the interstate transmission component of a public 
utility’s sale of power to its retail customers. As the 

5 

Commission recognized, a growing number of States 
have permitted or required utilities that provide retail 
service to unbundle their services so that customers can 
purchase power from sources other than their historical 
suppliers. Pet. App. D7. Such unbundling, in turn, re- 
quired the Commission to determine which transmis- 
sion facilities and services would be subject to the 
nondiscriminatory tariffs of Order No. 888. The Com- 
mission resolved that jurisdictional question as follows: 

[W]e believe that when transmission is sold at retail 
as part and parcel of the delivered product called 
electric energy, the transaction is a sale of electric 
energy at retail. Under the FPA, the Commission’s 
jurisdiction over sales of electric energy extends 
only to wholesale sales. However, when a retail 
transaction is broken into two products that are sold 
separately (perhaps by two different suppliers: an 
electric energy supplier and a transmission sup- 
plier), we believe the jurisdictional lines change. In 
this situation, the state clearly retains jurisdiction 
over the sale of the power. However, the unbundled 
transmission service involves only the provision of 
“transmission in interstate commerce” which, under 
the FPA, is exclusively within the jurisdiction of the 
Commission. 

Id. at D44 (emphasis added). Given FERC’s jurisdic- 
tion over unbundled transmission, the agency further 
distinguished between wholesale and retail transac- 
tions. In the wholesale situation, FERC asserted exclu- 
sive jurisdiction over the rates, terms, and conditions of 
all unbundled transmission service and the facilities 
used to provide the transmission, regardless of whether 
those facilities are labeled “transmission,” “distribu- 
tion” or “local distribution.” Id. at D43-D44, D122, F8. 

6 

Order No. 888 thus requires public utilities offering 
such transmission to file transmission rate schedules 
with FERC that comply with its open-access rule, and 
provides that a share of the cost of transmission assets 
previously included in retail rate base will now be 
included in rate base subject to FERC’s exclusive 
jurisdiction. Id. at D44-D53. 

In the retail situation, however, FERC recognized 
both the States’ continuing jurisdiction under Section 
201 over “facilities used in local distribution,” and the 
absence of any bright line to distinguish those facilities 
from interstate transmission facilities. The Commission 
therefore adopted a test to distinguish between trans- 
mission facilities and local distribution facilities, based 
on the function and technical characteristics of the 
facilities. Pet. App. D19-D20.3 FERC also stated that 
it would defer to state recommendations in such mat- 
ters, including where to draw the jurisdictional line 
between transmission and local distribution under 
FERC’s test. Id. at D41-D52. 

FERC further clarified several other aspects of its 
exercise of jurisdiction over unbundled transmission for 

3 The test takes into account the following factors: 

(1) Local distribution facilities are normally in close proxim- 
ity to retail customers; (2) Local distribution facilities are 
primarily radial in character; (3) Power flows into local distri- 
bution systems; it rarely, if ever, flows out; (4) When power 
enters a local distribution system, it is not reconsigned or 
transported on to some other market; (5) Power entering a 
local distribution system is consumed in a comparatively re- 
stricted geographical area; (6) Meters are based at the 
transmission/local distribution interface to measure flows into 
the local distribution system; (7) Local distribution systems 
will be of reduced voltage. 

Pet. App. D19-D20. 

7 

retail sale. First, FERC emphasized that in exercising 
jurisdiction over the rates, terms, and conditions of the 
transmission component of unbundled retail transac- 
tions, it was not asserting authority either to order the 
unbundling of retail transactions or to order retail 
transmission to an ultimate consumer. Rather, its 
jurisdiction attaches only if retail transmission has been 
unbundled from the retail sale, either voluntarily by the 
utility or as a result of a state-ordered retail program. 
Pet. App. D44. Second, FERC clarified that its juris- 
diction over the rates, terms, and conditions of unbun- 
dled retail transmission would not affect matters 
traditionally left to the States, “including authority to 
regulate the vast majority of generation asset costs, the 
siting of generation and transmission facilities, and 
decisions regarding retail service territories.” Id. at 
D12; see also id. at D46 & n.544. 

Order No. 888 also addresses problems created by 
“stranded costs,” i.e., a utility’s sunk plant and other 
costs that it cannot recoup when customers, who pre- 
viously took bundled service from the utility, take 
advantage of open-access transmission to purchase 
cheaper power from other suppliers. Pet. App. C11. 
Order No. 888 affords utilities an opportunity to re- 
cover such costs from a former customer that pur- 
chased its power requirements from the utility, but 
only if (a) the customer uses the former utility’s 
transmission system to reach the new supplier, and (b) 
the utility shows a “reasonable expectation” that it 
would have continued to serve that customer beyond 
the end of its contract term. Id. at C11, C42-C48, D53- 
D54. With respect to costs stranded where retail 
customers are able to find new suppliers as a result of 
state retail unbundling, FERC recognized the primacy 
of state jurisdiction, and therefore took the position 

8 

that it would serve as a forum for cost recovery only if a 
state regulator lacked authority to do so and the 
departing customer uses a FERC transmission tariff to 
reach its new supplier. Id. at D80-D84, E91-E96.4 

3. In a unanimous per curiam decision, the court of 
appeals upheld FERC’s rules “in nearly all respects.” 
Pet. App. C8.5 The court first held that FERC had 
authority to require open access by virtue of its 
authority under Sections 205 and 206 to remedy undue 
discrimination by public utilities. Id. at C16-C19. The 
court of appeals relied in part on its decision in 
Associated Gas Distributors v. FERC, 824 F.2d 981 
(D.C. Cir. 1987), cert. denied, 485 U.S. 1006 (1988), in 
which it upheld a similar open-access requirement 
imposed by FERC on natural gas transportation under 
parallel provisions of the Natural Gas Act (NGA). See 
Pet. App. C17-C19, C21-C22. The court further held 
that FERC permissibly relied on generic findings of 
undue discrimination by utilities, and that FERC there- 
fore was not required to find each individual utility’s 
rates or practices unlawful. Id. at C19-C22. 

The court also affirmed the jurisdictional basis for 
Order No. 888. Pet. App. C26-C38. The court ex- 
plained that “[b]oth FPA [Sections] 201(a) and (b) 
clearly and unambiguously confer upon FERC juris- 
diction over the ‘transmission of electric energy in 
interstate commerce.’ ” Id. at C30-C31. The court 

4 FERC also stated that it would serve as the primary forum 
for recovery of stranded costs where former retail customers be- 
come wholesale customers through what is known as municipaliza- 
tion or municipal annexation. Pet. App. C79. 

5 The court remanded to the agency to explain its treatment of 
certain stranded energy costs and to provide a reasonable cap on 
certain contract extensions. Pet. App. C12. 

9 

observed (id. at C31-C32) that this Court held in FPC 

v. Florida Power & Light Co., 404 U.S. 453 (1972), that 
the very interconnection of utilities to the interstate 
grid results in a commingling of electricity and energy 
flows across state lines in interstate commerce, and 
under that precedent, “the FPA gives FERC the 
authority to regulate the transmissions at issue here, 
whether retail or wholesale.” Pet. App. C33. The court 
also sustained FERC’s decision not to assert juris- 
diction over retail transmission that remains bundled 
with retail sales, reasoning that the Act is ambiguous 
with respect to the issue and that FERC’s decision 
“represents a statutorily permissible policy choice to 
which [the court] must * * * defer under Chevron.” 
Id. at C34. At the same time, the court rejected the 
challenge by certain States to FERC’s exercise of 
jurisdiction over local distribution facilities that are 
used in wholesale transactions. The court concluded 
that since “FPA [Section] 201(a) makes clear that all 
aspects of wholesale sales are subject to federal regula- 
tion, regardless of the facilities used[,] FERC’s asser- 
tion of jurisdiction over all wholesale transmissions, 
regardless of the nature of the facility, is clearly within 
the scope of its statutory authority.” Id. at C37. 

The court further held that FERC could permit 
recovery of retail stranded costs, in situations in which 
customers take advantage of state-ordered wheeling 
and state commissions lack the authority to award 
recovery of such costs. The court reasoned that “costs” 
are not jurisdictional and, thus, while Section 201(b) of 
the Act denies FERC jurisdiction over “facilities used 
for the generation of electric energy,” 16 U.S.C. 824(b), 
“that provision does not necessarily prevent FERC 
from including costs relating to generating facilities in 

10 

transmission rates, over which FERC indisputably has 
jurisdiction.” Pet. App. C81. 

ARGUMENT 

1. a. Petitioner Board of Water, Light and Sinking 
Fund Commissioners of the City of Dalton, Georgia 
(Dalton) argues (00-800 Pet. 7-10, 14-22) that FERC’s 
reliance on generic findings of undue discrimination and 
its open-access remedy conflict with Section 206(a)’s 
requirement that FERC must premise a remedy on a 
finding that each individual utility’s practice “affecting” 
a rate “is” unduly discriminatory.6 That contention 
lacks merit. 
FERC specifically concluded that “there is more than 
sufficient reason to believe that transmission monopo- 
lists currently engage in unduly discriminatory prac- 
tices, and that they will continue to engage in unduly 
discriminatory practices, unless [FERC] fashion[s] a 
remedy to eliminate their ability and incentive to do 
so.” 00-809 Pet. App. 216a (emphasis added). FERC 
based that finding on its own experience in reviewing 
applications and complaints, public comments present- 
ing examples and allegations of widespread discrimina- 
tion, and its determinations concerning the existence of 
systemic monopoly conditions and the economic self- 
interest of transmission monopolists–as well as FERC’s 
expert prediction that such discrimination would likely 

6 Dalton also suggests (00-800 Pet. 16-18) that its own cir- 
cumstances justify the conclusion that FERC erred in making 
generic findings of discrimination and imposing a generic remedy. 
The court of appeals, however, found that contention not ripe for 
review, Pet. App. C24, and Dalton does not challenge that ruling in 
this Court. 

11 

increase in the future. Pet. App. C20-C21; 00-809 Pet. 
App. 209a-218a, 213a-214a, 315a-331a.7 

The court of appeals therefore properly held that the 
agency’s rules need not be premised on “specific 
findings” for each individual company where, as here, 
the agency’s factual determinations are reasonable. 
Pet. App. C21. The court of appeals noted that it had 
previously upheld FERC’s authority to proceed by 
rulemaking in exercising its parallel authority to 
address discriminatory practices under Section 5(a) of 
the NGA, 15 U.S.C. 717d(a), that Congress had ratified 
that approach in 42 U.S.C. 7173(c), and that the court 
had rejected similar challenges to FERC’s ordering of 
open-access in the natural gas industry in Associated 
Gas Distributors, 824 F.2d at 1008. The court of 
appeals’ decision upholding FERC’s exercise of that 
settled authority in Order No. 888 presents no issue 
warranting this Court’s review. 

b. Dalton also contends (00-800 Pet. 22-27) that 
Order No. 888 conflicts with Otter Tail Power Co. v. 
United States, 410 U.S. 366 (1973). In that case, this 
Court held that the FPA did not preempt an antitrust 
remedy that ordered involuntary wheeling (i.e., man- 
datory transmission for a third party), reasoning that 
“[s]o far as wheeling is concerned, there is no authority 

7 It is well-settled that an agency may rely on established eco- 
nomic principles in promulgating rules. See, e.g., Permian Basin 
Area Rate Cases, 390 U.S. 747, 792-795 (1968) (upholding Com- 
mission’s rejection of contract pricing based on considerations of, 
inter alia, “market imperfections” and a “monopsonistic environ- 
ment”); see also Pet. App. C22. Dalton does not challenge either 
that proposition or the Commission’s authority to proceed by 
rulemaking rather than case-by-case adjudication. See 42 U.S.C. 
7173(c) (“[T]he establishment of rates and charges under [the 
FPA] * * * may be conducted by rulemaking procedures.”). 

12 

granted the Commission under Part II of the Federal 
Power Act to order it, for the bills originally introduced 
contained common carrier provisions which were 
deleted.” Id. at 375. As the court of appeals explained, 
however, Otter Tail does not address whether the 
Commission may order wheeling in the exercise of its 
authority under Sections 205 and 206 to remedy undue 
discrimination. Pet. App. C18-C19. Those provisions 
specifically confer on FERC the authority to prescribe 
rates and practices upon a finding of undue discrimina- 
tion, and the court of appeals correctly held that FERC 
has reasonably construed those provisions as conferring 
broad authority to remedy unduly discriminatory 
behavior by an open-access requirement. Id. at C19. 
As the court of appeals also pointed out (C18-C19), that 
court rejected similar arguments based on Otter Tail in 
Associated Gas Distributors some 13 years ago. See 
824 F.2d at 998-999. In this respect as well, then, the 
court of appeals’ decision breaks no new ground and 
presents no issue warranting review by this Court.8 

2. The petitioners in No. 00-568 are nine state regu- 
latory commissions (the States) that challenge (Pet. 12- 

19) FERC’s jurisdiction over the transmission service 

8 There similarly is no merit to Dalton’s claim (00-800 Pet. 26- 

27) that the Commission’s open-access rule is inconsistent with the 
authority to order wheeling on a case-by-case basis under Section 
211 of the FPA, 16 U.S.C. 824j. Nothing in Section 211 undermines 
the Commission’s remedial authority under Section 206. See 16 
U.S.C. 824k(e)(1) (Section 211 “shall not be construed as limiting or 
impairing any authority of the Commission under any other pro- 
vision of law.”); see also 00-800 Pet. App. 69a-70a. As the Com- 
mission explained, the authority conferred by Section 211 was 
simply inadequate to meet the industry-wide conditions it sought 
to address in Order No. 888. Id. at 45a-46a. 

13 

involved in unbundled retail transactions. The court of 
appeals properly rejected their contentions. 

a. Section 201(b) explicitly gives FERC jurisdiction 
over all “transmission of electric energy in interstate 
commerce” and “all facilities for such transmission,” 
regardless of whether the transmission is part of a 
wholesale or retail transaction. In FPC v. Florida 
Power & Light Co., 404 U.S. 453, 462-463 (1972), this 
Court recognized that when a utility’s transmission 
lines connect to an interstate grid, the utility’s energy 
commingles with that of other utilities so that 
inevitably some energy is transmitted across state lines 
and becomes interstate in nature.9 

The court of ap- 
peals therefore correctly concluded that “the FPA 
gives FERC the authority to regulate the transmissi- 
ons at issue here, whether retail or wholesale.” Pet. 
App. C33. The States’ arguments to the contrary lack 
merit. 

i. The States argue (00-568 Pet. 12) that the court of 
appeals improperly deferred to the Commission’s view 
of its jurisdiction. The court held, however, that it was 
bound by this Court’s interpretation in Florida Power 
& Light of “interstate transmission” under Section 201, 
and held only alternatively that it would defer to 

9 For that reason, the States’ reliance (00-568 Pet. 15-16) on 
Section 201(c), 16 U.S.C. 824(c), which states that energy is 
transmitted in interstate commerce if “transmitted from a State 
and consumed at any point outside thereof,” is misplaced. With 
transmission interconnection, some of the electricity generated and 
transmitted in one State is almost inevitably consumed “outside 
thereof.” That conclusion, however, does not create a null set of 
“intrastate transmission” under the FPA, because utilities may 
have no interconnection that would permit the physical transmis- 
sion of power outside of a State, such as in Alaska, Hawaii, and 
most areas of Texas. See Pet. App. D43 n.541. 

14 

FERC’s interpretation of its jurisdictional authority. 
See Pet. App. C33. In any event, this Court repeatedly 
has deferred to an agency’s reasonable interpretation of 
a statute affecting the scope of its jurisdiction. See, e.g., 
Reiter v. Cooper, 507 U.S. 258, 269 (1993); EEOC v. 
Commercial Office Prods. Co., 486 U.S. 107, 115 (1988); 
NLRB v. United Food & Commercial Workers Union, 
484 U.S. 112, 123 (1987); CFTC v. Schor, 478 U.S. 833, 
845 (1986); see also Mississippi Power & Light Co. v. 
Moore, 487 U.S. 354, 380-382 (1988) (Scalia, J., concur- 
ring in the judgment) (collecting cases on question of 
deference to agency’s interpretation of statute concern- 
ing its jurisdiction). 

ii. The States argue (00-568 Pet. 14-15) that Order 
No. 888 conflicts with the statements by FERC and the 
Federal Power Commission (FPC) in congressional 
hearings and briefs to this Court that Section 201 does 
not extend the Commission’s jurisdiction to retail sales. 
Neither FERC nor the FPC, however, has ever taken a 
position on the jurisdictional issues presented in this 
case. In Order No. 888, FERC addressed for the first 
time its view of the jurisdictional consequences of 
dramatic changes since enactment of the FPA, i.e., the 
increase in competition in the electric utility industry 
and the advent of unbundled services. In light of those 
economic realities, FERC was well within its broad 
authority “to ‘adapt [its] rules and policies to the 
demands of changing circumstances.’ ” 

FDA v. Brown 
& Williamson Tobacco Corp., 120 S. Ct. 1291, 1313 
(2000) (quoting Motor Vehicle Mfrs. Ass’n of United 
States v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 
42, 103 (1983) (quoting Permian Basin Area Rate 
Cases, 390 U.S. 747, 784 (1968))); see also American 
Trucking Ass’ns v. Atchison, T.& S.F. Ry., 387 U.S. 
397, 415 (1967) (“[T]he Commission, faced with new 

15 

developments, or in light of reconsideration of the 
relevant facts and its mandate, may alter its past 
interpretation.”). 

iii. The States further argue (00-568 Pet. 16) that 
Order No. 888 conflicts with Section 212(h) of the Act, 
16 U.S.C. 824k(h), which sets forth the terms, con- 
ditions, and limitations on FERC’s authority under 
Section 211, 16 U.S.C. 824j, to require transmission 
wheeling on a case-by-case basis, and provides that 
nothing in Section 212(h) “shall affect any authority of 
any State or local government under State law con- 
cerning the transmission of electric energy directly to 
an ultimate consumer.” That provision has no appli- 
cation here, and in no way purports to limit FERC’s 
jurisdiction under Section 201(b) over the rates, terms, 
and conditions of the transmission of electric energy in 
interstate commerce. Section 212(h) simply prohibits 
FERC from ordering transmission directly to an 
ultimate consumer, and in the challenged orders FERC 
disavowed any power to do so. Pet. App. D44. More- 
over, when a utility engages in retail unbundling, either 
voluntarily or as required by state law, the States 
retain authority under Order No. 888 over local matters 
such as power production, customer service, and local 
reliability. Id. at D44-D46. 

iv. The States assert (00-568 Pet. 17) that the Com- 
mission’s exercise of jurisdiction over the transmission 
component on an unbundled retail transaction conflicts 
with this Court’s observation in FPC v. Southern Cali- 
fornia Edison Co., 376 U.S. 205, 215 (1964), that Section 
201 creates a “bright-line” jurisdictional test between 
wholesale (i.e., sales for resale) and retail (i.e., direct) 
sales of energy. 

Order No. 888, however, does not de- 
part from that test, but rather requires FERC to 
distinguish between facilities used for transmission and 

16 

10 Indeed, the 
Court in Southern California Edison, 376 U.S. at 210 

n.6, acknowledged the absence of such a bright-line 
distinction in that respect, concluding that the issue 
“involves a question of fact to be decided by [the 
agency] as an original matter.” See also Connecticut 
Light & Power Co. v. FPC, 324 U.S. 515, 531-536 
(1945). 

facilities used for local distribution. 

11 

v. The States argue (00-568 Pet. 18) that, as a policy 
matter, Order No. 888 undermines competition because 
it will encourage States not to order retail unbundling 
for fear of losing jurisdiction over transmissions 
associated with retail transactions. That contention 
erroneously assumes that States will not weigh their 
consumers’ best interests in deciding for, or against, 
retail wheeling, but will be concerned only with 
protecting their own jurisdiction. In any event, the 
States have made no showing that Order No. 888 
actually has deterred any State from ordering retail 

10 Contrary to the States’ suggestion (00-568 Pet. 17), the deci- 
sion below does not conflict with Northern States Power Co. v. 
FERC, 176 F.3d 1090, 1096 (8th Cir. 1999), cert. denied, 120 S. Ct. 
1221 (2000), which addressed aspects of Order No. 888’s 
curtailment provisions. The decision in that case did not address 
FERC’s jurisdiction over unbundled retail transmissions, facilities 
used in wholesale transactions, or stranded costs caused by 
FERC’s open-access requirement. 

11 The States’ reliance (00-568 Pet. 18) on Arkansas Electric 
Cooperative Corp. v. Arkansas Public Service Comm’n, 461 U.S. 
375, 394 (1983), for the proposition that “mere interconnection of 
electric utilities is not enough to defeat state jurisdiction” is like- 
wise misplaced. In that case, the Court had already determined 
that the FPA did not cover the transactions by rural power coop- 
eratives that were at issue, before finding that regulation of whole- 
sale rates was within the legitimate scope of local interests, 
notwithstanding a connection to the interstate grid. Id. at 384-385. 

17 

unbundling, and we have been advised by FERC that 
many States have ordered retail unbundling even after 
Order No. 888 became effective. 

b. The States also challenge (00-568 Pet. 19-21) 
FERC’s exercise of jurisdiction over local distribution 
facilities used in wholesale transmission transactions. 
The court of appeals properly rejected that argument, 
reasoning that Section 201(b) limits FERC jurisdiction 
over local distribution facilities “except as specifically 
provided in this subchapter and subchapter III,” 16 
U.S.C. 824(b)(1) (emphasis added), and Section 201(a) 
“makes clear that all aspects of wholesale sales are 
subject to federal regulation, regardless of the facilities 
used.” Pet. App. C37. Consistent with Section 201(b)’s 
reservation of state jurisdiction over “facilities used in 
local distribution,” Order No. 888 preserves the tradi- 
tional areas of state regulation. Thus, where a public 
utility is transmitting unbundled energy to an end user 
—i.e., where the transmission is connected to a retail 
rather than a wholesale transaction—Order No. 888 
acknowledges that some of the facilities involved are 
local distribution facilities subject to state jurisdiction, 
and Order No. 888 establishes a test for defining the 
jurisdictional line on a case-by-case basis. Id. at D19- 
D20. 

For similar reasons, the States err in arguing (00-568 
Pet. 20) that Order No. 888 conflicts with this Court’s 
observation in Connecticut Light & Power Co., 324 U.S. 
at 531, that Congress’s preservation of state jurisdic- 
tion in Section 201(b) over “facilities used in local 
distribution” is “a limitation on jurisdiction and a legal 
standard that must be given effect,” regardless of 
whether the facility carries out-of-state energy. In 
Order No. 888, FERC has exercised jurisdiction over 
those facilities used in wholesale transactions, and it 

18 

has established a test to distinguish those facilities used 
for local distribution from those used for unbundled 
retail transmission. As the court of appeals concluded, 
Order No. 888 reasonably “recognizes the current 
reality that many primarily retail utilities engage in 
both local distribution and interstate transmissions, and 
seeks through the seven factors to discern each 
facility’s primary function.” Pet. App. C38. 

There is likewise no merit to the States’ contention 
(00-568 Pet. 19, 21) that the court of appeals’ ruling 
upholding FERC’s authority over all facilities used in 
wholesale transactions allows “FERC to usurp state 
power to ensure reliable local distribution,” permits 
utilities to evade state regulation, and violates Con- 
gress’s ban in Section 212(h), 16 U.S.C. 824k(h), on 
sham wholesale transactions. FERC stressed in its 
rulemaking that Order No. 888 would not affect 
traditional state jurisdiction over local service concerns, 
including reliability. Pet. App. D44-D53. Order No. 888 
also does not affect the States’ ability to set bundled 
retail rates, including a cost component reflecting use of 
facilities to deliver power to the ultimate consumer. 
FERC further stated that it would address on a case- 
by-case basis the possibility that transactions may be 
structured to avoid federal regulation, see, e.g., id. at 
D52, and the States offer no reason to believe that 
FERC would approve a sham transaction barred by 
Section 212(h). 

c. The States finally argue (00-568 Pet. 22-24) that 
FERC lacks the “backstop” authority to address re- 
quests for recovery of stranded costs arising out of 
state-ordered retail unbundling in the event that a 
state regulator lacks authority to provide for such 
recovery. The court of appeals correctly held, however, 
that the inclusion of stranded costs relating to genera- 

19 

tion facilities in transmission rates is a legitimate 
exercise of FERC’s authority over transmission rates, 
because “[r]ates are jurisdictional; costs are not.” Pet. 
App. C80-C81. For example, both FERC and a state 
commission may legitimately take the exact same plant 
costs into consideration in setting rates within their 
respective bailiwicks for setting wholesale and retail 
rates. Id. at C81. As the court explained, if a utility 
seeks to recover retail stranded costs in its FERC- 
jurisdictional transmission rates, FERC will exercise 
its traditional cost-of-service ratemaking jurisdiction to 
review those costs. Ibid. As the court further ex- 
plained, both retail and wholesale stranded costs can be 
viewed as “costs” of providing transmission services 
because, while “such costs are not a cost of operating 
the physical transmission system, nevertheless, they 
are an economic cost incurred as a result of being 
required to provide retail transmission.” Id. at C83 
(quoting id. at E94 n.708). While agreeing that 
generation-related retail costs are not typically costs 
relating to transmission services, the court correctly 
held that “the fundamental changes wrought by state- 
ordered retail wheeling, as well as the narrow cir- 
cumstances in which FERC will consider stranded-cost 
recovery claims, justify the conclusion that these costs 
are costs of providing transmission service.” Ibid. 

12 

12 The States similarly err in challenging (00-809 Pet. 24) 
FERC’s exercise of jurisdiction over stranded costs in certain so- 
called “retail-turned-wholesale” situations where, for example, a 
municipal utility becomes the conduit by which a retail customer 
can switch from its historical local utility power supplier, using the 
local utility’s FERC open access transmission tariff to reach a new 
supplier. Pet. App. D64-D65, E71-E78, F16-F19; 00-809 Pet. App. 
499a n.479. In those situations, assuming the utility carries its bur- 
den of proof, FERC will provide for recovery through a customer- 

20 

FERC, moreover, has stated that “[t]he only cir- 
cumstance” in which it would “entertain requests” to 
recover stranded costs relating to retail wheeling “is 
when the state regulatory authority does not have 
authority under state law to address stranded costs 
when the retail wheeling is required.” Pet. App. C79. 
No such claim for recovery has been presented to the 
Commission in the almost five years since it issued 
Order No. 888, and the hypothetical circumstance of a 
state regulator not having authority to address the 
problem may never arise. 

3. Petitioner Enron Power Marketing, Inc. argues 
(00-809 Pet. 11-16) that Section 201(b) requires the 
Commission to assert jurisdiction over transmission of 
electric energy that remains part of a bundled retail 
sale. The court of appeals, however, correctly declined 
to hold that the Commission must treat all bundled 
retail sales as separate sales and transmission services 
and assert jurisdiction over the transmission compo- 
nent of the transactions. 

Although Section 201 clearly gives FERC jurisdic- 
tion over transmission in interstate commerce and 
wholesale sales, and the Act gives States jurisdiction 
over local distribution facilities and retail sales, the 
“statute is much less clear about exactly where the 
lines between those activities are to be drawn.” Pet. 

specific surcharge to be added to the transmission rate. Pet. App. 
E85. The court of appeals correctly upheld FERC’s authority in 
that respect, reasoning that “FERC’s exclusive jurisdiction over 
all aspects of wholesale sales gives FERC all the authority it needs 
to include generation-related costs in rates, including even costs 
originally incurred to provide retail service.” Id. at C91. More- 
over, “[a]s in the retail wheeling context, these stranded costs are 
properly viewed as ‘costs’ of the former supplying utility’s provi- 
sion of open access transmission service.” Ibid. 

21 

App. C34. The court of appeals therefore correctly held 
that “[a] regulator could reasonably construe transmis- 
sions bundled with generation and delivery services 
and sold to a consumer for a single charge as either 
transmission services in interstate commerce,” over 
which FERC has jurisdiction, “or as an integral com- 
ponent of a retail sale,” over which the States have 
jurisdiction. In those circumstances, the court properly 
deferred to FERC’s decision to treat bundled transmis- 
sion as part of retail sales as “a statutorily permissible 
policy choice.” Ibid. 

13 

Enron also contends (00-809 Pet. 17-22) that FERC’s 
decision not to assert jurisdiction over bundled retail 
transmissions will have a detrimental impact on non- 
discriminatory access to transmission services. FERC 
specifically considered the competing policy issues at 
stake, and permissibly determined that an exercise of 
its jurisdiction was not necessary to achieve nondis- 
criminatory open access to transmission services. In its 

13 Enron argues (00-809 Pet. 14-15) that FERC’s interpretation 
conflicts with this Court’s interpretation in FPC v. Louisiana 
Power & Light Co., 406 U.S. 621, 636 (1972), of Section 1(b) of the 
NGA, 15 U.S.C. 717(b), a provision parallel to Section 201(b) of 
FPA. That case did not address, however, the Commission’s 
authority to regulate transmission bundled with retail sales, but 
simply held that the reservation to the States of jurisdiction over 
retail natural gas sales did not preclude the Commission from 
exercising jurisdiction over the curtailment of natural gas deliver- 
ies in times of shortage. 406 U.S. at 623. Enron similarly errs in 
relying (00-809 Pet. 15-16.) on the D.C. Circuit’s decision in 
Mississippi River Transmission Corp. v. FERC, 969 F.2d 1215 
(1992), which held that FERC may regulate the transportation 
embedded in a retail natural gas sale. 

That decision construed 

FERC’s authority to issue a certificate for pipeline service under 
Section 7(c) of the NGA, 15 U.S.C. 717f(c), a provision with no 
parallel in the FPA. 

22 

Notice of Proposed Rulemaking, the Commission 
explained that its approach “raises the possibility that 
the quality of transmission service for retail purposes 
will be superior to the quality of transmission service 
offered for wholesale purposes,” 00-809 Pet. App. 634a, 
and therefore sought public comment on how its 
“bifurcated approach would affect the public utility’s 
incentives to provide nondiscriminatory open access 
wholesale transmission service,” id. at 635a. 

In its Final Rule, the Commission explained that 
“[t]he majority of commenters addressing this issue 
believe that unbundling retail services is unnecessary 
to establish a competitive market and to achieve non- 
discriminatory open access transmission.” 00-809 Pet. 
App. 234a. After reviewing those comments, as well as 
views of commenters opposing the Commission’s ap- 
proach, the Commission concluded that “[a]lthough the 
unbundling of retail transmission and generation, as 
well as wholesale transmission and generation, would 
be helpful in achieving comparability,” the Commission 
did “not believe it is necessary.” Id. at 235a. That 
policy judgment is reasonable, and does not warrant 
this Court’s review. 

14 

14 In the event that the Court were to grant the States’ petition 
challenging Order No. 888’s exercise of jurisdiction, the Commis- 
sion would not oppose the Court’s granting of Enron’s petition as 
well. 

23 

CONCLUSION 

The petitions for a writ of certiorari should be denied. 

Respectfully submitted. 

DOUGLAS W. SMITH 
General Counsel 

CYNTHIA A. MARLETTE 

Deputy General Counsel 

SUSAN J. COURT 

Associate Solicitor 

TIMM L. ABENDROTH 

Attorney 
Federal Energy Regulatory 

Commission 
BARBARA D. UNDERWOOD 

Acting Solicitor General 

JANUARY 2001