Washington (Platts)--18Dec2012/336 pm EST/2036 GMT

A federal appellate court on Tuesday upheld the US Federal Energy Regulatory Commission's finding that it lacks jurisdiction to determine when the provision of station power constitutes a retail sale.

Station power is the electricity a generator must consume to keep its plant and related facilities up and running. Generators can self-supply station power or pay retail rates for pulling that power from the grid.

At issue is FERC's approval of a California Independent System Operator tariff under which a generator is billed a monthly transmission access charge if the generator used more power in a month than it sent to the grid. The formula for determining whether a generator must pay for using interstate transmission is called the "netting interval."

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This is the third time the DC Circuit Court of Appeals has addressed the issue of FERC's jurisdiction over station power. Prior, the court ruled that FERC would exceed its authority if it set any netting interval regulating retail sales.

On remand, FERC said it lacked a jurisdictional basis to determine when the provision of station power constitutes a retail sale and indicated that the monthlong netting interval in the Cal-ISO tariff could only govern FERC-jurisdictional transmission charges, not retail charges.

But independent generator Calpine appealed the FERC ruling to the DC Circuit and said that FERC overread the court's decision and that the commission has authority under its transmission and wholesale jurisdiction to set netting intervals for retail sales.

Calpine also said FERC failed to consider that the Cal-ISO tariff will put Calpine at a competitive disadvantage to integrated utilities that do not pay for station power but simply take it from their own generator.

Calpine is correct that the court "did not specifically preclude FERC from asserting alternate bases for jurisdiction upon remand -- either with some other theory to connect its jurisdiction over transmission to the generator's station power or ... by relying on FERC's jurisdiction over wholesale" transactions, the DC Circuit found Tuesday.

However, "FERC's jurisdictional determination was not arbitrary or capricious" and Calpine's arguments are "difficult to understand and ultimately" based on a fallacy, the court said.

Calpine seems to overlook the "economic fact that the integrated utilities hardly furnish themselves station power for free," the DC Circuit said. Integrated utilities pay the "opportunity cost" of not having sold that power to customers, the court said.

Even if independent generators would be at a competitive disadvantage, Calpine was "unable to explain how FERC's limited authority can be employed to remedy" that concern, the court said.

--Esther Whieldon, esther_whieldon@platts.com
--Edited by Jason Lindquist, jason_lindquist@platts.com