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Title Consumers Energy v. Federal Energy Regulatory Commission

Argued March 8, 2004 Decided May 14, 2004

Subject Federal Agencies

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Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

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before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 8, 2004 Decided May 14, 2004

No. 03-1162

CONSUMERS ENERGY COMPANY,

PETITIONER

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

ONTARIO ENERGY TRADING INTERNATIONAL CORPORATION AND

INDEPENDENT ELECTRICITY MARKET OPERATOR,

INTERVENORS

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Raymond E. McQuillan argued the cause for petitioner.

On the briefs was Deborah A. Moss. Jon R. Robinson

entered an appearance.

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.

Lona T. Perry, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on

the brief were Cynthia A. Marlette, General Counsel, and

Dennis Lane, Solicitor.

Matthew W.S. Estes was on the brief for intervenors.

Howard E. Shapiro and John J. Buchovecky entered appear-

ances.

Before: GINSBURG, Chief Judge, and RANDOLPH and

ROBERTS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROBERTS.

ROBERTS, Circuit Judge: It was a close thing, but Benedict

Arnold's bold plan to capture Canada for the Revolution fell

short at the Battle of Quebec in early 1776. As a result, the

Federal Energy Regulatory Commission must now decide

when affiliates of Canadian utilities -- utilities not subject to

FERC jurisdiction -- may sell power at market-based rates

in the United States. In a purely domestic case, FERC

requires an applicant for market-based rates to show that it

and its affiliates do not have or have adequately mitigated

market power in generation and transmission, and cannot

erect other barriers to entry. An applicant with a transmis-

sion-owning affiliate must show that the affiliate has filed an

open access, non-discriminatory tariff for transmission ser-

vice. See Progress Power Marketing, Inc., 76 FERC ¶ 61,-

155, at 61,919 (1996).

FERC does not presume to tell foreign transmission-

owning utilities what tariffs they must file. If a marketing

affiliate of such a utility wants to sell power at market-based

rates in the United States, however, the utility must offer

transmission service comparable to that required of a utility

in the United States. Just as a domestic transmission-owning

utility must allow competitors of its marketing affiliate to use

its transmission services on a non-discriminatory basis to

compete with the marketing affiliate, so too a foreign trans-

mission-owning utility must allow companies that would com-

pete with its marketing affiliate to use its transmission ser-

vices to reach the United States market and compete on a

level playing field with its marketing affiliate. See Energy

Alliance P'ship, 73 FERC ¶ 61,019, at 61,03031 (1995).

In this case, Ontario Energy Trading International Corpo-

ration (Ontario Energy) sought authority to sell power in the

United States at market-based rates pursuant to Section 205

of the Federal Power Act, 16 U.S.C. § 824d. Ontario Ener-

gy's application was opposed by Consumers Energy Company

(Consumers), a public utility providing service in Michigan

and potentially facing competition from Ontario Energy

across the border. Consumers argued that the Ontario Inde-

pendent Electricity Market Operator (IMO) was an affiliate of

Ontario Energy and did not offer open access, non-

discriminatory transmission service comparable to that re-

quired of power companies in the United States. Specifically,

Consumers complained that the IMO did not offer transmis-

sion service from point A to point B at all, as a United States

utility would, but instead required companies seeking such

service to sell power into the system at point A and buy it

back out at point B. FERC nonetheless found the IMO

service comparable to that required of companies in the

United States, and granted Ontario Energy the requested

authority to sell power at market-based rates. See Ontario

Energy Trading Int'l Corp., 99 FERC ¶ 61,039 (Initial Or-

der), on reh'g, 100 FERC ¶ 61,345 (2002) (September 2002

Order), on reh'g, 103 FERC ¶ 61,044 (2003) (April 2003

Order). Finding that substantial evidence supports the Com-

mission's decision and that the decision is otherwise reason-

able, we deny Consumers' petition for review.

I. Background

In its landmark Order No. 888, FERC required public

utilities subject to its jurisdiction that own, control, or operate

transmission facilities to guarantee non-discriminatory trans-

mission service to all market participants. See Promoting

Wholesale Competition Through Open Access Non-

Discriminatory Transmission Services by Public Utilities;

Recovery of Stranded Costs by Public Utilities and Trans-

mitting Utilities, FERC Stats. & Regs. ¶ 31,036, at 31,63536

(1996) (Order No. 888). To ensure non-discriminatory ser-

vice, the Commission required public utilities (1) to functional-

ly unbundle wholesale power services -- separating genera-

tion, transmission, and ancillary services, id. at 31,654, and (2)

to file open access, non-discriminatory transmission tariffs, id.

at 31,635. See generally New York v. FERC, 535 U.S. 1, 11

(2002).

Foreign market participants may also obtain transmission

service through a public utility's open access tariff. Id. at

31,689. Participants with foreign affiliates that own or con-

trol transmission facilities, however, may obtain open access

transmission only if those affiliates comply with tariff reci-

procity requirements. Promoting Wholesale Competition

Through Open Access Non-Discriminatory Transmission

Services by Public Utilities; Recovery of Stranded Costs by

Public Utilities and Transmitting Utilities, Order No. 888-A,

FERC Stats. & Regs. ¶ 31,048, at 30,290 (1997) (Order No.

888-A). Those reciprocity requirements mandate that the

foreign transmission-owning affiliate also provide open access,

non-discriminatory transmission service in the same manner

as a public utility in the United States. Id.

A. Restructuring the Ontario Energy Market

In 1997, Ontario Hydro, a government-owned utility servic-

ing the Province of Ontario, sought a stay of Order No. 888's

reciprocity requirement. See Promoting Wholesale Competi-

tion Through Open Access Non-discriminatory Transmis-

sion Services by Public Utilities; Recovery of Stranded Costs

by Public Utilities and Transmitting Utilities, 79 FERC

¶ 61,182 (1997). The utility claimed that it would be irrepara-

bly harmed by the requirement because it could not allow

open access into Ontario without the approval of the Provin-

cial Government of Ontario. Id. at 61,866. The Commission

rejected the stay, Promoting Wholesale Competition Through

Open Access Non-discriminatory Transmission Services by

Public Utilities; Recovery of Stranded Costs by Public Utili-

ties and Transmitting Utilities, 79 FERC ¶ 61,367 (1997),

and the Province of Ontario elected to restructure its electric-

ity market in order to secure access to that of the United

States.

At that time, the provincial energy market was dominated

by Ontario Hydro, a vertically integrated utility. Ontario

Hydro generated most of the Province's power, owned and

operated the bulk electricity transmission system, owned and

operated much of the distribution system, sold power at

wholesale rates to municipal utilities in urban areas, regulated

those municipalities' retail rates, and sold electricity directly

to retail customers in rural and suburban areas. See Initial

Order, 99 FERC at 61,145.

To establish a competitive market, the Ontario Energy

Competition Act of 1998 unbundled the functions of power

generation, power transmission, and control of the bulk power

system. The Act separated those functions and transferred

them to three new entities: (1) Ontario Power Generation,

Inc. (OPG) owns and operates power generation facilities; (2)

Hydro One, Inc. owns and operates the transmission system

and portions of the distribution system; and (3) the IMO

operates the bulk power system and the wholesale electricity

market. Application of Ontario Energy Trading Int'l For

Order Approving Market-Based Tariff, at 34 (Ontario Ener-

gy Application). The Provincial Government holds all the

shares of both OPG and Hydro One, appointing the directors

of both. September 2002 Order, 100 FERC at 62,580. Ontar-

io Energy -- an electric power marketing company that buys

and sells electricity, but itself owns no power generation or

transmission assets -- is a wholly-owned subsidiary of OPG.

The Provincial Government also appoints the directors of the

IMO, a not-for-profit transmission and market operator.

Those directors may be removed only for cause. Id. at

62,581.

The IMO assumed operational control of Hydro One's

transmission assets, and became responsible for establishing

and operating a provincial electricity market. See Ontario

Energy Application at 79. The Act required the IMO to

develop rules to open the market to competition on an open

access, non-discriminatory basis. Id. at 9. The IMO com-

plied, promulgating rules that created a bid-based electricity

market in which the cost of electricity is set by market

participants bidding to buy or offering to sell electricity. Id.

Much like a stock exchange, the IMO administers the market,

and is neither a buyer nor seller of electricity except when

required under emergency conditions to maintain system

reliability. See IMO Market Rules, Chapter 1, § 5.3.

The bid-based market administered by the IMO packages

power and transmission together as a single product. See

Brief of Ontario Energy Trading Int'l Corp., Docket No.

ER02-1021-000 (July 31, 2002), at 1012 (Ontario Energy

FERC Br.). In the United States, most regional transmis-

sion organizations (RTOs) and independent system operators

(ISOs) treat power and transmission as two different prod-

ucts. Indeed, Order No. 888 requires RTOs and ISOs to

allow market participants to reserve transmission capacity on

their systems in advance of power purchases. See Order No.

888 at 31,93839. In the United States, a power marketer

can purchase the right to transmit power from point A to

point B at a set time for a set price, apart from the purchase

of power itself. Not so in Ontario. Entities wishing to

transmit electricity through and out of Ontario, from point A

to point B, must sell power into the IMO market at point A to

enter the transmission system, and then buy power from the

market at point B to exit the system. Because this distinc-

tion is central to the comparability dispute before us, a more

detailed examination of the IMO market is in order.

B. The IMO Energy Market

The IMO operates a real-time electricity market, establish-

ing a uniform market-clearing price for all electricity bought

or sold within Ontario. That uniform price is calculated

based upon three factors: (1) the market price -- matching

bids and offers; (2) the uniform uplift charge; and (3) trans-

mission service charges. See Ontario Energy FERC Br. at

1012. The uniform uplift charge allocates the costs of

internal congestion management across the market. See id.

at 1112.1 Transmission service charges recoup the costs of

operating the transmission system, and are regulated. Un-

der this system, purchases and sales can be made at any

location on the IMO system at the uniform market-clearing

price without regard to internal transmission limitations.

The IMO market uses the same system to facilitate imports

into and exports out of Ontario. The Ontario transmission

system is connected to adjacent regions' transmission systems

through external interfaces called interties. Market partici-

pants import power into the Ontario transmission system by

selling electricity into the IMO market at one of the interties,

while those wishing to export power out of the Province do so

by purchasing electricity at an intertie adjacent to the desired

destination. Id. at 12. Congestion may occur at an intertie

when the imports offered or exports sought exceed the trans-

fer capability at that intertie. Unlike the situation with

respect to the internal congestion control system, the IMO

controls congestion at the interties through a market-based

approach.2 At each intertie, the IMO establishes an intertie

zone price (IZP) set at the level at which supply meets

1 Even though transmission service is packaged with the pur-

chase of electricity, the market price takes into account only the

demand for electricity, not the demand for transmission. The

market price, in effect, assumes that the transaction costs of

transmission demand are zero so that purchased electricity can be

transmitted immediately to meet real-time demand -- a process

termed the ``unconstrained dispatch solution.'' The IMO market

actually uses a ``constrained dispatch solution,'' which allows some

units to transmit immediately while delaying others until transmis-

sion capacity is available. That process generates costs to reim-

burse the delayed units for any difference in price between the

transaction price and the actual price at the later time of transmis-

sion. Those reimbursements are the cost of internal congestion

management, recouped through the uniform uplift charge.

2 The internal congestion approach of scheduling power dis-

patches from generation facilities, see note 1 supra, is not viable

because the IMO cannot require generation facilities outside Ontar-

io to comply with dispatch schedules. Ontario Energy FERC Br.

at 12.

demand within the transfer capacity of that intertie. See id.

at 1213. Put another way, the IZP clears congestion by

prioritizing competing transfers according to price so that the

most desired transfer clears first. See id. at 13.

Say a market participant wishes to export power from New

York into Ontario. That participant must offer to sell the

power into the IMO market. If the market-clearing price in

the IMO is $20, and the quantity of power offered at or below

$20 is equal to or less than the transfer capacity at the New

York-Ontario intertie, then there is no congestion and all

parties offering to sell power into Ontario for $20 or less will

receive the $20 market-clearing price. See id. In the same

scenario, if the quantity of imports offered exceeds the trans-

fer capacity at the intertie, then the IZP would fall below the

market-clearing price to reduce supply into the market -- the

IZP falling until enough market participants cease making

offers to sell power into Ontario from New York.

Exporting power out of Ontario is accomplished in a similar

fashion by purchasing power at the market-clearing price at

an intertie adjacent to the desired destination. If the mar-

ket-clearing price is $20 and the demand for exports out of

Ontario at or above that price is equal to or less than the

transfer capacity of that intertie, then the transfer capacity

can accommodate the demand. See id. at 15. If the demand

exceeds the transfer capacity, the IZP rises above $20 to

reduce the demand, increasing until enough purchasers cease

bidding so that the transfer capacity can handle the remain-

ing bids.

A party wishing to wheel power through the Province must

engage in a combined import/export transaction. As ex-

plained, the IMO system packages transmission service with

the purchase of energy, so transmission service alone can be

neither reserved nor obtained in a separate transaction, as it

can in the United States. Market participants wishing to

transmit power, for example, from New York to Michigan

through Ontario must simultaneously sell power into the IMO

market at the New York-Ontario intertie and purchase power

out of the market at the Ontario-Michigan intertie. See id. at

16. Using the example above, if there is no congestion at

either intertie, then the wheeler would sell into the system at

the $20 market-clearing price and buy out of the system at

the $20 market-clearing price, resulting in an off-setting

transaction; the only cost would be an export fee. See id. If

there is congestion at either intertie, the cost would be the

export fee plus any difference between the IZP and the

market-clearing price at either intertie. Id.

Market participants can hedge the risk of congestion costs

at interties during wheeling transactions by purchasing some-

thing called financial transmission rights (FTRs). Id. at 17;

see also April 2003 Order, 103 FERC at 61,174. FTRs are

purely financial instruments that entitle the holder to pay-

ments equal to the difference between the Ontario market-

clearing price and an IZP. The IMO maintains a market in

FTRs, periodically auctioning FTRs that span durations of

either one month or one year. Ontario Energy FERC Br. at

17. Each FTR corresponds to a particular intertie; separate

FTRs must be purchased for imports and exports at each

intertie. Id. FTRs effectively guarantee the import or ex-

port of power at the uniform system-wide market-clearing

price, regardless of any IZP.

C. Procedural History

On February 14, 2002, Ontario Energy filed its application

with the Commission under Section 205 of the Federal Power

Act, 16 U.S.C. § 824d, seeking authority to sell energy,

capacity, and ancillary services, and to resell transmission

capacity, at market-based rates. Initial Order, 99 FERC at

61,145. Consumers filed a conditional protest to Ontario

Energy's application, reserving the right to challenge the

application if the IMO failed to grant a transmission reserva-

tion allowing Consumers to wheel power through Ontario.

Motion to Intervene and Conditional Protest of Consumers

Energy Co. at 23. Consumers then went to the IMO and

asked for approval of a ``firm 50 MW transmission reservation

for May 2002'' to facilitate its procurement of electricity from

New York suppliers and transmission of that power through

Ontario to Michigan. Letter from Consumers to IMO (Mar.

6, 2002). The IMO denied the request, explaining that the

IMO system does not provide transmission reservations, but

that instead Consumers could perform an import/export

transaction to wheel power through the Province. Consum-

ers thereupon filed a supplemental protest to Ontario Ener-

gy's application, claiming that ``Ontario Energy possess es

transmission market power by virtue of its affiliation with TTT

the IMO, which is not mitigated by the provision of open-

access transmission service.'' Supplemental Protest of Con-

sumers Energy Co. at 7.

In the Initial Order, the Commission concluded that Ontar-

io Energy's application presented ``no transmission market

power concerns,'' finding that Ontario Energy does not own

or operate transmission facilities and is not an affiliate of any

transmission-owning public utilities. 99 FERC at 61,14647.

The Commission accordingly granted the application. Id. at

61,147. Consumers sought rehearing, arguing that the IMO

and Ontario Energy were affiliated entities and that the IMO

did not offer open access transmission service on a non-

discriminatory basis comparable to the standards established

in Order No. 888. September 2002 Order, 100 FERC at

62,581 ¶ 12. This time the Commission agreed with Consum-

ers that Ontario Energy and the IMO were affiliated, but

denied the request for rehearing, finding that the ``IMO

provides open access transmission service on a comparable,

non-discriminatory basis'' in accordance with the principles of

Order No. 888. Id. ¶ 13.

Consumers again requested rehearing. See April 2003

Order, 103 FERC at 61,172. Having prevailed on the affilia-

tion issue, it argued that the IMO's service was not compara-

ble to transmission service in the United States because the

IMO does not allow the reservation of transmission capacity.

According to Consumers, this inability to reserve transmis-

sion capacity prevents market participants from obtaining a

fixed price for transmission service, creating price uncertainty

for transactions through Ontario. Id. at 61,173. Pointing to

the fact that Ontario Energy could obtain firm transmission

service reservations at a fixed price from utilities in the

United States, Consumers argued that the IMO's bid-based

market failed to satisfy the basic reciprocity requirements of

Order No. 888. See id.

The Commission again denied Consumers' request for re-

hearing. The Commission noted that ``Consumers concedes

TTT there is no evidence in this case suggesting that the IMO

operates its transmission system on a discriminatory basis,''

and that the IMO's governing statute prohibits such discrimi-

nation. Id. at 61,174 ¶ 9. Rejecting Consumers' claims con-

cerning lack of comparability, the Commission found that

allegations of potential price increases caused by the IMO's

bid-based system failed to support ``a finding that the design

of the IMO's transmission system, per se, unduly impedes

Consumers, or any of Ontario Energy's other competitors,

from reaching United States loads.'' Id. ¶ 10. To the con-

trary, evidence showed that at least 12 United States-based

power marketers had traded successfully in and out of the

IMO market. Id. The Commission concluded that even

though the IMO market does not offer the type of point-to-

point transmission service required under Order No. 888,

market participants can ``obtain firm point-to-point service

through and out of Ontario at a price that is known in

advance (albeit through a process that involves both the

advance purchase of transmission rights and bidding to buy

and sell energy in the Ontario energy market)'' -- ``pro-

vid ing open access transmission on a comparable, non-

discriminatory basis for wheeling through and out of TTT

Ontario.'' Id. ¶ 13.

Consumers petitioned this court to review the April 2002,

September 2002, and April 2003 orders.

II. Analysis

1. This court reviews the award of market-based rate

authority to determine whether the Commission's decision

was arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law. Louisiana Energy & Power

Auth. v. FERC, 141 F.3d 364, 366 (D.C. Cir. 1998). The

Commission's factual findings are conclusive if supported by

substantial evidence. 16 U.S.C. § 825l(b).

The Federal Power Act requires that public utilities charge

``just and reasonable'' rates for the transmission or sale of

electric energy. Id. § 824d(a). In competitive markets,

``FERC may rely upon market-based prices in lieu of cost-of-

service regulation to assure a `just and reasonable' result.''

Elizabethtown Gas Co. v. FERC, 10 F.3d 866, 870 (D.C. Cir.

1993). `` T he Commission approves applications to sell elec-

tric energy at market-based rates only if the seller and its

affiliates do not have, or adequately have mitigated, market

power in the generation and transmission of such energy, and

cannot erect other barriers to entry by potential competi-

tors.'' Louisiana Energy, 141 F.3d at 365 (footnote omitted);

accord Order No. 888 at 31,656.

``To demonstrate the requisite absence or mitigation of

transmission market power, the Commission normally re-

quires a power marketer to show that a transmission-owning

utility affiliate has on file with the Commission an open access

transmission tariff for the provision of comparable services.''

TransAlta Enters. Corp., 75 FERC ¶ 61,268, at 61,875 (1996);

accord Order No. 888 at 31,65657. Order No. 888 mandated

that public utilities file open access transmission tariffs that

``offer both network, load-based service and point-to-point,

contract-based service,'' and established a pro forma tariff to

define the ``non-price minimum terms and conditions of non-

discriminatory transmission'' necessary for compliance. Or-

der No. 888 at 31,636. Under the pro forma tariff, utilities

must offer firm point-to-point transmission service -- trans-

mission service ``that is reserved and/or scheduled between

specified p oints of r eceipt and d elivery.'' Id. at 31,931.

Such transmission service allows market participants to re-

serve transmission capacity to wheel power across different

transmission systems, ``provid ing a means for wholesale

power sellers and buyers to obtain transmission services

necessary to compete in, or to reach, competitive markets.''

Id. at 31,673.

As noted, the Commission does not require foreign utilities

to implement Order No. 888 pro forma tariffs. TransAlta, 75

FERC at 61,875 (`` W e have no direct authority to require

u tilities, over which we do not have jurisdiction, to file an

open access tariff.''). The Commission is instead ``amenable

to a variety of approaches'' to show the absence or mitigation

of transmission market power by foreign utility affiliates of

power marketers, so long as the power marketer demon-

strates that ``its transmission-owning utility affiliate offers

non-discriminatory access to its transmission system that can

be used by competitors of the power marketer to reach

United States markets.'' Id. (citing Energy Alliance, 73

FERC at 61,03031). The Commission considers this ques-

tion on a case-by-case basis. H.Q. Energy Servs. (U.S.) Inc.,

79 FERC ¶ 61,152, at 61,652 (1997).

2. The obvious difference between United States and On-

tario power markets -- here, transmission and power can be

marketed separately; there, they must be bought and sold as

a package -- provided Consumers with a ready basis for

arguing that the IMO ``does not presently offer transmission

service that is reciprocal or comparable or non-discriminatory

relative to that provided in the United States.'' Pet. Br. at

18. According to Consumers, the IMO system does not allow

the reservation of firm point-to-point transmission at a defi-

nite price, as required under Order No. 888. The system

instead subjects market participants who wheel power

through Ontario to uncertainty in pricing based upon poten-

tial congestion at interties. That uncertainty allegedly harms

Consumers in transactions involving wheeling energy from

New York to Michigan through Ontario's transmission sys-

tem -- when selling wholesale power in Michigan, any price

advantage gained by Consumers from purchasing wholesale

power in New York could be lost in transmission through

Ontario due to congestion costs at the interties. See id. at 23.

The Commission found, however, that because the IMO

allows market participants to hedge the risk of congestion

costs at interties through the purchase of FTRs, which ``pro-

vide their holders with payments equal to the difference

between the applicable intertie zone price and the system-

wide price,'' market participants seeking to wheel power

across Ontario are able to obtain a fixed price for a through

and out transaction such as the one at issue in Consumers'

petition -- selling power into Ontario at the New York-

Ontario intertie and purchasing it back at the Ontario-

Michigan intertie. See April 2003 Order, 103 FERC at

61,174 ¶¶ 12, 13. Utilizing FTRs, market participants may

``obtain firm point-to-point service through and out of Ontario

at a price that is known in advance.'' Id. ¶ 13. Although the

IMO does not provide point-to-point transmission service in

the manner prescribed by Order No. 888, the Commission

reasonably concluded that the IMO provides comparable

transmission service. And that service is non-discriminatory:

any entity desiring to transmit power from point A to point B

on the IMO system must engage in the same sell-in/buy-out

sort of transaction. Affidavit of Cliff W. Hamal at ¶ 18.

Consumers argues that the Commission disregarded sub-

stantial factual evidence showing that the IMO system fails to

mitigate the generation market power of OPG, the parent of

Ontario Energy. ``OPG's generation market dominance in

the IMO service area creates the potential for OPG to extract

significant revenues by causing constraints and congestion-

related price differentials at various export interties .'' Pet.

Br. at 2324. Consumers argues that OPG could, for exam-

ple, flood the Ontario-Michigan intertie with export electrici-

ty, purposefully driving up the price to wheel power through

Ontario to Michigan. By thereby increasing the cost of

transmission, OPG could undercut Consumers' ability to reap

the advantage of transporting cheaper New York power to

Michigan through Ontario. OPG thus could establish a barri-

er to market participants wishing to enter the Michigan

market -- or any other market with an adjacent intertie to

Ontario.

The Commission concluded that Consumers' claims of po-

tential price manipulation are ``speculative, at best,'' April

2003 Order, 103 FERC at 61,174 n.10, and we agree. In its

second application for rehearing, Consumers merely advanced

bare allegations of potential price increases at the interties:

``Consumers allege d that the bid-based market operated by

the IMO may require Consumers to incur higher (unspeci-

fied) costs to reach the Michigan market, in certain (unspeci-

fied) instances when TTT the IMO TTT must address a

market constraint on its system,'' id. ¶ 9. Consumers provid-

ed no evidence tying OPG's market share to increased trans-

mission prices or any episodes of discriminatory conduct. Id.

at n.10.

On the other hand, substantial record evidence undermines

Consumers' abstract contentions. First, the Commission

found that since May 1, 2002 -- the commencement of the

IMO-administered market in Ontario -- 12 United States-

based power marketers had traded successfully through and

out of the Ontario transmission system at the Ontario-

Michigan intertie. Id. ¶ 10. Next, even assuming that OPG

could manipulate prices by causing congestion at a particular

intertie and raising the IZP, a market participant could

negate any price impact by purchasing FTRs. Finally, the

Commission found that OPG has no generating market power

outside Ontario. See Initial Order, 99 FERC at 61,146.

OPG thus would be cutting off its nose to spite its face by

congesting an intertie out of Ontario: that would increase the

price to export electricity, making it more difficult for OPG to

compete in the United States, where it would be selling more

expensive electricity without the benefit of market power.

We accordingly conclude that the Commission was reasonable

in finding ``no evidence TTT that Consumers has been or will

be impeded from reaching Michigan markets,'' April 2003

Order, 103 FERC at 61,174 ¶ 10.

Finally, Consumers broadly argues that simply because the

IMO service is different from that required under Order No.

888, it should not have been accepted by FERC: ``Either the

Commission believes its standards of market power mitiga-

tion and open access transmission service are the right stan-

dards, or it doesn't ; it should not matter in that context that

the affected entities at issue are Canadian.'' Pet. Reply Br.

at 10. We think it reasonable for the Commission to acknowl-

edge the reality of an international border in deciding wheth-

er to insist on compliance with the minutiae of its regulatory

requirements; it was certainly open to FERC to decide that a

flexible approach requiring comparability on a case-by-case

basis rather than letter-for-letter compliance across-the-board

better accommodates jurisdictional limits and promotion of

competitive markets for United States loads. See Energy

Alliance, 73 FERC at 61,030 (FERC interest in imposing

comparability requirements on foreign affiliates is to promote

competition to serve United States loads).

3. Consumers also argues that the IMO does not provide

comparable service because it fails the particular indepen-

dence requirements set forth in the Commission's Order No.

2000, 65 Fed. Reg. 809 (Jan. 6, 2000). Our jurisdiction is

limited to objections that have been raised before the Com-

mission in an application for rehearing. See 16 U.S.C.

§ 825l(b) (``No objection to the order of the Commission shall

be considered by the court unless such objection shall have

been urged before the Commission in the application for

rehearing''). Consumers asserted an independence argument

based on Order No. 2000 to challenge the Commission's initial

findings on affiliation, not comparability. See Brief of Con-

sumers Energy Co., Docket No. ER02-1021-001 (July 30,

2002), at 5. Consumers won on affiliation; FERC would not

even have proceeded to address comparability in the absence

of such a ruling. Consumers did not separately argue below

that the IMO's lack of independence affected its ability to

afford comparable transmission service, and such an argu-

ment is distinct from a contention that entities are affiliated

so that the Commission must consider comparability. The

Commission, therefore, never had the opportunity to address

the particular argument that Consumers now attempts to

raise, and we accordingly lack jurisdiction to consider it. See

City of Orrville v. FERC, 147 F.3d 979, 990 (D.C. Cir. 1998).

* * *

The petition for review is denied.


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