## Facts

- PJM Interconnection, L.L.C. operated a multi-state regional transmission organization controlling an integrated high-voltage grid serving over 50 million customers.
- PJM historically allocated many transmission-expansion costs largely on a beneficiary-pays approach, linking payment to expected benefits.
- FERC approved a new cost-allocation methodology for certain large transmission projects (500 kV and above) under which costs were spread region-wide in proportion to each utility’s share of PJM load.
- The region-wide method required utilities to pay for projects located far from their service areas even if their measurable benefits were small.
- “Project Mountaineer,” intended to move generation from West Virginia toward eastern markets, exemplified the dispute: the Chicago-area utility (through the Illinois Commerce Commission’s participation) was assigned about $480 million in costs despite record evidence of about $1 million in quantifiable benefits.
- FERC justified the change by citing (a) historical pro rata cost sharing among some PJM members decades earlier and (b) generalized system-wide reliability benefits from adding 500 kV facilities.
- State commissions and affected utilities petitioned for review under the Federal Power Act, arguing the allocation was not just and reasonable and was unduly discriminatory.

## Issues

1. Whether FERC adequately supported approval of a region-wide, load-ratio allocation of 500 kV (and above) project costs where assigned costs greatly exceeded measurable benefits for some utilities.
2. Whether reliance on decades-old sharing practices and generalized reliability assertions satisfied the Federal Power Act’s just-and-reasonable and non-discrimination requirements under arbitrary-and-capricious/substantial-evidence review.

## Decision

- The Seventh Circuit granted the petitions in substantial part and remanded to FERC.
- The court held FERC failed to provide a reasoned, evidence-based explanation showing that entities paying under the region-wide method would receive benefits roughly commensurate with their assigned costs.
- The court vacated the challenged orders to the extent they approved the 500 kV cost-allocation methodology without adequate support, while not ruling out that a properly supported region-wide allocation could be lawful.
- On other, separate pricing disputes discussed in the record (including treatment of sunk costs and related rate design questions), the court was more deferential to FERC’s policy judgments and focused its principal concern on the unsupported 500 kV expansion cost spreading.

## Legal Principles

- Under the Federal Power Act, FERC must ensure jurisdictional rates and cost allocations are just, reasonable, and not unduly discriminatory.
- A transmission cost-allocation method must reflect a rational connection between who pays and who benefits; costs must be at least roughly commensurate with expected benefits.
- General assertions of system-wide benefits cannot substitute for analysis when the record shows large, concrete cost burdens on particular utilities and minimal measurable benefits.
- Agency discretion in complex energy policy is broad but bounded by reasoned decisionmaking supported by substantial evidence; FERC must explain why its chosen allocation fits the facts found.

## Conclusion

The Seventh Circuit remanded because FERC did not adequately justify spreading the costs of PJM’s 500 kV projects region-wide where the record showed extreme cost-benefit mismatches for certain utilities, requiring FERC to develop an evidence-based explanation or revise the allocation to satisfy the Federal Power Act’s just-and-reasonable standard.


Ill. Com. Comm'n v. FERC, 576 F.3d 470 (7th Cir. 2009)