East Texas Electric Cooperative , Inc., Et Al . v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 11, 2023 Decided January 12, 2024
No. 22-1166
EAST TEXAS ELECTRIC COOPERATIVE , I NC., ET AL .,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
AMERICAN ELECTRIC P OWER SERVICE CORPORATION ,
I NTERVENOR
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
A. Hewitt Rose, III argued the cause for petitioners. With
him on the briefs were Brendan H. Connors, Jennifer
Loiacano, at the time the brief was filed, and Craig Silverstein.
Michael Sappington entered an appearance.
Robert M. Kennedy, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With him on the brief were Matthew R. Christiansen, General
Counsel, and Robert H. Solomon, Solicitor.

-- 1 of 21 --

2
William M. Keyser argued the cause for intervenor for
respondent American Electric Power Service Corporation.
With him on the brief was Shaun Boedicker. Matthew L. Bly,
Stacey L. Burbure, and Steven J. Ross entered appearances.
Before: KATSAS , CHILDS and PAN , Circuit Judges.
Opinion for the Court filed by Circuit Judge PAN .
PAN , Circuit Judge. American Electric Power Service
Corporation (“AEP”) is a public utility that produces and
transmits electricity. AEP calculates the rates that it charges its
customers for transmission services based on a formula
published in a tariff that is approved by the Federal Energy
Regulatory Commission (“FERC” or “the Commission”). A
group of AEP’s customers challenged AEP’s calculation of its
2019 transmission rates. FERC rejected several of the asserted
claims of error, and the customers petitioned for review of the
agency’s decision. Because FERC properly interpreted the
terms of AEP’s tariff and did not act arbitrarily and
capriciously, we deny the petition for review.
I.
A.
Under the Federal Power Act (“the Act”), 16 U.S.C.
§ 791a et seq., FERC regulates a web of entities that transmit
and distribute electricity at wholesale in interstate commerce.
16 U.S.C. § 824(b)(1). After power generators produce
electricity — largely from coal, natural gas, nuclear fuel, and
renewables — public utilities transmit and sell the electricity to
local utilities. Public utilities own the transmission facilities
through which the electricity travels. The local utilities that
purchase this electricity are also known as “load-serving

-- 2 of 21 --

3
entities.” Advanced Energy United, Inc. v. FERC, 82 F.4th
1095, 1103 (D.C. Cir. 2023). They distribute the electricity to
consumers. See ENERGY PRIMER: A HANDBOOK FOR ENERGY
M ARKET B ASICS 35–39 (2020); TransCanada Power Mktg.
Ltd. v. FERC, 811 F.3d 1, 4–5 (D.C. Cir. 2015).
The Act gives FERC jurisdiction to regulate the wholesale
rates charged by public utilities for their electricity-
transmission services, as well as the terms and conditions of
such service. See 16 U.S.C. § 824d(a) (conferring jurisdiction
over “[a]ll rates and charges made, demanded, or received by
any public utility for or in connection with the transmission or
sale of electric energy,” as well as “all rules and regulations
affecting or pertaining to such rates”); FERC v. Elec. Power
Supply Ass’n, 577 U.S. 260, 264–66 (2016). Electricity rates
can be market-based or cost-based. Most transmission services
are priced using cost-based rates, which are calculated based
on a formula published in each utility’s tariff that must be
approved by FERC. 16 U.S.C. § 824d(c), (d); Newman v.
FERC, 27 F.4th 690, 693 (D.C. Cir. 2022). Cost-based rates
allow utilities to recover the costs they incur to provide service
— including costs for building, operating, and maintaining
transmission facilities — and guarantee a fair return on capital.
Such rates largely rely on the utility’s “cost components” to
determine what will be charged. Newman, 27 F.4th at 693
(citation omitted).
A utility’s tariff must include “schedules showing all rates
and charges for any transmission or sale . . . and the
classifications, practices, and regulations affecting such rates
and charges.” See 16 U.S.C. § 824d(c). Once filed, “no change
shall be made . . . in any such rate, charge, classification, or
service, or in any rule, regulation, or contract relating thereto,
except after sixty days’ notice to the Commission and to the
public” in another filing with FERC. Id. § 824d(d). Pursuant

-- 3 of 21 --

4
to Section 205 of the Act, when a utility files a new or amended
tariff, FERC publishes the proposed tariff in the Federal
Register and sets a deadline for third parties — such as the
utility’s customers — to intervene in the proceedings and to file
protests that challenge the “classifications, practices, and
regulations” included in the tariff. Id. § 824d(c), (d); 18 C.F.R.
§ 385.210; Okla. Gas & Elec. Co. v. FERC, 11 F.4th 821, 829
(D.C. Cir. 2021). FERC will reject a proposed tariff that is not
“just and reasonable.” 16 U.S.C. § 824d(a); Old Dominion
Elec. Coop. v. FERC, 892 F.3d 1223, 1226 (D.C. Cir. 2018).
In considering whether to reject or approve a proposed tariff,
FERC may order a hearing or require settlement procedures to
resolve issues arising out of interventions and protests. 18
C.F.R. § 385.502; id. § 385.603.
Once FERC approves a tariff’s cost-based formula, which
is also known as a “formula rate,” the public utility calculates
the amount that it will charge for transmission services by
inputting the utility’s annual costs into the formula. Newman,
27 F.4th at 693. To generate the charged rate each year, the
utility need only file an annual report of its pertinent costs. Id.
The cost-based formula thus allows the utility to pass on
fluctuating costs to its customers. But it also protects
customers by preventing utilities from “using excessive
discretion in determining the ultimate amounts charged.” Kan.
Corp. Comm’n v. FERC, 881 F.3d 924, 927 (D.C. Cir. 2018)
(citation and internal quotation marks omitted).
FERC’s Uniform System of Accounts provides
standardized definitions for the cost inputs that are used to
determine transmission rates. The Uniform System of
Accounts correlates the utility’s costs to “ready-made
‘accounts,’ including descriptions of what belongs in them, for
categorization purposes.” Newman, 27 F.4th at 693; see also
18 C.F.R. pt. 101. For example, the Uniform System instructs

-- 4 of 21 --

5
utilities to categorize “rents receivable or accrued on property
rented or leased by the utility to others” in an account labeled
Account 172 for “Rents receivable.” 18 C.F.R. pt. 101,
Account 172. A utility’s cost-based formula rate might include
Account 172 as a cost to be recovered in the charged rate.
Thus, “[a] formula rate built on the Uniform System identifies
by account which expenditures are passed on to ratepayers, and
which fall outside the formula rate so must be absorbed by the
utility itself.” Newman, 27 F.4th at 693.
A public utility’s tariff also typically includes “protocols,”
which are rules that specify the procedures for notice, review,
and objection to the rates that customers will be charged. See
Ala. Power Co., 178 FERC ¶ 61,207, at PP 2–3 (2022).
Protocols describe the ways in which customers can challenge
the utility’s cost inputs, which determine the rate charged each
year. Protocols are considered a “safeguard” to ensure that the
rates are properly calculated, id., because costs that are
misclassified or erroneously included as inputs in a formula
rate may result in higher charges to customers.
Challenges to formula inputs in a given rate year under a
tariff’s protocols are reviewable by FERC under Section 205
of the Act. 16 U.S.C. § 824d(a). In such review proceedings,
the utility bears the burden of proving that its cost inputs are
“just and reasonable” based on the utility’s proper application
of the terms of the formula rate. Id. § 824d(e). By contrast, if
a customer wishes to challenge the formula itself, including
how costs are classified or which costs are included in the
formula, it must bring a complaint before FERC under
Section 206 of the Act. Section 206 empowers the
Commission to examine an existing formula upon complaint or
on its own initiative. See id. § 824e(a). Pursuant to
Section 206, “after a hearing held upon its own motion or upon
complaint,” the Commission may set aside any cost-based

-- 5 of 21 --

6
formula found to be “unjust, unreasonable, unduly
discriminatory or preferential,” and replace it with a just and
reasonable formula. Id.; see also NRG Power Mktg., LLC v.
Me. Pub. Utils. Comm’n, 558 U.S. 165, 171 (2010).
B.
The tariff at issue in this case is the product of a settlement
that FERC approved in 2019. Sw. Power Pool, Inc., 167 FERC
¶ 61,272 (2019); Sw. Power Pool, Inc., 161 FERC ¶ 61,306
(2017). All four petitioners in this case are transmission
customers of AEP’s affiliates that were involved in the tariff-
settlement negotiations with AEP; and three of them agreed to
the tariff. See Sw. Power Pool, Inc., 167 FERC ¶ 61,272,
at P 1.1
AEP’s tariff includes a “formula rate template” and tariff
protocols.2 The template is a detailed spreadsheet in which
1 Three of the petitioners — East Texas Electric Cooperative,
Inc., Northeast Texas Electric Cooperative, Inc., and Golden Spread
Electric Cooperative, Inc. — were settling parties. Sw. Power Pool,
Inc., 167 FERC ¶ 61,272, at P 1. The fourth petitioner —
Arkansas Electric Cooperative Co. — intervened in the proceeding,
but “neither join[ed] as a Settling Party nor oppose[d] the Settlement
Agreement.” Id. at P 1 n.2.
2 What we call “AEP’s tariff” is actually two tariffs administered
by the Southwest Power Pool Regional Transmission Organization
(“RTO”). See Southwest Power Pool Tariff, Sixth Revised Vol.
No. 1, attach. H, add. 4 (J.A. 143–233), add. 12 (J.A. 234–316).
RTOs are non-profit entities that oversee and operate the
transmission of electricity between member utilities and their
customers. NRG Power Mktg., LLC v. FERC, 862 F.3d 108, 110
(D.C. Cir. 2017) (citing 16 U.S.C. § 824d(c)). RTOs have the power
to file tariffs on behalf of their member utilities, as Southwest Power

-- 6 of 21 --

7
AEP inputs its various costs to calculate its yearly rate,
pursuant to its cost-based “Formula Rate.” The tariff protocols
(“the Protocols”) establish procedures for reporting and
challenging the cost inputs. See Protocols (J.A. 212–32). They
provide that AEP must file an “Annual Projection” of costs no
later than October 31 of the year preceding the rate year, which
allows AEP to estimate a rate based on its projected costs for
the rate year. Id. § 1(a). That projected rate is initially charged
to AEP’s customers. On or before May 25 of the year
following the rate year, AEP is required to file an “Annual
Update,” which includes an accounting of its actual costs
during the rate year. AEP calculates a “True Up” rate based on
the actual costs in the Annual Update. Id. § 3(a), (e). After the
True Up rate is determined, customers pay charges or receive
refunds that reflect the difference between AEP’s projected rate
and the True Up rate. Id. §§ 2–3. Under the Protocols, each
Annual Update must include “sufficient detail and sufficient
explanation to enable Interested Parties to replicate the
calculation of the Annual Update results from the FERC Form
No. 1 and verify that each input to the Template is consistent
with the requirements of the Formula Rate.” Id. § 3(e)(ii).3
The Protocols also specify that AEP’s accounting “shall be
maintained consistent with the FERC Uniform System of
Accounts.” Id. § 2(a).
Interested parties who wish to dispute the Formula Rate
inputs for a given rate year must first submit a “Preliminary
Challenge,” which initiates an informal resolution and
discovery process with AEP. Protocols § 4(a). If the issues in
Pool RTO did here on behalf of AEP’s affiliates. 18 C.F.R.
§ 35.34(j)(1)(iii).
3 FERC Form No. 1 is an annual report of financial and
operational disclosures that major electric utilities are required to file
with FERC each year. See 18 C.F.R. § 141.1.

-- 7 of 21 --

8
controversy cannot be resolved through the preliminary-
challenge process, the interested parties may file a “Formal
Challenge” with FERC. Id. § 5(a). Preliminary and Formal
Challenges may raise only a limited number of issues related
to the calculation of the rate charged to customers.4
The Protocols provide that an Annual Update “shall not be
subject to challenge by any Interested Party seeking to modify
the Formula Rate [(i.e., the cost-based formula reflected in the
tariff)].” Protocols § 3(e)(vi). Instead, “any modifications to
the Formula Rate will require, as applicable, [a Federal Power
Act] section 205 or section 206 filing or initiation of a section
206 investigation.” Id. In other words, modification of the
cost-based formula itself requires the proposal of a new
formula under Section 205, or an investigation of the existing
formula under Section 206.
4 Those issues are:
(i) the extent or effect of an Accounting Change;
(ii) whether the Annual Update or Annual
Projection fails to include data properly recorded in
accordance with these Protocols; (iii) the proper
application of the Formula Rate and procedures in
these Protocols; (iv) the accuracy of data and
consistency with the Formula Rate of the
calculations shown in the Annual Update and
Annual Projection; (v) the prudence of actual costs
and expenditures; (vi) the effect of any change to the
underlying Uniform System of Accounts or FERC
Form No. 1; or (vii) any other information that may
reasonably have substantive effect on the
calculation of the charge pursuant to the formula.
Protocols § 5(c).

-- 8 of 21 --

9
C.
In May 2020, AEP filed its 2020 Annual Update, which
included the True Up calculations for the rate to be charged for
transmission services provided in 2019. Petitioners filed a
Preliminary Challenge to the 2020 Annual Update, and later, a
Formal Challenge before FERC. The Formal Challenge raised
several issues that could not be resolved through the
preliminary-challenge process.
On March 24, 2022, FERC issued an order granting in part
and denying in part petitioners’ Formal Challenge. See Sw.
Power Pool, Inc. (AEP Order), 178 FERC ¶ 61,208 (2022).
FERC’s order rejected petitioners’ request for retroactive relief
for alleged errors in previous rate years. It further rejected
petitioners’ challenge to AEP’s inclusion of certain inputs in
the 2019 charged rate, including coal-related costs, tax credits
purchased by an AEP affiliate, and employee pension and
benefit costs.5 Petitioners timely filed a petition for review of
FERC’s order and FERC’s notice denying rehearing. We have
jurisdiction under the Federal Power Act, 16 U.S.C. § 825l(b).
II.
We will uphold FERC’s orders unless they are “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). A reviewing
court must ensure that the agency has “examine[d] the relevant
data and articulate[d] a satisfactory explanation for its action
including a ‘rational connection between the facts found and
5 FERC ruled in petitioners’ favor on several issues as well. It
found that AEP erred in calculating (1) fees paid to state public
service commissions; (2) capital lease interest expenses; and
(3) accumulated deferred income taxes related to accruals and rate
refunds. Those issues are not before us.

-- 9 of 21 --

10
the choice made.’” Ass’n of Oil Pipe Lines v. FERC, 876 F.3d
336, 342 (D.C. Cir. 2017) (alterations in original) (quoting
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983)). In FERC cases, we
“afford great deference to the Commission in its rate
decisions.” Elec. Power Supply Ass’n, 577 U.S. at 292.
Because ratemaking involves “complex industry analyses and
difficult policy choices[,] the court will be particularly
deferential to the Commission’s expertise.” Ass’n of Oil Pipe
Lines v. FERC, 83 F.3d 1424, 1431 (D.C. Cir. 1996). We ask
only whether FERC’s orders are reasonable and adequately
explained. Long Island Power Auth. v. FERC, 27 F.4th 705,
712 (D.C. Cir. 2022).
“When reviewing the Commission’s interpretation of a
tariff, this court first considers de novo whether the relevant
language unambiguously addresses the matter at issue, and if
so, we apply that unambiguous meaning.” Okla. Gas, 11 F.4th
at 827 (cleaned up). “If, however, there is ambiguity, we defer
to the Commission’s construction so long as that construction
is reasonable.” Id. (cleaned up). We generally give
“substantial deference to FERC’s interpretation of filed tariffs,
even where the issue simply involves the proper construction
of language.” S. Cal. Edison Co. v. FERC, 415 F.3d 17, 21
(D.C. Cir. 2005) (cleaned up). We also defer to FERC’s
reasonable interpretation of the Uniform System of Accounts.
See N. Border Pipeline Co. v. FERC, 129 F.3d 1315, 1318
(D.C. Cir. 1997).
III.
Petitioners appeal four rulings in FERC’s order resolving
their Formal Challenge. Their first argument concerns FERC’s
interpretation of the Protocols to preclude relief for errors that
allegedly occurred in prior rate years. The remaining three

-- 10 of 21 --

11
arguments take issue with the inclusion of certain cost inputs
in the 2019 charged rate. We conclude that FERC did not act
arbitrarily and capriciously, and correctly interpreted the terms
of AEP’s tariff.
A.
Petitioners’ Formal Challenge alleged errors that extended
to prior rate years, not just 2019. See, e.g., J.A. 34 (requesting
that AEP “issue refunds, including interest, dating back to the
original error”). Petitioners contended that retroactive
correction of such errors is permissible under the Protocols and
is consistent with long-standing FERC policy and precedents.
FERC concluded, however, that refunds for errors made in
previous rate years are barred under the governing Protocols.
We agree with FERC that the Protocols preclude retroactive
error correction, and that the Protocols are controlling.
“A tariff provision,” such as a term found in AEP’s
Protocols, “must be understood according to its plain meaning,
which we draw from its text and context.” Okla. Gas, 11 F.4th
at 827. Here, the relevant text is set forth in Section 5(d) of the
Protocols, which provides:
Failure to pursue an issue through a Preliminary
Challenge or to lodge a Formal Challenge
regarding any issue as to a given Annual Update
shall bar pursuit of such issue with respect to
that Annual Update, but shall not bar pursuit of
such issue or the lodging of a Formal Challenge
as to such issue as it relates to a subsequent
Annual Update.

-- 11 of 21 --

12
Protocols § 5(d). The Protocols generally impose deadlines of
up to 210 or 270 days to submit Preliminary and Formal
Challenges.6
Section 5(d) plainly prohibits parties from challenging
formula inputs after the period to submit a Preliminary or
Formal Challenge has elapsed for a given rate year.
Specifically, the provision makes clear that a customer’s failure
to challenge an issue “as to a given Annual Update” bars relief
“with respect to that Annual Update.” Protocols § 5(d).
Consider an example. If a customer wished to seek relief for
an alleged error in the rate that was charged in 2020, that
customer was required to file a challenge to the 2021 Annual
Update, which included the True Up calculations for the 2020
rate year. That would have been the time to lodge a challenge
“with respect to that Annual Update.” If the issue was not
raised by filing a challenge in the requisite timeframe, such
failure would “bar pursuit of such issue with respect to that
[2021] Annual Update,” which relates to the 2020 rate year.
The 2021 Annual Update and the rates charged for the 2020
rate year could not be corrected now, in 2024. Thus,
Section 5(d) unambiguously bars a customer from seeking
relief through an untimely challenge for an issue that arose in a
prior Annual Update. But the Protocols specifically provide
that if the same issue arises in a later year, say 2023, the
6 A Preliminary Challenge is due up to 210 calendar days
following the publication of an Annual Update or Annual Projection,
or 30 calendar days after “receipt of all responses to timely submitted
information requests (unless such period is extended with the written
consent of AEP or by FERC order).” Protocols § 4(a). Similarly, a
Formal Challenge may be filed up to 270 calendar days following
such publication, “unless such period is extended with the written
consent of AEP or by FERC order.” Id. § 5(a).

-- 12 of 21 --

13
customer could seek timely relief “as it relates to [that]
subsequent Annual Update.”
Petitioners disagree and argue that the Protocols’ language
allows retroactive challenges to rates charged in prior rate
years. They contend that “[t]he text says nothing at all about
waiving pursuit of an issue in a prior Annual Update,” and that
Section 5(d) does not apply to “issue[s] discovered after that
Annual Update.” Pet’rs’ Opening Br. 19 (first emphasis in
original) (internal quotations omitted). But those arguments
are incompatible with the Protocols’ text and context.
The cost-based formula in a tariff is publicly available and
remains unchanged year after year (unless and until a new rate
is approved under Section 205). See 16 U.S.C. § 824d. Thus,
although Section 5(d) does not explicitly mention “prior”
years, the same Protocols presumably were in effect in each
previous rate year, and petitioners were obligated to timely file
their challenges each year. Petitioners err in arguing that
Section 5(d) does not bar challenges to newly discovered errors
in previously charged rates. Challenges to past rates are not
properly characterized as newly discovered because petitioners
had the opportunity to “discover” any such problems in the
years in which they occurred. Furthermore, petitioners’
proposed interpretation of Section 5(d) undermines the purpose
of the review process implemented by the Protocols, which is
intended to ensure that the formula rate is properly calculated
each year and to promptly correct any deficiencies. See
Midwest Indep. Transmission Sys. Operator, Inc., 139 FERC
¶ 61,127, at PP 9–10 (2012); see also Pet’rs’ Opening Br. 12
(the Protocols are “[s]afeguards . . . to ensure that the input data
is correct, [and] that the calculations are performed consistent
with the formula” (quoting Ala. Power Co., 178 FERC ¶
61,207, at PP 2–3) (cleaned up)).

-- 13 of 21 --

14
Petitioners further argue that FERC departed from a long-
standing practice of allowing retroactive error correction. But
we have previously held that the unambiguous language in a
utility’s “filed rate,” i.e., the rate approved by FERC, is
controlling — irrespective of any contrary, general practice —
and that such language may limit the period for lodging
objections to charged rates. See Seminole Elec. Coop., Inc. v.
FERC, 861 F.3d 230, 234 (D.C. Cir. 2017). FERC has also
applied this rule. See AEP Order, 178 FERC ¶ 61,208, at P 14;
Kan. Elec. Power Coop., Inc. v. Evergy Kan. Cent., Inc.,
175 FERC ¶ 61,044, at P 101 (2021) (“[T]he Commission has
found, and the D.C. Circuit has upheld” that “when a formula
rate agreement explicitly limits the challenge period, . . .
specific provisions can prohibit challenge.”). Here, petitioners
must adhere to AEP’s Protocols in purchasing transmission
services from AEP because the Protocols are part of the filed
rate approved by FERC under Section 205 of the Act.
In Seminole, we upheld FERC’s enforcement of a service
agreement that imposed a 24-month deadline for customers to
file objections to rates charged for transmission services. See
861 F.3d at 231, 233 & n.2 (setting deadline “no later than
twenty-four (24) months after the date the [customer’s] bill was
rendered”). We held that “[t]he plain text” of the provision
clearly barred challenges to charges that a customer “waited
longer than 24 months to contest,” and therefore functioned
“like a statute of limitations.” Id. at 233–34. The same logic
applies here. Like the service agreement at issue in Seminole,
the Protocols are part of AEP’s filed rate, which is binding on
the parties, and establishes “the process for challenging bills
issued pursuant to the tariff.” Id. at 233; Okla. Gas, 11 F.4th
at 830 (“[T]he 24-month limitation on retroactive billing” in
Seminole was “itself the filed rate.” (cleaned up)); Protocols
at 1 (AEP’s formula rate template and Protocols “together
comprise the filed rate.”). There is no question that parties are

-- 14 of 21 --

15
bound by the utility’s filed rate, whether its terms are set forth
in tariff protocols or in a service agreement. Okla. Gas, 11
F.4th at 830–31.7 And obligations under the Federal Power
Act “appl[y] whether the rates and charges are set ‘unilaterally
by tariff’ or agreed upon in individual contracts between sellers
and buyers.” W. Deptford Energy, LLC v. FERC, 766 F.3d 10,
12 (D.C. Cir. 2014) (quoting NRG, 558 U.S. at 171). Thus,
under the Protocols, an AEP customer’s failure to pursue a
Section 205 challenge within the time allotted “as to a given
Annual Update” precludes future relief “with respect to that
Annual Update.” Protocols § 5(d).8 If a customer misses the
deadline, they are “stuck.” Seminole, 861 F.3d at 234.
In sum, the Protocols govern the viability of petitioners’
claims in a Formal Challenge, and FERC correctly interpreted
Section 5(d) of the Protocols to preclude retroactive relief for
protocol-based challenges brought pursuant to Section 205.
7 The “filed rate doctrine” encompasses the statutory provisions
that “mandat[e] the open and transparent filing of rates [with FERC]
and broadly proscrib[e] their retroactive adjustment.” Okla. Gas,
11 F.4th at 829. The doctrine therefore refers to “the interconnected
statutory requirements that bind regulated entities to charge only the
rates filed with FERC and to change their rates only prospectively.”
Id.; see also Towns of Concord v. FERC, 955 F.2d 67, 70–72 (D.C.
Cir. 1992) (detailing the origins of the filed-rate doctrine and its
justifications). A utility’s filed rate “is not limited to ‘rates’ per se,”
but also includes terms “directly affect[ing] [a utility’s] wholesale
rates.” Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953,
966–67 (1986).
8 The protocol-based challenge at issue in this appeal is a
challenge brought under Section 205, and the Protocols expressly
preserve the right of any party to separately file challenges under
Section 206. See Protocols § 5(b), (g). Thus, Section 5(d) does not
affect time limitations for a party’s ability to bring a separate
Section 206 challenge.

-- 15 of 21 --

16
Accordingly, FERC properly denied petitioners’ request for
refunds from prior rate years.
B.
Petitioners’ remaining arguments dispute the inclusion of
specific cost inputs in the 2019 charged rate. We are
“particularly deferential to the Commission’s expertise” in
making highly technical rate classifications. Ass’n of Oil Pipe
Lines, 83 F.3d at 1431. Because FERC’s order is reasonable
and adequately explained, we reject each of petitioners’
contentions.
1.
Petitioners first take issue with AEP’s use of an “allocation
factor” to include certain costs — associated with coal mining
and a coal railcar facility — in calculating the 2019 charged
rate.9 An allocation factor assigns a certain percentage of a cost
incurred by a public utility to each of the utility’s various
functions (i.e., production, transmission, and distribution of
electricity). Here, consistent with the Formula Rate published
in its tariff, AEP applied an allocation factor to assign a certain
percentage of “General Plant” costs, including coal-related
costs, as “transmission costs” included in the 2019 charged
rate. Under the Uniform System of Accounts, the coal-related
costs were assigned to Account 399, which includes “the cost
of tangible utility plant not provided for elsewhere.” 18 C.F.R.
pt. 101, Account 399. Petitioners argue that the coal-related
costs did not, in fact, relate to transmission services because
they are “100% generation-related” and therefore should be
9 To fuel its power plants, AEP uses a type of coal (called
“lignite”) from nearby coal mines. AEP also maintains a coal railcar
facility that maintains AEP-owned and third-party-owned railcars,
which are used to deliver coal throughout the United States.

-- 16 of 21 --

17
categorized as “generation rates.” Pet’rs’ Opening Br. 25. But
in their Formal Challenge before FERC, petitioners
acknowledged that the costs in question “are allowed to be
reported in Account 399.” J.A. 15. Moreover, petitioners do
not appear to dispute that AEP’s Formula Rate called for
including a portion of the costs in Account 399 in the rate
charged for transmission services in 2019.
FERC correctly concluded that petitioners’ claim is an
improper challenge to the formula itself, which may not be
brought as a Formal Challenge under the Protocols. AEP
Order, 178 FERC ¶ 61,208, at P 33 (stating that “the Formal
Challenge may address the proper application of the Formula
Rate, but may not address issues that would involve a change
to the Formula Rate itself”). The inclusion of the disputed coal-
related costs in determining the charged rate was dictated by
the Formula Rate, which applied an allocation factor to
apportion transmission costs from the General Plant account.
Petitioners’ opposition to the use of an allocation factor is an
objection to the cost-based formula, which must be raised in a
separate action under Section 206. See 16 U.S.C. § 824e(a).10
10 Petitioners belatedly contend that this challenge is in fact
cognizable under the tariff-based challenge process — namely, under
Section 5(c)(ii) or (vii) of the Protocols. Section 5(c)(ii) allows a
challenge where “the Annual Update or Annual Projection fails to
include data properly recorded in accordance with these Protocols,”
and Section 5(c)(vii) permits a challenge regarding “any other
information that may reasonably have substantive effect on the
calculation of the charge pursuant to the formula.” This argument is
forfeited because it was not raised before FERC in the petition for
rehearing. By statute, we may not consider any objection “unless
such objection shall have been urged before the Commission in the
application for rehearing unless there is reasonable ground for failure
so to do.” 16 U.S.C. § 825l(b); see also Off. of Consumers’ Couns.
v. FERC, 914 F.2d 290, 295 (D.C. Cir. 1990) (“Petitioners cannot

-- 17 of 21 --

18
Thus, FERC did not act arbitrarily or capriciously in rejecting
petitioners’ claim that the coal-related costs were improperly
included in the 2019 charged rate.
2.
Petitioners disagree with AEP’s classification of certain
tax credits as prepayments for tax liabilities. Prepayments are
costs that are included in the Formula Rate. AEP recorded the
tax credits in question under Account 165 (Prepayments),
which is defined in the Uniform System of Accounts as
“amounts representing prepayments of insurance, rents, taxes,
interest[,] and miscellaneous items.” 18 C.F.R. pt. 101,
Account 165. Petitioners argue that because AEP sold the
credits before applying them to any tax liabilities, they were
not “prepayments.” We conclude that FERC reasonably
interpreted the tariff and the Uniform System of Accounts to
permit AEP to include the tax credits as prepayments in the
2019 charged rate, and we defer to the agency’s interpretation.
S. Cal. Edison Co., 415 F.3d at 21.
FERC determined that AEP’s classification was proper
because the credits were still owned by AEP at the close of
2019, and therefore “were available to be used to pay or offset
future Oklahoma income tax liabilities.” AEP Order, 178
FERC ¶ 61,208, at P 44. That is consistent with the process
prescribed by the Uniform System of Accounts, which
provides that “[e]ach utility shall close its books at the end of
each calendar year unless otherwise authorized by the
Commission.” 18 C.F.R. pt. 101, Gen. Instruction No. 4
(emphasis added). Petitioners err in arguing that the tax credits
should have been recorded in Account 236 (Taxes Accrued)
and then reclassified once they were sold. The instructions for
preserve an objection indirectly [in a petition for rehearing].”).
Petitioners offer no reasonable explanation for their oversight.

-- 18 of 21 --

19
Account 236 explicitly state that “[a]ny amount representing a
prepayment of taxes applicable to the period subsequent to the
date of the balance sheet, shall be shown under account 165.”
18 C.F.R. pt. 101, Account 236 (emphasis added).11 FERC
therefore reasonably applied the Uniform System of Accounts
and concluded that the disputed costs were properly classified
and included in the 2019 charged rate.
3.
Lastly, petitioners challenge AEP’s inclusion of employee
pension and benefit costs in the 2019 charged rate. The tariff’s
formula template requires AEP “to remove the unfunded
reserves associated with contingent liabilities . . . from [the]
rate base.” J.A. 158 at Note U (emphasis added). Petitioners
argue that the disputed costs were “contingent liabilities” that
should have been removed. We defer to FERC’s sound
determination that the costs in question were not contingent
liabilities.
The Uniform System of Accounts defines “contingent
liabilities” as “items which may under certain conditions
11 Petitioners further object by citing both FERC precedent
regarding the classification of tax refunds (not credits) and FERC
audits in which FERC concluded that tax overpayments should not
be classified as prepayments. Those precedents are inapposite. In
Midwest Indep. Transmission Sys. Operator, Inc. (MISO), FERC
held that a tax refund received in 2009 could not be treated as a
prepayment because it did not relate to “taxes applicable to periods
subsequent to 2009.” MISO, Opinion No. 534, 148 FERC ¶ 61,206,
at P 173 (2014). Similarly, the cited audits considered only how
money was used by the utilities in the years at issue. See, e.g., Audit
of PPL Corporation’s Affiliate Transactions, FERC Dkt. No. FA12-
12-000, 24–25 (Oct. 9, 2014). Consistent with those holdings, FERC
determined here that the tax credits in question should be classified
based on their status at the end of the relevant calendar year.

-- 19 of 21 --

20
become obligations of the utility but which are neither direct
nor assumed liabilities at the date of the balance sheet.”
18 C.F.R. pt. 101, Gen. Instruction No. 15. Petitioners argue
that pension and benefit costs are contingent liabilities because
they are uncertain, “both in the amount of the liability and
whether they will be paid at all.” Pet’rs’ Opening Br. 39. But
FERC reasonably concluded that such costs are not contingent
because at the time they were classified and included in the
charged rate, “the utility [knew] that it [would] incur those
expenses even if the timing of such expenses [was] uncertain.”
AEP Order, 178 FERC ¶ 61,208, at P 51. FERC therefore
found that AEP’s classification of employee pension and
benefit costs was “consistent with the Formula Rate template
and the [Uniform System of Accounts].” Id. We give
“substantial deference to FERC’s interpretation of [AEP’s]
filed tariffs.” See S. Cal. Edison Co., 415 F.3d at 21 (cleaned
up); N. Border Pipeline, 129 F.3d at 1318 (explaining that
courts should defer to FERC’s interpretation of its own
Uniform System of Accounts instructions).12
12 FERC’s interpretation is supported by other authorities that bear
on whether pension liabilities should be classified as “contingent.”
For example, the Government Accountability Office states that there
is a “fundamental difference” between pension liabilities, which “are
known to exist, [even though] their exact size in future years cannot
be determined with complete certainty,” and contingent liabilities,
which are “conditional commitments which may become actual
liabilities if an event over which the government does not have
complete control takes place.” Letter from the Comptroller of the
United States to Richard Kelly, United States House of
Representatives (Feb. 23, 1978) at 1, https://perma.cc/BA2K-
UCW7. And the International Accounting Standards (“IAS”)
explain that “[c]ontingent liabilities do not include provisions for
which it is certain that the entity has a present obligation . . . even
though the amount or timing is uncertain.” Int’l Fin. Reporting

-- 20 of 21 --

21
* * *
For the foregoing reasons, we deny the petition for review.
So ordered.
Standards Found., IAS 37: Provisions, Contingent Liabilities and
Contingent Assets, https://perma.cc/E6JD-M2AX.

-- 21 of 21 --