                                PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                               No. 12-1881


NORTH CAROLINA UTILITIES COMMISSION,

                Petitioner,

OLD DOMINION ELECTRIC COOPERATIVE; NORTH CAROLINA ELECTRIC
MEMBERSHIP CORPORATION,

                Intervenors,

           v.

FEDERAL ENERGY REGULATORY COMMISSION,

                Respondent,

VIRGINIA ELECTRIC AND POWER COMPANY,

                Intervenor.



Appeal from the Federal Energy Regulatory Commission.            (ER08-
1207)


Argued:   December 10, 2013                  Decided:   January 24, 2014


Before DUNCAN, WYNN, and THACKER, Circuit Judges.


Affirmed by published opinion. Judge Duncan wrote the opinion,
in which Judge Wynn and Judge Thacker joined.


ARGUED: Kimberly Weaver Duffley, NORTH CAROLINA UTILITIES
COMMISSION, Raleigh, North Carolina, for Petitioner.    Lona
Triplett   Perry,   FEDERAL ENERGY   REGULATORY  COMMISSION,
Washington, D.C., for Respondent.   ON BRIEF: Louis S. Watson,
Jr., General Counsel, NORTH CAROLINA UTILITIES COMMISSION,
Raleigh, North Carolina, for Petitioner.    David L. Morenoff,
Acting General Counsel, Robert H. Solomon, Solicitor, FEDERAL
ENERGY REGULATORY COMMISSION, Washington, D.C., for Respondent.
Michael C. Regulinski, DOMINION RESOURCES SERVICES, INC.,
Richmond, Virginia; J. Tracy Walker, IV, David Martin Connelly,
MCGUIREWOODS LLP, Richmond, Virginia, for Intervenor Virginia
Electric and Power Company.




                               2
DUNCAN, Circuit Judge:

      The North Carolina Utilities Commission (“NCUC”) challenges

incentives granted by the Federal Energy Regulatory Commission

(“FERC”)     to     Virginia    Electric       Power    Company     d/b/a    Dominion

Virginia Power (“VEPCO”) to encourage investment in transmission

infrastructure projects.            NCUC argues that FERC violated § 219

of the Federal Power Act (“FPA”) and abused its discretion by

granting these incentives in 2008 and by denying its petition

for rehearing in 2012.             Constrained by the standard of review,

we affirm.



                                          I.

      We    begin    with   a   brief     description       of    FERC’s    statutory

authority to grant the incentives at issue.                      Under the Federal

Power Act, FERC exercises general jurisdiction over all rates,

terms,      and    conditions      of   interstate        electric        transmission

service provided by public utilities.                   See 16 U.S.C. § 824(b).

Congress amended the FPA in 2005 by passing the Energy Policy

Act   (“EPAct”)      to   create    a   national       energy    policy    focused   on

increasing efficiency and innovation.                  Pub. L. 109-58, 119 Stat.

594 (2005); S. Rep. 109-78 at 1 (2005).                  In response to concerns

about      the    reliability      of   the    country’s        aging     transmission

system, § 219 of the FPA required FERC to promulgate a rule

establishing        incentive-based       rate     treatments       for    qualifying

                                           3
projects     to       spur       infrastructure      investment.         16    U.S.C.     §

824s(c). 1

     After    notice             and   comment,     FERC   adopted   a        final    rule

establishing a three-prong test for evaluating applications for

incentives    under          §    219.       Promoting     Transmission        Investment

Through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶

31,222, at P 326 (2006), order on reh'g, Order No. 679-A, FERC

Stats. & Regs. ¶ 31,236 (2007), order on reh'g, Order No. 679-B,

119 FERC ¶ 61,062 (2007); codified at 18 C.F.R. § 35.35 (“Orders

No. 679, 679-A, & 679-B”).                   First, the utility must show that

its infrastructure project will increase reliability or reduce

congestion.           Order No. 679 ¶ 42.                Second, the utility must

demonstrate       a    nexus       between    the   requested   incentive        and    the

project.     Id. ¶ 48.             Finally, the utility must prove that its

resulting rates with the incentive remain “just and reasonable.”

Id. ¶ 59.    We briefly explain each prong.

                                              A.

     The requirement of prong one--a showing of either increased

reliability or reduced congestion--is largely self-explanatory

with one proviso relevant here.                     A utility can qualify for a

     1
       The incentives take the form of basis point “adders.”
Each basis point is equivalent to a 1/100% increase in a
utility’s return on equity (ROE), meaning that, for example, a
100 basis point adder translates into a 1% rise in a utility’s
ROE.



                                               4
rebuttable        presumption      that       its    infrastructure            project     will

either ensure reliability or reduce transmission congestion if

it    resulted     from    a     regional      planning       process         that      included

consideration of reliability and cost reduction.                              Order No. 679

¶ 58; Order No. 679-A ¶ 5.

                                              B.

       The analysis under prong two--determining whether the nexus

requirement        is    met--is       more    challenging.               A    utility     must

demonstrate that the incentive will materially affect investment

decisions by showing that it is “tailored to [the project’s]

risks and challenges.”             Order No. 679 ¶ 26; see also Order No.

679-A ¶ 21.         Significantly here, a utility need not prove it

would not undertake the project without the incentive.                                     Order

No. 679 ¶ 48.           FERC determined that a but-for test would erect

too high of an “evidentiary hurdle.”                  Order No. 679-A ¶ 25.

       FERC has further clarified the parameters of the nexus test

through adjudication.             In Baltimore Gas & Electric Company, 120

FERC ¶ 61,084 (2007), FERC held that a project meets the nexus

test    if   it    is     “not    routine.”          Id.     ¶    54.         To    make   this

determination,          FERC   considers       all   relevant       factors         including:

(1)    the   project’s         scope     measured      in        dollar       investment     or

increase     in    transfer      capability;         (2)    its     impact         on   regional

reliability        or    reduced       congestion          costs;       and    (3)      project

specific challenges including siting risks, political pressure,

                                               5
and difficulties in securing financing.                     Id. ¶ 52.       FERC also

held projects resulting from a regional planning process qualify

as     “not   routine”      because       of    their       impact    on      regional

reliability.       Id. ¶ 58. 2

       FERC’s approach to applying the nexus test has evolved over

time.      Initially, when a utility included multiple, unrelated

projects in a single application, FERC evaluated the projects in

the    aggregate    to    determine   whether         the   nexus    test    was    met.

Order No. 679-A ¶ 27.            While the utility was still required to

“provide      sufficient     explanation        and     support      to     allow   the

Commission to evaluate each element of the package,” because an

incentive for one project might lower the risk of another in the

same    application,      FERC   sought    to   ensure      that    the   package     of

incentives as a whole would appropriately address the utility’s

risk overall.       Id.

       In 2010, however, in PJM Interconnection, Inc., 133 FERC ¶

61,273 (2010), and Oklahoma Gas and Electric Company, 133 FERC ¶

61,274 (2010), FERC announced that it would no longer apply the

nexus test in the aggregate to unrelated projects presented in a


       2
       After FERC issued the final order in this case, it
determined that it would no longer use the Baltimore Gas
routine/non-routine analysis as a proxy for satisfying the nexus
test to applications received after November 2012.     Promoting
Transmission Investment Through Pricing Reform, 141 FERC ¶
61,129 (2012).



                                          6
single application.           Instead, a utility would be required to

meet       the   nexus   test    for   each    individual        project.        PJM

Interconnection, 133 FERC            ¶ 61,273, at ¶ 45.          This new policy

would be applied “in this and future cases.”               Id.

                                        C.

       Finally, under the third prong of the Order No. 679 test, a

utility must demonstrate that its resulting rates are “just and

reasonable” under § 219(d).            This requirement clarifies that a

utility seeking a § 219 incentive remains constrained by the

requirement that its rates be “just and reasonable” under § 205

of the FPA.        Order No. 679 ¶ 8.         Under the FPA, a utility must

obtain approval through a rate-setting process in order to raise

its rates to incorporate an incentive.                Id. ¶ 77.        A utility

meets this requirement if its return on equity (ROE) with the

requested incentive falls within a “zone of reasonableness.” 3

Id. ¶ 91.        With this explanation in mind, we turn now to FERC’s

application       of   the   three   prongs   of   Order   No.    679’s   test    to

VEPCO’s application in its 2008 declaratory proceeding.




       3
        This zone is determined through the same one-step
discounted cash flow analysis (“DCF”) used in any rate
proceeding before FERC.   Order No. 679 ¶ 92.   The DCF compares
the utility’s ROE with those of proxy companies and accounts for
other factors, such as risk. Id.



                                         7
                                       II.

                                       A.

      On July 1, 2008, VEPCO, a member of PJM Interconnection LLC

(“PJM”), 4 sought incentives for eleven transmission projects with

a total estimated cost of $877 million.                 VEPCO requested a 125

basis point adder for a bundle of seven projects, a mix of new

construction and improvements to existing infrastructure.                 VEPCO

requested an additional 150 basis point adder for a bundle of

four larger-scale projects.

      After    notice   of   VEPCO’s   filing     was    published,    NCUC   and

numerous   other    parties    moved    to    intervene.     NCUC     originally

protested the grant of incentives to six of the projects.                      On

appeal, NCUC continues to challenge five.                  Four of the five

projects were part of VEPCO’s application for a 125 basis point

adder:        The   Lexington    Tie        Project,    Idylwood-to-Arlington

Reconductor (“Idylwood Project”), the Garrisonville Project, and

the Pleasant View-to-Hamilton Project (“Pleasant View Project”).

The   fifth,     the    Proactive      Transformer       Replacement    Project

(“PTRP”), was part of VEPCO’s application for a 150 basis point



      4
        PJM is one of the voluntary Regional Transmission
Organizations (“RTOs”) authorized by FERC to facilitate the
transmission of electricity between owners of transmission lines
that   comprise   an   integrated  regional   grid.      Regional
Transmission Organizations, 65 Fed. Reg. 810, 811-12 (2000).



                                        8
adder.      We   briefly       describe       each     challenged           project     before

turning to the proceedings below.

                                             1.

     The      Lexington         Tie      Project            and        Idylwood-Arlington

Reconductor      are     PJM     Regional          Transmission             Expansion        Plan

(“RTEP”)    projects.          The    RTEP    is     the    product         of   a   long-term

planning process by PJM to identify areas where infrastructure

upgrades or improvements are needed to ensure compliance with

national and regional reliability standards.                            The Lexington Tie

Project requires the installation of upgraded line breakers at

VEPCO’s Lexington substation at an estimated cost of $6 million.

The Idylwood Project requires replacement of existing conductors

on 230 kV transmission lines with triple-circuit structures and

high-temperature/high-capacity               conductors.               As   RTEP     projects,

they enjoy a rebuttable presumption that the requirements of

prong one are met.

     The Garrisonville and Pleasant View Projects are not RTEP

projects,     and   involve      the     construction             of    new      transmission

lines.     The Garrisonville Project will result in a five mile

underground      transmission        line     at     an    estimated          cost    of     $120

million.    The Pleasant View Project involves the construction of

a   twelve-mile        transmission          line,        two     of    which        would     be

constructed underground, at an estimated cost of $90 million.



                                             9
      VEPCO’s Proactive Transformer Replacement Project (“PTRP”)

is also not a RTEP project.         It requires the replacement of

thirty-two 500/230 kV transformers located in nine transformer

banks in seven substations at an estimated cost of $110 million.

                                   2.

      At the proceedings below, VEPCO supported its application

with twenty-four exhibits seeking to demonstrate why each of the

eleven projects merited § 219 incentives.         NCUC challenged the

five projects on appeal under the first two prongs of Order

679’s test.      Under prong one, NCUC disputed only the Proactive

Transformer Replacement Project (“PTRP”) arguing that it would

not   increase    reliability. 5    NCUC   protested      the    grant   of

incentives to each of the five projects challenged on appeal

under prong two contending that they failed to meet the nexus

requirement.     We consider each challenge in turn.

                                   a.

      Under prong one, VEPCO argued that its PTRP would increase

regional   reliability    by   significantly   reducing    the    risk   of

transformer failure.     VEPCO based its application, in part, on a


      5
       At the initial hearing, NCUC challenged the Pleasant View
and Garrisonville Projects under prong one arguing that they
would not increase regional reliability.    This argument is not
before us on appeal however because NCUC declined to raise it in
its petition for rehearing.     See Mt. Lookout-Mt. Nebo Prop.
Prot. Ass’n v. FERC, 143 F.3d 165, 173 (4th Cir. 1998)



                                   10
Probabilistic Risk Analysis (“PRA”) conducted by PJM as part of

its regional planning process.                  VEPCO used this data to identify

aging transformers with a higher risk of failure to target for

replacement.         If one of these transformers failed, VEPCO argued,

there     would       be    a      decrease         of    between      33%   to     66%     in

transformation capacity at each substation.                          NCUC responded that

the     PJM’s       PRA     actually         determined         that    VEPCO’s     current

transformer network was sufficiently reliable because VEPCO had

more    than    the     required       number       of    spare   transformers.        As    a

result,       PJM     did     not      recommend          any     upgrades     to   VEPCO’s

transformer         network       in   its    planning       process.        NCUC   argued,

therefore, that VEPCO should not be able to rely upon the PRA to

support its application for an incentive.

       FERC     found      that     VEPCO     carried       its    prong-one      burden    of

proving the PTRP would increase reliability agreeing that absent

the    project,       there     was    a     risk    of    outages     for   customers      in

multiple service areas.                 Virginia Electric and Power Company,

124 FERC ¶ 61,207 (2008) (“Incentives Order”), at ¶ 37.                                   FERC

also noted that the standard industry practice of relying on

spares can result in delays in restoring service.                                 Id. ¶ 38.

Therefore, FERC rejected NCUC’s argument that PJM’s decision not

to include this project in its RTEP project list meant the PTRP

would not enhance reliability.



                                               11
                                          b.

      Under prong two of the Order No. 679 test, VEPCO presented

evidence     that   each    of     its     projects    was      non-routine       under

Baltimore Gas and, therefore, met the nexus test.

                                          i.

      The    Lexington     Tie   Project        merited   incentive       treatment,

VEPCO contended, because it would ensure reliability along a

major   interface    in    the   Eastern        Interconnection.          VEPCO    also

identified     construction      risks,     including     the    requirement       that

the   substation     be    taken    out     of    service    temporarily      during

construction.       VEPCO argued that the Idylwood Project met the

nexus   test    because     it     faced       significant      local   opposition.

Construction would take place along a heavily used portion of

the Washington & Old Dominion Trial in a densely populated area.

VEPCO’s construction permits had been denied twice and a third

application was pending.           NCUC responded that, to the contrary,

these projects were routine.               In NCUC’s view, VEPCO’s current

ROE was sufficient to attract investment in the Lexington Tie

and Idylwood projects as evidenced by their small scale and the

fact that they were already underway.

      FERC    rejected     NCUC’s     arguments,      finding      that    both     the

Lexington     Tie   and    Idylwood      Projects     were      non-routine       under

Baltimore    Gas.     As    RTEP    projects,      FERC     concluded,     both     the

Lexington     Tie   and    Idylwood      Projects     would      enhance    regional

                                          12
reliability.           Id.     ¶     100.        Further,      FERC   credited         VEPCO’s

additional       arguments          that       these    projects      were    non-routine

because of ongoing local opposition and construction challenges.

Id. ¶¶ 100, 110.

                                                ii.

        In contending that both the Garrisonville and Pleasant View

Projects qualified as non-routine, VEPCO pointed out that it had

agreed    to    construct          the    Garrisonville        line   and    part      of   the

Pleasant View line underground in response to significant local

opposition.       Underground construction raised the risk of these

projects, VEPCO argued, because of changeable elevation, tricky

soil conditions, and the required use of new technology.

     NCUC       responded          these        projects      were    not    economically

efficient as planned because these lines could be constructed

above    ground       at   a   lower          cost.    NCUC    pointed      out   that      the

Virginia        Commission           had        approved       entirely      above-ground

construction for the Pleasant View Line demonstrating that VEPCO

decided to build underground solely to appease local officials.

At the very least, NCUC contended, VEPCO’s wholesale customers

should    not    be    required          to    subsidize   the    incremental       cost     of

underground construction.

     In     light      of      the       on-going      local     opposition       to    these

projects, construction challenges, and their beneficial impact

on regional reliability, FERC concluded that VEPCO’s decision to

                                                 13
build        underground       did       not    disqualify        these        projects     from

incentive treatment and that VEPCO satisfied the nexus test for

the full price of both projects.                     Id. ¶¶ 77, 85.

                                               iii.

        Finally, VEPCO argued that the PTRP was non-routine because

its    proactive       approach          deviated     from     the    industry         standard,

required           coordination           across      multiple         substations,           and

necessitated          significant           investment       in      skilled       labor      and

capital.        As it had under prong one, NCUC replied that the PTRP

should       not     qualify       for    incentive      treatment        because        VEPCO’s

supply of spare transformers was more than adequate.

        FERC    rejected       NCUC’s       argument      in    this      regard       as   well,

concluding that the fact that this project was not included in

PJM’s    RTEP        was   insufficient         to    disqualify         it    from    meriting

incentives.            Id.    ¶     72.        Overall,      FERC    held       that    VEPCO’s

application satisfied the nexus requirement “both as a package

and for each individual project.”                     Id. ¶ 48.

        FERC ultimately granted VEPCO’s application in full.                                 Id.

¶ 1.     NCUC filed a petition for rehearing on September 29, 2008.

                                                B.

                                                1.

        In     its     request        for      rehearing,         NCUC        reiterated      its

objections to the incentives for the five challenged projects

and    identified          other     errors     in    FERC’s      order       as   well.       In

                                                14
particular,      it     contended       FERC    misunderstood        the    PTRP’s    scope

because it twice incorrectly stated that the project involved

the replacement of only nine, not thirty-two, transformers.

                                               2.

      For   reasons       that      remain     unsatisfactorily           explained    even

after    oral    argument,       FERC     failed     to    issue    its    Order   Denying

Rehearing until almost four years after its initial order on May

22, 2012.            Virginia Electric and Energy Company, 139 FERC ¶

61,143 (2012) (“Rehearing Order”).

      In its Rehearing Order, FERC considered whether to grant

rehearing to apply the intervening 2010 policy change to the

nexus test announced in PJM and Okla. Gas.                         FERC stated “it can

be    argued     that     if    a    similar        request    for    incentives       were

submitted to the Commission at this time, the result might be

different       in    light    of   the    Commission’s       evolving       policy    with

respect to application of the Order No. 679 nexus test.”                              Id. ¶

11.     Nevertheless, FERC decided against rehearing on that basis

for three reasons.             First, PJM and Okla. Gas expressly stated

that the change to the nexus requirement would be applied only

prospectively.          Id. ¶ 11.         Second, VEPCO legitimately relied on

the application of the nexus test as interpreted at the time of

the Incentives Order.               Id. ¶ 12.          And, FERC feared that the

regulatory       uncertainty        that       would      result    from    shifting     an

earlier position four years after the fact could deter reliance

                                               15
on   §    219     incentives       more       broadly.      Id.     FERC     proceeded      to

confirm         the     grant     of   VEPCO’s       incentives,     finding       that    the

additional            arguments     raised      on    rehearing    failed     to    provide

grounds for rehearing.                 On July 20, 2012, NCUC timely appealed

under 16 U.S.C. § 825l(b).



                                               III.

         We     will      affirm       FERC’s        conclusions    unless        they     are

“arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law, or unsupported by substantial evidence.”

Appomattox River Water Auth. v. FERC, 736 F.2d 1000, 1002 (4th

Cir. 1984); 16 U.S.C. § 825l(b).                       Substantial evidence is “more

than a mere scintilla, but less than a preponderance.”                              T-Mobile

Ne. LCC v. City Council of Newport News, Va., 674 F.3d 380, 385

(4th Cir. 2012).                When we are required to review an agency’s

“complex predictions based on special expertise,” our review is

“at its most deferential.”                    Ohio Valley Envtl. Coal. v. Aracoma

Coal Co., 556 F.3d 177, 192 (4th Cir. 2009) (citing Balt. Gas &

Elec.     Co.     v.     Natural       Res.    Def.     Council,    462    U.S.     87,    103

(1983)).



                                                IV.

         NCUC    makes     two    primary       arguments    on    appeal.        First,    it

argues that FERC erred by declining to grant rehearing to apply

                                                16
the 2010 policy change with respect to the nexus test.              Second,

it contends that FERC abused its discretion by granting VEPCO

incentives based on the five challenged projects.                We address

these arguments in turn. 6

                                      A.

      Preliminary,   however,    we   must   determine   whether   we    have

jurisdiction to entertain this appeal.            FERC argues that under

16 U.S.C. § 825l(b), we lack jurisdiction to consider NCUC’s

argument that FERC should have granted rehearing to apply the

2010 change to the nexus test because NCUC did not challenge its

decision in a renewed petition for rehearing before filing this

appeal.   Under 16 U.S.C. § 825l, “[n]o 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 unless there is reasonable ground for

failure so to do.”     The self-evident purpose of this requirement

is to allow FERC the opportunity to correct its own errors, if


      6
        NCUC also argues that FERC’s Incentives Order and
Rehearing Order both failed to adequately address its arguments
and to provide sufficient reasoning to facilitate appellate
review in violation of SEC v. Chenery, Corp., 332 U.S. 194
(1947).   We agree that at times FERC erred in characterizing
NCUC’s arguments but find no evidence that FERC failed to
“address []important challenge[s] to its reasoning” as would be
required to remand here.    K N Energy, Inc. v. FERC, 968 F.2d
1295, 1303 (D.C. Cir. 1992). Therefore, we find these arguments
to be without merit.



                                      17
any, prior to court intervention.             See ASARCO, Inc. v. FERC, 777

F.2d    764,    773-74     (D.C.     Cir.     1985).        We    interpret     this

requirement     strictly     based    on    the     “time-honored    doctrine    of

exhaustion     of    administrative        remedies.”      Consol.    Gas     Supply

Corp. v. FERC, 611 F.2d 951, 959 (4th Cir. 1979) (quoting Fed.

Power Comm’n v. Colo. Interstate Gas Co., 348 U.S. 492, 500

(1955)).

       It is hardly surprising that NCUC did not argue in its

September      28,    2008   rehearing        petition      that     FERC     should

reevaluate     VEPCO’s    incentives        under    the   2010    policy   change.

Given that NCUC filed its petition two years before FERC issued

PJM and Okla. Gas, absent extraordinary prescience it could not

have done so.        In any case, we find that NCUC had reasonable

grounds for failing to file a renewed petition for rehearing

under § 825l(b).

       When FERC reaffirms a prior result in a rehearing order but

provides a new rationale about which the petitioner had no prior

notice, the petitioner has reasonable grounds for challenging

the FERC’s new justification on appeal without first filing a

renewed petition for rehearing.               See Columbia Gas Transmission

Corp. v. FERC, 477 F.3d 739, 741-742 (D.C. Cir. 2007).                           To

interpret § 825l(b) otherwise would “‘permit an endless cycle of

applications of rehearing and denials,’ limited only by FERC’s

ability to think up new rationales.”                   So. Natural Gas Co. v.

                                        18
FERC, 877 F.2d 1066, 1072 (D.C. Cir. 1989) (quoting Boston Gas

Co. v. FERC, 575 F.2d 975, 978 (1st Cir. 1978)).                             In Columbia

Gas,    for    example,    FERC     initially         rejected     the       petitioners’

discounted     rate     agreement    under       the   Natural       Gas     Act   (“NGA”)

based on the inclusion and scope of the agreement’s section 5

waivers.       477 F.3d at 740.            On rehearing, FERC affirmed its

decision but added a new reason for rejecting the agreement,

that the gas company had acted improperly by offering discounts

only to its biggest customers.                  Id.     The petitioners appealed

directly to the D.C. Circuit.                    That court held that it had

jurisdiction       to   evaluate     the        parties’      challenge       to      FERC’s

finding of discrimination because the rehearing order did not

change   the    outcome    and    FERC     had    “not     yet   revealed”         its   new

rationale when the parties requested rehearing.                        Id.

       Similarly      here,   the    conclusions         of      the    May     22,      2012

Rehearing Order and the August 29, 2008 Incentives Order were

identical.         In    both,    FERC     determined         that      VEPCO      merited

incentives for each of its eleven infrastructure projects.                               The

only new analysis FERC provided in its Rehearing Order was its

decision not to reopen the case to apply the 2010 policy change.

NCUC had no way to anticipate that FERC would consider whether

to grant rehearing to apply its changed approach to the nexus




                                           19
test. 7    Given that NCUC had already waited four years for a

response     to    its   initial    petition,    we     have   little     difficulty

concluding that it had reasonable grounds for failing to file a

renewed      rehearing      petition. 8        Having    found     that       we    have

jurisdiction to consider whether FERC erred by failing grant

rehearing to apply the 2010 policy change in this case, we now

review that decision for abuse of discretion.

                                          B.

      When    an   agency    announces     a   new    policy   while      a   case   is

pending, the decision regarding whether to apply that new policy

on   rehearing      is   “committed,      in   the    first    instance,       to    the

agency’s sound discretion.”               Nat’l Posters, Inc. v. NLRB, 720

F.2d 1358, 1364 (4th Cir. 1983) (quoting NLRB v. Food Store Emp.

Union, 417 U.S. 1, 10 n.10 (1974)).

      In   reviewing      that     discretion,    we    consider    the       parties’

reliance interests.          See ARA Serv., Inc. v. NLRB, 71 F.3d 129,

      7
       NCUC’s lack of notice also disposes of FERC’s additional
argument that NCUC could have amended its petition to urge FERC
grant rehearing to apply its new approach to the nexus test
after the 2010 policy change was issued.
      8
       FERC seeks to differentiate this case from Columbia Gas by
arguing that its decision not to apply the 2010 policy change
was distinct from the merits of the case and did not represent a
new justification for VEPCO’s incentives.       However, as FERC
itself argued, § 825l(b) does not differentiate between FERC’s
decision regarding what policy to apply and its assessment of
the merits of a case.    We find no reason, therefore, to alter
our analysis under § 825l(b).



                                          20
135 (4th Cir. 1995).            When a new policy represents an “abrupt

change of administrative course,” the parties’ reliance on the

old    standard      cautions     against    retroactive       application.           Id.

NCUC contends, however, that any alleged reliance interest here

was unreasonable because PJM and Okla. Gas represent merely a

clarification of the nexus test and not a policy change.                             NCUC

points    to    the    Rehearing     Order     where    FERC    stated        that    its

approach to the nexus test is “evolving,” Rehearing Order ¶ 11,

and to the PJM decision itself where FERC noted that it had not

uniformly applied the nexus test since issuing Order No. 679.

133 FERC ¶ 61,273, at ¶ 44.              In the very next paragraph of PJM,

however, FERC explicitly stated that it was announcing a “change

[to] Commission policy with respect to application of the nexus

test to groups of projects.”                Id. ¶ 45.     Instead of assessing

unconnected      projects    in    the   aggregate,     FERC     would    require       a

utility to “demonstrate [a] nexus between the incentive sought

and the specific investment being made” project by project.                           Id.

This is a clear change in policy given that, in Order No. 679-A,

FERC stated that it would apply the nexus test in the aggregate

to projects presented in a single application.                    Order No. 679-A

¶ 27.     And, in the 2008 Incentives Order, FERC applied the nexus

test     in    the    aggregate    to    the   eleven    projects        in     VEPCO’s




                                          21
application.            Incentives Order ¶ 49. 9          Under these circumstances,

VEPCO was “entitled to rely on the consistent application of

administrative rules.”                Se. Mich. Gas Co. v. FERC, 133 F.3d 34,

38 (D.C. Cir. 1998).

       FERC also appropriately considered doctrinal stability when

determining            whether   to    grant   rehearing        here.       Agencies   are

certainly          entitled       to     consider         the     broader      regulatory

implications of their decisions and we will not second guess

their reasonable conclusions.                   See id.         For these reasons, we

find no error in FERC’s decision not to grant rehearing to apply

the 2010 policy change to the nexus test.

                                               C.

       We now turn to NCUC’s challenges to the merits: that the

Lexington         Tie,     Idylwood,      Garrisonville,          and    Pleasant      View

Projects fail the nexus requirement; and that FERC’s finding

that       the    Proactive      Transformer        Replacement     Project     (“PTRP”)

merited      incentive       treatment     is       not   supported      by   substantial

evidence.          We consider each argument mindful that we may not

reweigh          the     evidence.        We    determine         only    whether      FERC


       9
       FERC also found that VEPCO’s application met the nexus
test for each individual project. Incentives Order ¶ 48. It is
unclear therefore whether the outcome would actually be
different had FERC opted to grant rehearing.   However, because
we find that FERC’s decision was reasonable, we do not need to
determine whether any error would be harmless.



                                               22
“examine[d] the relevant data and articulate[d] a satisfactory

explanation      for     its   action    including    a   ‘rational    connection

between the facts found and the choice made.’”                      Motor Vehicle

Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43

(1983) (quoting Burlington Truck Lines v. United States, 371

U.S. 156, 168 (1962)).

                                          1.

       NCUC argues the Lexington Tie and Idylwood Projects fail to

meet the nexus requirement because their pre-incentive ROE was

sufficient to attract investment.               In light of the small scale

of these projects and the fact that they were already underway

when the incentives issued, NCUC contends, VEPCO failed to show

that    the    incentives      would    “materially   affect”   its    investment

decisions.      Order No. 679-A ¶ 25.          We disagree.

       In Order No. 679-B, FERC stated that there was no size cut-

off    for    projects    when   determining     eligibility    for    incentives

under the nexus test.            Id. ¶ 18.      Instead, FERC would evaluate

each project on a “case-by-case basis.”                   Id.   Moreover, as we

have noted previously, a utility need not prove that but-for a §

219 incentive, it would not undertake a project.                 Order No. 679-

A ¶ 20.       FERC found that such a high “evidentiary hurdle” would

run    counter     to     Congress’s      directive   to    drive     money   into

improving the country’s aging transmission infrastructure.                    Id.

There is therefore nothing to prevent a utility from qualifying

                                          23
for    incentives    based       on       projects      that       are    already        underway,

given    that    they     could       help       attract         financing        or    accelerate

construction.       Order No. 679 ¶ 35.

       Finally, we have no trouble holding that FERC’s finding

that    both    projects     satisfy           the     nexus       test      is   supported      by

substantial      evidence.            Both       the    Lexington         Tie      and    Idylwood

Projects meet many of the Baltimore Gas factors.                                  They resulted

from a regional planning process, faced ongoing and significant

local opposition, and involved construction challenges based on

changeable      elevation     and          the    use       of    new     technology.           See

Incentives Order, ¶¶ 100, 106.                   Therefore, we affirm.

                                                 2.

       NCUC next argues that the Garrisonville and Pleasant View

Projects    fail    to     meet    the         nexus    test       because        they    are   not

“economically efficient” as required by § 219(a).                                      16 U.S.C. §

824s(b)(1).         The    basis          of   this     contention           is    that    a    less

expensive       alternative--namely,                   above          ground      rather        than

underground      construction--exists                 for    both      utility         lines.     We

find no error in FERC’s analysis.

       Fatal to NCUC’s argument is the fact that neither § 219 nor

Order No. 679 require FERC to only grant incentives to the least

expensive       approach    to        a    project.              To    the     contrary,        FERC

expressly rejected a requirement that utilities provide a cost-

benefit analysis, concluding that consumers would be adequately

                                                 24
protected by the requirement that incentive-based rates remain

just and reasonable.         Order No. 679 ¶ 59.                  Instead, FERC created

its   three-prong         test    for        incentives          that,     in        its    view,

“fulfilled [Congress’s] command by . . . removing impediments to

new investment or otherwise attract that investment.”                                 Order No.

679-A ¶ 3.

      In some respects, it appears NCUC is asking us to determine

whether    Order    No.    679    is     a    “permissible         construction             of    [§

219].”     See Chevron U.S.A., Inc. v. Natural Res. Def. Council

Inc., 467 U.S. 837, 843 (1984).                      However, NCUC has repeatedly

claimed that it is only challenging FERC’s finding that these

projects meet the nexus test, not the reasonableness of the rule

itself.    Therefore, rather than evaluating Order No. 679 under

the   familiar     Chevron       test,       we    simply       will   determine           whether

FERC’s    grant    of    incentives          to    VEPCO    for    these    projects             was

supported by substantial evidence.                        FERC concluded that these

projects satisfied the nexus test based on construction risks,

ongoing    local        opposition,          and        their     impact        on     regional

reliability.       Incentives Order, ¶¶ 77, 85.                   We affirm.

                                              3.

      NCUC’s     final    challenge          is    to    the    incentive       granted          for

VEPCO’s Proactive Transformer Replacement Project (“PTRP”).                                      It

argues    that    FERC’s    decision         is    not     supported       by    substantial

evidence because FERC misunderstood the scope of the project and

                                              25
the meaning of the Probabilistic Risk Analysis (“PRA”) relied

upon by VEPCO in its application.

      We agree with NCUC that FERC’s error in describing the PTRP

in the Incentives Order and its failure to correct its mistake

in the Rehearing Order are troubling.                      Twice in the Incentives

Order, FERC referred to the project as the replacement of "nine

500/230 kV transformers."           Incentives Order ¶¶ 9, 68.               In fact,

VEPCO proposed to replace thirty-two transformers across nine

transformer banks in seven substations.                    That one missing word,

of   course,     has    an    outsized    impact      on     the   project’s    scope.

However, based on the record as a whole, we are persuaded that

FERC understood the nature of the PTRP.                    FERC quoted the correct

estimated cost of the project, $110 million, and cited to a

VEPCO      exhibit     that   listed     each    of    the    thirty-two      targeted

transformers.        Id. ¶ 37, n.17.           Therefore, we will not require

remand     for   FERC    to   correct    its    error       and    reevaluate   PTRP’s

eligibility for incentive treatment under § 219. 10

      NCUC’s     additional      challenge--that           FERC    misunderstood   the

meaning     of   the    PJM’s   PRA--asks       us    to    reweigh    the   evidence.

VEPCO used the PRA preformed by PJM as a starting point for its


      10
        FERC explained that it was quoting from VEPCO’s original
application   that  contained  this   error.     However,  VEPCO
subsequently corrected its application.   It remains unclear why
FERC failed to do the same.



                                          26
own analysis, which FERC credited, to identify thirty-two aging

transformers      to   replace.          FERC   determined    the     PTRP    would

increase reliability because reliance on spares can mean delays

in restoring service.         Incentives Order ¶ 38.                Further, FERC

concluded the PTRP satisfied the nexus test because it was an

innovative and large-scale undertaking.               NCUC clearly disagrees

with    these    findings.        This    analysis    however   is     more     than

sufficient for us to affirm FERC’s finding that the PTRP met

prongs one and two of the Order No. 679 test.



                                         V.

       In sum, we hold that in this case, FERC properly exercised

its    broad    discretion   in    declining     to   apply   the    2010    policy

change    in    its    Rehearing    Order       and   in   evaluating        VEPCO’s

application for incentives.          FERC’s grant of incentives to VEPCO

under § 219 is therefore

                                                                        AFFIRMED.




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