To encourage competition, the Federal Energy Regulatory Commission (FERC) unbundled electricity transmission from generation and distribution. To promote grid efficiency with this structure, FERC promoted regional transmission zones, which coordinate the operations of individual utilities within each grid.

Rate Setting after Expansion
The US Court of Appeals for the DC Circuit considered FERC’s approval of an existing zone’s expansion, a circumstance “likely to happen frequently in the future.”

This expansion brought transmission and substation assets formerly owned by a city into the zone. FERC approved new rates in a revised tariff, which spread the cost of these added assets to the entire zone’s customers.

Zonal Approach Encouraged
Some current zone customers objected, arguing it was unfair to have these assets included in determining their electric rates. They argued that these assets had served, and will continue to serve, only the city’s customers. FERC rejected that argument and approved using the costs of these assets to set the rates for all the zone’s customers; an appeal followed.

The DC Circuit held that FERC had the authority to allow the zone to spread the costs to all the zone’s customers, because adding the assets brought “integration, reliability, and power transfer benefits” throughout the zone. FERC is not required to insist on a “customer-by-customer” analysis to establish rates. Rather, analyzing “costs and benefits at the zonal level” from expansions with these zonal benefits helps promote transmission zones and grid efficiency.

To see the DC Circuit’s opinion https://media.cadc.uscourts.gov/opinions/docs/2025/07/23-1133-2124880.pdf