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New England Power Generators Association, Inc. v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

February 2, 2018

New England Power Generators Association, Inc., Petitioner
v.
Federal Energy Regulatory Commission, Respondent PSEG Energy Resources & Trade LLC, et al., Intervenors

          Argued October 6, 2017

         On Petitions for Review of Orders of the Federal Energy Regulatory Commission

          Ashley C. Parrish argued the cause for petitioner. With him on the briefs were David G. Tewksbury, and Paul Alessio Mezzina. Stephanie S. Lim entered an appearance.

          Kenneth R. Carretta and Cara J. Lewis were on the brief for intervenors PSEG Companies in support of petitioner.

          Ross R. Fulton, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief was Robert H. Solomon, Solicitor.

          Jason Marshall argued the cause for intervenors. With him on the brief were Joseph Arnold Rosenthal, Rachel A. Goldwasser, and Clare E. Kindall and Robert Louis Marconi, Assistant Attorneys General, Office of the Attorney for the State of Connecticut. Michael C. Wertheimer, Assistant Attorney General, and John S. Wright, Attorney, Office of the Attorney General for the State of Connecticut, entered appearances.

          Before: Srinivasan and Wilkins, Circuit Judges, and Sentelle, Senior Circuit Judge.

          OPINION

          Wilkins, Circuit Judge

         We consider two Petitions for Review challenging Federal Energy Regulatory Commission ("FERC" or "the Commission") Orders denying complaints by two electricity suppliers. See Order on Compl., New Eng. Power Generators Ass'n, Inc. v. ISO New Eng. Inc., 146 FERC ¶ 61, 039 (2014) ("Initial NEPGA Order"); Order Denying Reh'g & Clarification, New Eng. Power Generators Ass'n, Inc. v. ISO New Eng. Inc., 150 FERC ¶ 61, 064 (2015) ("NEPGA Rehearing Order"); Order Denying Compl., Exelon Corp., et al. v. ISO New Eng. Inc., 150 FERC ¶ 61, 067 (2015) ("Initial Exelon Order"); Order Denying Reh'g, Exelon Corp., et al. v. ISO New Eng. Inc., 154 FERC ¶ 61, 005 (2016) ("Exelon Rehearing Order").

         Petitioners challenge four FERC orders that uphold the current iteration of the Tariff that governs electricity rates in New England. To ensure future electricity capacity in New England, electricity suppliers and distributors transact in a Forward Capacity Market ("FCM"), a yearly auction in which distributors pay suppliers for their production capacity three years in the future. The Tariff, a patchwork of rules and orders adopted by the Independent System Operator of New England ("ISO-NE") and approved by FERC, governs how FCM participants buy and sell future capacity. Petitioners challenge two of the rules, which they contend altered the structure of the FCM to the detriment of Petitioners and other existing suppliers.

         Petitioners, the New England Power Generators Association, Inc. ("NEPGA") and Exelon Corporation ("Exelon"), are electricity suppliers who participate in New England's FCM Auction. Because they have participated in the FCM in the past and are not "new entrants, " they cannot reap the benefits of the two rules challenged in this case, which benefit only new suppliers. FERC denied complaints filed by each Petitioner under 16 U.S.C. § 825e, and FERC subsequently denied petitions for rehearing. Both Petitioners filed timely appeals. This Court has jurisdiction under 16 U.S.C. § 825l(b). For the reasons explained below, the Petitions for Review are granted.

         I.

         The Federal Power Act ("FPA") empowers FERC to regulate the sale and transmission of electricity to ensure that electricity is provided at a "just and reasonable" rate. 16 U.S.C. § 824d(a). All rates for or in connection with jurisdictional sales and transmission service are subject to review by FERC to ensure that the rates are just and reasonable and not unduly discriminatory or preferential. Id. §§ 824d(e), 824e(a). A public utility first proposes rates with FERC pursuant to section 205 of the FPA, and the utility has the burden to show that its rate is lawful. Id. §§ 824d(c), 824d(e). A negatively affected party can challenge the rate by filing a complaint with FERC, and the challenging party then carries the burden to show that the existing rate has become unjust or unreasonable. Id. § 824e(a), (b). If FERC agrees that the rate is unjust or unreasonable, it must establish a new rate.

         A.

         "Capacity is not electricity itself but the ability to produce it when necessary." Conn. Dep't of Pub. Util. Control v. FERC, 569 F.3d 477, 479 (D.C. Cir. 2009) (internal quotation marks omitted). Pursuant to the FPA, FERC regulates capacity markets, "which dictate the amount of electricity available for production and transmission when needed." New Eng. Power Generators Ass'n v. FERC (NEPGA I), 757 F.3d 283, 285 (D.C. Cir. 2014) (citing Conn. Dep't of Pub. Util. Control, 569 F.3d at 479). Order Number 888 is the bedrock of FERC's electricity regulatory regime. In that order, "FERC undertook to promote wholesale competition through open access and nondiscriminatory transmission services." Id. at 285-86. To accomplish that goal, FERC "encouraged the formation of independent systems operators (ISOs) to administer transmission services and new markets for wholesale electricity transactions." Sithe/Indep. Power Partners, L.P. v. FERC, 285 F.3d 1, 2 (D.C. Cir. 2002). ISOs manage the electricity grid on behalf of transmission-owning member utilities, "providing generators with access to transmission lines and ensuring that the network conducts electricity reliably." FERC v. Elec. Power Supply Ass'n, 136 S.Ct. 760, 768 (2016).

         ISOs provide open access to the transmission lines at rates established by a single tariff. In setting the tariff, ISOs "adopt transmission (and ancillary services) pricing policies to promote the efficient use of, and investment in, generation, transmission, and consumption of wholesale electric power in specific energy capacity systems." NEPGA I, 757 F.3d at 286 (internal quotation marks omitted). Tasked with ensuring the reliability of electric power for their geographic region, ISOs "must implement a scheme that will incent resources to provide sufficient energy capacity." Id.

         To ensure that there is sufficient electricity to meet demand in the near-term future, ISO-NE administers a Forward Capacity Auction ("FCA"). An FCA is a market where energy suppliers sell their energy capacity to energy distributors three years in advance of a year-long commitment period. Each year, ISO-NE determines the amount of capacity that will be required for system reliability in three years and requires that amount (the installed capacity requirement or "ICR") to be purchased at auction. The auctions are "descending clock" auctions, where the starting price is high and suppliers indicate how much capacity they will provide at that price, then the price decreases in each successive round of the auction resulting in the aggregate quantity of capacity offered by suppliers decreasing as the auction proceeds. The auction is over when the aggregate amount of capacity offered equals the ICR. Suppliers who ...


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