New England Power Generators Ass'n v. Federal Energy Regulatory Commission , 881 F.3d 202 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 6, 2017 Decided February 2, 2018
No. 15-1071
NEW ENGLAND POWER GENERATORS ASSOCIATION, INC.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
PSEG ENERGY RESOURCES & TRADE LLC, ET AL.,
INTERVENORS
Consolidated with 16-1042
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.
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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 for the Court filed by Circuit Judge WILKINS.
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
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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
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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
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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 remain in the auction at that point have
“cleared” their bids. They will assume capacity-supply
obligations for a one-year period three years in the future and
are typically paid the auction-clearing price.
ISO-NE adopted a price “lock-in” rule and a “capacity-
carry-forward” rule, both designed to encourage new
generating resources – i.e., suppliers – to enter the market. The
rules allow new suppliers to “lock in” their first-year clearing
prices for up to an additional six years, and require that the
capacity of the price-locked resources be offered into the future
FCAs for those additional six years, potentially even at a price
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of zero. This reduces clearing prices paid to all suppliers, new
and existing, by mandating new entrants to submit low bids in
the later auctions. The new entrants submit those low bids with
the knowledge they will still get paid the lock-in price for their
capacity. However, a minimum-offer rule for new suppliers in
the entry auction – by which ISO-NE sets a price a new entrant
cannot bid below – mitigates any price suppression in the entry
auction. See NEPGA I, 757 F.3d at 291.
B.
NEPGA and Exelon each filed complaints with FERC
against ISO-NE under section 206 of the FPA, challenging
ISO-NE’s Tariff provisions that establish the lock-in and
capacity-carry-forward rules. Petitioners challenged the Tariff
on the grounds that the provisions result in new suppliers
reaping a windfall and existing suppliers getting short shrift in
both the entry and post-entry auctions. Petitioners argued that
the rates were unduly discriminatory and, thus, unjust and
unreasonable because of the interplay of two provisions: (1)
the provision allowing new suppliers to lock in a price at their
entry auctions that they are guaranteed for a total of seven
years; and (2) the provision requiring the new suppliers with a
locked-in price to offer their capacity in the post-entry auctions
as a price-taker – i.e., requiring the locked-in suppliers to bid
their capacity all the way to zero.
FERC denied both complaints with respect to the issues
challenged in this appeal. 1 Initial NEPGA Order ¶ 1; Initial
Exelon Order ¶ 1. The Commission also denied both
1
FERC granted NEPGA’s complaint in part, finding that one aspect
of the Tariff resulted in unjust and unreasonable prices paid to
existing suppliers, but FERC remedied that by adopting a separate
proposal by ISO-NE altering the problematic Tariff provision.
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Petitioners’ requests for rehearing. NEPGA Rehearing Order
¶ 1; Exelon Rehearing Order ¶ 1. Petitioners argued that the
combination of the lock-in rule and the capacity-carry-forward
rule rendered the ISO-NE Tariff unjust and unreasonable
because of improper price discrimination against existing
suppliers. Petitioners relied heavily on a 2009 FERC decision
that rejected a proposal to institute lock-in and capacity-carry-
forward rules in the Mid-Atlantic market run by PJM, another
ISO. Order on Clarification and Reh’g and on Compliance
Filings, PJM Interconnection, L.L.C., 128 FERC ¶ 61,157(2009). In PJM, FERC rejected similar lock-in and capacity-
carry-forward rules proposed for a different market because the
proposals would result in price suppression and discriminatory
rates.
Petitioners pointed out two differences in the ISO-NE and
PJM markets that they alleged would make the price-
suppression effects of ISO-NE’s rules worse than the scheme
FERC rejected in PJM: (1) the PJM lock-in period was only for
three years, rather than seven; and (2) the PJM lock-in option
was rarely triggered, whereas the lock-in option in New
England was available to any new market entrant. Petitioners
argued that, consistent with PJM, FERC should have either
rejected the lock-in and capacity-carry-forward rules, required
ISO-NE to eliminate the zero-price offer requirement when it
accepted a sloped demand curve, or ameliorated the price
suppression for existing suppliers in some other way. Exelon
even provided an expert witness, cited in its complaint, who
“explained that under the proposed [lock-in] rule, a new entrant
will offer at an artificially low level knowing that it will receive
up to six additional installment payments in the succeeding
FCAs . . . .” Exelon Rehearing Order ¶ 11. The rules resulted
in price suppression in the entry auction, according to
Petitioners, because the new entrants would lower the capacity
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offer-prices, whereas “other suppliers do not receive any
payment to make up for the lower price . . . .” Id.FERC’s responses to Petitioners’ arguments morphed over
the course of the nearly two years between the Commission’s
denial of NEPGA’s complaint and its denial of Exelon’s
rehearing request.
In the denial of NEPGA’s complaint, FERC stated that the
purpose of the rules is “to mitigate the price suppressing effects
of over-procurement in subsequent years, following the
procurement of capacity from a new resource that exceeds the
amount of new capacity required in a zone.” Initial NEPGA
Order ¶ 56. FERC went on to explain that it is not possible to
know whether the price-lock and capacity-carry-forward rules
would suppress prices below competitive levels because “there
is not necessarily a link between the capacity carried
forward . . . and the amount of excess capacity remaining . . .
during the [next six years].” Id. ¶ 57. Essentially, FERC said
that simply because capacity gets carried forward into future
FCAs, it doesn’t necessarily follow that the subsequent FCAs
will also have excess capacity, and therefore prices might not
be suppressed below competitive levels. It also reiterated the
purpose of the rules: to ensure ISO-NE would meet capacity-
supply needs in the future so that the people of New England
would not have power shortages.
FERC responded to the argument that the challenged
provisions were substantially similar to the provisions
proposed and roundly rejected in PJM, and that FERC could
not square its rationale from that case with its approval of the
lock-in and capacity-carry-forward rules. The Commission
disagreed that the pricing provisions pertaining to carried-
forward capacity at issue in PJM were substantially similar to
the capacity-carry-forward rule, including that, “[m]ost
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importantly, unlike ISO-NE, PJM use[d] a sloped demand
curve in its forward capacity market, which eliminate[d] the
need for PJM to uneconomically pro-ration capacity.” Initial
NEPGA Order ¶ 58.
FERC denied NEPGA’s request for rehearing and
Exelon’s initial complaint on the same day. In the denial of
rehearing, FERC tried to clarify aspects of its previous ruling.
FERC found that NEPGA’s proposal would raise prices and
inadequately protect consumers. FERC also rejected the
argument that the PJM decision required it to alter the ISO-NE
Tariff. Because FCM-design is premised on the idea that
resources submit offer bids based on going-forward costs, and
new entrants typically have lower going-forward costs, FERC
stated that “it is efficient for those [new] resources to be
selected over older existing resources . . .” NEPGA Rehearing
Order ¶ 18. Therefore, FERC:
[found] it [] appropriate for generators relying
on [the price-lock rule] to submit zero-price
offers during the lock-in period because zero-
price offers are likely to approximate the low
going-forward costs of new resources that have
incurred most or all of their construction costs
by the end of their first commitment year and
are . . . less expensive to run than older, less
efficient [ones].
Id. The Commission noted that simply because different prices
were paid to new and existing resources under the scheme does
not make the Tariff unduly discriminatory. Id. ¶ 19. And ISO-
NE had adopted the rules based on valid goals: “The Capacity
Carry Forward Rule ameliorates the reduction in prices paid to
existing resources when the entry of new resources results in
excess capacity[,]” and “[t]he New Entrant Pricing lock-in
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mitigates price risk.” Id. FERC denied that its rejection of a
similar proposal in PJM was dispositive because “market
design and rules need not be identical among the regions to be
just and reasonable.” Id. FERC also noted that its
accompanying order denying Exelon’s complaint would
further explain the salient market differences between the ISO-
NE and PJM markets.
In denying Exelon’s complaint, FERC explained that the
combination of the price lock-in and the capacity-carry-
forward requirement was efficient:
When each resource offers to supply capacity at
its going-forward costs, the auction can select
the set of resources with the lowest costs and
reject the set of resources with the highest costs,
so that capacity is procured at the lowest total
cost. A resource whose construction has
recently been completed . . . typically has very
low going-forward costs. It is efficient for such
a resource to be a price-taker (effectively
submitting a $0 price offer) . . . .
Initial Exelon Order ¶ 30. Although FERC agreed that the
price-lock and capacity-carry-forward rules would cause lower
prices in some circumstances, it stated that Exelon had not met
its burden of proving that the rules were unjust and
unreasonable. Id. ¶ 29. Although the mechanisms used by
PJM and ISO-NE similarly resulted in price differentials for
new and existing suppliers, FERC was “not persuaded that this
difference, in itself, renders ISO-NE’s rules unjust and
unreasonable.” Id. ¶ 35.
FERC’s rationale was made plain in its denial of Exelon’s
request for rehearing: that the main factor it earlier asserted
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would mitigate price suppression – a vertical demand curve –
no longer supported its finding that ISO-NE’s Tariff was just
and reasonable because FERC had approved ISO-NE’s
adoption of a sloped demand curve. FERC reiterated that new
suppliers – capacity-carry-forward rule or not – would typically
offer capacity in post-entry auctions at a price near zero
because that reflected the supplier’s going-forward costs.
Thus, “[b]y allowing sellers to reflect their going-forward costs
in their offers, ISO-NE is able to select the most efficient
(lowest cost) set of resources, because the low offer prices
reflect low going-forward costs.” Exelon Rehearing Order
¶ 15. In the alternative, FERC also stated that a lower clearing
price “is an acceptable byproduct of a just and reasonable
market rule . . . that achieves particular and distinct objectives”:
(1) incenting new entry into the FCAs to ensure capacity; and
(2) protecting consumers from high prices. Id. ¶ 16.
The Commission stated that ISO-NE and PJM had
“differing clearing mechanics” which made the PJM
comparison imperfect. Id. ¶ 17. Even so, FERC acknowledged
and brushed aside the seeming contradiction:
As the markets have evolved, so too has the
Commission’s opinion regarding whether zero-
price offers from locked-in resources may be
just and reasonable. Based on further
consideration, the Commission has realized that
a zero-price capacity offer from a new []
resource that has cleared in at least one previous
auction and has incurred construction costs can
be a competitive offer that reflects the
resource’s going-forward costs, not an attempt
to lower . . . prices. Once a new resource clears
its initial capacity auction . . . , it has an
incentive to ensure that it clears in subsequent
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auctions. A zero-price offer strategy is
consistent with that incentive.
Id. ¶ 18.
II.
Section 205(b) of the FPA provides that “[n]o public utility
shall . . . maintain any unreasonable difference in rates . . . .”
16 U.S.C. § 824d(b)(2). Section 206(a) of the FPA prohibits
undue discrimination. 16 U.S.C. § 824e(a), (b). But “[t]he
court will not find a Commission determination to be unduly
discriminatory if the entity claiming discrimination is not
similarly situated to others.” Transmission Agency of N. Cal.
v. FERC, 628 F.3d 538, 549 (D.C. Cir. 2010). Petitioners bear
the burden of showing that the rates are unjust and
unreasonable. 16 U.S.C.§ 824e(a); see also FirstEnergy Serv.
Co. v. FERC, 758 F.3d 346, 353-54 (D.C. Cir. 2014).
To fulfill its mandate to set “just and reasonable” rates,
FERC is not “‘bound to the use of any single formula or
combination of formulae . . . .’” Grand Council of Crees (of
Quebec) v. FERC, 198 F.3d 950, 956 (D.C. Cir. 2000) (quoting
Fed. Power Comm’n v. Hope Nat. Gas Co., 320 U.S. 591, 602
(1944)). Due to practical challenges and myriad divergent
interests, FERC “must be given the latitude to balance the
competing considerations and decide on the best resolution” in
its regulation of electricity markets. Blumenthal v. FERC, 552
F.3d 875, 885 (D.C. Cir. 2009). “Congress has entrusted the
regulation of the electricity industry to FERC, not to the
courts.” Id. at 884. Therefore, “‘[a] presumption of validity
. . . attaches to each exercise of the Commission’s expertise.’”
Id. at 884-85 (quoting In re Permian Basin Area Rate Cases,
390 U.S. 747, 767 (1968)).
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Petitioners contend that they are similarly situated to new
suppliers and that the Tariff sets prices that are unduly
discriminatory. But if FERC can “reveal[] [a] basis for its
contention” that new market entrants were not similarly
situated to existing suppliers, the Tariff might well be just and
reasonable. See Dynegy Midwest Generation, Inc. v. FERC,
633 F.3d 1122, 1127 (D.C. Cir. 2011). FERC contends that the
Tariff provisions at issue incentivize new entry into the market,
provide reliability for future electricity, and lower prices for
consumers. The Commission emphasizes that the minimum-
price offer rule mitigates the effects of the lock-in and capacity-
carry-forward rules by preventing new suppliers from
suppressing prices below a reasonable level. See, e.g., NEPGA
I, 757 F.3d at 291. Petitioners want FERC either to eliminate
the Tariff provisions that result in price discrimination between
new and existing suppliers or to implement measures to further
mitigate the effects of the incentive provisions.
Because we find that FERC failed to offer adequate
rationale and explanation in the challenged Orders, we decline
to pass on whether Petitioners have met their burden to
demonstrate that the rates were unjust and unreasonable. For
reasons discussed below, FERC must provide a more robust
rationale for its seeming inconsistency with past precedent and
practice.
III.
A.
While afforded wide latitude in ratesetting due to its
expertise and broad statutory mandate, FERC – like all
agencies – must engage in reasoned decisionmaking. The
arbitrary-and-capricious standard requires the agency to
“examine the relevant data and articulate a satisfactory
14
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) (citation and internal quotation marks omitted). “It is
well established that the Commission must ‘respond
meaningfully to the arguments raised before it.’”
TransCanada Power Mktg. Ltd. v. FERC, 811 F.3d 1, 12 (D.C.
Cir. 2015) (quoting Pub. Serv. Comm’n v. FERC, 397 F.3d
1004, 1008 (D.C. Cir. 2005)).
“It is textbook administrative law that an agency must
provide[] a reasoned explanation for departing from precedent
or treating similar situations differently.” W. Deptford Energy,
LLC v. FERC, 766 F.3d 10, 20 (D.C. Cir. 2014) (internal
citation and quotation marks omitted) (alteration in original).
Although an agency “need not demonstrate to a court’s
satisfaction that the reasons for [a] new policy are better than
the reasons for the old one,” the agency must “ordinarily . . .
display awareness that it is changing position.” FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 515 (2009) (emphasis
in original). “An agency may not, for example, depart from a
prior policy sub silentio or simply disregard rules that are still
on the books.” Id. Although case-by-case adjudication
sometimes results in decisions that seem at odds but can be
distinguished on their facts, it is the agency’s responsibility to
provide a reasoned explanation of why those facts matter. See,
e.g., BP Energy Co. v. FERC, 828 F.3d 959, 968 (D.C. Cir.
2016) (vacating finding of no undue discrimination where
Commission identified differences between two natural-gas
companies but failed to adequately explain why they provide a
rational basis for the difference in treatment).
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B.
On the record before us, we conclude that FERC did not
engage in the reasoned decisionmaking required by the
Administrative Procedure Act. FERC failed to respond to the
substantial arguments put forward by Petitioners and failed to
square its decision with its past precedent. In the main,
Petitioners argue that the same factors that led FERC to reject
similar Tariff mechanisms in PJM were substantially
exacerbated by the Tariff provisions FERC approved here.
FERC did not sufficiently explain its apparent change of
position.
Specifically, FERC failed to adequately explain why its
rationale in PJM – which seems to foreclose signing off on a
Tariff scheme like ISO-NE’s – does not apply even more
forcefully to the scheme it accepted in the Orders below. In
PJM, the Commission explained that PJM’s bid-floor
requirement was needed to ensure that a price-locked new
entrant “will not reduce [the] price to the existing resources by
submitting a $0 bid in Years 2 and 3, knowing that it is
guaranteed to be paid its first year bid price no matter what it
bids.” PJM, 128 FERC ¶ 61,157, P. 112. It also found that
zero-price bidding would result in unjust and discriminatory
pricing. Id. The holding and entire rationale of PJM strongly
suggests that a lock-in mechanism, combined with a capacity-
carry-forward rule with a zero-price offer requirement,
depresses prices in a way that “adversely affects” existing
market participants.
As Petitioners argued, the structural mechanisms of the
ISO-NE market appear to exacerbate all of the problems FERC
cited for rejecting the similar rule in PJM. Petitioners point out
multiple ways in which the ISO-NE Tariff seems to exacerbate
the type of alleged discrimination FERC had rejected in PJM,
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including the fact that the lock-in period is seven years and the
new market entrants are all required to bid their capacity at a
price of zero (if necessary) for the duration of that time.
FERC’s responses to Petitioners’ arguments below
amounted to conclusory statements that dismissed Petitioners’
concerns without providing reasoned analysis. To respond to
Petitioners’ main contention that the ISO-NE Tariff rules
suppressed prices and discriminated against existing suppliers
in a way that the Commission rejected in PJM, FERC first
stated that conditions in the two markets were different, and
then pointed to the vertical demand curve in place at the time
under the ISO-NE Tariff. The Commission issued this
explanation despite the fact that it issued an order the very same
day adopting an ISO-NE proposal to start using a sloped
demand curve. FERC pointed out that pricing mechanisms
need not be the same in different markets. But rather than
explain how those mechanisms made the PJM proposal unjust
but a nearly identical one just and reasonable for ISO-NE,
FERC pointed to its accompanying order for further
explanation. That explanation consisted of: (1) shifting the
burden back to Exelon to show that the ISO-NE rules were
unjust and unreasonable; and (2) stating that ISO-NE’s price-
lock mechanism does a better job of selecting energy suppliers
with low going-forward costs. Initial Exelon Order ¶¶ 31, 34.
With respect to the possibility of different prices paid to
existing resources, FERC simply stated it was not “persuaded
that this difference, in itself, renders ISO-NE’s rules unjust and
unreasonable” and noted that different markets need not have
uniform rules for them all to be fair. Id. ¶ 35.
It was not until the denial of Exelon’s motion for rehearing
that FERC even attempted to grapple with Petitioners’
arguments based on PJM. It did so, once again, with
conclusory statements that price suppression is an “acceptable
17
byproduct of a just and reasonable market rule . . . that achieves
particular and distinct objectives in the region” and that “[a]s
the markets have evolved, so too has the Commission’s opinion
regarding whether zero-price offers from locked-in resources
may be just and reasonable.” Exelon Rehearing Order ¶¶ 16,
18. This belated attempt to distinguish PJM after failing to do
so in the previous three Orders is inconsistent with reasoned
decisionmaking.
A recent case decided by this Court illustrates the point.
In West Deptford Energy, this Court vacated and remanded a
FERC Order that applied a particular Tariff scheme to a
generator, the effect of which was to treat the generator
differently than other similarly situated generators. 766 F.3d
at 20. The panel discussed the requirement that FERC provide
an adequate rationale for its decision, especially in light of a
then-recent FERC decision expressing a preference for a
uniform scheme at odds with its challenged order, which
indicated it would make further Tariff adjustments on a case-
by-case basis. Id. at 20-21. Although the Court reasoned that
FERC could likely use the ratesetting scheme at issue, FERC
had not explained the seeming inconsistency with past practice.
Id. Despite FERC’s (sometimes persuasive) arguments on
appeal, the same is true here.
FERC cites numerous cases to stress the broad array of
practical difficulties to balance and interests to consider,
including higher consumer prices, reliable price signals,
producer flexibility, producer confidence, system reliability,
and increasing system capacity and efficiency. FERC explains
that the balance it struck here is reasonable because: (1) New
England faces a lack of investment in new capacity; and (2) the
amended new entrant rule is linked with the sloped demand
curve to help ensure that the “demand curve construct overall”
will achieve system reliability. Intervenors make an even more
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compelling argument that FERC’s Orders are just and
reasonable, and that Petitioners’ proposals would exacerbate
other problems in the market. Intervenors also distinguish the
PJM and ISO-NE markets, providing more context than FERC
did below. FERC contends that it truly has changed its view
about the lock-in and capacity-carry-forward rules since its
PJM decision and even doubled down by suggesting at oral
argument that it would be more receptive to the Tariff changes
at issue in PJM if they were proposed today. See Oral Arg.
Recording at 25:35-26:26.
All this may be true. But FERC’s complex mandate
doesn’t relieve it of the requirements of reasoned
decisionmaking. See PSEG Energy Res. & Trade LLC v.
FERC, 665 F.3d 203, 210 (D.C. Cir. 2011) (granting petition
for review and remanding for further explanation because “the
Rehearing Order[] . . . states that the purpose of the . . . Rule’s
price floor is to ensure relative market stability during the
initial years of the Forward Capacity Market. . . . But once
again, the order does nothing more than make the quoted
statement; it does not suggest that – let alone explain how – it
was a response to PSEG’s undue discrimination or policy
arguments.” (internal quotation marks omitted)). Similarly,
FERC must reasonably explain how the existing suppliers and
new entrants are not similarly situated and in what respects the
reasons are material. See Edison Mission Energy, Inc. v.
FERC, 394 F.3d 964, 968-69 (D.C. Cir. 2005) (vacating FERC
ruling that allowed unreasonable price suppression for lack of
adequate explanation).
Although FERC may be sincere in its change of heart and,
as a substantive matter, correct that its new rationale is just and
reasonable, the Commission must provide some analysis and
explanation in its Orders regarding why it changed course. As
this Court has noted, “we need not – and indeed cannot –
19
consider ‘appellate counsel’s post hoc rationalizations’ for
Commission action.” W. Deptford Energy, 766 F.3d at 25
(quoting Me. Pub. Utils. Comm’n v. FERC, 625 F.3d 754, 759
(D.C. Cir. 2010)). “FERC’s failure to come to terms with its
own precedent reflects the absence of a reasoned
decisionmaking process.” PG&E Gas Transmission, Nw.
Corp. v. FERC, 315 F.3d 383, 390 (D.C. Cir. 2003).
IV.
For the reasons discussed above, we grant the Petitions
before us and remand to FERC for further proceedings
consistent with this opinion.