NRG Power Marketing, LLC v. Federal Energy Regulatory Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 12, 2012 Decided June 14, 2013
No. 11-1201
NRG POWER MARKETING, LLC, ET AL.,
PETITIONERS
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
Consolidated Edison Company of New York, Inc., et al.,
Intervenors
On Petition for Review of Orders of
the Federal Energy Regulatory Commission
Robert C. Fallon argued the cause for petitioners. With
him on the briefs were Nathan E. Endrud, Christopher
O'Hara, and Abraham Silverman. Brian M. Meloy entered an
appearance.
2
Samuel Soopper, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief was Robert H. Solomon, Solicitor.
Paul M. Flynn argued the cause for intervenors. With
him on the brief were Barry Stewart Spector, William
Fielding Young, Tamara L. Linde, Richard L. Roberts, Neil H.
Butterklee, and Donald Joseph Stauber. Kenneth R. Carretta
entered an appearance.
Before: TATEL, Circuit Judge, SENTELLE and RANDOLPH,
Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: In September 2010, the
Federal Energy Regulatory Commission (“FERC”) approved
a settlement between PJM Interconnection, L.L.C. (“PJM”),
the New York Independent System Operator, Inc. (“NYISO”),
Consolidated Edison Company of New York, Inc. (“ConEd”),
Public Service Electric & Gas Company (“PSE&G”), PSE&G
Energy Resources & Trading L.L.C., and the New Jersey
Board of Public Utilities. Order Approving Contested
Settlement and Denying Rehearing, 132 FERC ¶ 61,221(2010). This settlement ended protracted litigation over how
to transition transmission service agreements entered into
during the 1970s to the open access regime FERC created for
transmission lines in its Order No. 888. Promoting Wholesale
Competition Through Open Access Non-Discriminatory
Transmission Services by Public Utilities; Recovery of
Stranded Costs by Public Utilities and Transmitting Utilities,
61 Fed. Reg. 21,540 (May 10, 1996) (“Order No. 888”).
NRG Power Marketing, L.L.C., which objected to the
approved settlement, petitions for review of FERC’s order
3
approving the contested settlement and of FERC’s order
granting in part and denying in part NRG’s request for
rehearing. See Order on Rehearing & Motions, 135 FERC ¶
61,018 (2011). In the settlement proceedings and its request
for rehearing, NRG objected to the settlement, which gives
ConEd transmission rights not available to other market
participants, arguing that it violated FERC’s open-access
principles as explained in Order No. 888, and that FERC’s
rationales to justify the settlement as just and reasonable and
not unduly discriminatory were flawed and not supported by
substantial evidence. For the reasons set forth below, we
deny NRG’s petition for review, concluding that FERC did
not act arbitrarily or capriciously in approving an agreement
that did not conform to PJM’s open-access transmission tariff,
and that FERC’s justifications for approving the agreement
were reasonable and supported by substantial evidence.
I. BACKGROUND
A. Statutory and Regulatory Background
Historically, electric utilities owned generation,
transmission, and distribution facilities, and sold these three
services as part of a “bundled” package. Transmission Access
Policy Study Group v. FERC, 225 F.3d 667, 681 (D.C. Cir.
2000). But as transmission technologies improved and
alternative power suppliers emerged, a wholesale energy
market developed, giving wholesale energy consumers new
sources for competitively priced power. Id. at 681–82.
Utility ownership and control of transmission lines, however,
remained a barrier to the development of this market. Id. at
682. Recognizing that utilities that owned and controlled
transmission lines had a profit-maximizing motive to restrict
access to their transmission lines, FERC promulgated
regulations aimed at “unbundling” transmission services from
4
the other services a utility offered and opening access to the
transmission lines on equal terms. Id. Thus, under its
statutory authority to remedy unduly discriminatory or
preferential rates, practices, or contracts affecting public
utility rates for transmission in interstate commerce, see 16
U.S.C. §§ 824d–e, FERC issued Orders No. 888 and 889 to
“requir[e] all public utilities owning and/or controlling
transmission facilities to offer non-discriminatory open access
transmission service.” Transmission Access Policy Study
Group, 225 F.3d at 682 (internal citation omitted). In Order
No. 888, FERC also urged utilities to consider creating
Independent System Operators (“ISOs”) and Regional
Transmission Operators (“RTOs”), entities that control and
operate all transmission services in a particular region
independent of the utilities that own the transmission lines.
See Braintree Electric Light Dep’t v. FERC, 550 F.3d 6, 8
(D.C. Cir. 2008).
As part of Order No. 888, FERC required every
transmission-owning public utility to file a non-discriminatory
open access transmission tariff (“OATT”) that was either
consistent with or superior to a pro forma open-access
transmission tariff contained in Order No. 888. See 61 Fed.
Reg. at 21,619, 21,693–94, 21,706–17; see also Preventing
Undue Discrimination and Preference in Transmission
Service, 72 Fed. Reg. 12,266 (Mar. 15, 2007) (“Order 890”)
(amending the pro forma open access transmission tariff
implemented by Order No. 888). The pro forma open access
transmission tariff contains the minimum terms and
conditions for non-discriminatory transmission service, and
every transmission-owning public utility must abide by the
tariff in providing transmission services to itself and others.
Transmission Access Policy Study Group, 225 F.3d at 727.
Although FERC did not abrogate existing contracts in Order
No. 888, it noted that any new service taken upon expiration
5
would be considered new service and governed by the
relevant open access transmission tariff. Sacramento
Municipal Utility District v. FERC, 428 F.3d 294, 296 n.4
(D.C. Cir. 2005) (citing Order No. 888).
Of relevance to this case, § 2.2 of the pro forma tariff
addresses transmission service agreements that pre-dated the
issuance of Order No. 888. See 61 Fed. Reg. at 21,709.
Entities taking new service after expiration of their firm
transmission service contract would be entitled to the right
provided under § 2.2, entitled “Reservation Priority For
Existing Firm Service Customers,” which provides:
Existing firm service customers (wholesale
requirements and transmission-only, with a contract
term of one-year or more), have the right to continue
to take transmission service from the Transmission
Provider when the contract expires, rolls over or is
renewed. This transmission reservation priority is
independent of whether the existing customer
continues to purchase capacity and energy from the
Transmission Provider or elects to purchase capacity
and energy from another supplier. If at the end of the
contract term, the Transmission Provider’s
Transmission System cannot accommodate all of the
requests for transmission service the existing firm
service customer must agree to accept a contract term
at least equal to a competing request by any new
Eligible Customer and to pay the current just and
reasonable rate, as approved by the Commission, for
such service. This transmission reservation priority
for existing firm service customers is an ongoing right
that may be exercised at the end of all firm contract
terms of one-year or longer.
6
Id.
B. Factual and Procedural Background
In the 1960s and 1970s, ConEd, an electric utility that
primarily serves New York City, negotiated with PSE&G, a
New Jersey utility, to jointly address the supply problems of
northern New Jersey and New York City. This eventually led
to two separate transmission service agreements (“TSAs”)
between ConEd and PSE&G. ConEd and PSE&G executed
the first of these agreements in 1975, which provided that
ConEd would supply 400 MW from one of its upstate New
York generators to PSE&G’s customers in northern New
Jersey, while PSE&G would supply 400 MW from one of its
New Jersey generators to ConEd’s customers in New York
City. The second agreement was executed in 1978 and
provided for a similar exchange in which ConEd would
provide 600 MW from one of its upstate generators to
PSE&G’s territory in New Jersey, while PSE&G would
supply the same amount of energy from its New Jersey
territory to New York City. Because of these agreements,
ConEd discontinued plans to build new transmissions
facilities into New York City, and ConEd and PSE&G agreed
to construct or modify facilities to effectuate the TSAs. These
agreements remained effective after FERC issued Order No.
888, although ConEd’s transmission system became part of
the New York Independent System Operator and PSE&G’s
transmission system became part of PJM Interconnection, a
regional transmission operator whose territory includes New
Jersey.
After ConEd and PSE&G ceded control of their
transmission systems to NYISO and PJM, ConEd filed a
complaint with FERC alleging that PSE&G, NYISO, and
PJM were failing to honor the 1975 and 1978 TSAs, which
7
were grandfathered agreements under the pro forma open
access transmission tariffs. After protracted litigation, the
parties, per FERC’s directive, filed an operating protocol
governing how the 1970s TSAs would be effectuated under
the open access transmission tariffs, although the parties did
not agree on all terms of the protocol. See Consolidated
Edison Co. of New York v. Public Service Electric and Gas
Co., 111 FERC ¶ 61,228, 62,040 (2005). FERC nevertheless
approved that protocol. Id. at 62,042. The 1975 and 1978
TSAs and the then-effective operating protocol, however,
were set to expire in 2012.
Because of the impending expiration date on these TSAs,
PJM and ConEd entered into replacement agreements, which
they styled as § 2.2 roll-over agreements, with an effective
date of 2012. In April 2008, PJM filed two non-conforming
open access transmission tariff roll-over agreements with
FERC to replace the two respective 1970s TSAs (collectively,
the opinion will refer to these new agreements as “the 2008
TSAs”), along with a new Schedule to the protocol. A day
later NYISO filed a joint operating agreement protocol (“JOA
protocol”) on an informational basis with FERC.
In August 2008, FERC accepted and suspended the 2008
TSAs and JOA protocol. It also set the matter for hearing and
suspended the hearing to give the parties the opportunity to
engage in settlement discussions before a settlement judge,
and directed NYISO to formally file the 2008 JOA protocol.
After extensive negotiations, the parties filed a settlement in
which they modified the 2008 TSAs and JOA protocol and
agreed that service under the 2008 TSAs would be rolled over
under § 2.2 of PJM’s open access transmission tariff. The
JOA protocol that FERC ultimately approved allows ConEd
to submit contract elections in NYISO’s day-ahead market for
the 400 MW and 600 MW transactions, and requires NYISO
8
and PJM to establish flow schedules across the transmission
lines entering New York City from New Jersey (“the New
York City feeders”).
Allowing ConEd the ability to elect 1000 MW across the
New York City feeders concerned FERC’s trial staff, who
initially opposed the settlement. FERC’s trial staff opined
that the settlement would “render a substantial amount of
transmission capacity unavailable for other customers, while
providing preferential service to a limited number of parties,”
an issue that was particularly acute given the “extremely
limited” transmission capacity into and out of New York City.
NRG also filed comments opposing the settlement. Joint
Appendix 386. Because the settlement was contested, the
settlement judge certified the settlement to FERC without
making a determination on the merits.
In February 2010, FERC issued an order stating that it
was unable to approve the settlement because the record was
inadequate for FERC to decide certain contested legal issues,
and establishing a briefing schedule. Several parties filed
briefs or motions for late intervention and comments,
including the parties to the settlement and NRG, the New
York Public Service Commission, and PJM’s Market
Monitor, among others. In March 2010, NRG filed a request
for rehearing and for clarification of the briefing order,
asserting, among other things, that the record was insufficient
for a finding on the settlement.
FERC approved the contested settlement by order on
September 16, 2010, noting that “the [s]ettlement is a just and
reasonable means for ConEd to obtain a continuation of its
grandfathered transmission service.” PJM Interconnection,
L.L.C. v. Public Service Electric & Gas Co., 132 FERC
¶ 61,221, 62,236 (2010). In approving the settlement, FERC
9
made determinations on several contested issues. First, FERC
determined that the 1970s TSAs were agreements for firm
service, and were therefore eligible for roll-over under § 2.2
of PJM’s open access transmission tariff. Id. at 62,239.
Second, FERC determined that the unique circumstances
under which the PJM and NYISO would provide the service
required under the 2008 TSAs warranted non-conforming
open access transmission tariff service agreements.
Specifically, FERC concluded that the agreements
interpreting the JOA protocol were necessary to provide
reliable service to ConEd. Id. at 62,241. In determining that
ConEd was eligible for non-conforming service, FERC
concluded that ConEd was not receiving an undue preference
and that no other entity would be unduly discriminated
against by approving that service. Id. at 62,241, 62,243.
FERC also determined that the 2008 TSA did not have a
significant adverse effect on the rights of and prices paid by
other parties, id. at 62,244–45, and that the 2008 TSAs did not
violate any provisions of PJM’s or NYISO’s open access
transmission tariffs. Id. at 62,245–46. In approving the
contested settlement, FERC denied NRG’s request for
rehearing or clarification, explaining that all issues raised in
the hearing and briefing orders had been addressed, and that
the record, through briefing, was adequately developed for
FERC to approve the settlement. Id. at 62,246.
NRG filed a request for rehearing of FERC’s order
approving the settlement, arguing that FERC erred in
approving the settlement for several reasons, including that
the 1970s TSAs were not eligible to be rolled over and that
FERC’s approval of the settlement was not based on
substantial evidence. See PJM Interconnection, L.L.C. v.
Public Service Electric & Gas Co., 135 FERC ¶ 61,018,
61,060 (2011). FERC, in an order addressing each of NRG’s
arguments, largely denied NRG’s request for rehearing. Id. at
10
61,066. Although it granted NRG’s request to accept an
affidavit it had previously filed, it explained that the affidavit
did not change its determinations. Id.After FERC denied rehearing, NRG timely petitioned this
Court for review of these orders. First, NRG asserts that
FERC’s order approving the settlement is arbitrary and
capricious because it conflicts with FERC’s rules and
precedents. This argument, essentially, is that FERC cannot
approve non-conforming agreements that deviate from the
relevant OATT for an individual utility. Second, NRG asserts
that FERC’s order was not supported by substantial evidence,
and that even if FERC based its decision on an adequate
record, its determination that the approved settlement was not
unduly discriminatory did not reflect reasoned decision-
making.
II. ANALYSIS
When reviewing FERC’s approval of a contested
settlement, we must determine whether FERC has supplied a
“reasoned decision” that is supported by “substantial
evidence.” NorAm Gas Transmission Co. v. FERC, 148 F.3d
1158, 1162 (D.C. Cir. 1998) (quoting 18 C.F.R.
§ 385.602(h)(1)(i)). If FERC’s approval is “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law,” 5 U.S.C. § 706(2)(A), or “unsupported
by substantial evidence,” id. § 706(2)(E), we must set aside its
approval of the contested settlement. Exxon Co. v. FERC,
182 F.3d 30, 37 (D.C. Cir. 1999). In reviewing FERC’s
approval of the settlement, we note that “when agency orders
involve complex scientific or technical questions,” as is the
case here, “we are particularly reluctant to interfere with the
agency’s reasoned judgments.” B&J Oil & Gas v. FERC, 353
F.3d 71, 76 (D.C. Cir. 2004).
11
A. Approval of Non-Conforming OATT Filings
NRG’s first challenge to FERC’s approval of the
settlement is that the settlement is inconsistent with FERC’s
open access orders, our precedents, and § 2.2 of the pro forma
OATT itself. As NRG conceded at oral argument, this
challenge is essentially that FERC can only approve roll-over
service under § 2.2 that conforms to the relevant OATT.
Stated differently, as NRG did in its Request for Rehearing of
FERC’s order approving the settlement, NRG argues that
“[p]recedent dictates that a transmission provider cannot
rollover a non-conforming agreement.” Joint Appendix 791.
We disagree, and conclude that FERC’s approval of the
contested settlement, and its rationale for rejecting NRG’s
arguments, was not a departure from its orders, precedents, or
terms of § 2.2 of PJM’s OATT, particularly in light of the
substantial deference we give to FERC in interpreting its own
orders. See Consumers Energy Co. v. FERC, 428 F.3d 1065,
1067–68 (D.C. Cir. 2005).
NRG is correct that Order No. 888 requires that an entity
rolling over service under § 2.2 must take that service under
the terms of the applicable OATT. Indeed, FERC itself noted
this fact, explaining in its order approving the settlement that
“[t]he roll-over provisions of Order No. 888 and 890 do not
provide a right for a service other than OATT service,” 132
FERC at 62,241, and stating in its order denying rehearing
that it “agree[s] with NRG that section 2.2 of the pro forma
OATT does not provide a right for service other than OATT
service.” 135 FERC at 61,062. And in its order approving the
settlement, FERC explains that “the 2008 1000 MW TSA will
be subject to PJM’s OATT.” 132 FERC at 61,241.
12
Notwithstanding FERC’s acknowledgement that ConEd’s
service must be taken under the terms of PJM’s OATT, FERC
nevertheless approved a settlement that included elements—
specifically, the JOA protocol—that do not conform to PJM’s
OATT. See id. FERC’s rationale in approving these elements
was that the JOA protocol was necessary “to enable PJM and
NYISO to manage [unintended loop flows]” and “to provide
for a continuation of” reliable service. Id. NRG takes issue
with FERC’s approval of the JOA protocol, asserting that
FERC contravened its open access principles by approving a
non-conforming agreement that gives ConEd rights that are
not available to other market participants.
In response to this contention, FERC explained in the
order approving the settlement that “OATT services can be
conforming or non-conforming,” and determined that the JOA
protocol is necessary “due to the operational issues raised by
the service that cannot be accommodated under standard
OATT service,” explaining that the terms and conditions of
the settlement order “reflect the needs of [PJM and NYISO]
in order to be able to provide service to ConEd.” 135 FERC
at 61,062–63. Intervenor PJM further elaborated on the
operational difficulties present in this case, an explanation we
find helpful in deciding whether FERC’s interpretation of
Order No. 888 is reasonable. According to PJM, the
operational challenge in transitioning the 2008 TSAs to PJM’s
OATT is that, under the TSAs, energy originates in New York
in NYISO’s territory, transmits across New Jersey through
PJM’s territory, and is then delivered to New York City in
NYISO’s territory. Intervenor Br. at 13. PJM explains that
because of how it provides its “through-and-out” service, it
would not be able to provide service when the “source” and
“sink” of the energy occurred within NYISO. Id. at 13–15;
see also 132 FERC at 62,243 (explaining that “the service
PJM provides to ConEd differs from typical through-and-out
13
service because the source and sink are in the same system
(i.e., New York)”). PJM explains that this operational
challenge was at the core of the litigation that underlay the
settlement agreement, and that FERC’s order on the second
phase of that litigation—which sets out guidance on the terms
to be included in a protocol to ensure that service under the
2008 TSAs was effectuated consistent with open access
principles—formed the basis for the JOA protocol that FERC
eventually approved as part of the settlement agreement.
Intervenor Br. at 14–17; see Initial Decision on Phase II
Issues, 103 FERC ¶ 63,047 (2003) (Presiding Judge’s
Decision on Phase II issues), aff’d in part and modified in
part, Opinion and Order on Initial Decision, 108 FERC ¶
61,120 (2004) (FERC’s order on review of Presiding Judge’s
Phase II Decision).
Instead of acknowledging this operational difficulty,
NRG argues, in absolute terms, that FERC cannot approve the
rollover of non-conforming OATT agreements, explaining
that FERC’s open access orders “provide that, upon
expiration of a customer’s grandfathered, pre-open access
transmission contract, the customer’s service going forward
will be governed by an applicable non-discriminatory
OATT.” Pet’r Br. at 25. NRG contends that because the
2008 TSAs do not conform to PJM’s OATT, they contravene
FERC’s open access principles, and FERC’s order approving
the settlement must be vacated. NRG supports this argument
by citing to our opinion in Transmission Access Policy Study
Group, in which we noted that open access is the “essence” of
Order No. 888 and explained that under Order No. 888
“utilities must . . . provide access to their transmission lines to
anyone purchasing or selling electricity in the interstate
market on the same terms and conditions as they use their
own lines.” 225 F.3d at 681.
14
But while NRG asserts, in broad terms, that open access
is a fundamental “tenet” or “principle” of Order No. 888, it
has not persuasively cited a specific provision of Order No.
888 or any language in § 2.2 of the pro forma OATT that
prevents FERC from approving any rolled-over transmission
service agreement filings that deviate from the OATT. Nor
has NRG cited any FERC precedent in which FERC stated
that the rollover of non-conforming transmission service
agreements—even those that grant rights to one market
participant that are not given to others—per se violate its open
access orders.
To the contrary, FERC has approved agreements in the
past that allow deviations from filed OATTs. In PJM
Interconnection, L.L.C. & Carolina Power & Light Co., 134
FERC ¶ 61,048 (2011), FERC approved a Joint Operating
Agreement between neighboring RTOs, finding that “the Joint
Operating Agreement provides for a superior method of
congestion management” compared to the OATT. Id. at
61,198. And in Midwest Independent Transmission System
Operator, Inc. & PJM Interconnection L.L.C., 106 FERC
¶ 61,251 (2004), FERC explained that when limited available
transfer capability existed on a system between RTOs, RTOs
could, if explicitly stated in a service agreement, limit § 2.2
rollover rights for long-term service. Id. at 61,898; see also
Order on Clarification Denying Rehearing, 109 FERC
¶ 61,166, 61,803 (2004) (explaining that a Joint Operating
Agreement between RTOs to allocate capacity did not violate
Order No. 888, even if a customer would “not have access to
the total of the available . . . capacity under one RTO’s
OATT”). 1
1
In addition to these two orders, FERC, both in its order denying
rehearing and in its Respondent Brief before us, cited four other
orders in which it approved non-conforming agreements. See 135
15
Although NRG acknowledges that these orders “did
approve tariffs with non-conforming provisions,” Pet’r Reply
Br. at 12, it argues that the Joint Operating Agreements at
issue in these cases did not grant a preference to any
individual entity, unlike the 2008 TSAs and JOA protocol
approved here. And, NRG notes, FERC’s precedent places a
high burden on a transmission provider seeking FERC’s
acceptance of a non-conforming agreement “to justify and
explain that any non-conforming aspects of the agreement are
‘consistent with or superior to’ the relevant pro forma
agreement.” Pet’r Reply Br. at 13 (quoting Southwest Power
Pool, Inc., 132 FERC ¶ 61,159, 61,807 (2010)).
We agree with NRG that these orders are not directly on
point but do not find this dispositive of whether FERC can
approve a non-conforming agreement between PJM and
NYISO to effectuate the 2008 TSAs to ConEd, particularly
given the operational challenges presented. NRG addresses
neither the operational challenges that exist in providing
FERC at 61,062; Resp’t Br. at 26–27. These agreements, however,
were non-conforming generator interconnection agreements, which
are covered by FERC’s Order No. 2003. See Southern California
Edison Co., 133 FERC ¶ 61,200, 62,001 (2010). Order No. 2003
expressly states that FERC may approve non-conforming generator
interconnection agreements “where reliability concerns, novel legal
issues, or other unique factors would call for non-conforming
agreements,” id. at 62,001–02, while neither Order No. 888 nor
subsequent orders clarifying FERC’s open access policies explicitly
state that FERC may approve non-conforming agreements. Thus,
we agree with NRG that these four orders approving non-
conforming generator interconnection agreements do not
persuasively demonstrate that FERC may approve agreements that
do not conform to the relevant OATT. But the fact that Order No.
888 does not include such an express provision does not preclude
FERC from approving non-conforming agreements in Order No.
888, for the reasons we explain in the body of this opinion.
16
service to ConEd through two independent transmission
operators, nor the fact that FERC has recognized the necessity
of non-conforming agreements for a small number of
individuals “with specific reliability concerns, novel legal
issues, or other unique factors.” Southwest Power Pool, Inc.,
132 FERC at 61,807. As we have stated before, when entities
before FERC present “intensely practical difficulties” that
demand a solution, FERC “must be given the latitude to
balance the competing considerations and decide on the best
resolution.” Blumenthal v. FERC, 552 F.3d 875, 885 (D.C.
Cir. 2009). Given the operational difficulties in effectuating
the rolled-over service through two neighboring transmission
operators, we do not read FERC’s orders so strictly as to deny
FERC discretion to approve transmission service agreements
that do not completely conform with the relevant OATT.
NRG also attempts to demonstrate inconsistency by
citing FERC’s orders regarding the Sacramento Municipal
Utility District, orders that we affirmed in Sacramento
Municipal Utility District v. FERC, 428 F.3d 294 (D.C. Cir.
2005) (“SMUD I”), and in Sacramento Municipal Utility
District v. FERC, 474 F.3d 797 (D.C. Cir. 2007) (“SMUD
II”). In SMUD I, we upheld FERC’s determination that under
the California Independent System Operator’s (“CAISO”)
tariff, which did not include a section equivalent to § 2.2 of
the pro forma tariff, a municipal customer could not extend
the terms of its contract or invoke the right of first refusal
under Order No. 888. 428 F.3d at 297. In SMUD II, we
upheld FERC’s determination that CAISO and other
California utilities did not unduly discriminate when they
negotiated with the Western Area Power Administration to
continue transmission service outside the CAISO tariff while
at the same time requiring the municipality to take service
under CAISO’s tariff. 474 F.3d at 804. Because Western
owned and operated a segment of a transmission line that
17
made up the Pacific Intertie, FERC had approved the
transmission agreement as a “unique agreement which is
beneficial to all the parties,” and we determined that it was
not unduly discriminatory for FERC to do so because the
municipality did not own any portion of the Intertie. Id. at
799, 804 (quoting Pacific Gas & Electric Co., 109 FERC
¶ 61,255, 62,212–13).
The key distinction between FERC’s orders in the SMUD
cases and its order approving the settlement in this case is
that, in this case, FERC expressly approved the transmission
service agreement agreed on by the parties to the settlement,
even though that agreement included elements that did not
conform to PJM’s OATT. In contrast, FERC had not
approved a similar agreement in SMUD I, but had only
determined that the municipality had not argued any basis for
extending its expired grandfathered transmission contract
under CAISO’s tariff. No inconsistency exists between
denying an entity the ability to extend its grandfathered
transmission service and approving a new transmission
service agreement, taken under the relevant OATT, which
includes a protocol that does not conform to the relevant
OATT. This is particularly true when the relevant OATT
includes a roll-over provision that was not present in
CAISO’s tariff, and when providing the rolled-over service
involves operational challenges that were not evident in the
case of the municipality in SMUD I and II. Although NRG’s
argument would have more weight had FERC rejected a non-
conforming agreement between the municipality and CAISO
as violating Order No. 888’s open-access principles, such was
not the case in the SMUD orders, leaving NRG’s argument as
simply a challenge to FERC’s ability to approve any
transmission service agreement that does not conform to the
relevant OATT. Moreover, the fact that FERC approved the
transmission exchange agreement in SMUD II based on
18
unique circumstances demonstrates that it has exercised
discretion in the past to approve transmission agreements that
do not conform to the relevant OATT.
Finally, NRG argues that it is illogical for FERC to
approve a non-conforming agreement for roll-over service
under § 2.2, because § 2.2 of PJM’s OATT does not provide a
right to any service other than OATT service. Pet’r Br. at 35–
38. But as FERC explained in its order denying rehearing,
“ConEd will schedule the service in accordance with the PJM
OATT and will pay all of the charges prescribed by the
OATT for such service.” 135 FERC at 61,062. FERC’s
interpretation of § 2.2 as not preventing it from approving
non-conforming service is plausible, and we thus do not
disturb FERC’s approval of the settlement on this ground,
particularly because we afford FERC substantial deference in
its interpretation of its own orders. Consumers Energy Co.,
428 F.3d at 1067–68. FERC’s interpretation of Order No.
888 as not foreclosing nonconforming transmission service
agreements is not “plainly erroneous or inconsistent” with its
open access orders or, as NRG argues, with § 2.2 of the pro
forma OATT. See id. at 1067. We therefore defer to FERC’s
interpretation of its orders as allowing the non-conforming
2008 TSAs and JOA protocol it approved in this case.
Of course, our conclusion that FERC has discretion to
approve a transmission service agreement that does not
conform to the applicable OATT does not excuse FERC from
making the required determinations under §§ 205 and 206 of
the Federal Power Act that the agreements are just and
reasonable and not unduly discriminatory, a determination
that FERC must base on substantial evidence. See 16 U.S.C.
§§ 824d–e; id. § 825l(b). Having concluded that FERC did
not act arbitrarily or capriciously by the mere fact that it
approved a non-conforming agreement, we now turn to
19
NRG’s contentions that the approved settlement is unduly
discriminatory and that FERC did not base its determination
on substantial evidence.
B. Undue Discrimination
In its petition for review, NRG argues that FERC failed
to demonstrate that its orders are not unduly discriminatory.
FERC asserts, however, that NRG waived its undue
discrimination argument because it did not raise the issue in
its request for hearing, as it was required to do under § 313 of
the Federal Power Act. See 16 U.S.C. § 825l(b) (“No
objection to the order of the Commission shall be considered
by the [reviewing] 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.”). We
have explained that § 313 is construed strictly, and that
“objections not explicitly presented in proceedings below, but
arguably ‘implicit’ in other objections, were not properly
preserved.” Entergy Services, Inc. v. FERC, 391 F.3d 1240,
1247 (D.C. Cir. 2004) (citing Kelley ex rel. Mich. Dep’t of
Nat’l Resources v. FERC, 96 F.3d 1482, 1488 (D.C. Cir.
1996)).
When FERC approved the settlement agreement, it
addressed whether the 2008 TSAs and JOA protocol unduly
discriminated against other market participants. See 132
FERC at 62,241–44. Responding to NRG’s arguments that
the JOA protocol was unduly discriminatory “because it
would carve up scarce transmission resources without
allowing open access to competitors” and because it gives
ConEd unique congestion rights not available to other
competitors, FERC determined that the agreement was not
unduly discriminatory because no other entities were similarly
20
situated, i.e., requesting service where the source and sink
were in NYISO. Id. at 62,242.
Although FERC’s order clearly addressed this issue
under a subheading entitled “undue discrimination,” NRG’s
request for rehearing does not directly raise the issue of undue
discrimination. Instead, NRG takes issue with the factual
findings that underlie FERC’s determination that the
agreement was not unduly discriminatory, arguing that FERC
“erred in asserting that other parties are free to take the same
service as ConEd,” explaining that FERC’s assertion was
incorrect because “the JOA is tailored to meet the specific
needs of ConEd.” Joint Appendix 817.
In its reply brief, NRG asserts that it properly preserved
its undue discrimination argument in its request for rehearing,
citing to sections in which it “object[ed] to the manner in
which the JOA Protocol discriminates against all market
participants other than ConEd by not allowing them to
schedule counterflows across the NYC feeders,” and in which
it argued “that the JOA Protocol creates ‘undue harm’ to
pricing in NYISO and PJM and that [FERC] wrongly
discounted the material impact of such harms to NRG.” Pet’r
Reply Br. at 20. NRG also cites pages in its request for
rehearing in which it uses variations on the words
“discriminatory” and “preferential.” Id.We agree with NRG that it has properly raised these
issues in its petition for review. While it is true that NRG did
not explicitly include a subheading for “Undue
Discrimination” in its request for rehearing, as it has in its
petition for review, the substance of its arguments in both
filings is sufficiently similar to preserve its objection before
us. NRG argues undue discrimination in its petition for
review based on: (a) the fact that “[t]he 2008 1000 MW TSAs
21
and JOA Protocol are discriminatory in operation because
they give ConEd a unique and preferential ability to schedule
physical power flows across the NYC Feeders,” while all
other market participants are required to schedule flows
between PJM and NYISO across the “generic PJM-NYISO
proxy bus,” Pet’r Br. at 43 (internal quotation marks omitted);
and, (b) the harm to NRG’s operations resulting from
economically inefficient flows and the harm to the PJM and
NYISO markets resulting from price distortions created by the
settlement. See id. at 44–46, 48–50. NRG asserted these
same points in its request for rehearing, and its request for
rehearing thus “gave notice to the Commission with sufficient
clarity regarding the grounds on which it urged
reconsideration.” Belco Petroleum Corp. v. FERC, 589 F.2d
680, 683 (D.C. Cir. 1978) (applying the Natural Gas Act’s
judicial review provision, which is worded identically to that
of the Federal Power Act).
Although we conclude that NRG has preserved the undue
discrimination argument it advances in its petition for review,
we reject that argument on its merits. We agree with FERC
that “NRG’s claim of injury is not that it seeks the particular
service which ConEd is getting,” Resp’t Br. at 33, but instead
that the settlement agreement reduces NRG’s access to the
transmission lines and harms its operations. We similarly
conclude that the undue discrimination claim NRG raises is,
in reality, simply a challenge to FERC’s reasoning in finding
the settlement agreement just and reasonable, and to the
sufficiency of the evidence upon which FERC relied. As with
its argument that FERC cannot approve non-conforming
agreements, NRG’s failure to address the operational
challenges involved in effectuating the 2008 TSAs is fatal to
its undue discrimination claim. To prevail on an undue
discrimination challenge, NRG must demonstrate that it and
ConEd are similarly situated for purposes of the approved
22
settlement. See Ohio Power Co. v. FERC, 744 F.2d 162, 165
n.3 (D.C. Cir. 1984). NRG has not demonstrated that it or
any other parties are similarly situated to ConEd and does not
argue in its petition for review that any other entities aside
from ConEd have requested through-and-out service that
sources and sinks in the same area. Accordingly, we conclude
that FERC did not unduly discriminate against NRG by
approving the settlement agreement.
C. Substantial Evidence
Finally, we address NRG’s challenges to FERC’s
reasoning and the sufficiency of the evidence upon which it
based its decision. NRG first argues that FERC’s procedural
history—the timing of its issuance of orders establishing
hearings and briefing schedules—demonstrates that the record
was insufficient. NRG also contends that FERC’s
determinations on several factual issues that led to FERC’s
approval of the settlement were not based on substantial
evidence. In addition to its argument that FERC did not base
its decision on substantial evidence, NRG asserts different
reasons why FERC’s decision to approve the settlement was
arbitrary and capricious. We find these arguments
unpersuasive, and conclude that FERC’s order was well-
reasoned and supported by substantial evidence.
The procedural history does not demonstrate that FERC
arbitrarily reversed course on whether the post-settlement
record was insufficient, as NRG claims. After PJM and
ConEd filed the 2008 TSAs and JOA protocol, which resulted
from the litigation generated by ConEd’s initial 2002
complaint, FERC issued an order on August 26, 2008,
establishing a trial-type evidentiary hearing and settlement
procedures on the justness and reasonableness of the TSAs.
See PJM Interconnection L.L.C. & New York Independent
23
System Operator, Inc., 124 FERC ¶ 61,184 (2008). In that
order, FERC explained that the issues raised in protest to
those TSAs raised questions of material fact that could not be
resolved on the record before FERC at that time, and that
FERC could not determine whether the TSAs and JOA
protocol may be unjust, unreasonable, or unduly
discriminatory. See id. at 61,912. The hearing was never
held, and the settlement FERC ultimately approved was filed
on February 23, 2009. See PJM Interconnection L.L.C. &
New York Independent System Operator, Inc., 130 FERC
¶ 61,126 (2010). But before FERC approved the settlement, it
issued an order establishing briefing schedules on February
19, 2010, stating that it found the state of the record at the
time of that order insufficient to allow it to resolve the merits
of some of the contested issues. Id. at 61,623.
Nowhere in the order establishing a briefing schedule did
FERC state that the factual record was insufficient. Indeed,
FERC acknowledged the settlement had resolved some of the
issues, including factual issues, that had motivated the order
FERC issued in 2008 establishing a hearing. Id. at 61,626.
FERC noted that it was establishing a briefing schedule
because these issues appeared to raise legal, rather than
factual issues, and reserved for itself “the right to establish
additional procedures including hearing procedures if
necessary.” Id. That FERC received the briefing it requested
and made determinations on contested issues, without
gathering additional evidence or invoking its reserved right to
establish a hearing, does not demonstrate, by itself, that FERC
“reversed course on the sufficiency of the record.” Pet’r Br.
at 41. Moreover, FERC’s decision not to hold an evidentiary
hearing is within its discretion, and it may “properly deny an
evidentiary hearing if the issues, even disputed issues, may be
adequately resolved on the written record, at least where there
is no issue of motive, intent or credibility.” Pacific Gas &
24
Electric Co. v. FERC, 306 F.3d 1112, 1119 (D.C. Cir. 2002).
NRG has not alleged that issues of motivation, intent, or
credibility were present in the approval of the settlement, and
we therefore do not find a procedural flaw in FERC’s decision
to approve the settlement based on the record as it existed at
that time.
We now turn to NRG’s substantive challenges to the
sufficiency of the evidence upon which FERC relied in
approving the settlement, noting that “[s]ubstantial evidence
is such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.” Murray Energy Corp.
v. FERC, 629 F.3d 231, 235 (D.C. Cir. 2011) (quoting
Colorado Interstate Gas v. FERC, 599 F.3d 698, 704 (D.C.
Cir. 2010)). In its request for rehearing, NRG argued that
approving the settlement agreement would impermissibly
distort prices in NYISO’s energy market, and that FERC did
not adequately explain how the 2008 TSAs and JOA protocol
could be just and reasonable in light of this distortion. NRG
emphasized the harm to its own operations resulting from the
settlement, maintaining that FERC unreasonably discounted
the loss NRG would incur from even a small percentage of
inefficient power flows. NRG also asserted that FERC’s
reference to other pending proceedings that may address the
NYISO-PJM seams issues did not make FERC’s
determination on the settlement agreement’s impact on prices
reasoned decisionmaking, explaining that ConEd’s
preferential agreements would still exist and that FERC was
legally bound to address problematic elements in the instant
settlement proceedings.
FERC responded that the 2008 TSAs were economic in
roughly 88 percent of hours, and that the harm caused by the
remaining 12 percent did not outweigh the benefits the
settlement conferred, particularly because the settlement
25
provided substantially lower prices to customers in New York
in 88 percent of hours. 135 FERC at 61,063–64. Noting that
“the perfect cannot be the enemy of the good,” FERC
explained that until the RTOs addressed loop flow issues, the
settlement provided a reasonable method of managing loop
flows and providing overall benefits to customers. Id. at
61,064.
In its petition for review, NRG first argues that FERC
weighed the justness and reasonableness of the settlement
against the wrong baseline, asserting that FERC should have
measured the justness and reasonableness of the settlement
against the alternative of requiring all market participants,
including ConEd, to take under conforming OATTs. This
argument, however, is merely a collateral attack on FERC’s
ability to approve non-conforming agreements, and again
ignores the operational difficulties that prompted the
underlying litigation and settlement in the first place.
Neither are we persuaded by NRG’s argument that FERC
did not engage in a reasoned analysis in weighing the harms
and benefits of approving the settlement. NRG cites to
FERC’s explanation in its order denying rehearing where
FERC explained that the settlement would improve flows in
88 percent of hours, which NRG claims was not based on any
evidence in the record. NRG explains that ConEd’s expert
merely testified that prices in New York City were higher 88
percent of the time than prices in New Jersey, and that the
evidence attached to this expert’s affidavit actually
demonstrated that, even absent the settlement, power would
flow economically in 25 percent of those hours.
Even if we were to accept that FERC’s statement that
flows would “improve” in 88 percent of hours was an
“exaggeration”—when FERC had previously stated that
26
“[b]oth the parties supporting the Settlement and NRG
generally agree that the 2008 1000 MW TSAs are economic
in roughly 88 percent of hours,” see 132 FERC at 62,241—
this exaggeration does not render FERC’s reasoning arbitrary
or capricious. See Pet’r Br. at 48. FERC’s order approving
the settlement explained that the agreements were economic
in 88 percent of hours, and that “when prices are lower in
NYISO than PJM, the price differential usually is not great,
but, when prices in NYISO are higher than PJM, they are
substantially higher,” 132 FERC at 62,244, factors FERC
relied on to approve the settlement. And in its order denying
rehearing, FERC determined that the harm to NRG’s facility
did not outweigh “the fact that the agreement results in
substantially lower prices to customers in New York in 88
percent of hours,” a factual finding that NRG has not
attempted to dispute in its petition for review. 135 FERC at
61,064. Thus, apart from attempting to cast FERC’s
statement about improving flows as an unreasonable
exaggeration, NRG essentially requests us to review FERC’s
balancing of competing interests. But as we have explained,
we properly defer to policy determinations invoking FERC’s
expertise in evaluating complex market conditions.
Tennessee Gas Pipeline Co. v. FERC, 400 F.3d 23, 27 (D.C.
Cir. 2005). In this case, “FERC reflected on the competing
interests at stake to explain why it struck the balance it did,”
and we will not reject its determination. Sacramento
Municipal Utility District v. FERC, 616 F.3d 520, 541–42
(D.C. Cir. 2010).
When discussing the impact of the settlement on prices,
FERC noted that other proceedings were already underway to
address issues at the NYISO-PJM seam. See 132 FERC at
62,245 (“NRG asserts that the JOA Protocol prevents
economic power flows across the PJM-NYISO seam . . . [,
but] we find that any problems with the PJM-NYISO seam,
27
including use of the single proxy bus for pricing, are beyond
the scope of this proceeding.”). In its petition for review,
NRG maintains that FERC’s attempt to kick the can down the
road violates our precedent and fails to adequately respond to
NRG’s and another objecting party’s argument that the
settlement would interfere with a comprehensive resolution of
the seams issue. NRG cites our opinions in NorAm Gas
Transmission Co., 148 F.3d 1158, and SMUD II to support
this argument, and also asserts that FERC “did not adequately
grapple with NRG’s and DTE’s arguments that approving the
Settlement Agreement may interfere with the establishment of
a comprehensive non-discriminatory solution to the seams
issues.” Pet’r Br. at 57.
We disagree with NRG that FERC did not “adequately
grapple” with NRG’s and DTE’s arguments. In its order
denying rehearing, FERC explained that the results of the
seams issues addressed in other proceedings would affect the
settlement, stating that neither the 2008 1000 MW TSAs nor
the JOA protocol would prevent PJM and NYISO from
modifying their OATTs once the seams issues are resolved,
and that if PJM amends its scheduling practice, that new
practice would govern ConEd’s transmission service
agreement. 135 FERC at 61,065 n.62. NRG responds that
this explanation is dismissive of it and DTE’s arguments,
because it only pointed to the possibility that PJM and NYISO
would amend their OATTs in a way that affected the service
to be provided under the settlement. But FERC was not being
dismissive of these arguments; instead, it was balancing
different problems in the face of uncertainty. Indeed, DTE’s
statement is itself uncertain regarding the effects of the
settlement, with DTE expressing concern that the settlement
“may interfere with NYISO’s and PJM’s ability to establish a
comprehensive interface pricing policy between the two
regions.” Joint Appendix 787 (emphasis added). Given the
28
complexities in this case—both the operational difficulties in
effectuating ConEd’s rolled-over service across two RTOs
and the coordination issues between the two RTOs more
generally—we conclude that FERC has appropriately
considered the issues the petitioner and other entities raised
during the settlement approval process, and defer to FERC in
its decision on how to resolve these competing issues. That
the settlement is not what petitioners or other entities in the
market would have wanted does not undermine FERC’s
approval of it. See Public Service Commission of Wisconsin
v. FERC, 545 F.3d 1058, 1067 (D.C. Cir. 2008).
NRG also has not persuaded us that our precedent
forecloses FERC from citing the ongoing PJM-NYISO seams
issue proceedings to justify its approval of the settlement. In
SMUD II, we determined FERC acted reasonably in deciding
that a municipality raising concerns over implementation of
an OATT should participate in proceedings to redesign the
tariff, rather than grandfather its pre-open access transmission
service agreement. On this issue—whether FERC may refer
to ongoing proceedings related to a contested settlement in
order to justify that settlement—SMUD II is unpersuasive for
the same reasons it failed to persuade on the issue of whether
FERC can approve non-conforming agreements. In the
SMUD cases, the municipality requested that we vacate and
remand FERC’s order approving the termination of its long-
term transmission contract. SMUD II, 474 F.3d at 800. We
upheld FERC’s acceptance of the termination of the contract,
explaining that its decision that the municipality must operate
under the tariff during a comprehensive marketing redesign
proceeding was “perfectly rational.” Id. at 802. The
distinction between the SMUD cases and the settlement here
is that FERC approved the non-conforming agreement, which
still requires ConEd to take under the rates of PJM’s OATT.
Thus, we do not read SMUD I and II as stating that FERC
29may never approve a non-conforming agreement when
broader ongoing proceedings exist. Balancing an immediate
short-term need to approve an agreement to address
operational difficulties with broader market redesign
proceedings to address pricing issues is the sort of challenge
that requires a high level of technical expertise, and we
properly defer to FERC’s informed discretion on that score.
Transmission Access Policy Study Group, 225 F.3d at 714.
We also fail to see how NorAm precludes FERC from
citing other ongoing proceedings when approving this
settlement. In NorAm, FERC had stated that the contested
settlement proceedings in that case were not the appropriate
forum to address one of the issues the petitioner had raised
before this Court. 148 F.3d at 1163. We never spoke to
whether FERC was incorrect in stating that the contested
settlement proceedings were not the proper forum for all
issues related to the petitioners challenge, but instead
explained that because the goal of FERC’s natural gas
pipeline open access orders was to remedy anticompetitive
behavior by pipeline sellers, “it was incumbent upon [FERC],
when considering the settlement offer, to give serious
consideration to the alleged anticompetitive effects of
Tennessee’s rate system.” Id. at 1164.
In this case, FERC seriously considered the
anticompetitive effects of the settlement, determining that the
settlement was justified in light of the unique operational
challenges involved in effectuating the 2008 TSAs. In fact,
the approach FERC used in approving the contested
settlement is one of the four approaches that FERC
established in Trailblazer Pipeline Co., 85 FERC ¶ 61,345(1998), which FERC issued in part as a response to our
reversing it in NorAm. See id. at 62,340–41. Under the first
approach explained in Trailblazer, FERC may, assuming an
30
adequate record, address each objection of a contesting party
on the merits. Id. at 62,342. If it finds that all the contesting
parties’ objections lack merit, FERC may approve the
settlement. Id. FERC adopted that approach here, see 132
FERC at 62,236 n.37, and addressed each of NRG’s
objections in its order approving the settlement. Though
NRG, unsurprisingly, disagrees with FERC’s determinations
on the merits, we conclude that FERC was not dismissive of
NRG’s objections when it discussed separate proceedings
addressing the NYISO-PJM seam, but was instead explaining
its decision in light of complex market conditions. We owe
this evaluation deference. See Tennessee Gas Pipeline, 400
F.3d at 27.
NRG also cites NorAm to argue that FERC’s finding that
the settlement agreement was “freely negotiated” is
insignificant. Pet’r Br. at 53. But this case is unlike NorAm
or the other cases that motivated FERC to establish a
contested settlement approval process. In those cases, we
reversed FERC’s orders approving a settlement because
FERC had relied on the consent of the settling parties without
independently concluding that the settlement was just and
reasonable or in the public interest. See NorAm, 148 F.3d at1164–65; Laclede Gas Co. v. FERC, 997 F.2d 936, 946 (D.C.
Cir. 1993); Tejas Power Corp. v. FERC, 908 F.2d 998, 1003
(D.C. Cir. 1990). We also observed that though FERC must
independently conclude a settlement is just and reasonable,
and cannot ignore arguments raised by a competitor just on
the basis of widespread support for the settlement, FERC “is
clearly entitled to give weight to the support of customers
when deciding whether to approve a settlement offer.”
NorAm, 148 F.3d at 1165. In its order approving the
settlement in this case, FERC has addressed each argument
raised by NRG, and has not relied solely on the fact that the
settlement was “freely negotiated” to determine that the
31
settlement was just and reasonable. Thus, FERC’s mention of
the fact that the settlement was freely negotiated does not
render its decision unreasonable.
Finally, NRG’s request for rehearing asserted that
FERC’s determination that the JOA protocol was needed to
ensure reliability contradicts FERC’s earlier orders in the
underlying litigation, in which FERC explained that ConEd’s
dependence on the 1000 MW flows across the New York City
feeders was “more an economic consideration than a
reliability consideration.” See Consolidated Edison Co. of
New York, Inc. v. Public Service Electric & Gas Co., 120
FERC ¶ 61,161, 61,702 (2007). NRG maintained that even if
FERC had changed its position on whether economic or
reliability benefits underlay its decision to approve the order,
the evidentiary record was based on conjecture by ConEd’s
experts and unsupported by objective engineering data.
Moreover, NRG contended that FERC failed to weigh the
conflicting evidence offered by NRG’s expert, who stated that
the settlement would decrease reliability.
FERC, in its order denying rehearing, explained that the
previous orders were consistent with FERC’s order approving
the settlement because FERC’s statements on economics
versus reliability were, in proper context, responding to
ConEd’s arguments in the underlying litigation. 135 FERC at
61,064. FERC also explained that “economics and reliability
are not mutually exclusive,” and that the record upon which
FERC approved the settlement included statements from the
New York Commission and the City of New York explaining
that the agreements provided critical reliability benefits. Id.Even excluding reliability, FERC had several reasons for
approving the settlement that would have been sufficient even
absent reliability concerns. See id.32
In its petition for review, NRG essentially restates the
arguments from its request for rehearing on the reliability
issue. We conclude, however, that FERC adequately
addressed NRG’s challenge to its consideration of reliability.
Although NRG claims that FERC attempts to “obfuscate the
[reliability] issue by stating that ‘economics and reliability are
not mutually exclusive,’” Pet’r Br. at 51, FERC has, in the
very order NRG cited in its attempt to create inconsistency,
considered both factors together. See 120 FERC at 61,701
(“The Commission stated that while reliability was one of the
purposes of the two contracts, economic considerations were
more important . . . .”). The issue on which FERC denied
rehearing in that order was whether it “correctly gave the
proper weight to reliability considerations”; not to whether
FERC could consider reliability at all. Id. at 61,702.
Moreover, we agree with FERC’s statement in rehearing that
it had other reasons that were sufficient to approve the
settlement apart from reliability considerations. See 135
FERC at 61,064 (“The order addresses the important issues
regarding the right to roll-over firm agreements, the need for
the non-conforming JOA Protocol to do so, the fact that this
exchange agreement reduced the need for additional
transmission construction, and the lower prices produced in
88 percent of the hours. These rationales would be sufficient
to permit a rollover regardless of any reliability benefits.”).
We therefore conclude that FERC’s discussion of reliability
benefits does not render its order arbitrary or capricious, or
otherwise provide a basis for granting NRG’s petition.
III. CONCLUSION
For the foregoing reasons, we hold that FERC’s approval
of the contested settlement and denial of NRG’s request for
rehearing was based on substantial evidence and was neither
33
arbitrary nor capricious. Accordingly, NRG’s petition for
review is denied.
So ordered.