United States Court of Appeals, District of Columbia Circuit
April 13, 2018
Petition for Review of Orders of the Federal Energy
N. Estes III argued the cause for petitioners. With him on
the briefs were John Lee Shepherd, Jr., Cara J. Lewis, and
J. Banta, Attorney, Federal Energy Regulatory Commission,
argued the cause for respondent. On the brief were Robert H.
Solomon, Solicitor, and Holly E. Cafer, Senior Attorney.
R. Marshall argued the cause for intervenors. With him on the
brief were Phyllis G. Kimmel, Larry F. Eisenstat, Richard
Lehfeldt, Clare E. Kindall, and Robert L. Marconi, Assistant
Attorneys General, Office of the Attorney General for the
State of Connecticut.
N. Moore was on the brief for amicus curiae Natural Resources
Defense Council, et al. in support of respondent.
Before: Wilkins, Circuit Judge, and Sentelle and Randolph,
Senior Circuit Judges.
Sentelle, Senior Circuit Judge.
of power generation companies, utility holding companies, and
power distribution and sales companies petitions for review
of four Federal Energy Regulatory Commission
("FERC" or "the Commission") orders.
ISO New England Inc. ("ISO-NE"),
147 FERC ¶ 61, 173 (May 30, 2014), reh'g
denied, 150 FERC ¶ 61, 065 (Jan. 30, 2015);
ISO-NE, 155 FERC ¶ 61, 023 (Apr. 8, 2016),
reh'g denied, 158 FERC ¶ 61, 138 (Feb. 3,
2017). In the orders under review, the Commission approved an
exemption to the minimum offer price rule in the ISO New
England forward capacity market for a limited amount of
qualifying renewable energy. The petitioners argue that the
renewable exemption creates unjust, unreasonable, and unduly
discriminatory rates in violation of the Federal Power Act
and that the Commission was arbitrary and capricious in
violation of the Administrative Procedure Act. The
petitioners also contend that the Commission erred by not
setting a hearing on disputed facts. We conclude that FERC
engaged in reasoned decision-making to find that the
renewable exemption to the minimum offer price rule results
in a just and reasonable rate. Likewise, FERC did not abuse
its discretion by denying the petitioners' request for a
hearing. Accordingly, we deny the petition for review.
case concerns a petition for review of FERC orders that carve
out an exception to the minimum offer price rule for certain
qualifying renewable energy resources in the New England
energy market. The petitioners, NextEra Energy Resources,
LLC, NRG Power Marketing LLC, GenOn Energy Management, LLC,
Connecticut Jet Power LLC, Devon Power LLC, Middletown Power
LLC, Montville Power LLC, Norwalk Power LLC, NRG Canal LLC,
Energy Curtailment Specialists, Inc., PSEG Power LLC, PSEG
Energy Resources & Trade LLC, and PSEG Power Connecticut
LLC (collectively, the "Generators"), are power
generation companies, utility holding companies, and power
distribution and sales companies that serve the six-state New
England energy market. The Federal Power Act establishes the
Commission's authority to regulate wholesale electric
rates, such as those determined by the results of the energy
markets. 16 U.S.C. §§ 824d-824e.
The New England Forward Capacity Market
entities, called "independent system operators" or
ISOs, operate regional transmission services and foster
competition in the market by running auction markets for
energy. See New England Power Generators Ass'n v.
FERC, 881 F.3d 202, 205-06 (D.C. Cir. 2018). ISO New
England Inc. is the system operator for the New England
England administers a forward capacity market for the region.
It conducts the forward capacity market pursuant to rules set
out in a jurisdictional tariff approved by FERC. The features
of ISO New England's complex forward capacity market have
been the subject of multiple petitions for review. See,
e.g., Public Citizen, Inc. v. FERC, 839 F.3d
1165 (D.C. Cir. 2016); New England Power Generators
Ass'n v. FERC, 757 F.3d 283 (D.C. Cir. 2014)
("NEPGA"); Connecticut Dep't of
Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir.
2009); Maine Pub. Utils. Comm'n v. FERC, 520
F.3d 464 (D.C. Cir. 2008) (per curiam), rev'd in part
sub nom. NRG Power Mktg., LLC v. Maine Pub. Utils.
Comm'n, 558 U.S. 165 (2010).
forward capacity market, local utilities contract with
generators to buy quantities of energy three years ahead of
their energy needs. With three years' notice, demand in
the forward capacity market is able to signal that a new
entrant is needed while there is still time to develop
additional generation capability.
England sets prices in the forward capacity market by
administering a forward capacity auction. First, ISO New
England determines the projected amount of capacity
("Installed Capacity Requirement") that the region
will require to operate reliably in three years. Next, ISO
New England holds a descending price auction, in which
generators submit offers to provide quantities of power at
certain prices, three years in the future. If the bid
capacity at a given price exceeds the Installed Capacity
Requirement, ISO New England lowers the auction price. As the
auction price decreases, generators offer less capacity to
the auction or exit the auction altogether. A "clearing
price" is reached at the lowest price that yields enough
supply to meet the Installed Capacity Requirement set by ISO
New England. All generators that have successfully bid in the
auction are paid the clearing price for the capacity they
provide, even if they submitted a bid lower than the eventual
original ISO New England tariff used a "vertical"
demand curve, specifying a fixed demand that defined the
capacity sought by the auction. The clearing price was
reached at the lowest price that met the fixed demand.
orders under review, ISO New England implemented a sloped
demand curve. The sloped demand curve establishes a downward
trending relationship between price and demand. Price is
expressed in the chart as a multiple of the net cost of new
entry and demand is expressed as a reserve margin. Using the
sloped demand curve, if the offered capacity price is
decreased, it corresponds to an increased demand. Rather than
the New England region procuring enough capacity to meet a
fixed demand as under the vertical demand curve, it procures
enough capacity to meet the variable demand that is set by
the supply prices offered in the auction. The clearing price
is reached at the point of intersection of the supply curve
and the demand curve.
system-wide sloped demand curve was implemented beginning
with the auction for the ninth capacity year (2018-2019). At
the time of this petition for review, ISO New England had
completed auctions through the eleventh capacity year
the rules in the ISO New England forward capacity auction is
the "minimum offer price rule." The minimum offer
price rule mitigates the potential for the improper exercise
of market power that can occur if a generation resource
submits capacity to the auction at a below-cost price,
suppressing the clearing price. See NEPGA, 757 F.3d
at 288-92. States and some utilities participate in the
market as both buyers and sellers of power, giving them the
opportunity to exercise this type of market power. For
example, a state-sponsored power generation resource could
submit a below-cost price offer to the auction, increasing
the supply of lower priced power, and lowering the clearing
price. Then, that state, as a net buyer of capacity, benefits
by purchasing capacity at the resulting artificially low
price. The minimum offer price rule mitigates ...