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NextEra Energy Resources, LLC v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

July 31, 2018

NextEra Energy Resources, LLC, et al., Petitioners
v.
Federal Energy Regulatory Commission, Respondent CPV Power Holdings, LP, et al., Intervenors

          Argued April 13, 2018

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

          John N. Estes III argued the cause for petitioners. With him on the briefs were John Lee Shepherd, Jr., Cara J. Lewis, and Abraham Silverman.

          Carol 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.

          Jason 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.

          John 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.

          OPINION

          Sentelle, Senior Circuit Judge.

         A group 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.

         I. Background

         This 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.

         A. The New England Forward Capacity Market

         Regional 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 region.

         ISO New 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).

         In the 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.

         ISO New 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 clearing price.

         The 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.

         In the 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.

         The 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 (2020-2021).

         One of 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 ...


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