3 F.4th 461
D.C. Cir.2021Background
- FERC regulates interstate wholesale electricity rates under the Federal Power Act; PJM operates a regional capacity market to ensure future resource adequacy.
- PJM’s capacity auction uses a VRR (demand) curve set from inputs including a Reference Resource and the net cost of new entry (net CONE), which equals gross construction cost minus estimated energy and ancillary services (EAS) revenues.
- In its 2018 quadrennial review PJM proposed (1) to retain a combustion-turbine Reference Resource (rather than switch to a combined-cycle unit) and (2) to include an existing 10% energy-offer adder in the Reference Resource’s EAS revenue estimate.
- FERC approved both changes; petitioners (state/public advocates and Sierra Club) sought rehearing and then judicial review challenging the Reference Resource choice and the 10% adder.
- The D.C. Circuit upheld FERC’s decision to keep a combustion-turbine Reference Resource but found FERC’s approval of the 10% adder arbitrary and capricious on the record and remanded that portion for reassessment without vacatur.
Issues
| Issue | Petitioners' Argument | Respondent (PJM/FERC) Argument | Held |
|---|---|---|---|
| Whether FERC erred by not applying ISO New England multi-factor framework to assess the Reference Resource | FERC should apply ISO New England factors (likely-developable unit; confidence in cost/revenue estimates; resulting prices meet reliability without undue cost) | ISO New England factors are not a mandatory, exclusive framework; FERC may rely on the record and other reasoned bases | No error — FERC need not apply ISO New England framework in every case; upheld |
| Whether a combustion-turbine Reference Resource is just and reasonable (vs. combined-cycle) | Combined-cycle would yield lower consumer costs (~$140M/yr) and is a reasonable alternative | Combustion turbines are cheaper/quick to build, remain deployed in-region, provide stronger reliability margins, and avoid risks from misestimating EAS revenues for combined-cycle units | Upheld — substantial evidence supports FERC’s reasons; choice not arbitrary or capricious |
| Whether including the 10% energy-offer adder in the Reference Resource’s EAS revenue estimate is just and reasonable | Evidence shows combustion turbines rarely use the 10% adder; inclusion overstates offsets and understates net CONE | The 10% adder is permitted in market rules and its inclusion makes the EAS estimate consistent with existing rules; earlier FERC approval supports inclusion | Reversed in part — FERC failed to assess whether combustion turbines actually use the adder; remand for reassessment without vacatur |
Key Cases Cited
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (agency must offer reasoned explanation and consider important aspects of the problem; arbitrary-and-capricious standard)
- FERC v. Elec. Power Supply Ass'n, 577 U.S. 260 (2016) (courts defer in complex regulatory rate decisions and do not substitute their judgment for agency policy choices)
- Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527 (2008) (rate-making involves technical and policy judgments warranting deference)
- PJM Power Providers Grp. v. FERC, 880 F.3d 559 (D.C. Cir. 2018) (court’s role is not to choose the best alternative but to review whether agency's decision is supported by the record)
- Md. Pub. Serv. Comm'n v. FERC, 632 F.3d 1283 (D.C. Cir. 2011) (RTOs must ensure sufficient generating capacity)
- Advanced Energy Mgmt. All. v. FERC, 860 F.3d 656 (D.C. Cir. 2017) (distinguishing capacity markets from energy markets; capacity as a commitment)
- La. Pub. Serv. Comm'n v. FERC, 522 F.3d 378 (D.C. Cir. 2008) (agency must base decision on substantial evidence in record)