881 F.3d 202
D.C. Cir.2018Background
- ISO-New England (ISO-NE) operates a Forward Capacity Market (FCM) where suppliers sell capacity three years forward; ISO-NE adopted a price "lock‑in" for new entrants (guaranteed first-year clearing price for up to seven years) and a capacity‑carry‑forward rule that requires locked‑in capacity to be offered into subsequent auctions, potentially as price‑takers (bidding to zero).
- NEPGA and Exelon, incumbent suppliers excluded from the new‑entrant benefits, filed complaints under FPA § 206 arguing the rules unduly discriminate and suppress prices to incumbents while advantaging new entrants.
- FERC denied both complaints and subsequent rehearing requests, explaining the rules incent entry, reflect going‑forward costs (justifying zero bids), and are constrained by a minimum‑offer rule and market design differences from PJM (where similar rules had been rejected).
- Petitioners appealed to the D.C. Circuit, challenging FERC’s rationale and arguing FERC failed to reconcile its approval with its prior PJM precedent and with the risk of price suppression and discrimination.
- The D.C. Circuit granted the petitions and remanded, holding that FERC’s orders lacked the reasoned explanation required when departing from prior precedent and when treating apparently similar situations differently.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ISO‑NE’s lock‑in and carry‑forward rules are unjust, unreasonable, or unduly discriminatory | NEPGA/Exelon: rules permit new entrants to bid low (even zero) while receiving locked payments, suppressing prices and disadvantaging incumbents | FERC: rules incent efficient entry, reflect new entrants’ low going‑forward costs, mitigated by minimum‑offer rule and market differences from PJM | Court: vacated and remanded — FERC failed to provide adequate, reasoned explanation for departing from prior PJM rationale and treating entrants/incumbents differently |
| Whether FERC adequately justified departure from prior PJM decision | Plaintiffs: PJM decision rejecting similar mechanisms requires reasoned, persuasive distinction; ISO‑NE’s longer lock‑in and universal availability exacerbate PJM concerns | FERC: market designs differ; its view evolved that zero bids by locked‑in new entrants can reflect competitive going‑forward costs | Court: FERC did not display sufficient awareness or provide satisfactory analysis of the change; explanation was conclusory and belated |
| Whether price suppression is an acceptable byproduct of the market design | Plaintiffs: price suppression harms incumbents and is discriminatory; not justified as mere byproduct | FERC: lower clearing prices may be an acceptable byproduct if rules achieve entry and consumer protection goals | Court: whether suppression is acceptable requires reasoned analysis tying facts to choice; FERC’s cursory statements were inadequate |
| Burden of proof on complaint under FPA § 206 | Plaintiffs: FERC’s approval should be reversed given record showing discriminatory effects | FERC: petitioners bear burden to prove existing rate unjust/unreasonable; FERC shifted burden back to Exelon | Court: did not decide merits because FERC must first provide a reasoned explanation; remand required for FERC to address record and precedent properly |
Key Cases Cited
- Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir. 2009) (capacity markets and FERC oversight)
- New England Power Generators Ass’n v. FERC, 757 F.3d 283 (D.C. Cir. 2014) (context on ISO tariff design and market incentives)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (U.S. 1983) (agency must articulate rational connection between facts and decision)
- W. Deptford Energy, LLC v. FERC, 766 F.3d 10 (D.C. Cir. 2014) (agency must explain departures from precedent or past practice)
- PG&E Gas Transmission, Nw. Corp. v. FERC, 315 F.3d 383 (D.C. Cir. 2003) (failure to reckon with precedent reflects absence of reasoned decisionmaking)