880 F.3d 559
D.C. Cir.2018Background
- FERC approved PJM Interconnection’s 2014 tariff revisions that set the estimated cost of new entry (CONE), which drives wholesale capacity prices in the PJM region.
- Petitioners (PJM Power Providers Group and PSEG Companies) challenged FERC’s approval, arguing PJM’s CONE figure was too low, resulting in unjust and unreasonable capacity payments.
- FERC’s CONE calculation relied on inputs including construction labor hours (from PJM economist Paul Sotkiewicz relying on consulting studies and BLS data) and cost of capital (from Brattle Group using a proxy group of publicly traded energy firms).
- Petitioners attacked (1) the evidentiary basis for Sotkiewicz’s labor-hour estimate, (2) FERC’s choice to prefer Sotkiewicz over petitioners’ expert (Uniszkiewicz), and (3) exclusion of private-equity–based returns from the cost-of-capital sample.
- The D.C. Circuit reviews FERC under the APA for arbitrary and capricious action, applying a highly deferential standard: uphold if supported by substantial evidence and a rational explanation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument (FERC/PJM) | Held |
|---|---|---|---|
| Sufficiency of labor-cost evidence | Sotkiewicz’s reliance on three consulting studies and prior submissions is unreliable; underlying reports/hearsay not probative | Sotkiewicz’s affidavit, corroborating affidavits, and public BLS data provide substantial evidence | Court upheld FERC: substantial evidence supports labor estimates |
| Expert-preference and need for hearing | Uniszkiewicz had superior construction expertise; FERC should have held evidentiary hearing | FERC reasonably preferred Sotkiewicz because Uniszkiewicz ignored economies of scale; written record sufficed | Court upheld FERC’s credibility/weight determination; no hearing required |
| Use of proxy group for cost of capital | Excluding private-equity investors understates cost of capital; new builds are often PE-financed and demand higher returns | Private-equity returns are not observable/verifiable in market data and provided PE data were unreliable across industries | Court upheld FERC’s exclusion of PE: methodology reasonable and justifiable |
| Overall reasonableness of CONE figure | Combined errors render CONE unreasonably low and tariff unjust and unreasonable | FERC examined relevant data, articulated rational connections, and substantial evidence supports approval | Petition for review denied; FERC approval affirmed |
Key Cases Cited
- Alcoa Inc. v. FERC, 564 F.3d 1342 (D.C. Cir. 2009) (deferential review of rate-design factual judgments)
- FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760 (U.S. 2016) (court’s role is not to choose the best regulatory decision; defer where Commission provides reasoned explanation)
- Braintree Elec. Light Dep’t v. FERC, 667 F.3d 1284 (D.C. Cir. 2012) (APA standard of review for FERC orders)
- Elec. Consumers Res. Council v. FERC, 407 F.3d 1232 (D.C. Cir. 2005) (deference to FERC’s resolution of expert disputes)
- Wisc. Pub. Power, Inc. v. FERC, 493 F.3d 239 (D.C. Cir. 2007) (agency may reasonably reject alternative methods even if petitioners propose plausible alternatives)