PSEG Energy Resources & Trade LLC v. Federal Energy Regulatory Commission, 398 U.S. App. D.C. 423

Background

PSEG challenged FERC-approved ISO New England’s auction results for the New England forward capacity market.
FERC held that PSEG’s Connecticut resources could not prorate capacity (quantity) for reliability reasons but could be subject to price prorating under the tariff’s Proration Rule.
A last-sentence caveat, ‘Any proration shall be subject to reliability review,’ was added to the Proration Rule in 2007 and later interpreted by FERC to permit price proration when reliability review precluded quantity proration.
PSEG argued this interpretation violated tariff terms, caused undue discrimination, and undermined market policy goals.
FERC denied rehearing, but subsequently allowed a prospective tariff revision aligning with PSEG’s position, leading PSEG to petition for review in this court.
The court grants the petition and remands for further consideration due to ambiguity in the tariff language and failures to respond to legitimate objections.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether FERC’s tariff interpretation was permissible given ambiguity	PSEG contends the tariff unambiguously requires prorating both price and quantity where allowed, and FERC erred by reading it to allow price proration only.	FERC argues the Proration Rule is unambiguous to permit price proration under reliability review, preserving the total payment cap.	Remand to reconsider due to tariff ambiguity.
Whether FERC adequately responded to legitimate objections	PSEG asserts FERC failed to meaningfully address undue discrimination and policy objections to its interpretation.	FERC claimed objections were consistent with its position and pointed to related proceedings, without direct responses.	Remand for explicit consideration of objections.
Whether Chevron step 1 ambiguity necessitates remand	PSEG contends the tariff language is ambiguous, so Chevron step 2 should be used to assess reasonableness rather than treat it as clear.	FERC maintained the language is clear or, alternatively, that its interpretation is reasonable under step 2.	Remand to reevaluate in light of explicit ambiguity.
Whether remand is appropriate given after-the-fact tariff revision	PSEG argues the agency already acknowledged improvement and changed the tariff; remand allows a proper, reasoned decision on the unrevised language as well.	FERC may consider the change, but the current orders require reassessment based on the existing record.	Remand authorized to permit reconsideration with available discretion.

Key Cases Cited

NRG Power Mktg., LLC v. Me. Pub. Utils. Comm’n, 130 S. Ct. 693 (2010) (contextual framework for forward capacity markets)
Blumenthal v. FERC, 552 F.3d 875 (D.C. Cir. 2009) (agency interpretations and market operations in ISO-NE)
NSTAR Elec. & Gas Corp. v. FERC, 481 F.3d 794 (D.C. Cir. 2007) (tariff interpretation and agency discretion)
Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477 (D.C. Cir. 2009) (standard for reviewing capacity market decisions)
Cajun Elec. Power Coop., Inc. v. FERC, 924 F.2d 1132 (D.C. Cir. 1991) (remedial remand when agency misreads statutory framework)
Transitional Hospitals Corp. of La., Inc. v. Shalala, 222 F.3d 1019 (D.C. Cir. 2000) (remand when agency lacks genuine discretion and misapplies standards)
PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194 (D.C. Cir. 2005) (requirement to address objections and reasoned decision-making)
Texaco, Inc. v. FPC, 417 U.S. 383 (1974) (agency action must be supported by reasoned analysis)
Ameren Servs. Co. v. FERC, 330 F.3d 494 (D.C. Cir. 2003) (Chevron step-2 deference standards in tariff disputes)
Old Dominion Elec. Coop., Inc. v. FERC, 518 F.3d 43 (D.C. Cir. 2008) (interpretation of tariff provisions under Chevron)
Colorado Interstate Gas Co. v. FERC, 599 F.3d 698 (D.C. Cir. 2010) (two-step Chevron-like approach for tariff interpretation)
Koch Gateway Pipeline Co. v. FERC, 136 F.3d 810 (D.C. Cir. 1998) (Chevron framework and agency deference)