7 F.4th 1177
D.C. Cir.2021Background
- In April 2015 MISO’s Zone 4 capacity auction cleared at $150/MW‑day while most other MISO zones cleared near $3.30–$3.48 and Zone 4 had been much lower in prior years.
- Complainants (Public Citizen, State of Illinois, Southwestern Electric Cooperative, Illinois Industrial Energy Consumers) alleged the spike produced unjust and unreasonable rates and that Dynegy—after acquiring pivotal plants in Zone 4—may have exercised market power or engaged in economic withholding (market manipulation).
- In December 2015 FERC issued an order finding key MISO tariff provisions (initial reference level and local clearing requirement) were no longer just and reasonable prospectively and directed rule changes (including setting initial reference level to $0 going forward); FERC’s Office of Enforcement opened an investigation into possible manipulation.
- After a multi‑year, document‑intensive investigation, in July 2019 a divided FERC closed the investigation and upheld the 2015 auction results as just and reasonable because the auction complied with the (then‑filed) MISO tariff and Dynegy’s offers were below the conduct threshold.
- Public Citizen sought rehearing and then petitioned the D.C. Circuit. The court: (1) rejected the claim that FERC must preapprove every auction price; (2) held FERC’s decision to close its enforcement probe is presumptively unreviewable prosecutorial discretion; but (3) vacated/remanded FERC’s finding that the 2015 Auction results were just and reasonable as arbitrary and capricious for failing to reconcile with the 2015 Order and to address manipulation evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 205 requires FERC to affirmatively approve each auction price before it takes effect | Public Citizen: FERC must review/approve individual auction clearing prices as "rates and charges" to ensure justness and reasonableness | FERC: market‑based tariff regime permits ex ante approval of tariff and ex post monitoring; no requirement to preapprove each price | Rejected; market‑based framework and ongoing oversight satisfy Section 205, no per‑price preapproval required |
| Whether FERC’s closure of its market‑manipulation investigation and its statement Dynegy did not violate rules is judicially reviewable | Public Citizen: FERC’s closure amounted to a substantive merits finding that should be reviewed | FERC: decision to investigate or prosecute is prosecutorial/enforcement discretion and presumptively unreviewable | Denied review; closure is discretionary nonreviewable enforcement decision under Chaney |
| Whether FERC adequately explained that the 2015 Auction results were just and reasonable despite its prior finding the tariff was flawed | Public Citizen: FERC failed to reconcile its 2015 Order (tariff defects) with its later conclusion that results under that tariff were just and reasonable; also failed to address evidence of withholding/manipulation | FERC: auction complied with the then‑filed tariff; compliance with tariff and prior market‑based authorizations supports result; complainant bears burden | Granted in part; court held FERC’s explanation was arbitrary and capricious and remanded for reasoned analysis addressing tariff flaws and manipulation evidence |
Key Cases Cited
- Morgan Stanley Capital Group Inc. v. Public Util. Dist. No. 1 of Snohomish County, 554 U.S. 527 (2008) (upholding market‑based tariffs and ex ante approval approach)
- Tejas Power Corp. v. FERC, 908 F.2d 998 (D.C. Cir. 1990) (competitive‑market presumption that market prices are just and reasonable)
- Blumenthal v. FERC, 552 F.3d 875 (D.C. Cir. 2009) (requires ex ante market‑power finding and ongoing oversight/post‑approval monitoring)
- Heckler v. Chaney, 470 U.S. 821 (1985) (agency enforcement/prosecution decisions presumptively nonreviewable)
- Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004) (market‑based tariffs lawful when paired with ex ante finding and post‑approval reporting/monitoring)
- Montana Consumer Counsel v. FERC, 659 F.3d 910 (9th Cir. 2011) (Commission must actively review transaction data as part of ongoing oversight)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (1983) (agency action arbitrary and capricious if it fails to provide reasoned explanation)
- Baltimore Gas & Elec. Co. v. FERC, 252 F.3d 456 (D.C. Cir. 2001) (agency closure of investigation exemplifies enforcement discretion)