Litigation might redefine FERC’s reach on power prices

By Amanda Reilly | 09/02/2016 01:00 PM EDT

A three-judge panel will hear oral arguments next week in a complex case over the extent to which the law requires federal regulators to review wholesale electricity capacity rates.

A three-judge panel will hear oral arguments next week in a complex case over the extent to which the law requires federal regulators to review wholesale electricity capacity rates.

The group Public Citizen and Connecticut leaders accuse the Federal Energy Regulatory Commission of shirking its duty when it allowed rates set at a 2014 auction to go into effect in New England.

Judges Janice Rogers Brown, Sri Srinivasan and Robert Wilkins of the U.S. Court of Appeals for the District of Columbia Circuit will hear arguments in the case, Public Citizen v. FERC, on Tuesday.


A key question is whether the agency violated the Federal Power Act’s prohibition against unjust and unreasonable wholesale capacity rates. Also at issue is whether FERC took an action that the courts can review.

The commission deadlocked in a 2-2 vote over whether it should review the rates set at auction, which made way for the rates to take effect starting in June 2017.

"This is a case with some very serious implications about what we see as structurally uncompetitive electricity markets and the ability of very, very sophisticated, savvy financial interests to exploit these poorly designed market constructs — and FERC’s duty to review all of these," said Tyson Slocum, director of Public Citizen’s energy program.

FERC has broadly defended its work, telling the D.C. Circuit that the agency has acted "diligently and responsibly" at all times to protect the public.

‘Fundamental issue’

Public Citizen, Connecticut Attorney General George Jepsen (D), the Connecticut Public Utilities Regulatory Authority and the Connecticut Office of Consumer Counsel are challenging the results of the February 2014 auction held by ISO New England, which administers the wholesale electricity market in the Northeast.

The auction is an annual event in which electricity generators and suppliers submit bids that reflect the price at which they are willing to supply capacity in the market. The 2014 auction covered capacity starting in 2017.

FERC approved ISO New England’s rules for the auction on the expectation that resulting rates would be just and reasonable. But Public Citizen says owners of Brayton Point Power Station in Massachusetts intentionally withheld the power plant’s capacity to manipulate the market.

"There was a lot of reason to think that was manipulation by one of the participants in the auction that concluded that it might stand to benefit more by pulling some of the power plants out than by participating," said Scott Nelson, an attorney at Public Citizen, which says New England consumers will end up paying for the higher rates.

The group filed a protest with FERC, but the rates went into effect when the commission deadlocked on taking any action. Public Citizen asked for a rehearing, but the commission denied the request on the grounds that it didn’t issue an order. Public Citizen and the state of Connecticut then filed a lawsuit in the D.C. Circuit.

Their court briefs argue that Section 205 of the Federal Power Act, which sets filing requirements to ensure auctions result in just and reasonable wholesale capacity rates, also obligates FERC to consider whether a rate itself is just and reasonable.

FERC defaulted on its duty under the law, the lawsuit argues.

Nelson, who will argue the case Tuesday for Public Citizen, acknowledged that his group is asking the D.C. Circuit to decide that "fundamental issue" in a "very odd context" — the 2-2 tie that occurred because of a vacancy in the five-member FERC commission.

"It’s almost like a law school hypothetical that somebody would come up with as a way of testing that proposition," Nelson said.

‘No reviewable action’

On Tuesday, attorneys for FERC will likely argue that the D.C. Circuit should throw out the case because the commission didn’t issue any orders that are reviewable by the courts thanks to the 2-2 tie. In other words, the courts cannot review a commission action that never occurred.

"There is nothing for this Court, on review, to review," FERC said in a brief. "There is no reviewable action, no reviewable agency order, and no reviewable record of decision-making. All that is available are individual Commissioner statements, revealing a deadlocked agency and different theories of the case."

Joel Eisen, professor at the University of Richmond School of Law, said a ruling in Public Citizen’s favor could open the door to a "wholesale reinterpretation" of which actions that FERC takes on filed rates or schedules are subject to judicial review.

"Every time the commission does not do something, that would be judicially reviewable," Eisen said.

If the D.C. Circuit rules in the favor of the plaintiffs on the issue of reviewability, "you would expect an extremely narrow ruling cabined strictly to the facts of this particular case," Eisen said.

Even if there were something to review, FERC argues that Section 205 of the Federal Power Act, under which Public Citizen and Connecticut brought their case, allows disputed rates to go into effect in the absence of majority-voted orders. Under the law, FERC has 60 days to decide whether to suspend the auction rates.

"That Act does not require Commission action, much less action by less than majority vote, or any particular type of action," FERC argues. "Rather, the Act leaves action to the agency’s discretion."

Public Citizen and Connecticut, FERC said in a court filing last year, should make their case to Congress, not the courts.

‘Misguided attack’

Electricity industry trade associations and power marketing companies, which are intervening in the case on behalf of FERC, have called the lawsuit a "misguided attack" on FERC’s discretion to employ market-based, rate-setting mechanisms.

They said Public Citizen and Connecticut should have turned to Section 206 of the act, which allows FERC to change a rate after receiving a complaint, rather than filing the lawsuit under Section 205.

But by challenging the filing of the rate under Section 205, Public Citizen and Connecticut aimed to halt the rate before taking effect, Eisen said. He expressed skepticism that the groups would win on the merits of the case.

"While Public Citizen v. FERC looks at the instant like a case that is about an individual filing and results of an individual capacity action," Eisen said, "if the D.C. Circuit were to rule in a specific direction, it could signal a massive reinterpretation of how Section 205 and Section 206 operate."

He added, "I do not believe that the court would use this particular litigation to achieve that result."