By Rich Heidorn Jr.

WASHINGTON — A public interest group and Connecticut officials asked a federal appellate court Tuesday to force FERC to rule on the legality of ISO-NE’s eighth Forward Capacity Auction, saying the commission abdicated its responsibility by refusing to take action.

In September 2014, the commission split 2-2 over whether it should reject the results from the RTO’s auction because of unchecked market power, allowing the 2017-18 auction results to become “effective by operation of law” (ER14-1409). Under the Federal Power Act, rates take effect 60 days after they are filed with FERC, absent a commission order to the contrary.

Commissioners Tony Clark and Norman Bay called for FERC to reject the auction results, but then-Chair Cheryl LaFleur and Commissioner Philip Moeller said the commission should seek only prospective changes in the auction rules. (See FERC Commissioners at Odds over ISO-NE Capacity Auction.)

Tuesday’s arguments before a three-judge panel of the D.C. Circuit Court of Appeals focused less on the auction itself than on whether the commission’s 2-2 deadlock constituted an “action” that should be subject to judicial review. FERC contends it was an exercise of the commission’s discretion and thus not subject to second-guessing (14-1244).

Remand Sought

Scott Nelson, attorney for plaintiff Public Citizen, said the court should remand the issue to FERC for consideration of whether the auction prices were just and reasonable, as he said is required by FPA Section 205 when a rate is challenged.

He cited a statement from LaFleur contending the commission lacked authority to review the auction results, an opinion FERC’s attorneys have not embraced. LaFleur said the ISO-NE Tariff is the “filed rate” and a review of the auction prices would violate commission precedent and subject auction participants to “regulatory uncertainty or after-the-fact ratemaking.”

“No one here actually defends that statement,” Nelson told the judges. “Here one of the determinative votes [on the auction results] rests on what is a clear error of law.”

The judges challenged Nelson’s arguments.

Judge Janice Rogers Brown told Nelson his reliance on a precedent involving the Federal Election Commission is “somewhat flawed” because the FEC’s enabling act explicitly allows judicial review of deadlocks. “Where is that in the Federal Power Act?” she asked.

FERC Solicitor Robert H. Solomon also challenged the FEC precedent. With equal numbers of Democratic and Republican appointees, Solomon said, the FEC is “designed to deadlock.” In contrast, FERC is split 3-2, with the majority representing the party in the White House.

Judge Sri Srinivasan pressed Nelson on his use of another precedent, Amador County v. Salazar, noting that the FPA allows challenges under Section 206 if the commission fails to act under Section 205.

No ‘Backstop’

“That [Section 206] remedy is not an adequate alternative,” Nelson responded, noting that while ISO-NE must prove that its rates are just and reasonable under Section 205, the burden of proof flips to the plaintiffs in Section 206. In its brief, Public Citizen noted that the D.C. Circuit has previously ruled that Section 206’s burden of proof is “practically insurmountable” for private parties challenging rates.

“206 can’t be a backstop for the agency’s failure to exercise its authority under 205,” Nelson said.

John S. Wright, an assistant Connecticut attorney general, also argued for a remand. Connecticut’s challenge to the FCA 8 results (14-1246) was consolidated with the Public Citizen complaint.

“FERC has a duty to act,” Wright said. “FERC knew the rates were subject to the exercise of market power.”

The auction saw total capacity costs for 2017/18 rise to $3.05 billion — almost double the previous high — as the region’s capacity shifted from an expected surplus to a deficiency of more than 1,000 MW. The shortfall was because of plant retirements, including that of the 1,488-MW Brayton Point station in Massachusetts.

Wright said ISO-NE erred in the auction by treating capacity importers as “new” supply and not subjecting their bids to review, unlike existing resources. New resources in the Maine, Connecticut and Rest of Pool capacity zones were paid $15/kW-month, while existing resources in those zones received an administrative price of $7.025/kW-month.

However, FERC said its Office of Enforcement investigated Brayton Point’s retirement and determined it was justified.

In addition to announcing their deadlock in September 2014, the commissioners voted unanimously to open a new docket (EL14-99) calling for a Section 206 proceeding over the RTO’s process for reviewing importers’ offers and mitigating their market power. The commission approved Tariff changes addressing those concerns in December 2014 (ER15-117). (See FERC OKs Tightened ISO-NE Screening on Capacity Imports.)

‘Non-Order’

FERC’s Solomon said there is nothing for the court to review because the “commission made no decision.”

Statements issued by LaFleur and the other three commissioners were not official orders and thus not reviewable, he said. “What matters is whether anything has been articulated by the agency as an institutional body.”

The commission’s notice, he said, was a “non-order.”

Srinivasan asked how often FERC has allowed rates to go into effect “by operation of law.”

“This is extremely rare, your honor,” Solomon responded, saying the commission has identified only six such instances in 80 years.

As evidence of the commission’s discretionary authority, Solomon quoted from subsections C, D and E of Section 205, which repeatedly use the word “may.”

Supporting FERC’s position Tuesday was Paul A. Mezzina, attorney for intervenor Electric Power Supply Association. Mezzina said that when market rules are followed, the results are “presumptively just and reasonable.”

Judge Brown pointed out that the settlement that led to the creation of ISO-NE’s capacity market says the commission “will” review the auction results.

But Mezzina said the settlement didn’t “take away any of the commission’s discretion to determine what the review consists of.” He said the commission has “broad discretion” and “no unequivocal obligation to act.”

FERC Chief of Staff Larry Gasteiger was among the FERC officials in the audience for the arguments. Also in attendance were representatives of some of the other intervenors supporting FERC: NRG Power Marketing, H.Q. Energy Services, Calpine, the New England Power Generators Association and the New England Power Pool Participants Committee.

Ruling

The FCA 8 rates will take effect June 1, 2017.

If the court rules that it has jurisdiction to review the commission’s inaction, it will have to decide whether the FPA allows a protested rate filing to go into effect when the commission cannot issue an order by majority vote.

Nelson said after the hearing he expected a ruling by March. Solomon said it could be as long as a year.

Were the issue to be remanded to FERC, Moeller, who left the commission last year, and Clark, who is stepping down this month, would have no role.

Following Clark’s departure, the commission will be short two members, with only LaFleur, Bay and Colette Honorable, who joined in January 2015.

Meanwhile, the capacity dispute has attracted the attention of the New England congressional delegation, which won House approval in March of a bill that would amend the FPA to allow court review of any inaction by the commission that allows a rate change to go into effect (HR 2984).

The Senate has not acted on the bill.