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NRG Power Marketing, LLC v. Federal Energy Regulatory Commission

United States Court of Appeals, District of Columbia Circuit

July 7, 2017

NRG Power Marketing, LLC, and GenOn Energy Management, LLC, Petitioners
v.
Federal Energy Regulatory Commission, Respondent PSEG Energy Resources & Trade LLC, et al., Intervenors

          Argued May 12, 2017

         On Petitions for Review of Orders of the Federal Energy Regulatory Commission

          John Lee Shepherd, Jr. argued the cause for petitioners. With him on the briefs were John N. Estes III, Paul F. Wight, Jeffrey A. Lamken, Abraham Silverman, and Cortney Madea.

          Carol J. Banta, Senior Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief was Robert H. Solomon, Solicitor.

          Paul M. Flynn argued the cause for intervenors. With him on the brief were Ryan J. Collins, Jennifer H. Tribulski, Gary J. Newell, Larry F. Eisenstat, Richard Lehfeldt, Delia D. Patterson, Randolph Elliott, Paul M. Breakman, Scott H. Strauss, Jeffrey A. Schwarz, Stefanie Brand, Stuart A. Caplan, Richard M. Zuckerman, Christopher S. Porrino, Attorney General, Office of the Attorney General for the State of New Jersey, Carolyn McIntosh, Deputy Attorney General, Robert A. Weishaar, Jr., and Adrienne E. Clair. Dennis Lane entered an appearance.

          Before Brown and Kavanaugh, Circuit Judges, and Sentelle, Senior Circuit Judge.

          OPINION

          KAVANAUGH CIRCUIT JUDGE.

         Regional Transmission Organizations are non-profit entities that oversee the transmission of electricity from generators to utilities. Under Section 205 of the Federal Power Act and FERC's regulations, Regional Transmission Organizations file their proposed rate schemes with FERC. 16 U.S.C. § 824d(c); 18 C.F.R. § 35.34(j)(1)(iii). Section 205 allows FERC to suggest "minor" modifications to a proposal made by a Regional Transmission Organization. Western Resources, Inc. v. FERC, 9 F.3d 1568, 1579 (D.C. Cir. 1993). Here, we must determine whether Section 205 allows FERC to suggest modifications that are more than "minor" and, if not, whether FERC violated that limitation on its authority.

         PJM Interconnection is a Regional Transmission Organization. In this case, acting under Section 205, PJM filed with FERC a package of proposed changes to PJM's rate structure. But FERC did not accept PJM's proposal because FERC concluded that the proposal as it stood was not just and reasonable. See 16 U.S.C. § 824d(a). FERC then suggested modifications to the proposal that would, in FERC's view, make the proposal just and reasonable. FERC's modifications created a new rate scheme that was significantly different from PJM's proposal and from PJM's prior rate design. PJM nonetheless accepted FERC's modifications.

         Several electricity generators - NRG Power Marketing, GenOn Energy Management, and PJM Power Providers - have petitioned for review of FERC's decision. They argue that FERC's proposed modifications exceeded the agency's authority under Section 205 of the Federal Power Act.

         We agree. Section 205 does not allow FERC to make modifications to a proposal that transform the proposal into an entirely new rate of FERC's own making. Here, FERC contravened that limitation on its Section 205 authority. We therefore grant the petitions for review and vacate FERC's Orders with respect to several aspects of PJM's proposed rate structure - the self-supply exemption, the competitive entry exemption, unit-specific review, and the mitigation period. We remand the matter to FERC.

         I

         A

         There are three key players in modern wholesale electricity markets: (i) the electricity generators that produce electricity; (ii) the companies and utilities, known as Load Serving Entities, that deliver electricity to retail customers; and (iii) the non-profit organizations, known as Regional Transmission Organizations, that manage the transmission of electricity from generators to Load Serving Entities. In modern wholesale electricity markets, generators sell electricity, and Load Serving Entities buy that electricity. Regional Transmission Organizations often set the rates that generators charge and that Load Serving Entities pay.

         There are seven Regional Transmission Organizations across the country. The largest of the seven is PJM Interconnection. PJM administers the power grid in parts of 13 Mid-Atlantic and Midwestern states and the District of Columbia.

         PJM helps set the price of wholesale electricity by conducting competitive auctions. As relevant here, PJM runs "capacity auctions" to set the price of wholesale electricity three years into the future. The goal of the capacity auctions is to ensure an adequate long-term supply of electricity.

         Here is how PJM's capacity auctions work: PJM estimates the demand for electricity three years into the future, and electricity generators estimate their capacity for producing electricity three years into the future. Generators then make bids to sell their future capacity to PJM. Starting with the lowest bid, PJM accepts bids until it has purchased enough capacity to meet its estimate of future demand. The highest accepted bid sets the "clearing price" in the capacity market. The clearing price is the price that generators receive from PJM when their bids are accepted by PJM. Generators are paid the clearing price regardless ...


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