The Third Circuit kicked off the month of December with an order affirming a market rule that better accommodates state clean energy goals.
The decision affirms the Federal Energy Regulatory Commission’s (FERC) acceptance of a revised auction offer floor rule (called the minimum offer price rule or “MOPR”). As this previous blog post explains, “a MOPR sets an offer floor, requiring bids from certain resources to be at or above the floor.” An earlier version of the MOPR had required resources that received additional funding from certain sources, such as state programs, to bid in at a higher cost – resulting in higher costs for consumers and additional payments to fossil fuel fired generators.
In addition to being a win for states that prefer certain generation types, the opinion is a gift to energy and administrative lawyers, since it applies a relatively new provision of the Federal Power Act, section 205(g), that allows for judicial review of a filing that takes effect by operation of law when FERC fails to act. In this case, a four-member FERC was split 2-2 on the focused MOPR, so it took effect by operation of law. As required by section 205(g), added to the Federal Power Act in 2018, each Commissioner put a statement in the record explaining how they would have ruled on the new, focused MOPR.
The decision contains three significant holdings:
First, the Third Circuit determined that both the generator petitioners and the state entity petitioners (the Pennsylvania and Ohio public service commissions) had standing to bring the challenge. The court pointed to the generators’ allegation of economic losses as a concrete and particularized injury traceable to the focused MOPR. The court found that the state commissions met their burden for standing in demonstrating that they represent citizens and ratepayers in utility regulation, citing Maryland People’s Counsel v. FERC.
Second, the court moved to what the standard of review is for when a rule change goes into effect by operation of law. Interpreting section 205(g) of the Federal Power Act, the court determined that its standard of review was the same standard that would apply to a traditional FERC order accepting a filing under the Federal Power Act and the Administrative Procedure Act:
In short, we affirm FERC orders as long as the administrative record shows the Commission “examined the relevant data and articulated a rational connection between the facts found and the choice made.” FERC urges, and we agree, that § 205(g) did not alter these familiar standards.
The court specifically declined to review de novo.
But absent an agency order in the traditional sense, how is the court to discern the agency’s reasoning to make sure it was principled and based upon the record? The court took FERC’s invitation to engage with the Commissioner statements put into the record under section 205(g), stating: “Here, the statements of the deadlocked Commissioners do more than record each person’s individual rationale for affirming or rejecting the rate filing. Collectively, they illuminate the agency’s reasons for inaction, which Congress has instructed us to construe as an affirmative order.” The court looked at the statements of the commissioners who would have approved of the filing to ask whether those statements were “reasoned, principled, and based upon the record.”
Third, the court turned to the merits and found that the decision of the two approving Commissioners was not arbitrary and capricious and was supported by substantial evidence in the record, noting that these two Commissioners went through the benefits of and counter arguments to the focused MOPR in their 86-page joint statement. The court also found that they had sufficiently explained the change in FERC’s approach to the issue. Additionally, the court concluded that the Federal Power Act “unambiguously authorizes the agency to take state policies into account to the extent that such policies affect its statutorily prescribed area of focus: the justness and reasonableness of wholesale rates.”
This decision affirms PJM’s course in moving away from using a MOPR to disadvantage renewable energy (as other regional market operators have also decided). And it provides an important roadmap for reviewing FERC’s acceptance of a filing by operation of law, a scenario that could repeat itself when FERC does not have a quorum of voting members or when FERC only has four members and cannot get past a 2-2 split.