NRG Power Marketing, LLC v. Federal Energy Regulatory Commission
2017 WL 2883877, 2017 U.S. App. LEXIS 12137, 862 F.3d 108 (2017)
Rule of Law:
Section 205 of the Federal Power Act places the Federal Energy Regulatory Commission (FERC) in a passive and reactive role, permitting it to propose only minor modifications to a utility's proposed rate scheme, even with consent. FERC lacks authority under Section 205 to impose an entirely different rate design or new rate scheme of its own making.
Facts:
- PJM Interconnection (PJM), a Regional Transmission Organization, operates capacity auctions to set future wholesale electricity prices, using a 'clearing price' determined by generator bids.
- To prevent new generators (especially subsidized ones) from bidding below their actual costs and lowering the clearing price, PJM established a Minimum Offer Price Rule (MOPR) requiring new generators to bid at or above a price floor.
- Prior to 2012, the MOPR allowed a 'unit-specific review' exemption for generators proving lower costs and applied for a one-year 'mitigation period.'
- In 2012, an ad hoc group of PJM's stakeholders, believing the unit-specific review led to unfair price suppression, developed a proposal to reform the MOPR.
- This proposal, which garnered overwhelming stakeholder support, sought to replace unit-specific review with two new categorical exemptions (competitive entry and self-supply) and extend the MOPR's mitigation period from one year to three years.
- PJM filed this compromise proposal with the Federal Energy Regulatory Commission (FERC) under Section 205 of the Federal Power Act, requesting its approval as a package.
Procedural Posture:
- In December 2012, PJM Interconnection (PJM) filed a proposal with the Federal Energy Regulatory Commission (FERC) under Section 205 of the Federal Power Act.
- In May 2013, FERC concluded that parts of PJM’s proposal were not 'just and reasonable' and proposed several modifications to PJM’s filing.
- PJM agreed to FERC’s proposed modifications.
- Several electricity generators, including NRG Power Marketing, GenOn Energy Management, and PJM Power Providers, disagreed with FERC’s decision and requested rehearing.
- In October 2015, FERC denied the request for rehearing.
- NRG Power Marketing, GenOn Energy Management, and PJM Power Providers filed petitions for review of FERC’s May 2013 and October 2015 Orders with the U.S. Court of Appeals for the District of Columbia Circuit.
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Issue:
Does Section 205 of the Federal Power Act allow the Federal Energy Regulatory Commission (FERC) to propose modifications to a Regional Transmission Organization's (RTO) proposed rate scheme that result in an entirely different rate design than the RTO's original proposal or prior rate scheme, even if the RTO consents to the modifications?
Opinions:
Majority - Kavanaugh, Circuit Judge
No, Section 205 of the Federal Power Act does not allow the Federal Energy Regulatory Commission (FERC) to propose modifications to a Regional Transmission Organization's (RTO) proposed rate scheme that result in an entirely different rate design than the RTO's original proposal or prior rate scheme, even if the RTO consents to the modifications. The court affirmed that Section 205 limits FERC to a "passive and reactive role," allowing it to accept or reject proposed rate schemes, but not to unilaterally impose a new rate scheme of its own making without the proposing entity's consent. Citing City of Winnfield v. FERC, the court noted that FERC may suggest "minor" modifications if the utility consents. However, relying on Western Resources, Inc. v. FERC, the court clarified that Section 205 prohibits FERC from going "beyond approval or rejection" to "adoption of an entirely different rate design" or employing a "completely different strategy" that is "methodologically distinct." In this case, FERC's proposed modifications fundamentally altered PJM’s comprehensive proposal and its prior rate design. PJM's proposal aimed to narrow exemptions and extend the mitigation period to address price suppression, whereas FERC's modifications expanded exemptions by retaining unit-specific review alongside the new categorical exemptions and insisted on a one-year mitigation period. This action effectively "undid the compromise" between PJM's stakeholders and resulted in an "entirely new rate scheme" following a "completely different strategy." The court further held that PJM’s consent to FERC’s substantial modifications did not cure the Section 205 violation, as such broad changes deprive customers of the statutory protection of "early notice" of proposed rate changes and an adequate opportunity to comment, which was not afforded to PJM's stakeholders here.
Analysis:
This decision significantly clarifies the permissible scope of FERC's intervention under Section 205, reinforcing its limited, reactive role in reviewing rate filings. By strictly confining FERC to proposing only "minor" modifications and prohibiting "entirely different rate designs," the court limits FERC's ability to rewrite comprehensive rate proposals, even with the proposing entity's eventual consent. This case empowers RTOs and other regulated utilities by affirming their primary role in initiating rate changes and underscores the importance of stakeholder notice and comment. Future cases will likely scrutinize FERC's proposed changes more closely, demanding that they align with the original filing's strategic intent rather than substituting FERC's preferred policy.
