2013 Court Opinion Case Summaries

Nat’l Ass’n of Regulatory Util. Comm’rs v. DOE, No. 11-1066 (D.C. Cir. Nov. 19, 2013)

On November 19, 2013, the U.S. Court of Appeals for the District of Columbia Circuit (“DC Circuit” or “Court”) issued a unanimous decision that orders the Secretary of Energy to submit to Congress a proposal to change the Nuclear Waste Fund fee (currently one-tenth of one cent for each kilowatt hour generated and sold from nuclear power plants) paid by nuclear plant operators to zero until the Secretary conducts a legally adequate fee assessment pursuant to the Nuclear Waste Policy Act “or until Congress enacts an alternative waste management plan.”  The DC Circuit held that once again DOE failed to conduct a sufficient analysis to permit it to conclude that the annual fee imposed on power plant operators is adequate.

The decision follows the June 2012 DC Circuit finding that the Secretary of Energy’s annual fee evaluation under the Nuclear Waste Policy Act (“NWPA”) was legally inadequate.  The DC Circuit remanded to the Secretary to conduct an adequate evaluation, but it did not suspend fee collection.  In January 2013, the Secretary issued a new determination concluding that neither insufficient nor excess revenues are being collected to recover the federal government’s NWPA costs and not proposing any fee adjustment.  The National Association of Regulatory Utility Commissioners and the Nuclear Energy Institute, along with several individual utilities, moved to reopen the proceeding, arguing the new determination was fundamentally flawed and further fee collections should be suspended. 

In the November 19 opinion, the Court found a number of issues with the Secretary’s defenses of the nuclear waste fee at its current level.  It found that “the Department has again declined to reach the statutorily required determination.”  DOE failed to conduct a sufficient analysis to permit it to conclude that the annual fee imposed on power plant operators is adequate.   The Court denied the Secretary’s request to remand the decision for additional analysis if the Court concludes that “the Department’s latest position is contrary to law,” stating that “the Secretary’s position is so disingenuous that we have no confidence that another remand would serve any purpose.”

 

Dominion Transmission, Inc. v Summers, No. 13-1019 (D.C. Cir. Jul. 19, 2013)

In Dominion Transmission, Inc. v. Robert Summers, in his Official Capacity as Secretary of the Maryland Dept. of the Environment, No. 13-1019 (D.C. Cir. Jul. 19, 2013), the D.C. Circuit addressed an appeal brought by Dominion Transmission, Inc. (Dominion) asking the court to review the Maryland Department of the Environment’s (MDE) failure to act on an air quality permit necessary for Dominion to construct a natural gas compressor.  The appeal was brought under section 19(d)(2) of the Natural Gas Act (NGA), a provision added as part of the Energy Policy Act of 2005 to address concerns with agency delay in acting on permits required for facilities proposed under sections 3 or 7 of the NGA.  Agreeing with Dominion that MDE had failed to timely act on Dominion’s air quality permit application, the court remanded the case to MDE and directed MDE to adopt a schedule to ensure prompt action on Dominion’s application.

The Maryland air quality rules, which have been incorporated by reference into the Code of Federal Regulations under the procedures of the Clean Air Act, include a requirement that before issuing a permit a proposed project must meet all applicable zoning and land use requirements.  In this case, the Town of Myersville, faced with local opposition to the location of the compressor, denied Dominion’s zoning application on the grounds that the compressor station was contrary to the local development plan, endangered public health, and posed a nuisance.  In the meantime, the Federal Energy Regulatory Commission (FERC) had granted Dominion a certificate of public necessity under the Natural Gas Act (NGA) to construct the project, finding, in spite of comments from local interests critical of the proposed location, the site to be “appropriate.”  Notwithstanding FERC’s action, MDE continued to refuse to process Dominion’s application for an air quality permit because the local approval required by its regulations had not been obtained.

Dominion petitioned the U.S. Court of Appeals for the D.C. Circuit under Section 19(d)(2) of the NGA, which permits the direct appeal to the D.C. Circuit of a state administrative agency’s “failure to act . . . to issue, condition, or deny any permit required under Federal law” related to facilities subject to sections 3 or 7 of the NGA.  MDE argued in response that (a) the court lacked jurisdiction because MDE had not failed to act, but had taken numerous actions in concluding that Dominion’s air quality permit application was inadequate and (b) as an agency of the State of Maryland, the appeal was foreclosed by the Eleventh Amendment to the U.S. Constitution.

The court rejected both of the jurisdictional arguments asserted by MDE.  First, it found that the key consideration under the NGA was whether MDE had failed to act “to issue, condition, or deny” a permit.  Finding MDE had failed to act, the court concluded it had jurisdiction under section 19(d)(2) of the NGA to consider the lawfulness of the decision.  Second, because Dominion was seeking prospective relief, the court concluded that Dominion could proceed against MDE under a doctrine that permitted such prospective relief, without reaching the question of whether the Eleventh Amendment had been otherwise waived by MDE.

On the merits, the court concluded that because the FERC certificate would have preempted local law with which it conflicted, MDE should have acted to determine which local laws would be preempted and which would remain “applicable” to the compressor station.  Finding this to be a determination that in the first instance should be made by MDE, the court: (1) remanded the case to MDE for its further action; and (2) by separate order directed the parties to adopt a schedule for prompt action on the remand.

 

 

 

 

 

Black Oak Energy v. FERC

In Black Oak Energy, LLC, et al. v. FERC, Nos. 08-1386, et al. (D.C. Cir. Aug. 6, 2013), the D.C. Circuit affirmed in most respects FERC orders concerning PJM’s allocation of transmission line loss revenues among PJM wholesale market participants.  The court agreed with the Commission that PJM can allocate surplus dollars solely to PJM market participants that physically use the transmission system and serve load, and need not allocate surplus to virtual traders who do not use the transmission system and do not serve load.  The court also agreed with the Commission that virtual traders were on notice that they might not be entitled to dollars to the same extent as physical participants, but remanded to the extent that the Commission failed to explain sufficiently why earlier refunds must be recouped by PJM.

In one set of orders, financial marketers operating in the PJM energy market filed a complaint with the Commission arguing that they should be eligible to collect a share of PJM's line loss surplus to the same extent as PJM's physical transmission customers.  Noting that it had previously approved PJM's tariff allocating line loss over- collection only to those customers contributing to the fixed costs of PJM's transmission system, the Commission granted the complaint to the limited extent that financial marketers' transactions included such a contribution.  Black Oak Energy, LLC, et al. v. PJM Interconnection L.L.C., 122 FERC ¶ 61,2008, on reh'g 125 FERC ¶ 61,042 (2008).  The Commission subsequently ordered PJM to pay refunds to the financial marketers for the line loss credit they were due.  However, in a second set of orders, the Commission held that its initial requirement that PJM pay refunds to the financial marketers for erroneous line loss over-collection was incorrect, in view of its policy against awarding refunds for errors in rate design.  Black Oak Energy, LLC, et al. v. PJM Interconnection L.L.C., 136 FERC ¶ 61,040 (2011), reh'g denied, 139 FERC ¶ 61,111 (2012).

The court agreed with the Commission that its failure to require PJM to pay the line loss credit for all transactions by financial marketers did not unlawfully discriminate against them in favor of actual transmission customers.  There are legitimate reasons for the agency to treat the two classes of market participants differently.  Virtual marketers with purely a speculative, financial interest in markets play a very different role than load-serving entities.  In particular, the Commission’s decision to return PJM surpluses based on fixed cost contribution, rather than transaction volume, discourages potential market manipulation.  Slip op. 15-18.

The court also agreed that the Commission had legal authority to direct the virtual marketers to return to PJM $37 million in refunds that PJM earlier had made to them.  The virtual marketers had notice that the refund issue was alive throughout the proceeding and that the Commission might change its mind as to refunds.  Slip op. 19-22.  However, the court also found that the Commission failed to explain adequately whether its general refund policy applies to recoupment of refunds already made.  FERC lawfully can order PJM “to claw back money that has already been paid out” (slip op. 24), but it has to explain better the distinction between denying refunds and recouping them.  See slip op. 25 (orders not vacated; FERC can reach the same or a different result on remand).

Dominion Transmission, Inc. v Summers, No. 13-1019 (D.C. Cir. Jul. 19, 2013)

In Dominion Transmission, Inc. v. Robert Summers, in his Official Capacity as Secretary of the Maryland Dept. of the Environment, No. 13-1019 (D.C. Cir. Jul. 19, 2013), the D.C. Circuit addressed an appeal brought by Dominion Transmission, Inc. (Dominion) asking the court to review the Maryland Department of the Environment’s (MDE) failure to act on an air quality permit necessary for Dominion to construct a natural gas compressor. The appeal was brought under section 19(d)(2) of the Natural Gas Act (NGA), a provision added as part of the Energy Policy Act of 2005 to address concerns with agency delay in acting on permits required for facilities proposed under sections 3 or 7 of the NGA. Agreeing with Dominion that MDE had failed to timely act on Dominion’s air quality permit application, the court remanded the case to MDE and directed MDE to adopt a schedule to ensure prompt action on Dominion’s application.

The Maryland air quality rules, which have been incorporated by reference into the Code of Federal Regulations under the procedures of the Clean Air Act, include a requirement that before issuing a permit a proposed project must meet all applicable zoning and land use requirements. In this case, the Town of Myersville, faced with local opposition to the location of the compressor, denied Dominion’s zoning application on the grounds that the compressor station was contrary to the local development plan, endangered public health, and posed a nuisance. In the meantime, the Federal Energy Regulatory Commission (FERC) had granted Dominion a certificate of public necessity under the Natural Gas Act (NGA) to construct the project, finding, in spite of comments from local interests critical of the proposed location, the site to be “appropriate.” Notwithstanding FERC’s action, MDE continued to refuse to process Dominion’s application for an air quality permit because the local approval required by its regulations had not been obtained.

Dominion petitioned the U.S. Court of Appeals for the D.C. Circuit under Section 19(d)(2) of the NGA, which permits the direct appeal to the D.C. Circuit of a state administrative agency’s “failure to act . . . to issue, condition, or deny any permit required under Federal law” related to facilities subject to sections 3 or 7 of the NGA. MDE argued in response that (a) the court lacked jurisdiction because MDE had not failed to act, but had taken numerous actions in concluding that Dominion’s air quality permit application was inadequate and (b) as an agency of the State of Maryland, the appeal was foreclosed by the Eleventh Amendment to the U.S. Constitution.

The court rejected both of the jurisdictional arguments asserted by MDE. First, it found that the key consideration under the NGA was whether MDE had failed to act “to issue, condition, or deny” a permit. Finding MDE had failed to act, the court concluded it had jurisdiction under section 19(d)(2) of the NGA to consider the lawfulness of the decision. Second, because Dominion was seeking prospective relief, the court concluded that Dominion could proceed against MDE under a doctrine that permitted such prospective relief, without reaching the question of whether the Eleventh Amendment had been otherwise waived by MDE.

On the merits, the court concluded that because the FERC certificate would have preempted local law with which it conflicted, MDE should have acted to determine which local laws would be preempted and which would remain “applicable” to the compressor station. Finding this to be a determination that in the first instance should be made by MDE, the court: (1) remanded the case to MDE for its further action; and (2) by separate order directed the parties to adopt a schedule for prompt action on the remand.

 

Kourouma v. FERC, No. 11-1283 (D.C. Cir. July 23, 2013)

In a summary disposition, FERC ordered energy trader Moussa Kourouma to pay a $50,000 civil penalty over five years because he had made false statements and material omissions in forms he filed with FERC and with PJM Interconnection, L.L.C. (PJM). For the reasons explained below, the D.C. Circuit denied Kourouma's petition for review of the FERC order. (Slip op. at 2, 11)

The court found no merit in Kourouma's argument that he was entitled to an administrative hearing at FERC. The court has routinely recognized that an agency need not hold an administrative hearing when no material facts are in dispute. Because Kourouma's admissions in the FERC proceeding did not raise any material issue of fact, no hearing was necessary. (Slip op. at 5-6)

The court also found no merit in Kourouma’s argument that FERC erred because there was no showing that he had any intent to deceive FERC or PJM with his false filings. Intent to deceive is not an element of the rule that FERC found Kourouma had violated (18 C.F.R. § 35.41(b), also called Market Behavior Rule 3). Instead, the plain text of Market Behavior Rule 3 excuses false or misleading submissions only if they are made inadvertently despite the filer's due diligence to avoid such errors. Since Kourouma's actions were not inadvertent, FERC reasonably concluded that he violated the rule. (Slip op. at 6-7)

The court rejected Kourouma’s argument that, without a requirement of intent, Market Behavior Rule 3 fails to provide constitutionally adequate notice to regulated parties of what is forbidden and invites discriminatory enforcement. The rule’s clear terms provide sufficient notice to regulated parties of what conduct the rule prohibits, and those clear enforcement parameters prevent FERC from engaging in unconstitutionally discriminatory enforcement. (Slip op. at 7)

The court rejected Kourouma’s argument that he had no notice that FERC would read Market Behavior Rule 3 so broadly and might move against those who lacked intent to deceive FERC or regional transmission organizations like PJM. The plain language of the rule provides ample notice that FERC will enforce the rule without requiring intent, and FERC’s prior public statements regarding the rule confirm the point as well. (Slip op. at 7-8)

The court found no merit in three arguments made by Kourouma pursuant to the Administrative Procedure Act:

(1) Kourouma argued that FERC failed to follow its own summary disposition rule that evidence must be “viewed in light most favorable” to the non-moving party. But the summary disposition rule requires only that FERC draw all “reasonable” inferences in Kourouma's favor. It would not have been reasonable for FERC to draw the inference that Kourouma’s actions were inadvertent. (Slip op. at 9)

(2) At a late stage in the administrative process, Kourouma sought to introduce new evidence, and he argued before the court that FERC's decision to exclude it was an abuse of discretion. But FERC’s procedural rules prohibit a respondent from submitting an additional answer. It was no abuse of discretion for FERC to adhere to those procedural rules. (Slip op. at 9)

(3) Kourouma argued that FERC failed to support its imposition of a $50,000 penalty over five years with substantial evidence. But based on its judgment regarding the seriousness of Kourouma's violation - especially that, in FERC's judgment, Kourouma had “knowingly and deliberately” filed false information - and the mitigating factor of his financial position, FERC reasonably arrived at the decision to impose a $50,000 penalty, payable over five years. (Slip op. at 9-10)

Finally, the court rejected Kourouma's argument that FERC enhanced his penalty based on the goal of promoting general deterrence, in violation of court precedent. Clifton Power Corp. v. FERC, 88 F.3d. 1258, 1267 (D.C. Cir. 1996). In Clifton Power, while leaving the issue open, the court had questioned whether FERC could increase the dollar amount of a penalty recommended by an administrative law judge in order to deter other market participants. In the instant case, however, Kourouma made no showing that FERC increased his penalty to promote general deterrence. Instead, FERC only considered general deterrence when deciding whether to impose a monetary penalty, not when determining its amount. Thus, the court’s unresolved discussion of general deterrence in Clifton Power was found to be inapposite. (Slip op. at 10)

 

Illinois Commerce Commission v. FERC, Nos. 11-3421, et al. (7th Cir. June 7, 2013)

The proceeding in Illinois Commerce Commission v. FERC, Nos. 11-3421, et al.involves ten consolidated appeals of FERC orders that largely approved the filing by the Midwest Independent Transmission System Operator, Inc. (“MISO”) (now known as Midcontinent Independent System Operator, Inc.) and certain transmission owners in MISO (collectively, with MISO, the “Filing Parties”) to establish a regional cost allocation methodology for the recovery of so-called Multi-Value Projects (“MVPs”). Midwest Indep. Transmission Sys. Operator, Inc., 133 FERC ¶ 61,221 (2010), order on reh’g, 137 FERC ¶ 61,074 (2011) (“MVP Orders”). In its June 7 Order, the 7th Circuit denied the petitions for review on most issues, granted the petitions for review on the PJM Export Issue (defined below) and remanded that issue to FERC, and dismissed as premature the petitions for review concerning departing transmission owners.

MVPs are transmission facilities that meet minimum cost and voltage requirements and that have been approvedfollowing the MISO transmission expansion and planning process. In the MVP Orders, FERC generally approved the Filing Parties’ proposal to recover the costs of MVPs from all transmission customers on an energy-usage basis, including from transmission customers whose transactions sink outside of MISO. FERC rejected, however, the proposal to recover costs from transmission customers whose transactions sink in the PJM Interconnection, L.L.C. (“PJM”) regional transmission organization (“RTO”).

The Court’s decision divided the issues presented by the petitions for review in six broad areas: (1) Tenth Amendment Issues; (2) the proportionality of benefits to costs and the procedural adequacy of FERC’s treatment of proportionality; (3) the propriety of apportioning the MVP costs based of their total power consumption (MVP Usage Charge Issues); (4) the propriety of allocating no MVP costs to the plants that generate the power (Generator Cost Allocation Issues); (5) whether MISO should be permitted allocate costs on transactions that sink in PJM (PJM Export Issues); (6) whether MISO should be permitted to allocate some of MVP costs to transmission owners that depart from MISO (Departing TO Issues).

Tenth Amendment Issues:TheCourt rejected as “frivolous” the claims by state petitioners and other parties that approval of the MVP tariff mechanisms improperly invaded state prerogatives and violated the Tenth Amendment of U.S. Constitution. The Court stated that that while the MVP mechanisms might encourage states to permit utilities in their jurisdictions to incur MVP costs in order to receive the benefits of the MVP methodology, this does not amount to FERC impermissibly “conscripting a state government into federal service.” ICC v. FERC, slip op. at 8-9. The Court also found that FERC was not “ordering the states to build transmission lines that the federal government wants to use for its own purposes.” Id. at 9.

Proportionality and Procedure: The Court rejected contentions that the criteria for determining if a project is eligible to be treated as an MVP are too loose, and that all MISO members will be forced to contribute to the cost of projects that benefit only a few. The Court found that there was substantial evidence to support MISO’s contentions that MVPs offered significant regional benefits and that the petitioners had not offered any evidence of the costs and benefits of MVPs to show inadequate benefits. While the Court found that it is “impossible to allocate these cost savings [of MVPs] with any precision across MISO members,” if a crude match of costs and benefits “is all that is possible, it will have to suffice.” Id. at 12-13.

The Court also rejected arguments from a group of Michigan utilities and their state commission opposing the allocation of MVP costs to transmission customers in Michigan. The Court found one of the initial set of approved MVPs will enable more power to be transmitted to Michigan at lower costs, undercutting the Michigan petitioners’ assertions that they will receive little benefit from MVPs. Id. at 14-15. While the Michigan petitioners also argued that they should not be allocated MVP costs because of a state law which prohibits Michigan utilities from counting renewable energy generated outside the state for purposes of meeting the state-mandated renewable requirements, the Court rejected this argument on the basis that this restriction violated the Commerce Clause. Id.

With respect to the procedural issues, the Court rejected assertions that FERC erred in not setting the MVP issues for an oral hearing, stating FERC is not required to hold an oral hearing if it can adequately resolve factual disputes on the basis of written submissions. Id. at 15. The Court added that given the highly technical issues presented, the expertise of FERC’s members and its Staff, and petitioners’ access to the data presented by MISO, requiring an oral hearing at this time would amount to “gratuitous delay.” Id. at 16. The Court also stated that membership in RTOs is voluntary, and that MISO members who feel that they are being unfairly assigned MVP costs are free to leave MISO. Id. at 16-17.

MVP Usage Charge Issues:The Court upheld FERC’s approval of the usage-based MVP charge instead of a charge based on peak demand. The Court held that MVPs are intended to increase the supply of wind-powered energy, the availability of which varies by the amount of wind rather than demand. Id. at 18-19. The Court also found that FERC was “entitled to conclude that the benefits of more and cheaper wind power predominate over the benefits of greater reliability brought about by improvement in meeting peak demand.” Id. at 19.

Generator Cost Allocation Issues: The Court rejected claims that FERC erred by failing to allocate a portion of the MVP costs to generators, finding that MVPs will lead to more efficient siting of wind generators, and the utilities that purchase wind energy from these generators will benefit from less expensive energy. Id. at 19-20.

PJM Export Issues: In the MVP Orders, FERC rejected the Filing Parties’ proposal to require transmission customers exporting power from MISO to PJM to pay portion of the MVP costs, based on its prior orders eliminating rate pancaking (i.e., the imposition of multiple transmission charges) for transactions between the two RTOs. The Court noted that the irregular seams between PJM and MISO that were part of the basis for the anti-pancaking orders had been resolved, and that unlike MVPs, which provide regional benefits, the facilities at issue at the time the anti-pancaking orders were issued were local facilities. Id. at 22-24. The Court also noted that FERC had expressly found that MVPs “benefit all users of the integrated transmission system,” which justified requiring transmission customers exporting power to PJM to pay a share of the MVP cost. Id. at 24 (quoting Midwest Indep. Transmission Sys. Operator, Inc., 133 FERC ¶ 61,221, P 439). Finding that is the orders were “arbitrary in continuing to prohibit MISO from charging anything for exports of energy to PJM enabled by the multi-value projects while permitting it to charge for exports of energy to all the other RTOs,” the Court remanded this aspect of the MVP Orders to FERC for further analysis. Id. at 24, 26.

Departing TO Issues:The Filing Parties had sought authority to allocate a portion of the MVP costs to FirstEnergy Services Company (“FirstEnergy”) and Duke Energy Ohio, Inc. and Duke Energy Kentucky, Inc. (“Duke”), two transmission owners within MISO that had provided notice of their intent to withdraw from MISO as transmission owners prior to the effective date of the MVP filing. The Departing TOs petitioned for review of the MVP Orders’ statement that they would be assigned MVP costs. The Court held that while FERC ruled that the allocation of costs to departing utilities was appropriate in principle, FERC had “reserved” issues of FirstEnergy and Duke’s liability to a separate proceeding. Id. at 25. The Court accordingly dismissed the petitions for review of this aspect of MVP Orders as premature. Id. at 25-26.

While the Court’s decision refers to FirstEnergy, the name of the FirstEnergy subsidiary that was a transmission owner in MISO is American Transmission Systems, Inc.

In Re: Western States Wholesale Natural Gas Antitrust Litigation, No. 11-16786 (Ninth Circuit, April 10, 2013)
http://cdn.ca9.uscourts.gov/mwg-internal/de5fs23hu73ds/progress?id=wanInrYJnt

The Unites States Court of Appeals for the Ninth Circuit reversed a district court ruling granting summary judgment for defendants in consolidated lawsuits over alleged market manipulation of gas prices during the energy crisis of 2000 - 2002. The Ninth Circuit held that, contrary to the district court’s ruling, federal preemption doctrines do not preclude state law antitrust claims arising out of transactions not subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) under the Natural Gas Act (NGA).

The consolidated lawsuits involved alleged manipulation of published gas industry price indices through misreporting of the data to the publishers. The plaintiffs contended that this misreporting distorted the indices, which in turn affected actual gas sales and purchase prices.

In an earlier opinion involving some of the same transactions at issue in Western States, the Ninth Circuit held that the filed-rate doctrine did not bar state or federal antitrust claims arising out of manipulation of the price indices because the challenged price indices were compiled using transactions outside of FERC’s jurisdiction as well as transactions within FERC’s jurisdiction. E. & J. Gallo Winery v. Encana Corp., 503 F.3d 1027, 1048 (9th Cir. 2007).

In Western States, the district court below found that “any” manipulation of prices indices necessarily falls within FERC’s exclusive jurisdiction, because NGA section 5(a) grants the FERC jurisdiction over “any practice” affecting jurisdictional rates. The Ninth Circuit rejected this reasoning, holding that section 5(a) does not preempt state antitrust claims associated with transactions falling outside of FERC’s jurisdiction. Congressional intent, the “touchstone” of any pre-emption analysis, reflected an intent to “delineate carefully the scope of federal jurisdiction through the express jurisdictional provisions of [s]ection 1(b) of the Act.” Slip op. at 24-25.

The Ninth Circuit further ruled that the district court did not abuse its discretion in denying either of the two motions for leave to amend complaints, holding that the plaintiff’s failed to demonstrate good cause for their delay in seeking the amendments. Slip op. at 38. The Ninth Circuit further held that the plaintiffs alleged sufficient facts to establish personal jurisdiction over the defendants, on the theory that the defendants “purposefully directed” their anticompetitive conduct at the forum state. Slip op. at 56.

 

Hunter v. FERC, No. 11-1477 (D.C. Cir. Mar. 15, 2013)
http://www.cadc.uscourts.gov/internet/opinions.nsf/99CC9904B30AC2CB85257B2F004DEA04/$file/11-1477-1425550.pdf

In Hunter v. FERC, No. 11-1477 (D.C. Cir. Mar. 15, 2013), the D.C. Circuit granted the petition for review filed by Brian Hunter and rejected the Federal Energy Regulatory Commission’s (FERC) decision fining him $30 million for manipulating natural gas futures contracts. The court found that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over transactions involving commodity futures, and thus the FERC lacked authority to fine Hunter.

Hunter, an employee of Amaranth, traded natural gas futures contracts on the New York Mercantile Exchange (NYMEX), a CFTC-regulated exchange. Hunter sold a significant number of natural gas futures contracts during the February through April 2006 settlement periods. On July 25, 2007, the CFTC instituted an enforcement action alleging that Hunter had violated the Commodities Exchange Act (CEA) by manipulating the price of natural gas futures contracts. The next day, the FERC also instituted an enforcement action alleging that Hunter had violated section 4A of the Natural Gas Act (NGA), 15 U.S.C. § 717c-1, which prohibits manipulation. The FERC eventually found that Hunter had violated NGA section 4A and assessed a $30 million civil penalty. Brian Hunter, 135 F.E.R.C. ¶ 61,054, reh’g denied, 137 F.E.R.C. ¶ 61,146 (2011). Hunter filed a petition for review, asserting that the FERC lacked jurisdiction to pursue an enforcement action. The CFTC intervened in support of Hunter on this issue.

The court stated that CEA section 2(a)(1)(A), 7 U.S.C. § 2(a)(1)(A), provides the CFTC with exclusive jurisdiction over agreements and transactions involving contracts for the sale of a commodity for future delivery, including transactions on exchanges such as NYMEX. Hunter v. FERC, slip op. at 5, 7. While the FERC claimed it has an enforcement role where manipulation in futures markets affects the physical markets it regulates, the court rejected these arguments, stating that accepting this assertion “would eviscerate the CFTC’s exclusive jurisdiction over commodity futures contracts.” Id. at 8. The court also rejected the FERC’s arguments that the Energy Policy Act of 2005 (EPAct 2005) repealed by implication the CFTC’s exclusive jurisdiction under CEA section 2(a)(1)(A), stating that repeals by implication are disfavored and will not be found unless there is a “clear and manifest” indication of the intent to repeal. Hunter v. FERC, slip op. at 10. While EPAct 2005 contained a provision requiring the CFTC and FERC to enter into a memorandum of understanding concerning information sharing, this was not enough to show that EPAct 2005 was intended to repeal CEA section 2(a)(1)(A). Id. at 10. The court found that there was also no contradiction between CEA section 2(a)(1)(A) and NGA section 4A that merited a finding that EPAct 2005 was intended to repeal CEA section 2(a)(1)(A). Id. at 11-12.

 

New England Power Generators Ass’n, Inc. v. FERC, No. 11-1422 (D.C. Cir. Feb. 15, 2013)

In New England Power Generators Association, Inc. v. FERC, No. 11-1422 (D.C. Cir. Feb. 15, 2013), the D.C. Circuit affirmed the Federal Energy Regulatory Commission’s (FERC) approval of a settlement provision requiring application of the Mobile-Sierra public interest mode of review to any challenge to rates produced by the forward electric capacity auctions in ISO New England, Inc. (ISO-NE). The decision was the latest chapter in a controversy that had already produced two previous D.C. Circuit opinions and one U.S. Supreme Court decision. See Maine Pub. Utilities Comm’n v. FERC, 520 F.3d 464 (D.C. Cir. 2008), rev’d, NRG Power Mktg, LLC v. Maine Pub. Utilities Comm’n, 130 S. Ct. 693 (2010), on remand, Maine Pub. Utilities Comm’n v. FERC, 625 F.3d 754 (D.C. Cir. 2010) (MPUC II).

On remand from the D.C. Circuit’s MPUC II decision, the FERC concluded that it was not required to accept a settlement provision adopting Mobile-Sierra public interest review for challenges to rates established by the ISO-NE forward electric capacity auction mechanism because the auction rates were not contract rates to which a presumption of justness and reasonableness applies under the Mobile-Sierra Doctrine. The FERC nonetheless approved the settlement’s adoption of the Mobile-Sierra public interest mode of review for challenges to the auction rates, finding that accepting the provision was within its discretion in applying the Federal Power Act’s (FPA) just and reasonable standard. Two sets of petitioners challenged this decision. The New England Power Generators Association, Inc. (NEPGA), although agreeing with the FERC’s approval of Mobile-Sierra public interest review for the auction rates, objected to the FERC’s conclusion that the auction rates were not contract rates to which the FERC was required to apply the public interest mode of review in future challenges. On the other hand, several state agencies (State Petitioners), while endorsing the FERC’s finding that the auction rates were not contract rates, objected to FERC’s decision to approve use of the Mobile-Sierra public interest standard notwithstanding this finding.

The court dismissed NEPGA’s petition for lack of standing, concluding that NEPGA had not established that it was injured by the FERC’s order given that “its desired outcome - application of Mobile-Sierra’s public interest standard - has already been achieved.” Slip op. at 8. The fact that NEPGA was dissatisfied with the FERC’s reasoning in reaching the desired result, the court explained, did not establish standing “for neither a FERC decision’s legal reasoning nor the precedential effect of such reasoning confers standing unless the substance of the decision itself gives rise to an injury in fact.” Id. (citing Wisconsin Pub. Power Inc. v. FERC, 493 F.3d 239, 268 (D.C. Cir. 2007)). The court considered and rejected several NEGPA arguments as to why the organization allegedly had standing. A potential increase in capital costs as a result of uncertainty fostered by the FERC ruling did not establish standing, the court concluded, because, “broad-based market effects stemming from regulatory uncertainty are quintessentially conjectural.” Id. Nor did the FERC’s decision necessarily interfere with the ability of the parties to sue on the forward capacity supply contracts, as the finding that the forward capacity market auction rates are not contract rates for Mobile-Sierra purposes “does not, of its own force, foreclose any contract or bankruptcy claim NEPGA’s members may one day choose to bring.” Id. at 10.

Turning to the objections of the State Petitioners, the court rejected the argument that the FERC exceeded its authority by approving a Mobile-Sierra public interest standard of review for challenges to the auction rates notwithstanding the FERC’s finding that they were not contract rates. The court observed that the State Petitioners’ argument “boils down to a single misconception: because the existence of a contract rate mandates application of the Mobile-Sierra presumption, the absence of a contract rate precludes it.” Id. at 11. Recognizing that the Mobile-Sierra public interest standard of review “is an instance of (rather than an exception to) the FPA’s just and reasonable standard,” id. at 11 (citing Morgan Stanley Capital Group, Inc. v. Public Util. Dist. No. 1 of Snohomish County, 554 U.S. 527, 545 (2008)), the court found that the FERC had not exceeded the “considerable discretion” it possesses in applying the just and reasonable standard by approving a heightened mode of review for the auction rates. Id. at 11-12.

 

 

American Petroleum Institute v. Environmental Protection Agency, No. 12-1139 (D.C. Cir. Jan. 25, 2013)
http://www.cadc.uscourts.gov/internet/opinions.nsf/A57AB46B228054BD85257AFE00556B45/$file/12-1139-1417101.pdf

In American Petroleum Institute v. Environmental Protection Agency, No. 12-1139 (D.C. Cir. Jan. 25, 2013), the D.C. Circuit affirmed, in part, and remanded and vacated, in part, an Environmental Protection Agency (EPA) rulemaking setting the renewable fuel standards for 2012. Final Rulemaking, Environmental Protection Agency, Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards, 77 Fed. Reg. 1,320 (Jan. 9, 2012) (to be codified at 40 CFR Part 80).

The Clean Air Act, as amended by the Energy Policy Act of 2005, Pub. L. No. 109-58 and the Energy Independence and Security Act of 2007, Pub. L. No. 110-140 (Act), specifies annual minimum volumes (applicable volumes) of renewable fuel that refiners, importers, and blenders must purchase, subject to fines for non-compliance. API, No. 12-1139, slip op. at 2 (Jan. 25, 2013) (citing 42 U.S.C. § 7545(o)(2)). Renewable fuels include a subclass of advanced biofuels, which in turn include cellulosic biofuel. Id. Each year an increasing amount of advanced biofuels fuels must derive from cellulosic biofuel. Id. at 3.

The Act requires the EPA annually to project cellulosic biofuel production, in recognition of the emerging nature of the technology. Id. at 3. When the production projection falls short of the applicable volume, the EPA must reduce the applicable volume to the projected volume. Id. The EPA may also reduce the applicable volume of renewable and advanced biofuels for that year. Id.

In the rulemaking on review, the EPA projected cellulosic biofuel production of 8.65 million gallons, and reduced the applicable volume (500 million gallons) accordingly. Id. at 4. The EPA declined, however, to reduce the applicable volume of total advanced biofuel, reasoning that other fuels would make up the shortfall. Id.

The court rejected the EPA’s 2012 cellulosic biofuel production projection, finding that the EPA placed inappropriate reliance on the Act’s undisputed purpose to increase renewable fuel production. Id. at 9. “[T]hat general mandate does not mean that every constituitive element of the . . . program should be understood to individually advance a technology-forcing agenda, at least where the text [of the Act] does not support such a reading.” Id. The court found that the Act does not authorize the EPA to “let its aspirations for a self-fulfilling prophecy divert it from a neutral methodology.” Id. at 10. The court distinguished other “technology-forcing” regulations, noting the “asymmetry in incentives” here, where producers control industry growth, but the Act subjects purchasers to potential fines. Id. at 12.

Setting aside this error, the court found the EPA’s projection appropriately “based on” an Energy Information Administration (EIA) estimate, as required by the Act. Id. at 7-9. “Congress didn’t contemplate slavish adherence by EPA to the EIA estimate.” Id. at 8. And the EPA did not inappropriately rely upon producer projections, since producers were “an almost inevitable source of information” and “a principal source of EIA’s estimates.” Id. at 9.

Finally, the court affirmed the EPA’s exercise of its discretion not to reduce the applicable volume of renewable fuel and advanced biofuel, notwithstanding the projected shortfall of cellulosic biofuel production. Id. 13-14. The EPA offered a rational basis for its decision, and, in the absence of a statutory mandate to the contrary, “rationality does not always imply a high degree of quantitative specificity.” Id. at 13.

 

TC Ravenswood, LLC v. FERC, No. 11-1258 (D.C. Cir. Jan. 22, 2013)
http://www.cadc.uscourts.gov/internet/opinions.nsf/AF264D26ABD817ED85257AFB00554279/$file/11-1258-1416385.pdf

In TC Ravenswood, LLC v. FERC, No. 11-1258 (D.C. Cir. Jan. 22, 2013), the D.C. Circuit denied the petition of TC Ravenswood, LLC (“Ravenswood”) for review of the Federal Energy Regulatory Commission’s (FERC) order approving tariff amendments proposed by New York Independent System Operator, Inc. (NYISO) to implement supply-side market power mitigation in the NYISO energy and capacity markets. In its order, N.Y. Indep. Sys. Operator, Inc., 133 F.E.R.C. ¶ 61,030 (2010), reh’g denied, 135 F.E.R.C. ¶ 61,157 (2011), the FERC approved measures which would reduce the level of compensation paid to reliability generators in Upstate New York when circumstances indicated that the generators had exercised market power in making their bids. Ravenswood, slip op. at 3. NYISO did not propose measures to mitigate either buyer-side market power or uneconomic market entry by subsidized generation, such as wind power. While considering NYISO’s proposal, the FERC rejected arguments from Ravenswood that it should require NYISO to implement such additional types of mitigation measures. Id. at 4.

In a protracted discussion of threshold issues, the court rejected the FERC’s arguments that Ravenswood lacked standing because the challenged order applied only to generators in Upstate New York, not to generators such as Ravenswood, which is located in New York City. The court explained that Ravenswood’s injury arose “not from what the [FERC] did but from what it refused to do.” Id. at 5. The court also noted that Ravenswood occasionally makes sales of capacity into Upstate New York and could therefore be effected by the new rules. Id. at 6. Finally, the court held that the existence of a stakeholder process addressing buyer-side market power mitigation did not eliminate Ravenwood’s standing, because delay in implementing the mitigation is sought is itself a cognizable harm. Id. at 7.

The court then rejected Ravenswood’s argument that the FERC improperly approved supply-side market power mitigation “without any counterbalancing buyer-side mitigation measures.” Id. at 8. The court stated that the commission may not abuse its discretion in determining how best to address related issues by “slic[ing] and dic[ing] issues to the prejudice of a party,” but held that the FERC had not acted improperly in its market power mitigation order. The court held that Ravenswood had “exaggerate[d] the integrated character of the two issues” because, while supply-side and buyer-side exercises of market power “both involve distortion of competitive results,” they are “different brands of distortion.” Id. at 9.

Finally, the court rejected Ravenswood’s argument that the FERC failed to “provide for a comprehensive market design.” Id. at 8, 10. The court observed that the FERC has pursued an iterative process to address the complexities posed by regional integration of the electricity industry and noted that the court had explicitly condoned this iterative approach in at least one prior case. Id. at 10 (citing TC Ravenswood v. FERC, 331 F. App’x 8 (D.C. Cir. 2009)). The court held that the FERC had again properly engaged in an iterative process of addressing market problems: it had first considered NYISO’s proposal to apply mitigation measures to specific generators, then addressed NYISO’s more generally-applicable mitigation proposal. Furthermore, the court observed that buyer-side market power mitigation is currently being considered as part of a stakeholder process and that the FERC can therefore be expected to address it in due course. The court held that, while delay is expensive, “it would take a fare clearer case than this to justify . . . disrupting the pattern created by the [FERC’s] choices over how to sequence its consideration of issues.” Id. at 10.