United States Court of Appeals, District of Columbia Circuit
November 19, 2018
Petition for Review of Orders of the Federal Energy
Matthew E. Price argued the cause for petitioner. With him on
the briefs was William K. Dreher.
J. Banta, Senior Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief was Robert H. Solomon, Solicitor. Ross R. Fulton,
Attorney, entered an appearance.
Before: Katsas, Circuit Judge, and Silberman and Williams,
Senior Circuit Judges.
Williams, Senior Circuit Judge.
very very few cases, the dispute between the parties vanishes
in the course of oral argument. This case may be a variation
of that pattern. Agency counsel seemed to contend that the
correct meaning of the challenged order was in conformity
with the meaning that petitioner ascribed to the controlling
statute. Because the parties' dispute may be illusory, we
remand the record to the agency to sort out what it really
* * *
Exelon, which owns a number of electric generation resources
in New England, challenges the adoption by the Federal Energy
Regulatory Commission of changes to the Transmission,
Markets, and Services Tariff ("Tariff") proposed by
the Independent System Operator for New England
("ISO-NE"), the non-profit entity overseeing
organized wholesale power markets in that region. The Tariff
governs the annual Forward Capacity Auction in which energy
suppliers contract to provide capacity three years in advance
as part of the Forward Capacity Market. FERC approved the
proposed tariff changes, subject to certain conditions.
ISO New England Inc., 155 FERC ¶ 61, 029 (Apr.
12, 2016) ("Final Order"). The Commission
then accepted ISO-NE's modified filing. 156 FERC ¶
61, 067 (Jul. 27, 2016). Exelon sought rehearing, which FERC
denied. ISO New England Inc., 161 FERC ¶ 61,
115 (Oct. 30, 2017) ("Rehearing Order").
Exelon now seeks our review.
proposed changes to its tariff sought to tackle the perceived
risk that suppliers might exercise market power through
improper use of ISO-NE's retirement options via
"physical" or "economic" withholding. In
the first case, a multi-plant generator prematurely withdraws
a unit from participation in the Forward Capacity Auction,
thereby dampening supply, driving up prices, and enjoying
higher returns from other plants. Though a physical
withholding, the retirement is "uneconomic" in the
sense that the unit would be expected to remain profitable if
it were not retired. See Final Order ¶ 7 n.8.
In "economic" withholding, the supplier has a unit
participate in the auction but sets an artificially high
retirement "bid" when it has reason to believe that
its capacity is needed for the market to clear, thereby
nudging up the clearing price. In that case, of course, the
unit would reap undue profits rather than retire. See
Prepared Testimony of Jeffrey D. McDonald on Behalf of ISO
New England Inc. (Dec. 17, 2015), Joint Appendix
("J.A.") 62-63. Each "bid" represents a
"price below which a supplier does not wish to provide
capacity from an existing resource[.]" Final
Order ¶ 2.
before the disputed orders a unit could retire under a
Non-Price Retirement Request without submitting a bid into
the auction, see Final Order ¶ 2, all units
wishing to retire must now submit such bids, see id.
¶¶ 6-7. Under the new rules, all retirement bids
are reviewed by ISO-NE's Internal Market Monitor.
Id. ¶ 7. The market monitor evaluates the
"appropriateness" of the proposed bid after
"consult[ing]" with the supplier as to the
"reasonableness" of "cost assumptions"
underlying its retirement bid. Id. If the monitor
determines that certain cost items are unsupported, and the
original bid exceeds the monitor's preferred price by
more than 10% (the "materiality threshold"), the
monitor will substitute a "mitigated bid" for the
supplier's original bid. Rehearing Order
¶¶ 8, 15. All bids are submitted to FERC by ISO-NE
in a filing under § 205 of the Federal Power Act, 16
U.S.C. § 824d. See Tariff § III.13.8.1(a), J.A. 40.
If FERC approves the mitigated bid, then that bid will stand
in-as a so-called "proxy bid"-for the capacity of
the retiring resource. If the market clears at or above the
proxy bid price, but below the supplier's original
bid-that is, above what the market monitor thinks reasonable,
but below what the supplier is willing to accept-the auction
is re-cleared to obtain the missing capacity from other
suppliers. See Rehearing Order ¶ 6.
supplier may acquiesce in the mitigated bid, though it must
do so before ISO-NE's § 205 filing-and, a
fortiori, before it knows the clearing price. See
Rehearing Order ¶¶ 5, 20. In that event,
presumably, the unit retires if the auction clears below the
the distinction between unconditional and conditional
retirement needs explaining. If the market monitor decides to
mitigate a bid, a supplier may opt to retire a unit no
matter what-that is-unconditionally. See Final
Order ¶ 61. If the owner of the unconditionally
retiring unit owns multiple units, the monitor must carry out
a "Portfolio Benefits Test" to assess whether
"the resource owner's portfolio, as a whole,
benefits from the retirement." Id. ¶ 8;
see Rehearing Order ¶ 5. If a portfolio benefit
exists, a proxy bid will be used, neutralizing the effects of
a possibly uneconomic retirement.
supplier knowing that a mitigated bid will be filed may
choose to retire the relevant unit conditionally-i.e.,
contingent on the auction clearing price. If a supplier
unsuccessfully protests a mitigated bid and a proxy bid is
entered into the auction, three possibilities arise. (1) If
the clearing price is below both the original bid
and mitigated bid, the unit retires. (2) If the clearing
price is at or above both bids, the supplier takes
on a capacity obligation. (3) If the ...