United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 12, 2017 Decided July 7, 2017

No. 15-1452

NRG POWER MARKETING, LLC, AND GENON ENERGY 

MANAGEMENT, LLC,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

PSEG ENERGY RESOURCES & TRADE LLC, ET AL.,

INTERVENORS

Consolidated with 15-1454

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.
2

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 for the Court filed by Circuit Judge KAVANAUGH.

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 
3

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 
4

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 of the rates listed in their initial bids. 

The clearing price is also the price that Load Serving Entities 

must pay in order to purchase electricity from PJM.

For example, imagine that four electricity generators each 

bid to sell 10 units of capacity to PJM. The four generators 

respectively bid at $100 per unit, $110 per unit, $120 per unit, 

and $130 per unit. If PJM projects that it will need 25 units of 

electricity three years from now, it will purchase 10 units of 
5

capacity at $100 per unit, 10 units at $110 per unit, and 5 units 

at $120 per unit. The “clearing price” in the market is set by 

the highest accepted bid – $120 per unit. The three electricity 

generators that had their bids accepted in the auction will all

receive $120 per unit from PJM. Load Serving Entities will 

pay PJM $120 per unit to purchase electricity. 

The clearing price plays an important role in ensuring that 

there will be an adequate supply of electricity in the future. 

When the clearing price is high, new generators have an 

incentive to enter the market because they will be paid more to 

generate electricity. As a result, the supply of electricity will 

increase in the long run. However, when the clearing price is 

low, new generators are less likely to enter the market. That is 

because the clearing price may not fully cover the cost of 

generating electricity. For that same reason, a low clearing 

price also may cause existing high-cost generators to shut 

down. That means that the supply of electricity will decrease 

in the long run. See Hughes v. Talen Energy Marketing, LLC, 

136 S. Ct. 1288, 1293, slip op. at 4 (2016). 

As FERC has explained, if every generator’s bid reflected 

the actual cost of generating electricity, the capacity auction 

would be expected to set the clearing price at the appropriate 

level to encourage the entry of new generators into the market. 

See PJM Interconnection, L.L.C., 137 FERC ¶ 61,145, at ¶ 25

(2011). The problem is that some generators have incentives 

to bid below the actual cost of generating electricity. For 

example, generators that receive state subsidies do not bear the

entire cost of generation. As a result, they may bid into the 

capacity auction at a rate that reflects only a portion of the 

actual cost of generating electricity. In other words, the 

generator is able to make a below-cost bid. That below-cost 

bid may lower the clearing price in the capacity auction. As 

noted above, a lower clearing price may reduce the supply of 
6

electricity in the long run. To put the problem in more concrete 

terms: Over the long run, below-cost bidding in capacity 

auctions could lead to brownouts or blackouts during periods 

of peak demand.

Recognizing the harms of below-cost bidding, PJM has 

established what it calls the Minimum Offer Price Rule. The 

Rule requires new generators to bid at or above a certain price 

floor set by PJM. The Rule is designed to prevent new market 

entrants from artificially depressing the clearing price in 

capacity auctions. 

Before 2012, the Minimum Offer Price Rule had two key 

features that are relevant here. 

First, not every new market entrant was subject to the 

Minimum Offer Price Rule. Before 2012, PJM had a “unitspecific review” exemption from the Rule. If a new generator 

could demonstrate to PJM that its actual costs were below the 

price floor set by PJM, the generator would be permitted to bid 

below the price floor.

Second, the Minimum Offer Price Rule was time-limited 

in its application. For new generators subject to the Rule, the 

Rule applied only until the generator had its bid accepted by 

PJM at the price floor for one year. After that one-year 

“mitigation period,” the generator would be permitted to bid 

into subsequent auctions below the price floor.

B

In July 2012, an ad hoc group of generators and Load 

Serving Entities that participate in PJM’s capacity market

began to explore possible changes to the Minimum Offer Price 

Rule. The participants in that ad hoc group were unsatisfied
7

with the existing unit-specific review exemption. Many

believed that unit-specific review lacked transparency and had 

allowed new market entrants to submit below-cost bids that had

depressed clearing prices in PJM’s capacity auctions. 

After several months of negotiations, the ad hoc group 

reached agreement on a proposal to reform the Minimum Offer 

Price Rule. PJM put the proposal to a vote by the entire body 

of PJM’s stakeholders. The proposal received overwhelming

support from PJM’s stakeholders. According to PJM, the 

proposal represented the first time in PJM’s history as a 

Regional Transmission Organization (which goes back to 

2001) that a significant revision to the Minimum Offer Price 

Rule had received the endorsement of more than two-thirds of 

PJM’s stakeholders. 

As relevant here, the proposal had two key components.1 

First, the proposal sought to eliminate the unit-specific 

review exemption from the Minimum Offer Price Rule and 

replace it with two categorical exemptions from the Rule: a 

“competitive entry exemption” and a “self-supply exemption.” 

Generally speaking, the competitive entry exemption would 

apply to generators that are unsubsidized or that are subsidized 

through a non-discriminatory, state-sponsored procurement 

process. The self-supply exemption would apply to certain 

Load Serving Entities that meet a portion of their electricity 

needs by generating their own electricity. Based on economic 

projections, PJM asserted that generators that qualify for the 

competitive entry exemption or the self-supply exemption

 

1 PJM’s proposal also included a number of other changes to the 

Minimum Offer Price Rule – for example, changes to the resources 

subject to the Rule, the price floor level, and the geographic scope of 

the Rule – that were approved by FERC. FERC’s decision with 

respect to those changes is not challenged here.
8

would be unlikely to depress the clearing prices in capacity 

auctions and therefore should not be subject to the Minimum 

Offer Price Rule’s price floor. Generators that qualify for 

either exemption would be permitted to bid into capacity 

auctions below the price floor.

Replacing the unit-specific review exemption with the two 

categorical exemptions was a compromise between generators 

and Load Serving Entities. Generators opposed unit-specific 

review because they believed that the discretionary nature of 

unit-specific review had allowed some state-subsidized 

resources to enter capacity auctions with below-cost bids that 

would depress the clearing price in capacity auctions. 

Meanwhile, many Load Serving Entities that generate some 

electricity on their own favored the two new exemptions 

because those exemptions would provide more certainty about 

which generators would be subject to the price floor. 

According to PJM, the resulting compromise would ensure that 

generators that “present a high risk of price suppression” would 

not receive exemptions. Letter from Paul M. Flynn et al., PJM 

Interconnection, L.L.C., to Kimberly D. Bose, Secretary, 

Federal Energy Regulatory Commission 25 (Dec. 7, 2012), 

J.A. 52. The compromise would also substitute “clarity and 

transparency” for the “non-transparent, discretionary 

decisions” made under the prior approach. Id. at 15, J.A. 42. 

 

Second, PJM’s proposal sought to extend the “mitigation 

period” – that is, the period during which the Minimum Offer 

Price Rule’s price floor applies – from one year to three years. 

Under the proposal, each new generator that is not otherwise 

exempt from the price floor would have to clear the capacity 

auction at the price floor for three years before it could bid 

below the price floor. Extending the mitigation period was part 

of the compromise regarding unit-specific review and the two 

new exemptions. In light of the proposed substitution of two 
9

new exemptions for unit-specific review, PJM asserted that the 

price floor would “be much more targeted at the resources that 

are most likely to present legitimate price suppression 

concerns.” Id. at 16, J.A. 43. Because the price floor would 

apply to the new generators that pose the highest risk of 

depressing clearing prices, PJM’s stakeholders wanted the 

price floor to “apply for a longer period.” Id. at 29, J.A. 56. 

In December 2012, PJM filed the proposal with FERC. 

Although PJM’s proposal had multiple components, PJM 

asked the Commission “to view this filing not as a list of 

discrete Tariff changes, but as a hard-fought compromise 

package, and to approve it as such.” Id. at 15, J.A. 42. 

PJM filed the proposal pursuant to Section 205 of the 

Federal Power Act. Section 205 requires utilities to file 

proposed rate changes with FERC. 16 U.S.C. § 824d(c). 

Under FERC’s regulations, although Regional Transmission 

Organizations such as PJM are not utilities, Regional 

Transmission Organizations file proposed rate changes with 

FERC in accordance with the procedures ordinarily followed 

by utilities under Section 205. See 18 C.F.R. § 35.34(j)(1)(iii). 

FERC must accept proposed rate changes filed under Section 

205 so long as the changes are just and reasonable. 16 U.S.C. 

§ 824d(a).

 

In May 2013, FERC concluded that parts of PJM’s 

proposal were not just and reasonable. PJM Interconnection, 

L.L.C., 143 FERC ¶ 61,090, at ¶ 26 (2013). As relevant here, 

FERC asserted that the proposal would unreasonably narrow 

the exemptions from the Minimum Offer Price Rule’s price 

floor. According to FERC, some generators that may be able 

to demonstrate that their costs fall below the price floor – that 

is, some generators that would have been exempt under unitspecific review – would no longer qualify for an exemption 
10

from the price floor. Id. ¶ 141. FERC also asserted that the

proposed three-year mitigation period would subject 

generators to the price floor for too long, thereby discouraging 

the entry of new generators into the wholesale electricity 

market. Id. ¶ 211.

At the same time, FERC proposed several modifications 

to PJM’s filing that would, in FERC’s view, make PJM’s filing

just and reasonable. As relevant here, FERC stated that it 

would accept the proposed competitive entry and self-supply 

exemptions, but only on the condition that PJM retain the unitspecific review process. Id. ¶¶ 141-143. FERC also stated that

it would not allow PJM to extend the mitigation period to three 

years. Id. ¶ 210. 

PJM agreed to FERC’s proposed modifications. As a 

result, PJM now uses unit-specific review, the competitive 

entry exemption, the self-supply exemption, and the one-year 

mitigation period for new generators.

Several electricity generators disagreed with FERC’s 

decision. They requested rehearing. In October 2015, FERC 

denied the request for rehearing.

A number of generators – NRG Power Marketing, GenOn 

Energy Management, and PJM Power Providers – then filed

petitions for review of FERC’s May 2013 and October 2015 

Orders. Among other things, they argue that FERC violated

Section 205 of the Federal Power Act by making a new rate 

instead of accepting or rejecting PJM’s proposal as it stood. 

We now turn to that argument.
11

II

In this case, FERC determined that the new rate scheme

proposed by PJM was not just and reasonable under Section 

205 of the Federal Power Act. PJM Interconnection, L.L.C., 

143 FERC ¶ 61,090, at ¶ 26 (2013); see 16 U.S.C. § 824d(a). 

FERC then suggested a number of modifications to PJM’s 

proposal that would, in FERC’s view, make PJM’s proposal 

just and reasonable. PJM Interconnection, L.L.C., 143 FERC

at ¶¶ 141-143. The question in this case is whether FERC 

exceeded its authority under Section 205 when it suggested 

those modifications to PJM’s proposal. The answer is yes.

Section 205 puts FERC in a “passive and reactive role.” 

Advanced Energy Management Alliance v. FERC, No. 16-

1234, at 10 (D.C. Cir. June 20, 2017) (internal quotation mark 

omitted). Under Section 205, FERC reviews the proposed rate 

scheme filed by a utility or Regional Transmission 

Organization and determines whether the proposal is just and 

reasonable. See 16 U.S.C. § 824d(a); 18 C.F.R. 

§ 35.34(j)(1)(iii). FERC may accept or reject the proposal. But 

as this Court has held, Section 205 does not authorize FERC to

impose a new rate scheme of its own making without the 

consent of the utility or Regional Transmission Organization 

that made the original proposal. See Atlantic City Electric Co. 

v. FERC, 295 F.3d 1, 10 (D.C. Cir. 2002).2 

 

2 FERC may unilaterally impose a new rate scheme on a utility

or Regional Transmission Organization only under a different 

provision of the Act: Section 206. 16 U.S.C. § 824e(a). Section 206 

requires FERC to demonstrate that the existing rates are “entirely 

outside the zone of reasonableness” before FERC imposes a new rate 

without the consent of the utility or Regional Transmission 

Organization that filed the proposal. City of Winnfield v. FERC, 744 

F.2d 871, 875 (D.C. Cir. 1984). All parties agree that FERC did not 

rely on Section 206 as the basis for its decision in this case. 
12

Although FERC may not unilaterally impose a new rate

scheme under Section 205, this Court has held that FERC has 

some authority to propose modifications to a utility’s proposal 

if the utility consents to the modifications. In City of Winnfield 

v. FERC, this Court – speaking through Judge Scalia –

concluded that FERC does not violate Section 205 when it 

suggests “a system of rates similar to that previously in effect, 

and the utility acquiesces.” 744 F.2d 871, 876 (D.C. Cir. 1984). 

In those circumstances, we noted that it would be “empty 

formalism” to require the utility to make a new filing in order 

to implement minor changes proposed by FERC. Id. 

 

Nonetheless, there are limits on FERC’s authority to 

propose modifications under Section 205 even when the utility 

consents to those modifications. In City of Winnfield, we 

indicated that FERC would violate Section 205 if “the 

Commission proposal accepted by the utility involved the 

Commission’s own original notion of a new form of rate” or an 

“entirely new rate scheme.” Id. at 875, 876. As we noted, “it 

might be argued” in those circumstances “that the power to 

initiate change through such rejection-plus-proposal removes 

the Commission from an essentially passive and reactive role 

envisioned by § 205.” Id. at 876. Importantly, we also stated

that FERC’s proposal of a new rate scheme could deprive the 

utility’s customers of “early notice – in the rate proposal itself –

of the sort of rate increase that is sought.” Id. However, we 

did not definitively decide whether FERC violates Section 205 

when it suggests modifications to the utility’s proposal that 

result in an “entirely new rate scheme.” Id. 

We decisively answered that question nine years later in 

Western Resources, Inc. v. FERC, 9 F.3d 1568 (D.C. Cir. 

1993). Western Resources arose in the context of Section 4 of

the Natural Gas Act, which is “identical in substance” to 
13

Section 205 of the Federal Power Act. City of Winnfield, 744 

F.2d at 875.

3

 Our analysis in Western Resources turned on the 

nature of FERC’s suggested modifications in that case. We

concluded that FERC may not go “beyond approval or 

rejection” of a proposal to “adoption of an entirely different 

rate design” than the proposal. Western Resources, 9 F.3d at 

1578. We explained that FERC may not employ a rate design 

that follows “a completely different strategy” than, or is 

“methodologically distinct” from, a proposed rate. Id. at 1578, 

1579. We also noted that, although “minor deviations” from a

proposal are permissible, “the imposition by the Commission 

of only half of a proposed rate” is not permissible. Id. at 1579. 

Our decisions in City of Winnfield and Western Resources 

indicate that Section 205 does not allow FERC to suggest 

modifications that result in an “entirely different rate design” 

than the utility’s original proposal or the utility’s prior rate 

scheme. Western Resources, 9 F.3d at 1578. 

Applying that principle here, we conclude that FERC 

violated Section 205. FERC’s modifications resulted in an 

“entirely different rate design” than both PJM’s proposal and

PJM’s prior rate scheme. Id. 

First, FERC’s proposed modifications resulted in an 

“entirely different rate design” than PJM’s proposal. Id. PJM’s 

proposal sought to change how PJM determines which 

generators are exempt from the Minimum Offer Price Rule’s 

price floor. PJM wanted to replace its case-by-case approach

to granting exemptions under unit-specific review with two 

 

3 As in prior cases, we “follow here the familiar practice of 

applying interchangeably judicial interpretations of provisions from 

the Natural Gas Act to their substantially identical counterparts in the 

Federal Power Act.” City of Anaheim v. FERC, 558 F.3d 521, 523 

n.2 (D.C. Cir. 2009) (internal quotation marks omitted). 
14

narrow, categorical exemptions from the price floor. PJM also 

wanted to apply the price floor to new generators for three years

instead of one year. PJM’s proposal would have narrowed the 

availability of exemptions to the price floor for some 

generators that, in the view of some of PJM’s stakeholders,

posed a high risk of price suppression. But FERC’s proposed

modifications went in the opposite direction. FERC’s 

modifications expanded the exemptions by layering the two 

new exemptions on top of unit-specific review, and by 

exempting certain new generators from the price floor after one 

year instead of after three years. Indeed, FERC’s modifications 

expanded the scope of the exemptions not just beyond PJM’s 

original filing, but beyond the scope of the exemptions as they 

had stood before PJM’s filing. FERC’s modifications therefore 

followed a “completely different strategy” than PJM’s 

proposal. Id. at 1579.

Second, FERC’s modifications also resulted in an “entirely 

different rate design” than the rate design that was “previously 

in effect.” Id. at 1578; City of Winnfield, 744 F.2d at 876. 

Under PJM’s prior approach, unit-specific review was the main

route to an exemption. As a result, generators had to 

demonstrate on a case-by-case basis that their costs fell below 

the price floor. Because of FERC’s modifications, some 

generators can now claim exemptions from the price floor even 

if they cannot demonstrate that their costs fall below the price 

floor. In other words, due to FERC’s modifications, PJM’s

previous case-by-case methodology no longer controls. 

Ultimately, as in Western Resources, FERC in essence 

approved “only half of a proposed rate.” Western Resources, 

9 F.3d at 1579. FERC’s modifications undid the compromise

that had been the basis for PJM’s proposal. Load Serving 

Entities had favored the two new categorical exemptions, and 

generators had opposed unit-specific review. Because of
15

FERC’s modifications, many Load Serving Entities got what 

they wanted, but many generators did not. By proposing that 

PJM adopt the two new exemptions alongside unit-specific 

review, FERC largely eviscerated the terms of the bargain 

between generators and Load Serving Entities. As a result, 

PJM ended up with an “entirely new rate scheme.” City of 

Winnfield, 744 F.2d at 876. That is not permissible.

FERC says that it did not violate Section 205 because PJM 

consented to FERC’s proposed modifications. A utility’s 

consent is relevant when FERC proposes “minor”

modifications to the utility’s proposal. Western Resources, 9 

F.3d at 1579. But when FERC proposes its “own original 

notion of a new form of rate,” the utility’s consent does not

excuse a Section 205 violation. City of Winnfield, 744 F.2d at 

875. 

In those circumstances, the utility’s consent is inadequate 

because consent does not cure the harms to the utility’s 

customers. Section 205 protects the utility’s customers by 

ensuring “early notice – in the rate proposal itself – of the sort 

of rate increase that is sought.” Id. at 876. When FERC 

“imposes an entirely new rate scheme” in response to a utility’s

proposal, the utility’s customers do not have adequate notice of 

the proposed rate changes or an adequate opportunity to 

comment on the proposed changes. Id. That was the case here. 

Generators and Load Serving Entities had an opportunity to 

comment on the original compromise proposal submitted by 

PJM. But they did not have an opportunity to comment on 

FERC’s modifications before FERC issued its decision. They 

also did not have an adequate opportunity to comment in the 

request for rehearing. As FERC has previously explained: 

“Parties seeking rehearing of Commission orders are not 

permitted to include additional evidence in support of their 

position, particularly when such evidence is available at the 
16

time of the initial filing.” PJM Interconnection, LLC, 108 

FERC ¶ 61,187, at ¶ 49 (2004). PJM’s stakeholders therefore 

could not fully contest FERC’s modifications with new 

evidence on rehearing. As a result, PJM’s stakeholders lacked

the protections provided by Section 205. PJM’s consent did 

not restore those protections.

* * *

In sum, FERC exceeded its authority under Section 205. 

We grant the petitions for review and vacate FERC’s Orders

with respect to unit-specific review, the competitive entry 

exemption, the self-supply exemption, and the mitigation 

period. We remand the matter to FERC.

So ordered.