United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 8, 2006 Decided March 9, 2007 

No. 05-1362 

NSTAR ELECTRIC & GAS CORPORATION, 

PETITIONER

V. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

USGEN NEW ENGLAND, INC., ET AL., 

INTERVENORS

Consolidated with 

05-1363 

On Petitions for Review of Orders of the 

Federal Energy Regulatory Commission 

Stephen L. Teichler argued the cause for petitioners. 

With him on the briefs were Harvey L. Reiter, John E. 

McCaffrey, Lucy H. Plovnick, Linda M. Nagel, Mary E. 

Grover, and Lisa Fink. 

Robert H. Solomon, Solicitor, Federal Energy Regulatory 

Commission, argued the cause for respondent. With him on 

the brief were John S. Moot, General Counsel, and Beth G. 
2

Pacella, Senior Attorney. Lona T. Perry, Attorney, entered an 

appearance. 

 Howard H. Shafferman argued the cause for intervenor 

ISO New England Inc. With him on the brief was Perry D. 

Robinson. 

 Allan B. Taylor, Michael P. Shea, Donald K. Dankner, 

Jeanne M. Dennis, and Margaret H. Claybour were on the 

brief for intervenors USGen New England, Inc. and New 

England Power Pool. Raymond B. Wuslich entered an 

appearance. 

Before: ROGERS and TATEL, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge. 

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS. 

WILLIAMS, Senior Circuit Judge: This dispute involves 

agreements over the wholesale price of electricity in situations 

where local transmission shortages obstructed competitive 

market pricing in the New England power market. Petitioner 

NSTAR Electric & Gas Corporation seeks review of three 

orders of the Federal Energy Regulatory Commission: Mirant 

Americas Energy Marketing, L.P., 112 FERC ¶ 61,056 (2005) 

(“Rehearing Order”); Mirant Americas Energy Marketing, 

L.P., 106 FERC ¶ 61,243 (2004) (“Compliance Order”); and 

Mirant Americas Energy Marketing, L.P., 105 FERC ¶ 61,359 

(2003) (“Remand Order”). 

NSTAR challenges the Commission’s orders on what 

amount to four grounds: first, that the Commission erred in 

waiving a statutory 60-day notice requirement for changes to 

filed rates; second, that the Commission’s orders violated the 
3

filed rate doctrine and its cousin, the rule against retroactive 

ratemaking, by allowing certain negotiated rate agreements to 

govern rates charged prior to their being filed with the agency; 

third, that the Commission did not satisfy its obligation under 

16 U.S.C. § 824e(a) to determine whether the filed rates were 

just and reasonable; and fourth, that the Commission’s refusal 

to order refunds for purchasers who were charged the 

negotiated rates was an abuse of discretion. 

We find no merit in petitioners’ first two claims. But we 

do not find in the record a clear basis for the Commission’s 

finding that the rates were just and reasonable; this leaves 

open the possibility of a refund for unjust or unreasonable 

rates charged. We therefore remand the case for further 

consideration by the Commission. 

* * * 

 The New England Power Pool (the “Power Pool”) is a 

voluntary trade association of participants in the New England 

electric power business. In 1998 the Power Pool proposed, 

and FERC ultimately approved, comprehensive market 

reforms including a shift of the New England wholesale 

power market from cost-based regulated prices to market 

pricing, and the creation of ISO-New England (“ISO-NE”), a 

private, non-profit entity to administer New England energy 

markets and operate the region’s bulk power transmission 

system. See New England Power Pool, 83 FERC ¶ 61,045 

(1998) (“NEPOOL I”), 85 FERC ¶ 61,379 (1998) (“NEPOOL 

II”), reh’g denied 95 FERC ¶ 61,074 (2001) (approving 

reforms). 

Prices in the restructured market are governed by rules 

developed by the Power Pool (the “Market Rules”) and filed 
4

with the Commission under § 205 of the Federal Power Act, 

16 U.S.C. § 824d(d). See also NEPOOL II, 85 FERC at 

62,459. During normal system operation, ISO-NE uses an 

incremental pricing scheme: it sets a market-clearing price by 

working up the range of generators’ bids to find the lowest bid 

available to supply an increment of power beyond the load 

demanded for the period in question. Id. at 62,459-60, 

62,463. All suppliers receive the same price. Under this 

system generators are employed in order of “economic merit,” 

beginning with least-cost units. 

During periods of transmission constraint, however, when 

the constraint makes it impossible to deliver enough 

conventionally priced energy to a so-called “load pocket,” 

generators whose bids exceed the market-clearing price are 

called into service to ensure system reliability. See NEPOOL 

II, 85 FERC at 62,461; Rehearing Order, 112 FERC at 

61,491-92 P 2 & n.5 (noting “voltage collapse” and other 

constraint-induced system instabilities). Under Market Rule 

17 (in effect during the period in dispute—the mitigation 

procedures have now been amended), bids offered by these 

“reliability must run” units did not affect the market-clearing 

price paid to in-merit generators, and any excess over market 

was charged to transmission customers as a “congestion 

uplift” charge. NEPOOL II, 85 FERC at 62,463; see also 

Rehearing Order, 112 FERC at 61,491 P 2 n.3. 

Initially, FERC anticipated that these uplift charges would 

be “small and predictable.” NEPOOL I, 83 FERC at 61,237. 

But it later acknowledged that congestion costs had become 

“substantial and rapidly increasing,” totaling by one measure 

some $20 million in March 2000 alone. ISO New England, 

Inc., 91 FERC ¶ 61,227 at 61,829 n.7 (2000). 
5

Generators called on to operate in constrained conditions 

will commonly have localized market power; the transmission 

constraint both justifies use of an out-of-merit resource and 

accounts for the resource’s market power. Accordingly, 

Market Rule 17 contained procedures for monitoring and 

“mitigating” (i.e., capping) such bids either according to a 

predetermined formula or at a higher alternative price agreed 

on by ISO-NE and the resource owner. NEPOOL II, 85 FERC 

at 62,481. Absent an agreement between the generator and 

the ISO, bids from resources that regularly compete in the 

unconstrained market were capped at a 30-day weighted 

average of that generator’s prior in-merit bids. Where a 

generator seldom ran in merit order (and thus did not have a 

history of competitive bids), its out-of-merit bids were capped 

at a default price that could range from 105% to 500% of the 

market clearing price. NSTAR Electric & Gas Corp., 101 

FERC ¶ 61,064 at 61,230 P 24 n.15 (2002). But Market Rule 

17.3.3(b) explicitly allowed agreed-on prices above these 

caps, saying: 

The ISO may enter into negotiation with a resource 

owner for any reasonable payment terms if the ISO 

reasonably expects the markets will function more 

reliably, competitively, or efficiently as a result. 

Market Rule 17.3.3(b), Joint Appendix (“J.A.”) 6; see also 

Compliance Order, 106 FERC at 61,861 P 21 (quoting Rule 

17.3.3(b)). In the Remand Order, FERC paraphrased the 

above formula about the ISO’s expectations in terms of 

“ensur[ing] that the generator remains available during 

transmission constraints.” 105 FERC at 62,616 P 2.
6

Rule 17.3 sets out the rationale and expected operation of 

the scheme as applied to seldom-run generators, especially in 

reference to the parties’ incentives: 

The price screen for Resources that seldom run in 

economic merit order is designed to create a powerful 

incentive for such generators to come forward and 

negotiate an appropriate contract with the ISO. The price 

screen itself is a default case designed to ensure that the 

ISO has sufficient bargaining leverage in such 

negotiations. Until the Resource owner and the ISO 

reach agreement, the default price screen will enable the 

Resource to be paid for running in the short term, while 

providing a strong incentive to negotiate an appropriate 

arrangement with the ISO . . . as the screen price rapidly 

and progressively drops to just 5% above the higher of 

the same-hour [clearing price] or applicable Reference 

[clearing price] in the unconstrained market. 

Market Rule 17.3.2.2(b), J.A. 4-5. 

In earlier proceedings FERC granted power customers’ 

request for a ruling that the mitigation agreements negotiated 

under Market Rules 17.3.2.2(b) and 17.3.3(b) were subject to 

§ 205’s filing requirement. Mirant Americas Energy 

Marketing, L.P., 97 FERC ¶ 61,108 at 61,556/2 (2001). At the 

same time, however, the Commission exercised its authority 

under § 205 to grant ISO-NE a waiver of that section’s 

requirement of 60 days notice prior to the effective dates of 

the agreements. Id. 

On appeal, we granted review of the Mirant orders and 

remanded for additional explanation of FERC’s waiver of the 

60-day notice requirement. NSTAR Electric & Gas Corp. v. 
7

FERC, 64 Fed. Appx. 786 (D.C. Cir. 2003) (unpublished 

decision). On remand, FERC conceded that its precedents 

contemplated waiver of the 60-day notice requirement only in 

“extraordinary circumstances,” but held that such 

circumstances existed: the agreements were necessary to 

ensure the continued availability of generators critical to 

system stability while mitigating those units’ potential 

exercise of market power; and, because such generators were 

typically called into service on short notice, the agreements 

“by their very nature” could not be negotiated and filed 60 

days in advance. Remand Order, 105 FERC at 62,617-18 

PP 13-15. 

In a separate set of orders, FERC approved ISO-NE’s 

filing of the mitigation agreements and concluded that the 

agreements’ provisions were “just and reasonable” as required 

by § 205(a), 16 U.S.C. § 824d(a). See Mirant Americas 

Energy Marketing, L.P., 99 FERC ¶ 61,003 at 61,019 P 16 

(2002); Compliance Order, 106 FERC at 61,860 P 14. 

On requests for rehearing of the Remand and Compliance 

orders, FERC affirmed its waiver of the 60-day statutory 

notice requirement, denial of refunds to purchasers charged 

the mitigation rates, and determination that the agreements’ 

provisions were just and reasonable. Rehearing Order, 112 

FERC at 61,493-96 (incorporating by reference 

reasonableness analysis from ISO New England Inc., 112 

FERC ¶ 61,057 at 61,498 PP 10-13 (2005)). FERC also 

rejected the contention, raised on rehearing, that the 

Commission had exceeded its statutory authority in allowing 

the rates to become effective prior to their filing date. 

Rehearing Order, 112 FERC at 61,494 P 19. NSTAR filed a 

timely petition for review. 
8

* * * 

Section 205(d) requires a utility to file a notice 60 days 

prior to a rate’s taking effect, but expressly provides for 

waiver of the requirement: 

Unless the Commission otherwise orders, no change shall 

be made by any public utility in any such rate, charge, 

classification, or service, or in any rule, regulation, or 

contract relating thereto, except after sixty days’ notice to 

the Commission and to the public. . . . [But] [t]he 

Commission, for good cause shown, may allow changes 

to take effect without requiring the sixty days’ notice 

herein provided for by an order specifying the changes so 

to be made and the time when they shall take effect and 

the manner in which they shall be filed and published. 

16 U.S.C. § 824d(d). 

NSTAR contends that the Commission’s waiver of the 

60-day notice rule was arbitrary and capricious and contrary 

to such agency precedents as Central Hudson Gas & Electric 

Corp., 60 FERC ¶ 61,106 (“Central Hudson I”), reh’g denied, 

61 FERC ¶ 61,089 (1992) (“Central Hudson II”). Our review 

of the Commission’s waiver rulings is “quite limited,” as 

“Congress, through § 205, has clearly delegated waiver 

discretion to the Commission and not to the courts.” City of 

Girard, Kan. v. FERC, 790 F.2d 919, 925 (D.C. Cir. 1986); 

see also San Diego Gas & Electric Co. v. FERC, 904 F.2d 

727, 731 (D.C. Cir. 1990). And we defer to the Commission’s 

interpretations of its own precedents. Columbia Gas 

Transmission Corp. v. FERC, No. 05-1285, slip op. at 7 (D.C. 

Cir. Feb. 13, 2007).
9

In Central Hudson I, the Commission stated that 

“[a]bsent extraordinary circumstances, we will not grant 

waiver of notice when an agreement for new service is filed 

on or after the day service has commenced.” 60 FERC at 

61,339. Where a rate agreement was filed a week after taking 

effect, the utility could not simply “state[] only that the 

agreement . . . could not be negotiated and prepared for filing 

60 days prior to the commencement of service.” Id. “[T]he 

press of other business,” the Commission held, would not 

constitute good cause for waiver. Id.

Here, FERC relied on a number of factors in finding 

extraordinary circumstances. Most critically, it argued that 

“the mitigation agreements by their very nature do not always 

lend themselves to being filed 60 days before service 

commences,” as out-of-merit generators were often called into 

service “only . . . on very short notice.” Remand Order, 105 

FERC at 62,618 P 15; see also Rehearing Order, 112 FERC at 

61,493 P 13. Moreover, refusing waiver here would wrongly 

penalize the out-of-merit generators for ISO-NE’s “good faith, 

albeit erroneous[]” determination that the agreements didn’t 

need to be filed. Rehearing Order, 112 FERC at 61,494 P 15. 

 NSTAR claims that FERC improperly ignored the rule of 

Central Hudson I that the “press of other business” doesn’t 

constitute good cause. But FERC’s point here was that the 

delay in filing the mitigation agreements resulted from the 

need to provide high-cost generation at short notice in 

response to market constraints. NSTAR says the record does 

not support the proposition that agreements needed to be 

negotiated at short notice. But Market Rule 17.3 anticipated 

that some agreements would be negotiated retroactively: 

“Normally such arrangements will be negotiated 

prospectively.” Market Rule 17.3.2.2(b), J.A. 4-5 (emphasis 
10

added). And a filing by ISO-NE indicated that the time 

consumed in identifying the constrained units and applying 

the price screens had precluded prospective negotiations. 

Compliance Order, 106 FERC at 61,861 P 22 & n.22. 

NSTAR further objects to FERC’s reliance on ISO-NE’s 

“good faith” conclusion that the agreements need not be filed. 

But Central Hudson II explicitly contemplated that the 

Commission would balance deterrence of violations of the 

filing requirement against the inappropriateness of making 

rates confiscatory, 61 FERC at 61,357; the Commission’s 

consideration of an actor’s good faith seems quite compatible 

with that balance. 

NSTAR also argues that waiver was arbitrary because of 

purported deficiencies in the negotiation of the agreements, 

such as that they ratified prior courses of conduct, reflected 

oral understandings, or were communicated by email. But 

petitioners do not explain why the Commission should regard 

such circumstances as undermining the ultimate agreements’ 

validity. NSTAR also appears to complain that the filed 

agreements did not cover all time periods relevant to this 

dispute. But this argument is found in a single footnote in 

NSTAR’s opening brief, and such a reference is not enough to 

raise an issue for our review. See Covad Communications Co. 

v. FCC, 450 F.3d 528, 546 (D.C. Cir. 2006); see also Sugar 

Cane Growers Co-Op. of Florida v. Veneman, 289 F.3d 89, 

93 n.3 (D.C. Cir. 2002) (“On appeal, appellants failed to raise 

their . . . claim—a footnote at the end of their opening brief 

does not suffice.”). 

Finally, NSTAR’s assertion that FERC granted waiver 

before having seen the agreements is without merit, as the 

orders on review supersede the order to which NSTAR 

presumably refers. Compare Mirant Americas Energy 
11

Marketing, L.P., 97 FERC ¶ 61,108 at 61,556 (2001), with 

ISO-NE Compliance Filing, Apr. 22, 2003, J.A. 177 and 

Rehearing Order, 112 FERC at 61,491. 

* * * 

We next turn to NSTAR’s assertion that the filed rate 

doctrine and the rule against retroactive ratemaking precluded 

FERC from giving effect to the mitigation agreements. We 

review this claim under the arbitrary and capricious standard 

of 5 U.S.C. § 706(2)(A), and will affirm where the 

Commission has articulated a “rational connection between 

the facts found and the choice made.” Keyspan-Ravenswood, 

LLC v. FERC, No. 05-1332, slip op. at 9 (D.C. Cir. Jan. 12, 

2007) (applying arbitrary and capricious review to FERC’s 

conclusion that utility did not violate filed rate doctrine). 

The filed rate doctrine arises out of filing requirements in 

§ 205 of the Federal Power Act and parallel sections of other 

statutes. Originating in the Supreme Court’s cases 

interpreting the Interstate Commerce Act and subsequently 

extended “across the spectrum” of regulated utilities, the 

doctrine “forbids a regulated entity to charge rates for its 

services other than those properly filed with the appropriate 

federal regulatory authority.” Arkansas Louisiana Gas Co. v. 

Hall, 453 U.S. 571, 577 (1981). A corollary is the rule against 

retroactive ratemaking, which the Supreme Court has 

described in the context of the Natural Gas Act as 

“prevent[ing] the Commission itself from imposing a rate 

increase for gas already sold.” Arkansas Louisiana, 453 U.S. 

at 578. (We follow here the familiar practice of applying 

“interchangeably” judicial interpretations of provisions from 

the Natural Gas Act to their “substantially identical” 
12

counterparts in the Federal Power Act. See Arkansas 

Louisiana, 453 U.S. at 577 n.7 (quoting FPC v. Sierra Pacific 

Power Co., 350 U.S. 348, 353 (1956)); Consolidated Edison 

Co. of New York v. FERC, 347 F.3d 964, 969 (D.C. Cir. 

2003).) We’ve explained the rules as serving the dual 

purposes of “ensur[ing] rate predictability” for purchasers of 

regulated electricity and promoting equity among customers 

by “preventing discriminatory pricing.” Consolidated Edison, 

347 F.3d at 969-70. 

Although these doctrines and the 60-day notice 

requirement jointly arise out of § 205, a rate change that 

qualifies for waiver of the 60-day requirement doesn’t 

necessarily survive scrutiny under the filed rate and 

retroactive ratemaking doctrines. See Consolidated Edison, 

347 F.3d at 969; see also Columbia Gas Transmission Corp. v. 

FERC, 895 F.2d 791, 795-97 (D.C. Cir. 1990) (“Columbia 

Gas”) (holding that analogous waiver provision in Natural 

Gas Act did not grant the Commission authority to waive the 

filed rate doctrine). Thus our decision upholding the 

Commission’s waiver ruling leaves these issues entirely open. 

But the filed rate doctrine and bar on retroactive 

ratemaking are satisfied, in keeping with their functions, 

“when parties have notice that a rate is tentative and may be 

later adjusted with retroactive effect, or where they have 

agreed to make a rate effective retroactively.” Consolidated 

Edison, 347 F.3d at 969. Notice to affected parties, we have 

explained, “changes what would be purely retroactive 

ratemaking into a functionally prospective process by placing 

the relevant audience on notice at the outset that the rates 

being promulgated are provisional only and subject to later 

revision.” Columbia Gas, 895 F.2d at 797. See also Exxon 

Co., USA v. FERC, 182 F.3d 30, 49 (D.C. Cir. 1999). One 
13

very practical application of this principle is the acceptability 

of tariffs with a rate formula, under which rates may 

constantly change (as long as they do so consistently with the 

formula) without prior notice to the Commission or the public, 

and are thus not precisely knowable at the time of sale. Pub. 

Utilities Comm’n v. FERC, 254 F.3d 250, 254 (D.C. Cir. 

2001). 

 In its Rehearing Order, FERC relied on these well 

established principles: “Market Rule 17 allowed ISO-NE to 

[negotiate the agreements], and . . . was the subject of 

Commission proceedings and Commission approval.” Thus 

ISO-NE’s authority to negotiate mitigation agreements “was 

part of a filed and accepted tariff, and market participants 

were on notice of its provisions.” Rehearing Order, 112 

FERC at 61,494 P 19. 

Despite NSTAR’s objections, we find nothing arbitrary in 

the Commission’s conclusion that Market Rule 17.3 provided 

adequate notice to market participants that the default prices 

listed in the Market Rules were, in the language of Columbia 

Gas, “provisional only and subject to later revision.” Both the 

text and structure of Rule 17.3 put transmission customers on 

notice that the default rates would apply only absent a 

separate negotiated agreement. The rule provides: “In place 

of its bid price, each [seldom-run] Resource . . . will receive 

. . . (a) The applicable screen price from Table 1 or Table 2; or

(b) A price negotiated with the ISO.” Market Rule 17.3.3, 

J.A. 5-6. See also Market Rule 17.3.2.2(b), J.A. 4 (“The ISO 

may determine that some of these [high-cost] Resources 

should . . . have a special contractual arrangement to ensure 

their availability.”). The Rules also explicitly vest in ISO-NE 

the authority to negotiate agreements with producers, Market 

Rule 17.3.3 & n.9, J.A. 5-6, and suggest that agreements may 
14

have retroactive effect. See Rule 17.3.2.2(b), J.A. 4-5 

(“Normally such arrangements will be negotiated 

prospectively.”) (emphasis added). 

 In the face of Market Rule 17’s indisputable notice of 

possible change, NSTAR claims an incompatibility between 

the Commission’s finding to that effect and its prior holding 

that § 205 required filing of the mitigation agreements. See 

Mirant Americas Energy Marketing, L.P., 97 FERC at 61,556. 

The Commission objects that we are jurisdictionally barred 

from hearing this claim under 16 U.S.C. § 825l(b), under 

which “[n]o objection to the order of the Commission shall be 

considered by the court unless such objection shall have been 

urged before the Commission in the application for rehearing 

unless there is reasonable ground for failure so to do.” But 

FERC’s discussion of the filed rate doctrine appeared for the 

first time in its Rehearing Order, 112 FERC at 61,494, and we 

have held that when FERC makes no change in the result on 

rehearing but merely supports the old outcome with new 

arguments, a party can obtain judicial review without filing a 

new petition for rehearing. Columbia Gas Transmission 

Corp. v. FERC, No. 05-1285, slip op. at 5 (D.C. Cir. Feb. 13, 

2007). 

Though properly before us, NSTAR’s claim is 

unconvincing. In our view there is no necessary 

incompatibility between the Commission’s holdings. For one 

thing, requiring the mitigation agreements (even those with 

retroactive effect) to be filed under § 205 facilitates 

complaints by purchasers under § 206, 16 U.S.C. § 824e(a)—

a function independent of the considerations underlying the 

filed rate doctrine. Moreover, Columbia Gas’s discussion of 

rates that are “provisional only and subject to change” did not 

contain any suggestion that FERC lacked authority to require 
15

filling of the documents implementing the adjustments 

prefigured in the earlier filings. (The parties here do not 

appeal FERC’s determination that the mitigation agreements 

must be filed under § 205.) 

* * * 

 NSTAR’s next contention is that the Commission did not 

fulfill its statutory obligation to ensure that the rates 

contemplated by the mitigation agreements were just and 

reasonable. See 16 U.S.C. § 824d(a). Our review of such 

determinations is “highly deferential,” as “‘[i]ssues of rate 

design are fairly technical and, insofar as they are not 

technical, involve policy judgments that lie at the core of the 

regulatory mission.’” Northern States Power Co. v. FERC, 30 

F.3d 177, 180 (D.C. Cir. 1994) (quoting Town of Norwood v. 

FERC, 962 F.2d 20, 22 (D.C. Cir. 1992)) (alteration in 

original). But the Commission must demonstrate that it has 

“made a reasoned decision based upon substantial evidence in 

the record,” and “the path of [its] reasoning must be clear.” 

Sithe/Independence Power Partners, L.P. v. FERC, 165 F.3d 

944, 948 (D.C. Cir. 1999) (alteration in original, internal 

quotation marks omitted). 

 NSTAR’s primary complaint is that FERC did not 

independently assess whether the mitigation agreements were 

just and reasonable. See NSTAR Electric & Gas Corp., 

Request for Rehearing at 6 (Apr. 8, 2004), J.A. 324, 329 

(arguing that the Commission erred in “refus[ing] to obtain 

and independently review the cost support data for the 

mitigation agreements”). We note, however that NSTAR does 

not mount—and thus we do not here consider—any 

substantive challenge to the reasonableness of the agreements’ 
16

formulas or rates. See Compliance Order, 106 FERC at 

61,861 PP 19-20. 

FERC said in the Compliance Order that it “reviewed the 

agreements, and, based on that review, . . . we find that they 

are reasonable.” 106 FERC at 61,860 P 14. FERC rejected 

NSTAR’s idea that the agreed rates could survive only if 

strictly based on cost (presumably referring to conventional 

historic accounting cost); rather it found it “reasonable” for 

ISO-NE to have negotiated prices aimed at assuring the 

availability of the units in question “when needed to protect 

system reliability.” Id. at 61,860 P 15. FERC noted that the 

agreements compensated generators based on “average 

variable costs or marginal costs, plus an adder” and that in 

“most” of the agreements, the adder was “a percentage of 

variable costs (usually ten percent).” Id. at 61,861 & n.18. 

The New Boston generators, for example, FERC said, were 

compensated at 110% of “fuel, compressor fuel, variable 

operation and maintenance and fuel transportation costs.” Id. 

The Commission ultimately concluded that the adders were 

“reasonable compensation for such units to reflect lost 

opportunity costs” (the exact nature of the opportunities 

foregone is never explored), and rejected the contention that 

recovery of fixed costs would be per se inappropriate, given 

that the units in question were “essential . . . for reliability 

purposes and only rarely run in economic merit order.” Id. at 

61,861 P 17.

We find, however, a critical gap in this reasoning. The 

bare fact that the agreements set compensation at a percentage 

of fixed or variable costs does not support the conclusion that 

the rates contained in the agreements are just and reasonable 

when the Commission lacks data concerning the generators’ 

costs. Many of the agreements contained no actual cost data 
17

for relevant time periods. For instance, according to ISONE’s filing, the Yarmouth and Mason generators were 

compensated, respectively, at average variable cost and a sum 

of “fuel cost, variable O&M cost and contributions to fixed 

cost,” but, so far as appears, no cost data were provided for 

FERC’s review. See ISO-NE Compliance Filing, Summary of 

Negotiated Arrangements and Cost Data, Apr. 22, 2003, J.A. 

186, 225-27. Similarly, the Bridgeport Harbor 3 unit was 

mitigated at “actual fuel cost, emissions cost, variable O&M, 

plus 10 percent of such costs,” but the filing contained no cost 

data. Id. at 186; cf. J.A. 182-83, 193-97 (Salem Harbor 4 

generator’s bids capped at $125/hour); J.A. 183, 211-12 (New 

Boston unit mitigated at 110% of certain enumerated costs, 

resulting in approximate mitigation price of $69.90/MWh). 

FERC’s primary response to this objection is that, under 

Market Rule 17.3, ISO-NE was authorized to negotiate for 

“reasonable payment terms” only where it “reasonably 

expect[ed] the markets w[ould] function more reliably, 

competitively or efficiently as a result.” Market Rule 

17.3.3(b) n.9, J.A. 6. Thus, the Commission concluded, the 

agreements were “negotiated in a manner that produced 

reasonable results.” Compliance Order, 106 FERC at 61,861 

P 18. In fact, the record does give reason to believe that the 

generators filed cost data with ISO-NE—if not the 

Commission—for its review. See ISO-NE Compliance Filing 

at J.A. 211 (cost figures “subject to true-up” by ISO-NE after 

generator filed cost data). 

But the Commission does not explain its basis for 

believing that the ISO’s actions satisfied the statutory 

requirement. Given the apparent absence of effective 

monitoring by the Commission itself (in the form of 

independent review of cost data), we should think, as a first 
18

approximation, that ISO-NE’s scrutiny could work as a 

substitute only if ISO-NE had both incentive and ability to 

bargain for “reasonable” rates (i.e., rates not materially 

exceeding the range needed to assure availability of the 

needed generating capacity). Although the system operator 

plainly has an incentive to ensure that system-critical power is 

available to ensure grid stability and reliability, FERC neither 

in its decisions nor at oral argument was able to identify 

incentives driving ISO-NE to bargain for low prices. See Or. 

Arg. Transcript at 25-26. We note that the Market Rules 

explained that the price cap applicable in the absence of 

agreement served as “a default case designed to ensure that 

the ISO has sufficient bargaining leverage in such 

negotiations,” Market Rule 17.3.2.2(b), J.A. 5, but in the 

orders before us the Commission neither invoked that 

proposition nor discussed the incentives of the ISO. While we 

by no means foreclose the possibility of FERC’s reliance on a 

market participant with appropriate incentives and strategic 

position, FERC has made no showing that such conditions 

exist here. See Tejas Power Corp. v. FERC, 908 F.2d 998 

(D.C. Cir. 1990) (rejecting FERC’s reliance on participants’ 

agreement to pipeline’s gas inventory charge where FERC 

made no finding that pipeline lacked market power at time of 

agreement). Nor, of course, do we mean to suggest that only 

prices in line with historic accounting costs would qualify as 

just and reasonable. 

Thus neither FERC’s reasonableness analysis nor its 

stated reliance on ISO-NE’s actions appears to have satisfied 

its statutory obligation to ensure that rates are just and 

reasonable. 
19

* * * 

 Finally, NSTAR asserts that the Commission erred in 

denying refunds to consumers for the difference between the 

mitigation rates and the Rule’s reference prices. To the extent 

NSTAR’s refund demand relies on its claims under the 60-day 

notice requirement, filed rate doctrine and rule against 

retroactive ratemaking, it cannot survive our rejection of those 

claims. 

Our remand with respect to FERC’s procedure for 

determining that the mitigation rates were just and reasonable 

poses a different question. As we noted above, NSTAR has 

not here attacked the substance of that determination, though 

it and others apparently did before the Commission. See 

Compliance Order, 106 FERC at 61,860 P 11 (summarizing 

protestors’ demand for refund of “amounts paid under the 

agreements that are found to be unlawful, unjust, or 

unreasonable”). If that omission poses no procedural bar to 

such refund claims, and if on remand some of the rates are 

found unjust or unreasonable, presumably the Commission 

would go on to consider an award of refunds. 

* * * 

In sum, we find no merit in NSTAR’s first or second 

claim, but remand to the Commission for additional 

consideration of whether the rates adopted in the mitigation 

agreements were just and reasonable and, given that analysis, 

whether petitioners are entitled to any refund of amounts 

charged under those agreements. 

So ordered.