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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 11, 2005 Decided May 13, 2005

No. 03-1449

ELECTRICITY CONSUMERS RESOURCE COUNCIL,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., ET AL.,

INTERVENORS

On Petition for Review of Orders of the

Federal Energy Regulatory Commission

Sara D. Schotland argued the cause for petitioner. With her on

the briefs was Robert A. Weishaar, Jr.

Lona T. Perry, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With her on the brief

were Cynthia A. Marlette, General Counsel, and Dennis Lane,

Solicitor.

Jonathan D. Feinberg was on the brief for intervenor Public
2

Service Commission of the State of New York.

William F. Young and Susan E. Dove were on the brief for

intervenor New York Independent System Operator, Inc. Arnold H.

Quint entered an appearance.

Frederick W. Morris, James J. Bertrand, Brian M. Meloy, Debra

R. Bolton, Scott G. Silverstein, Mary M. Fabic, and Kenneth R.

Carretta were on the brief for intervenors NRG Companies, et al.

Before: SENTELLE, ROGERS and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: The Electricity Consumers

Resource Council (“ELCON”) challenges two orders of the

Federal Energy Regulatory Commission approving a rate design

for the installed capacity market administered by the New York

Independent System Operator, Inc. (“NYISO”). See NY Indep.

Sys. Operator, Inc., 103 F.E.R.C. ¶ 61,201 (2003) (“Initial

Order”); NY Indep. Sys. Operator, Inc., 105 F.E.R.C. ¶ 61,108

(2003) (“Rehearing Order”). While maintaining that the

Commission’s orders violate both the “just and reasonable”

ratemaking standard of the Federal Power Act (“FPA”), 16

U.S.C. § 824d(a) (2000), and the arbitrary and capricious

standard of the Administrative Procedure Act (“APA”), 5 U.S.C.

§ 706(2)(A) (2000), ELCON urges a heightened standard of

review for “incentive ratemaking” requiring the Commission to

demonstrate that the rate increase is no more than necessary to

achieve its purpose of encouraging investment in new generation

facilities in New York State. Because we conclude that the rate

design does not impose an incremental rate increase above

traditional cost-based rates but rather seeks to stabilize rates to

promote the development and retention of installed capacity,

there is no basis for applying a heightened standard of review.

Upon applying the usual APA standard, we conclude that
3

the Commission’s approval of the rate design is supported by

substantial evidence in the record and is not otherwise arbitrary

and capricious. Accordingly, we deny the petition for review.

I.

To prevent electricity shortages during periods of peak

demand, the New York State Reliability Council required retail

utilities, known as load serving entities (“LSEs”), to purchase

installed capacity (“ICAP”) equal to 118% of their peak loads.

See Initial Order, 103 F.E.R.C. ¶ 61,201, at 61,750. If an LSE

failed to procure the required amount of ICAP through its own

supply or through bilateral contracts, it was required to purchase

the deficient quantity through NYISO auctions, at which the

price equaled a “deficiency charge” of $255 per kilowatt-year,

or three times the annualized cost of installing a new “peaker”

power plant. See id. This rate design resulted in a vertical

demand curve for ICAP, with the price equal to $255 for all

quantities up to 118%, and $0 for all quantities exceeding 118%.

Figure 1: Vertical Demand Curve
4

See id. & fig.1. According to NYISO, the vertical demand curve

caused extreme volatility in ICAP prices, thus discouraging

investment in new generation facilities and creating “the

potential for a capacity deficiency” in New York State. Id. at

61,751.

To addressthis problem, NYISO applied to the Commission

for approval of amendments to its tariff to incorporate a new rate

design replacing the vertical demand curve with a sloped “ICAP

Demand Curve,” which would be used in monthly auctions to

determine both the quantity and price of required ICAP. See id.

For 118% of peak load, the price would equal the annualized

cost of a new peaker plant. See id. As supply increased above

118%, the price would gradually decrease until it reached zero

for 132% of peak load, and as supply decreased below 118%,

the price would gradually increase until it reached a maximum

of two times the annualized cost of a new peaker plant. See id.

& fig.2.

Figure 2: Sloped ICAP Demand Curve
5

Each month, capacity suppliers, including LSEs with excess

capacity, would bid into an ICAP auction and create the supply

curve; the point of intersection between the supply curve and the

ICAP Demand Curve would determine the quantity and price of

required ICAP. See id. at 61,752. If the monthly auction

yielded a quantity less than 118% of peak load, NYISO would

purchase the deficient amount outside the auction market and

charge each LSE a “supplemental supply fee” equal to 1.5 times

the annualized cost of a new peaker plant. See id. at 61,753.

NYISO also proposed a “periodic independent review of the

Demand Curve every three years to determine whether

adjustments are warranted.” Id.

ELCON, which represents industrial consumers of

electricity, intervened and protested the new rate design, arguing

that it would increase electricity prices for consumers without

spurring investment in new generation capacity, and that it

violated incentive ratemaking case law because the ICAP

Demand Curve was not carefully calibrated to increase

investment in new generation facilities without granting a

windfall to existing capacity suppliers. The Commission

approved NYISO’s rate design with modifications, finding that

it would “benefit customers because it [would] provide better

price signals to investors for construction of new generation,

encourage the formation of long-term bilateral transactions, and

reduce incentives to withhold capacity.” Id. at 61,750. The

Commission agreed with NYISO that the ICAP Demand Curve

would “encourage greater investment in generation capacity and

thus improve reliability, by reducing the volatility of ICAP

revenues,” and concluded that it would “provide net benefits

especially compared with the existing vertical demand curve.”

Id. at 61,753-54. The Commission eliminated the supplemental

supply fee based on the concern that suppliers would withhold

capacity from the monthly ICAP auction in order to sell capacity

at the higher price of the supplemental supply fee. See id. at
6

61,761. Characterizing the ICAP Demand Curve as “a novel

proposal” requiring “some measure of judgment” in setting the

specific parameters, and observing that it “will be important to

evaluate and monitor the appropriateness of these parameters

after some experience is gained,” the Commission required

NYISO to file “a detailed evaluation of the Demand Curve and

its implementation by December 1, 2003, and annually for two

years thereafter.” Id. at 61,754. The Commission denied

ELCON’s petition for rehearing and approved NYISO’s

proposal to set the supplemental supply fee equal to the monthly

ICAP auction price. See Rehearing Order, 105 F.E.R.C. ¶

61,108, at 61,625. This petition for review followed.

II.

The court ordinarily reviews the Commission’s orders to

determine whether they are “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law.” 5 U.S.C.

§ 706(2)(A); see Pub. Utils. Comm’n v. FERC, 254 F.3d 250,

253-54 (D.C. Cir. 2001). Such review is limited to whether the

Commission has “examine[d] the relevant data and articulate[d]

a satisfactory explanation for its action, including a ‘rational

connection between the facts found and the choice made.’”

Motor Vehicle Mfrs. Ass’n v. State Farm Mutual Auto. Ins. Co.,

463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines, Inc. v.

United States, 371 U.S. 156, 168 (1962)). Specifically, “our

review of whether a particular rate design is ‘just and

reasonable’ is highly deferential” because “[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.” Pub. Utils. Comm’n, 254 F.3d at 254 (alteration in

original) (quoting Sithe/Independence Power Partners, L.P. v.

FERC, 165 F.3d 944, 948 (D.C. Cir. 1999)) (internal quotation

marks omitted). The Commission’s factual findings are

conclusive if supported by substantial evidence in the record, 16

U.S.C. § 825l(b), and the court defers to the Commission’s
7

resolution of factual disputes between expert witnesses, see

Wisc. Valley Improvement Co. v. FERC, 236 F.3d 738, 746-47

(D.C. Cir. 2001).

ELCON contends that the challenged orders are subject to

a heightened standard of review because the ICAP Demand

Curve is neither market-based nor cost-based but rather

administratively constructed to encourage investment in new

generation capacity. According to ELCON, the Commission

must demonstrate that such “incentive ratemaking” is “in fact

needed, and is no more than is needed, for the purpose.” City of

Detroit v. Fed. Power Comm’n, 230 F.2d 810, 817 (D.C. Cir.

1955). In support of this heightened standard of review,

ELCON cites a line of cases involving the Commission’s

approval of incremental rate increases above cost-based rates to

encourage increases in energy supply. See, e.g., Farmers Union

Cent. Exch., Inc. v. FERC, 734 F.2d 1486, 1503 (D.C. Cir.

1984); City of Charlottesville v. FERC, 661 F.2d 945, 950 (D.C.

Cir. 1981); Pub. Serv. Comm’n v. FERC, 589 F.2d 542, 552-53

(D.C. Cir. 1978); City of Detroit, 230 F.2d at 817-818. ELCON

also cites the Commission’s 1992 Policy Statement on incentive

ratemaking, which states that the Commission “is free to set

rates [above cost-based rates] to provide incentives so long as

there is a correlation between the incentive and the result to be

induced.” Incentive Ratemaking for Interstate Natural Gas

Pipelines, Oil Pipelines, and Electric Utilities, 61 F.E.R.C. ¶

61,168, 61,594 (1992). ELCON maintains that the new rate

design violates the incentive ratemaking case law and the 1992

Policy Statement because it offers increased revenues to all

capacity suppliers, regardless of whether they invest in new

generation facilities. In ELCON’s view, the new rate design

grants a windfall to existing capacity suppliers at the expense of

LSEs and their customers.

In the Initial Order, the Commission explained that the
8

incentive ratemaking cases and the 1992 Policy Statement were

inapplicable to the ICAP Demand Curve because they “involved

incremental rate increases levied upon all customers,” whereas

“ICAP charges are not automatically applied to every sale of

power, and they can be avoided by self-supplying or procuring

adequate capacity through bilateral contracts.” Initial Order,

103 F.E.R.C. ¶ 61,201, at 61,755. On rehearing, the

Commission further explained that although the incentive

ratemaking cases “involved proposals to encourage new

supplies, as does New York’s ICAP Demand Curve, they were

implemented as different types of rates than the instant one and

with a different potential impact on ratepayers.” Rehearing

Order, 105 F.E.R.C. ¶ 61,108, at 61,620. While the

Commission does not explore this difference in detail, the court

can “discern a reasoned path” to the Commission’s conclusion,

E. Tex. Elec. Coop., Inc. v. FERC, 218 F.3d 750, 755 (D.C. Cir.

2000), because the intervening capacity suppliers lay out that

path in detail in their brief.

Unlike incentive ratemaking, the ICAP Demand Curve does

not impose an incremental rate increase above traditional costbased rates. “For the rationale of the incentive rate cases to

apply here,” the intervening capacity suppliers explain, ELCON

“would need to identify a ‘rate increase’ over and above the

rates permitted under the Vertical Demand Curve — rates that

[ELCON] concede[s], at least implicitly — fall within the ‘zone

of reasonableness’ under the just and reasonable standard.” Br.

of Supplier Intervenors at 8. Under the vertical demand curve,

ICAP prices ranged from zero to the deficiency charge, or three

times the annualized cost of a new peaker plant. See Initial

Order, 103 F.E.R.C. ¶ 61,201, at 61,750. Under the sloped

demand curve, ICAP prices range from zero to two times the

annualized cost of a new peaker plant. See id. at 61,751. At

quantities above 118% of peak load, ICAP prices are higher

under the sloped demand curve than under the vertical demand
9

curve, but at quantities equal to or below 118%, ICAP prices are

lower under the sloped demand curve than under the vertical

demand curve. Compare id. at 61,750 fig.1 with id. at 61,751

fig.2. Thus, the intervening capacity suppliers point out, the

sloped demand curve does not impose an incremental rate

increase.

More important, unlike incentive ratemaking, the ICAP

Demand Curve encourages investment in new generation

capacity by ensuring “increased stability in ICAP revenues,” not

higher rates across the board. Id. at 61,758. Instead of granting

“above-cost premiums to suppliers of capacity,” Br. of Resp’t at

26, the ICAP Demand Curve restructures ICAP prices to “more

realistically reflect[] the economic value of capacity reserves”

and to “send better price signals to encourage the construction

of generation before a shortage occurs.” Initial Order, 103

F.E.R.C. ¶ 61,201, at 61,756-57. In the Commission’s view,

stable ICAP revenues will reduce the risk and cost of financing

investment in new generation capacity and thus reduce the cost

of electricity to consumers in the long term. See id. Its

conclusion is supported by substantial evidence in the record.

See infra Part III. 

Insisting that the ICAP Demand Curve imposes excessive

incentive rates, ELCON relies on two decisions of the First

Circuit: Central Maine Power Co. v. FERC, 252 F.3d 34 (1st

Cir. 2001), and Sithe New England Holdings, LLC v. FERC, 308

F.3d 71 (1st Cir. 2002), which address ICAP charges similar to

those here. In Central Maine, the Commission had initially

imposed a deficiency charge equal to $8.75 per kilowatt-month

based on the amortized cost of a new peaker plant, and then later

abandoned the deficiency charge in favor of an ICAP auction

market. See 252 F.3d at 39. After the ICAP auction market

proved a failure, the Commission reinstated the $8.75 deficiency

charge without responding to objections that it was no longer
10

necessary to encourage investment in new generation capacity

and that the cost of a new peaker plant had since decreased. See

id. at 39-45. Although the First Circuit remanded the case for

the Commission to explain its reinstatement of the deficiency

charge, see id. at 47-48, it did not, contrary to ELCON’s

suggestion, require the Commission to demonstrate that the

$8.75 charge was no more than necessary to encourage

investment in new generation capacity. The court did not cite

the incentive ratemaking cases and in fact suggested a

deferential standard of review, stating that “[i]f FERC had

provided even a semblance of serious discussion as to why a

substantial ICAP charge was still required and why the

preexisting figure was the best solution on short notice, quite

probably the charge would be sustained outright.” Id. at 44. In

Sithe, which was “a sequel to Central Maine,” 308 F.3d at 73,

the issue was whether the FPA required the Commission to

apply the reinstated deficiency charge retroactively. Id. at 76.

As ELCON points out, the First Circuit explained that the

deficiency charge was not a “statutory entitlement” but rather

“an extra incentive to construct new plants.” Id. at 77. But

contrary to ELCON’s contention, and as the Commission noted

in the challenged orders, nowhere in Sithe did the First Circuit

suggest that the deficiency charge was subject to the heightened

standard of review articulated in the incentive ratemaking cases.

See Initial Order, 103 F.E.R.C. ¶ 61,201, at 61,755; Rehearing

Order, 105 F.E.R.C. ¶ 61,108, at 61,620. Thus, ELCON fails to

demonstrate that the new rate design imposes incentive rates

subject to a heightened standard of review, and we apply the

usual arbitrary and capricious standard. 

The Commission maintains that the court owes “special

deference” to its development of the “experimental” ICAP

Demand Curve because regardless of the evidence in the record,

“there is no substitute for reviewing the actual results of a

regulatory action.” Interstate Natural Gas Ass’n v. FERC, 285
11

F.3d 18, 30 (D.C. Cir. 2002). The court has recognized that “the

formulation of such an experimental policy (where the

probability of success is uncertain) is the type of activity that the

[Commission] was created to perform, and we give great weight

to the Commission’s determination regarding this policy.” Pub.

Serv. Comm’n v. Fed. Power Comm’n, 463 F.2d 824, 828 (D.C.

Cir. 1972). However, even this highly deferential standard of

review “demand[s] an articulation, in response to serious

objections, of the Commission’s reasons for believing that more

good than harm will come of its action — even experimental

action.” Md. People’s Counsel v. FERC, 761 F.2d 768, 779

(D.C. Cir. 1985). Moreover, the deference the court affords the

Commission is based on the understanding that the Commission

will monitor its experiment and review it accordingly. See Pub.

Serv. Comm’n, 463 F.2d at 828. Under these circumstances, the

court will defer to the Commission’s predictive judgment that

the new rate design will result in “more good than harm,” as

long as the Commission articulates reasons for its judgment and

responds adequately to ELCON’s objections. Although the

Commission did not schedule a sunset date or periodic review

of the ICAP Demand Curve, it did require NYISO to file annual

evaluations of the Demand Curve, see Initial Order, 103

F.E.R.C. ¶ 61,201, at 61,754, thereby ensuring that NYISO and

the Commission will have the information needed to determine

whether the rate design requires modification should their

predictions fail to be borne out by experience. During oral

argument ELCON suggested that the Commission’s

characterization of the ICAP Demand Curve as an experiment

is a post-hoc rationalization, but even if true that would not

change the result here, for we conclude that the petition must be

denied under the ordinary APA standard of review.

III.

ELCON raises a number of challenges to the Commission’s

approval of the new rate design. While ELCON maintains that
12

the Commission failed to consider certain objections, the record

demonstrates otherwise, indicating that ELCON’s challenges are

to the Commission’s predictive judgments and policy choices,

to which the court owes deference.

First, ELCON contends that the Commission failed to

consider objections that the ICAP charges under the Demand

Curve were too high and that the slope of the Demand Curve

was too gradual. ELCON points to the testimony of expert

witness David W. Segal indicating that the Commission

overestimated the annualized cost of installing a new peaker

plant, underestimated the useful life of a new peaker plant,

ignored the revenue earned from the energy and ancillary

service markets, and overestimated the value of reliability to

consumers. In fact, the Commission considered the objections

raised by ELCON and determined based on the evidence offered

by NYISO and its expert witness Dr. David B. Patton that the

parameters of the ICAP Demand Curve were “appropriate and

reasonable.” Rehearing Order, 105 F.E.R.C. ¶ 61,108, at

61,623. After reciting the objections to Dr. Patton’s estimates,

see id., the Commission explained that it considered the

parameters to be reasonable, emphasizing the fact that the ICAP

Demand Curve was initially proposed by the New York Public

Service Commission (“NYPSC”) and reflected a year of

negotiations and discussions among NYPSC, NYISO, and ICAP

market participants. See id. at 61,618, 61,623; Initial Order, 103

F.E.R.C. ¶ 61,201, at 61,754. While the Commission expressed

some uncertainty about the accuracy of the exact points and

slope of the Demand Curve, it observed that confirming specific

parameters would require “some measure of experience,” and

required NYISO to monitor the results of the Demand Curve,

expecting NYISO to review the Demand Curve with stakeholder

input and to adjust the parameters as appropriate, subject to

Commission approval. Rehearing Order, 105 F.E.R.C. ¶

61,108, at 61,623. Moreover, as the Commission points out in
13

its brief, Segal’s estimates were not offered as an alternative

calculation of a reasonable ICAP charge but rather as evidence

that such a calculation was difficult to determine

administratively. Because there is substantial evidence in the

record to support the Commission’s conclusions, we defer to the

Commission’s evaluation of the experimental rate design.

Second, ELCON contends that the Commission failed to

consider the increased costs that the ICAP Demand Curve will

impose on electricity consumers. It cites Dr. Patton’s estimate

that the ICAP Demand Curve will increase costs by $70 million

in New York City and $84 million in the rest of the State during

the first year, Dr. Carl Pechman’s estimate that the Demand

Curve will increase costs by $700 million over a three-year

period, and Strategic Energy’s estimate that the Demand Curve

will increase costs by $1 billion per year. The Commission

considered and rejected these estimates. See Initial Order, 103

F.E.R.C. ¶ 61,201, at 61,757-758. Noting that one intervenor

concluded that Dr. Pechman’s estimate was “grossly

overstated,” and that several intervenors argued that the longterm benefits of the ICAP Demand Curve would outweigh any

short-term costs, id. at 61,757, the Commission concluded that

by reducing volatility in ICAP revenues and spurring new

generation capacity, the ICAP Demand Curve would “provide

long term benefits to NYISO markets and customers,” id. at

61,758. Indeed, the Commission emphasizes in its brief Dr.

Patton’s conclusion that any costs of the ICAP Demand Curve

are “transitional and will be eliminated over time as the market

moves toward a long-run equilibrium.” Patton Aff. ¶ 61, at 17;

Br. of Resp’t at 37. While the Commission recognized that it

could not predict the exact amount of savings achieved by the

ICAP Demand Curve, see Initial Order, 103 F.E.R.C. ¶ 61,201,

at 61,758, it did cite Dr. Patton’s estimates that a 1% increase in

capacity would yield savings of $1 million per year in the long

term, and that even in the short term, the ICAP Demand Curve
14

could save New York City between $57 million and $212

million. See id. at 61,757 n.23, 61,758 n.24; Patton Aff. ¶¶ 22,

31 at 5, 8. The Commission also noted that compared to the

vertical demand curve, under which the deficiency charge is

equal to three times the annualized cost of a new peaker plant,

the new rate design would provide savings. See Initial Order,

103 F.E.R.C. ¶ 61,201, at 61,758. Because the Commission’s

predictive judgment that the ICAP Demand Curve will result in

long-term savings is supported by substantial evidence in the

record, and because the balancing of short-term costs against

long-term benefits is within the Commission’s discretion, the

court defers to the Commission’s policy choice.

Third, ELCON contends that the Commission failed to

consider evidence in the record that the ICAP Demand Curve

will not encourage investment in new generation capacity.

ELCON cites comments by Energy East, New York City,

Strategic Energy, and the Morgan Stanley Group suggesting that

reluctance to build new generation facilities in New York State

arises from concerns other than the structure of the ICAP

market, and that the ICAP Demand Curve offers an

“indiscriminate subsidy” to all capacity suppliers without

requiring them to use their increased revenues to build new

generation facilities in New York. The Commission considered

and rejected these comments. See Initial Order, 103 F.E.R.C.

¶ 61,201, at 61,763-64. The Commission explained that while

it did not expect the ICAP Demand Curve to “alone result in

more financing,” it did expect that “more reliable and

predictable ICAP revenues would contribute to a more reliable

overall revenue structure for an ICAP supplier and thus play

some role in improving that supplier’s prospects for financing.”

Id. That expectation is supported by substantial evidence in the

record, including the expert witness testimony of Dr. Patton, Dr.

Thomas Paynter, and Mark Younger. Moreover, even if the

record does not show “for certain that the Commission’s
15

incentive policy will work . . . it is nonetheless true that the

record does not show that such a policy will not work,” and “we

cannot say that the Commission’s incentive theory lacks logic.”

Pub. Serv. Comm’n, 463 F.2d at 828. In response to the

contention that the ICAP Demand Curve offers increased

revenues to both new and existing capacity suppliers, the

Commission explained that “all capacity suppliers, regardless of

the age of their resources, are entitled to the same treatment in

the ICAP market.” Initial Order, 103 F.E.R.C. ¶ 61,201, at

61,764. On rehearing the Commission further explained that its

“acceptance of the ICAP Demand Curve was based on its

readjustment of the incentives for building new generation and

retaining existing generation.” Rehearing Order, 105 F.E.R.C.

¶ 61,108, at 61,621 (emphasis added). The Commission thus

considered ELCON’s objections and articulated a reasonable

explanation for rejecting them.

Fourth, ELCON contends that the Commission failed to

consider its objection that the ICAP Demand Curve replaces

price volatility with quantity volatility, thus discouraging

bilateral contracts and destroying the stability needed to

encourage investment in new generation capacity. According to

ELCON, quantity volatility is more damaging than price

volatility because LSEs “have no way to hedge against the

uncertainty associated with the monthly required quantity.” Br.

of Pet’r at 37. The Commission considered and rejected this

objection. See Initial Order, 103 F.E.R.C. ¶ 61,201, at 61,759-

760. In response to the contention that quantity volatility could

not be hedged, the Commission quoted Dr. Patton’s testimony

that “LSEs will have the opportunity to purchase any quantity of

capacity they desire in the forward market and the spot market

provides a means to sell back any excess capacity purchased

forward.” Id. at 61,760 (quoting Supplemental Patton Aff. ¶ 17,

at 5) (internal quotation marks omitted). The Commission

further explained on rehearing that LSEs could “hedge most of
16

their [ICAP] obligations by purchasing an estimate of their

ICAP obligation through bilateral contracts” and “sell[ing] the

excess back into the spot market.” Rehearing Order, 105

F.E.R.C. ¶ 61,108, at 61,622. The Commission also concluded

that the quantity volatility under the sloped ICAP Demand

Curve, which was limited to a range of 118% to 132% of peak

load, was less extreme and thus less damaging than the price

volatility under the vertical demand curve, which ranged from

$0 to more than $200 per kilowatt-year. See Initial Order, 103

F.E.R.C. ¶ 61,201, at 61,760; Rehearing Order, 105 F.E.R.C. ¶

61,108, at 61,621-22. It further noted that any quantity volatility

would likely decrease over time as market participants gained

experience with the Demand Curve and as the market reached

long-run equilibrium. See Initial Order, 103 F.E.R.C. ¶ 61,201,

at 61,760; Rehearing Order, 105 F.E.R.C. ¶ 61,108, at 61,622.

Thus, the Commission adequately considered and responded to

ELCON’s objections.

Fifth, ELCON contends that the Commission failed to

consider alternatives to the ICAP Demand Curve proposed by

Strategic Energy, Con Edison, Energy East, and New York City.

The Commission considered the two alternatives proposed

directly to it and not to NYISO — bilateral contracts and

demand response — and determined that they were compatible

with the ICAP Demand Curve. See Initial Order, 103 F.E.R.C.

¶ 61,201, at 61,763; Rehearing Order, 105 F.E.R.C. ¶ 61,108, at

61,621. Because the Commission provided a reasonable

explanation for choosing the ICAP Demand Curve despite the

proposed alternatives, the court defers to the Commission’s

policy choice.

ELCON’s final objection, that the Commission “ignored

substantial evidence that supply conditions in New York are not

critical and thus do not justify the level of the Demand Curve

ICAP charges,” Br. of Pet’r at 23, is not properly before the
17

court. ELCON did not raise this objection in its petition for

rehearing by the Commission, and thus it is waived. See 16

U.S.C. § 825l(b). In any event, NYISO presented evidence of

a capacity shortage in New York, and the Commission pointed

out that the ICAP Demand Curve would prevent future

shortages. See Initial Order, 103 F.E.R.C. ¶ 61,201, at 61,756.

Accordingly, because ELCON fails to show that the

Commission’s approval of the new rate design was arbitrary and

capricious, we deny the petition for review.
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