Opinion ID: 2790973
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Challenged Orders Are Lawful

Text: We review final FERC orders under the Administrative Procedure Act, which requires an order to be set aside if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Green Island Power Auth. v. FERC, 577 F.3d 148, 158 (2d Cir. 2009) (quoting 5 U.S.C. § 706(2)(A)) (internal quotation marks omitted). An order ranks as arbitrary and capricious if “the agency relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Id. (quoting LaFleur v. Whitman, 300 F.3d 256, 267 (2d Cir. 2002)) (internal quotation marks omitted). FERC “must examine the relevant data and articulate a satisfactory 5 Joint Intervenors implicitly suggest that the elimination criteria argument is unpreserved by claiming that New York Petitioners’ single preserved argument concerns FERC’s refusal to take ongoing New York transmission initiatives into account. As noted in the text, however, the elimination criteria argument was raised on rehearing and is therefore properly before us: New York Petitioners devoted an entire section of their rehearing request to the argument that FERC erred in not requiring criteria for the elimination of the Lower Hudson Valley Zone. See J.A. 1080‐83. 34 explanation for its action[s] including a ‘rational connection between the facts found and the choice[s] made.’” Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)). FERC’s decisions must also be supported by substantial evidence. See Rochester Gas & Elec. Corp. v. Fed. Power Comm’n, 344 F.2d 594, 596 (2d Cir. 1965). This requires the record to contain “more than a scintilla but less than a preponderance” of evidence in support of FERC’s determination, such that “a reasonable mind might accept [the evidence] as adequate to support [FERC’s] conclusion.” Miller v. United Welfare Fund, 72 F.3d 1066, 1072 (2d Cir. 1995) (quoting Sandoval v. Aetna Life & Cas. Ins. Co., 967 F.2d 377, 382 (10th Cir. 1992)) (internal quotation mark omitted) . Under the FPA’s judicial review provision, however, “FERC’s findings of fact, ‘if supported by substantial evidence, shall be conclusive.’” Green Island Power Auth., 577 F.3d at 158 (quoting 16 U.S.C. § 825l(b)). “[W]e afford great deference to [FERC] in its rate decisions.” Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1, 554 U.S. 527, 532 (2008). We also agree with the D.C. Circuit that “[b]ecause issues of rate design are fairly technical and, insofar as they are not technical, involve policy judgments that lie at the core of the 35 regulatory mission, our review of whether a particular rate design is just and reasonable is highly deferential.” Sithe/Independence Power Partners, L.P. v. FERC, 165 F.3d 944, 948 (D.C. Cir. 1999) (brackets and internal quotation marks omitted).
Petitioners contend that FERC did not adequately support its conclusion that the creation of the new Lower Hudson Valley Zone justified the costs imposed by the zone—i.e., its conclusion that the creation of the new zone would ultimately result in just and reasonable rates. We disagree. FERC adequately supported its decision to approve the creation of the Lower Hudson Valley Zone by relying on economic theory. The D.C. Circuit has held that FERC may permissibly rely on economic theory alone to support its conclusions so long as it has applied the relevant economic principles in a reasonable manner and adequately explained its reasoning. See, e.g., Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520, 531 (D.C. Cir. 2010) (holding that FERC appropriately made findings based on “‘generic factual predictions’ derived from economic research and theory . . . given that it explained and applied the relevant economic principles in a reasonable manner” (quoting Transmission Access Policy Study Grp. v. FERC, 225 F.3d 667, 688 (D.C. Cir. 2000))); Wis. Pub. Power Inc. v. 36 FERC, 493 F.3d 239, 260‐61 (D.C. Cir. 2007) (holding that FERC’s prediction that a given formula for allowing electricity suppliers to recover fixed costs in setting prices would “provide an efficient incentive to invest” was a “reasonable predictive judgment that warrants judicial deference”); Associated Gas Distribs. v. FERC, 824 F.2d 981, 1008 (D.C. Cir. 1987) (stating that courts should not set aside an agency’s “reliance on generic factual predictions merely because they are typically studied in the field called economics”). We agree, and we will therefore consider whether FERC reasonably applied sound economic principles and articulated an adequate explanation for how those principles justified its conclusion. As FERC explained in the New Zone Criteria Order, the “highway” deliverability test pursuant to which NYISO determined that the Lower Hudson Valley Zone should be created is designed to address reliability concerns that arise due to transmission constraints between different areas of an existing zone. Because NYISO’s capacity auctions are zone‐wide, capacity resources that bid to supply capacity for a given zone can be located anywhere in the zone. If a transmission constraint exists, “the capacity auction for that zone may accept more capacity in the unconstrained area than can be delivered to the constrained area.” New Zone Criteria Order at P 56. Capacity in the unconstrained area may even “displace 37 capacity located in the constrained area,” id. at P 56, if, for example, the cost of supplying capacity is lower in the unconstrained area and resources in that area therefore provide lower bids at auction, see Zone Rehearing Order at PP 15‐16. Under those circumstances, the amount of capacity that is actually deliverable to the constrained area might be “less than the amount needed for reliability.” New Zone Criteria Order at P 56. Moreover, failing to pay resources located in the constrained area for their capacity could lead to insufficient capacity supply in the constrained area, jeopardizing long‐term reliability. To put it in simple terms, NYISO’s auctions award capacity payments to the resources who supply capacity at the lowest cost, and if those payments are going only to cheaper upstate resources that may be unable to actually deliver power to downstate consumers, then downstate resources who can deliver power to those consumers might not stay in business. By providing for the creation of a new zone in a way that accounts for transmission constraints, FERC sought to ensure that capacity prices in the constrained area would “be allowed to rise above prices in the unconstrained area, thereby providing stronger incentives to attract and retain capacity needed to meet reliability objectives in the constrained area.” Id. at P 57. 38 After NYISO applied the deliverability test prescribed by the New Zone Criteria Orders and sought FERC’s approval to create the Lower Hudson Valley Zone in the Zone proceeding, FERC reaffirmed the economic basis for its conclusion that the new zone would lead to just and reasonable rates by generating more accurate price signals. See Zone Order at P 24 (“The results of NYISO’s application of the . . . Deliverability test demonstrate that a significant transmission constraint currently exists into NYISO’s proposed new capacity zone. Any resulting higher capacity prices in the new capacity zone will help to encourage the development of new generation and/or transmission capacity to help alleviate the constraint. Such price changes promote efficient decisions and are not unreasonable.”). Indeed, in its request for rehearing in the Zone proceeding, the NYPSC recognized the validity of FERC’s economic reasoning, conceding that “creating [the Lower Hudson Valley Zone] could have long‐term reliability benefits” and “may eventually incent new generation in that location.” J.A. 1076. We conclude that FERC articulated sound economic principles supporting the creation of the Lower Hudson Valley Zone and satisfactorily explained how those principles justified its conclusion. Accordingly, FERC’s determination that the creation of the new zone would lead to just and reasonable rates was adequately 39 supported, and was not arbitrary and capricious. New York Petitioners’ arguments to the contrary are not persuasive. New York Petitioners claim that the long‐term benefits that FERC claims will follow from the accurate price signals generated by the new zone “are merely predictions.” N.Y. Pet’rs’ Br. at 22. Quoting the D.C. Circuit’s decision in Electricity Consumers Resource Council v. FERC, they contend that “mere reliance on an economic theory cannot substitute for substantial record evidence and the articulation of a rational basis for [FERC’s] decision.” 747 F.2d 1511, 1514 (D.C. Cir. 1984). But the D.C. Circuit has since clarified (repeatedly) that FERC’s economic argument in Electricity Consumers was unavailing not because reliance on economic theory alone is never permissible, but because the court there “was persuaded that the Commission had ‘inexplicably distorted’ the theory that it claimed to apply.” Associated Gas. Distribs., 824 F.2d at 1008 (quoting Elec. Consumers, 747 F.2d at 1514); see also Sacramento Mun. Util. Dist., 616 F.3d at 531 (“Neither Electric [sic] Consumers nor any other case law prevents the Commission from making findings based on generic factual predictions derived from economic research and theory.”) (internal quotation marks and citation omitted). Here, as we have explained, FERC has not distorted economic theory in 40 reasoning that the creation of the Lower Hudson Valley Zone will ensure accurate price signals and thereby alleviate the risk of reliability problems in the long run. Petitioners also argue that FERC failed to consider the new zone’s impact on consumer rates. FERC’s orders, however, show that it did consider the new zone’s impact on consumer rates. See, e.g., Zone Rehearing Order at P 17 (“The reality is that, in the short run, consumers may pay more but doing so is necessary to provide the appropriate price signals to incent developers to build or restore capacity and address a long‐standing problem. . . . The Commission hopes to emphasize that decision‐making based only on avoiding price increase in the short‐term could threaten reliability and price stability in the long‐term.”). FERC also explained that rates in the Lower Hudson Valley Zone would be likely to decrease over time “[a]s more capacity locates in the new capacity zone.” Id. (And, as we have explained, New York Petitioners failed to preserve their argument that FERC was required to quantify consumer benefits.) “[T]he FPA has multiple purposes in addition to preventing excessive rates, including protecting against inadequate service and promoting the orderly development of plentiful supplies of electricity.” Consol. Edison Co. of N.Y., Inc. v. FERC, 510 F.3d 333, 342 (D.C. Cir. 2007) (citations and internal quotation marks 41 omitted). In determining whether rates are just and reasonable, FERC is charged with balancing these competing interests, see, e.g., New Eng. Power Generators Ass’n, v. FERC, 757 F.3d 283, 298 (D.C. Cir. 2014), and we are not persuaded that there is anything unreasonable in FERC’s conclusion that higher prices were necessary to ensure reliability by generating accurate price signals in the long run.
Apart from challenging FERC’s balancing of higher consumer costs against the long‐term benefits of generating more accurate price signals, Petitioners also object to FERC’s decision to reject a phase‐in of the Lower Hudson Valley Zone and the rate increases portended by the new zone’s demand curve. This issue arose in both the Zone proceeding and the Demand Curve proceeding. In the Zone proceeding, NYISO’s proposal did not call for a phase‐in of the new zone, but a group of New York Transmission Owners (including Utility Petitioners) protested that the zone should be phased in to soften the impact of rate increases. See Zone Order at P 28. In the Demand Curve proceeding, NYISO proposed to phase in the demand curve for the new zone by discounting the demand curve to 76.06 percent of the cost of new entry in the first year and 88.03 percent in the second year, and Petitioners urged FERC to adopt this aspect of NYISO’s proposal. See Demand 42 Curve Order at PP 141‐47, 155‐56. In both proceedings, FERC rejected the phase‐in, explaining that “a phase‐in would delay the capacity market’s ability to send more efficient investment price signals to attract and maintain sufficient capacity to meet local demand.” Demand Curve Order at P 164; see also Zone Order at P 31; Zone Rehearing Order at PP 13‐20; Demand Curve Rehearing Order at P 59‐65. FERC rejected Petitioners’ arguments that the years‐long timeframe for the construction of new capacity resources in the Lower Hudson Valley Zone implied that short‐term increases in capacity prices would be irrelevant to FERC’s goal of maintaining adequate capacity supply in the new zone. FERC explained that accurate price signals would not only create the proper long‐term incentives for building new capacity resources, but would also affect “shorter term supply responses, i.e., demand response and repowering options.”6 Demand Curve Order at P 164; see also Zone Rehearing Order at P 20 (reiterating FERC’s finding that “a phase‐in could adversely affect incentives to supply shorter term capacity responses, such as demand response and repowering options.”). Additionally, FERC asserted 6 Demand response is “reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.” Elec. Power Supply Ass’n v. FERC, 753 F.3d 216, 220 (D.C. Cir. 2014) (quoting 18 C.F.R. § 35.28(b)(4)) (internal quotation marks and emphasis omitted). 43 that accurate short‐term prices would “guide efficient investment decisions to add or retire capacity resources.” Demand Curve Order at P 162 (emphasis added); see also Zone Rehearing Order at P 16 (warning that failure to create a new zone would “encourage[] premature capacity retirements in the import‐constrained area because of the area’s inefficiently low prices”); Demand Curve Rehearing Order at P 61 (same). Thus, in FERC’s view, an immediate increase in prices would, in fact, help alleviate short‐term reliability concerns by properly incentivizing demand response and repowering options and by discouraging early retirement of existing resources; none of these sources of capacity would require years to come on line. Petitioners argue that FERC’s rejection of a phase‐in resulted in unjust and unreasonable rates and was not supported by substantial evidence.7 They contend that there was insufficient evidence of a short‐term reliability needs in the new zone, 7 FERC and Joint Intervenors assert that, because a phase‐in would require a waiver of NYISO’s tariff, FERC acted within its discretion in denying the phase‐in. They argue that it was NYISO’s burden to show that a phase‐in of the demand curve was just and reasonable. Petitioners counter that FERC nevertheless maintained the burden of showing that implementing the Lower Hudson Valley Zone without a phase‐ in would result in just and reasonable rates, and that FERC was therefore required to show that implementing the full demand curve immediately would provide cost‐ justified benefits to consumers. As explained in the text, we conclude that even if FERC were required to show that implementing the Lower Hudson Valley Zone without the phase‐in would result in just and reasonable rates, it has satisfied this burden. Thus, we do not decide whether FERC had such a burden. 44 and they accuse FERC of failing to identify short‐term supply responses whose decisions would actually be affected by higher short‐term prices. In this context, Petitioners are arguably on stronger footing in suggesting that FERC’s reliance on economic analysis alone is insufficient. As we have discussed, in describing the long‐term benefits of creating the Lower Hudson Valley Zone, FERC persuasively explained why economic theory dictated that reliability concerns are likely to arise in a transmission‐constrained area and that creating a new demand curve for the constrained area would appropriately incentivize the supply of capacity within that area on an aggregate level. But in zeroing in on specific categories of capacity suppliers that would respond to short‐term incentives and mitigate short‐term reliability needs, FERC necessarily assumed that such suppliers existed and would respond to higher prices, and that a short‐term reliability need required an immediate response. However, even accepting for the sake of argument Petitioners’ position that FERC was required to point to evidence supporting its factual premises, we conclude, for the following reasons, that the evidence was sufficient to justify FERC’s rejection of the phase‐in. NYISO asserted, in its proposed tariff revisions in the Zone proceeding, that the “reliability needs” that the new zone would address “are becoming increasingly 45 significant.” J.A. 129. FERC pointed to this statement, as well the 2012 “State of the Market” report cited by NYISO, in determining that a lack of accurate price signals in the constrained zone was already leading to a decrease in available capacity within the zone. See Zone Order at P 35; see also Demand Curve Order at P 162 (declining to “reconsider” the Zone Order’s decision not to adopt a phase‐in). The 2012 State of the Market Report supported FERC’s conclusion. It suggested that the new zone should have been created even sooner, and that the delay “has had several consequences”—including that “[t]he total amount of unforced capacity sold in Zones G, H, and I has fallen by 1 GW (or 21 percent) since the summer of 2006.” Joint Intervenors’ App’x A‐74. The report further suggested that “[s]ome of this capacity may have been economic to remain in service or been maintained more reliably if the . . . capacity zone had been implemented sooner.” Id. This evidence of negative consequences resulting from the initial delay in the Lower Hudson Valley Zone’s implementation supported FERC’s prediction that further delay would cause similar results. There was also evidence supporting FERC’s prediction that further capacity resource losses in the Lower Hudson Valley Zone not only would occur, but also 46 would jeopardize short‐term reliability.8 An expert affidavit that FERC cited in the Demand Curve Order stated that “the loss of any of . . . three large generating facilities in Zones G‐I would likely cause immediate and significant reliability problems for the NYISO.” J.A. 790; see Demand Curve Order at P 159. Moreover, in both of its orders on rehearing, FERC pointed to NYISO’s Summer 2014 Capacity Assessment, which indicated that under extreme weather conditions, Southeast New York would experience a capacity reserve shortage, and that NYISO might therefore be required to invoke its emergency operating procedures to ensure sufficient generation to meet Southeast New York’s needs. Zone Rehearing Order at P 17 n.29; Demand Curve Rehearing Order at P 62 n.49. New York Petitioners claim that FERC miscalculated the size of the potential shortage, but as Joint Intervenors point out, a shortage of any magnitude would reasonably have provided cause for concern. FERC is owed deference in drawing conclusions from this report. And although FERC’s ordinary practice is not to consider new evidence on rehearing, see Exxon 8 NYISO’s own expert’s statement that discounted capacity prices “would be adequate to retain sufficient existing capacity to meet reliability needs,” J.A. 1625, does not require us to reject FERC’s contrary conclusion. See Wis. Valley Improvement Co. v. FERC, 236 F.3d 738, 746‐47 (D.C. Cir. 2001) (describing “the presence of disputing expert witnesses” as “a classic example of a factual dispute the resolution of which implicates substantial agency expertise” (quoting Marsh v. Or. Natural Res. Council, 490 U.S. 360, 376 (1989)) (internal quotation marks omitted)). 47 Corp. v. FERC, 114 F.3d 1252, 1260 n.12 (D.C. Cir. 1997), Petitioners point to no authority suggesting that FERC is prohibited from doing so when the evidence is in the record already or, as with NYISO’s Summer 2014 Capacity Assessment, is publicly available. See, e.g., Wis. Power & Light Co. v. FERC, 363 F.3d 453, 463 (D.C. Cir. 2004) (approving consideration of “relevant, publicly available studies, which need not have been introduced into the record”). Furthermore, there was evidence in the record suggesting that specific resources would respond to the incentives created by immediate implementation of the Lower Hudson Valley Zone’s demand curve. In the Demand Curve Order, FERC cited a submission from Entergy, which suggested that “a phase‐in that would suppress prices for a two‐year period would discourage competitive supply.” Demand Curve Order at P 164. The cited portion of Entergy’s submission discussed a specific generating facility called Bowline Unit 2, which NRG was considering restoring in response to the creation of the Lower Hudson Valley Zone. J.A. 1721‐23. NRG had indicated that it was far more likely to pursue this restoration if there were no phase‐in of the demand curve for the new zone.9 (Contrary to Utility Petitioners’ 9 The brief filed by NRG as an Intervenor in this appeal supports Entergy’s argument before FERC that the restoration of Bowline Unit 2 was financially justified only upon creation of the new zone. 48 argument, this evidence was not newly introduced at the rehearing stage.) Although Utility Petitioners challenge NRG’s suggestion that the phase‐in of the demand curve would actually affect its investment decisions given that Bowline Unit 2 would not be restored in time for, or eligible to participate in, 2014 capacity auctions, we think FERC rationally could have credited NRG’s and Entergy’s arguments, which were supported by an affidavit from Entergy’s expert, that a phase‐in would increase perceived regulatory risk and therefore reduce the likelihood of Bowline Unit 2’s being restored in the short term—regardless of when the facility would actually be able to participate in capacity auctions. See J.A. 1721‐ 23. Finally, New York Petitioners also suggest that FERC’s concern about reliability cannot be squared with its rejection of a reliability criterion in the New Zone Criteria Orders, rendering its reasoning arbitrary and capricious. This argument is a red herring. As we have discussed, FERC made clear throughout both of the proceedings at issue that the “highway” deliverability criterion that it instructed NYISO to apply in determining the need for a new zone was designed to address reliability concerns caused by transmission constraints. Accordingly, FERC’s reliance on reliability concerns in rejecting a phase‐in was wholly 49 appropriate. Given the deference that FERC is owed in this highly technical area, we conclude that its economic predictions about the effects of immediately implementing the Lower Hudson Valley Zone and its demand curve, combined with the evidence described above suggesting that a phase‐in of the demand curve would inhibit efforts to incentivize needed short‐term supply responses, were sufficient to support its decision to reject the phase‐in of the new zone and its demand curve. Because FERC adequately justified higher prices by reference to specific offsetting short‐term benefits, there is no basis for us to disturb FERC’s conclusion that the higher rates generated by the immediate implementation of the new zone were just and reasonable.
We also reject New York Petitioners’ argument that it was arbitrary and capricious for FERC to decide to proceed with establishing the Lower Hudson Valley Zone despite the NYPSC’s claims that New York’s planned transmission upgrades would eliminate the transmission constraint on which the new zone was premised. 50 FERC rationally considered and rejected evidence introduced by the NYPSC regarding New York’s planned transmission upgrades. In its Zone Rehearing Order, FERC stated that it was “fully cognizant that the NYPSC has two proceedings underway that may result in the construction of major transmission facilities during the 2016‐2018 timeframe [which] could alleviate the long‐standing transmission constraint.” Zone Rehearing Order at P 18 (footnote omitted). But it explained that, “to date, no major new transmission facility has completed the certification review process required under Article VII of the New York State Public Service Law”—which “sets forth the existing certification review process for citing major utility transmission facilities in New York State”—and “there is no assurance that any facilities would be completed during the 2016‐2018 time frame.” Id. at P 18 & n.33. Similarly, in the Demand Curve Rehearing Order, FERC explained that “there is no assurance that any facilities would be completed during the 2016‐2018 time frame.” Demand Curve Rehearing Order at P 63. And in the Zone Order, FERC emphasized that “the transmission upgrades that the NYPSC expects to result from its proceedings have not yet been built.” Zone Order at P 23. As discussed above, FERC approved the Lower Hudson Valley Zone in order to ensure that the capacity market more accurately reflected true market conditions. 51 Because FERC explained that potential future transmission upgrades that might alter those conditions were speculative, it rationally explained its decision to act according to existing market conditions rather than speculative future conditions.
Petitioners also claim that FERC should have required NYISO to establish a process for the elimination of the new Lower Hudson Valley Zone when it established that zone. As discussed, FERC now concedes that price separation between the Lower Hudson Valley Zone and the remaining portions of the New York Control Area may continue even if the transmission constraint justifying the creation of the Lower Hudson Valley Zone is eliminated. See Zone Order at P 83. But assuming arguendo that Petitioners are correct that such price separation would lead to unjust and unreasonable rates, FERC was not required to address that potential future concern in the orders under review. In its Zone Rehearing Order, FERC explained that “any new rules for discontinuing a capacity zone must apply to all capacity zones and not just the recently‐approved new [Lower Hudson Valley Zone] and, therefore, should be the subject of a separate proceeding that develops a record for establishing tariff criteria and procedures for eliminating any capacity zone, including any future new 52 capacity zone and not just the new [Lower Hudson Valley Zone] at issue here.” Zone Rehearing Order at P 45. FERC “enjoys broad discretion in determining how best to handle related, yet discrete, issues in terms of procedures.” Mobil Oil Exploration & Producing Se., Inc. v. United Distrib. Cos., 498 U.S. 211, 230 (1991) (citation omitted); see also Heckler v. Chaney, 470 U.S. 821, 831‐32 (1985). The D.C. Circuit has logically applied this reasoning to the context of market rules adopted by FERC, holding that FERC may appropriately address one market problem even if it potentially exacerbates another. See TC Ravenswood, LLC v. FERC, 705 F.3d 474, 478‐79 (D.C. Cir. 2013) (holding that FERC could adopt rules regarding supply‐side market power without simultaneously addressing buy‐side market power). We agree with this reasoning. FERC can address the current problem it has diagnosed—i.e., that rates do not reflect true market conditions because a transmission constraint prevents capacity from reaching the Lower Hudson Valley Zone—without simultaneously addressing problems that may result from changed market conditions. FERC’s argument that a mechanism for eliminating unneeded zones should be consistent across zones, and that such a rule should not be dealt with in this proceeding because it implicates other parties, is reasonable. See Zone Rehearing Order at P 45. Further, FERC has 53 instructed NYISO to work with stakeholders to address the issue of zone elimination. Id. Although the D.C. Circuit has held that FERC abuses its discretion in addressing related yet discrete issues where “its manner of proceeding significantly prejudices a party or unreasonably delays a resolution,” La. Pub. Serv. Comm’n v. FERC, 482 F.3d 510, 521 (D.C. Cir. 2007), FERC has not significantly prejudiced Petitioners in this case. New York Petitioners concede that even if New York’s planned transmission upgrades are completed as scheduled, they will not all be complete until 2018, leaving FERC time to address the potential issue created by elimination of the transmission constraint in another proceeding. However, significant prejudice does not occur where the harm caused to a party is speculative. See id. In the event that the transmission constraint on which the Lower Hudson Valley Zone is based is eliminated and FERC has not yet established a process for zone elimination, Petitioners are free to file a complaint under Section 206 of the Federal Power Act, 16 U.S.C. § 824e, challenging NYISO’s tariff as unjust and unreasonable. 54
The final issue we must address is Utility Petitioners’ argument that the Lower Hudson Valley Zone unfairly apportions charges arising from the transmission constraint on which NYISO premised the creation of the new zone. Rates approved by FERC must “reflect to some degree the costs actually caused by the customer who must pay them.” Black Oak Energy, LLC v. FERC, 725 F.3d 230, 237 (D.C. Cir. 2013) (quoting E. Ky. Power Coop., Inc. v. FERC, 489 F.3d 1299, 1303 (D.C. Cir. 2007) (internal quotation mark omitted)). Utility Petitioners contend that the Lower Hudson Valley Zone unfairly apportions capacity charges because NYISO’s calculation of the LCR for the new zone is flawed, causing some customers in the Lower Hudson Valley Zone to pay more than their share of capacity charges. Utility Petitioners made this argument to FERC in a protest in FERC’s Zone proceeding, and raised it again in their request for rehearing of the Zone Order. However, FERC explained in the Zone Order that NYISO’s calculation of the Lower Hudson Valley Zone’s LCR was outside the scope of the Zone proceeding because the new zone’s LCR “is not used to determine whether a new capacity zone should be created or to establish the new capacity zone boundary; it is used solely for establishing an [installed capacity] Demand Curve for the new capacity zone.” 55 Zone Order at P 66; see also Zone Rehearing Order at P 27. FERC explained that the Zone proceeding, as opposed to the parallel Demand Curve proceeding, was “narrowly focused on determining whether NYISO followed its tariff in determining that a new capacity zone should be created.” Zone Order at P 66; see also Zone Rehearing Order at P 27. It is true that NYISO discussed the LCR for the Lower Hudson Valley Zone in its tariff filing in the Zone proceeding, providing an affidavit in which its experts explained how the LCR for the Lower Hudson Valley Zone was calculated and specifying that under their planned method of calculation, the resulting LCR for the new zone would be 88 percent. J.A. 561‐62. But NYISO also specifically noted that its filing would only briefly address the LCR determination for the Lower Hudson Valley Zone because—as FERC explained in addressing Utility Petitioners’ protest—LCRs “are used solely for establishing revised [installed capacity] Demand Curves.” J.A. 127 (internal quotation mark omitted). NYISO’s filing thus stated that “[t]he actual [LCR] that will be used to administer market rules for the [Lower Hudson Valley Zone] will be established in the same manner as, and concurrent with, the LCRs for existing” capacity zones, and that the Lower Hudson Valley Zone’s LCR would therefore be an element of NYISO’s filing in the Demand Curve 56 proceeding. J.A. 127 & n.17; see Zone Order at P 64 & n.67. Given FERC’s broad discretion to address related issues in discrete proceedings, see TC Ravenswood, 705 F.3d at 478‐79, it was permissible for FERC to determine that the method by which the LCR was calculated was outside the scope of the Zone proceeding because it would be addressed in the Demand Curve proceeding. Utility Petitioners argue that FERC was required to review the LCR in the Zone proceeding because it had the burden of showing that the creation of the new zone would result in just and reasonable rates. While it was clear, however, that the Zone proceeding’s authorization of the Lower Hudson Valley Zone would result in new rates for that zone, FERC explained that in the Zone proceeding, it only had to show that the creation of the new zone—and not the LCR for the zone—was just and reasonable; the specific LCR that would actually affect the apportionment of rates among different zones’ customers would be used only to construct the demand curve, and not to set up the zone itself. See Zone Order at P 66; Zone Rehearing Order at P 27. Whether the demand curve for the Lower Hudson Valley Zone was just and reasonable (and whether the rates imposed on the new zone complied with cost‐causation principles) would be addressed in the Demand Curve proceeding. 57 As we have noted, FERC was not free to “slice and dice issues to the prejudice of a party.” TC Ravenswood, 705 F.3d at 478; see La. Pub. Serv. Comm’n, 482 F.3d at 521. But we are not persuaded by Utility Petitioners’ arguments that FERC abused its discretion here. Utility Petitioners claim that FERC’s failure to address the LCR in its Zone proceeding was contrary to the New Zone Criteria Compliance Order’s guarantee that the LCR for the new zone would be reviewable. But while the New Zone Criteria Compliance Order did state that NYISO’s tariff provides for review and comment of an LCR for a new zone, it did not imply that this review and comment could not take place in a proceeding separate from the one in which the creation of the new zone was evaluated. See New Zone Criteria Compliance Order at P 50. Thus, FERC did not contradict this order by specifying that the LCR would be reviewed in the Demand Curve proceeding rather than the Zone proceeding. Nor were Utility Petitioners prejudiced: FERC stated on August 13, 2013 (in the Zone Order) that it would address the new zone’s LCR in the Demand Curve proceeding, and NYISO did not file its proposal in the Demand Curve proceeding until November 29, 2013. Utility Petitioners also suggest that the Demand Curve proceeding was not the appropriate venue for challenging NYISO’s LCR calculation because NYISO 58 failed to submit any evidence in that proceeding explaining how the LCR was calculated. NYISO, however, specifically stated in its Zone proceeding filing that the LCR for the Lower Hudson Valley Zone would be part of its Demand Curve proceeding filing, and indeed, its latter filing included proposed LCRs for each capacity zone calculated as set forth in its tariff. FERC also acknowledged in its Demand Curve Order that NYISO had “propose[d] an additional locational [installed capacity] requirement”—in other words, an LCR—“for the new capacity zone.” Demand Curve Order at P 3. The LCR for the new zone was therefore plainly at issue in the Demand Curve proceeding. Utility Petitioners, however, failed to challenge NYISO’s calculation or methodology in the Demand Curve proceeding, either prior to FERC’s first Demand Curve Order or in their request for rehearing. And while FERC now claims—seemingly at odds with its contention that Utility Petitioners’ cost‐causation argument would have received a hearing in the Demand Curve proceeding—that its review of NYISO’s LCR calculation was limited to determining whether NYISO properly followed its pre‐existing methodology because that methodology was prescribed in NYISO’s tariff,10 the question whether 10 FERC claims that the only way for Utility Petitioners to raise their cost‐causation argument would be in a proceeding challenging NYISO’s tariff under § 206 of the FPA, 59 Utility Petitioners would have persuaded FERC to consider its arguments is irrelevant to whether those arguments were properly raised in the Zone proceeding. Had Utility Petitioners raised their arguments in the Demand Curve proceeding, and had FERC in fact refused to hear them, Utility Petitioners might well be on stronger ground in claiming prejudice from FERC’s “slic[ing] and dic[ing].” TC Ravenswood, 705 F.3d at 478. But because NYISO and FERC both made it clear well before the Demand Curve proceeding was initiated that challenges to the LCR calculation should be brought in that proceeding, Utility Petitioners’ failure to present any such challenges to FERC in the first instance bars them from raising those challenges before this Court. See 16 U.S.C. § 825l(b).