Court Opinion

ID: 4709668
Source: CourtListenerOpinion
Date Created: 2021-08-06 15:03:22.036833+00
Date Added: 2024-06-11T08:06:58.632232
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 5, 2021                    Decided August 6, 2021

                        No. 20-1156

                    PUBLIC CITIZEN, INC.,
                        PETITIONER

                              v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

       DYNEGY MARKETING AND TRADE, LLC, ET AL.,
                   INTERVENORS

              On Petition for Review of Orders
       of the Federal Energy Regulatory Commission

     Scott L. Nelson argued the cause for petitioner. With him
on the briefs was Allison M. Zieve.

    Lona T. Perry, Deputy Solicitor, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were Matthew R. Christiansen, General
Counsel, David L. Morenoff, Deputy General Counsel, and
Robert H. Solomon, Solicitor.

    Richard P. Bress argued the cause for intervenors Vistra
Corp., et al. With him on the brief were David L. Schwartz and
Tyce R. Walters.
                                 2

    Paul W. Hughes and David G. Tewksbury were on the brief
for amicus curiae Electric Power Supply Association in
support of respondent.

    Before: TATEL, MILLETT, and PILLARD, Circuit Judges.

    Opinion for the Court filed by Circuit Judge MILLETT.

     MILLETT, Circuit Judge: This case is about the price of
wholesale electricity—electricity sold from, for example, a
power plant to a consumer-serving utility company. More
precisely, this case concerns sales of capacity, which is
typically a commitment by a power plant to provide electricity
to a utility in the future. In April 2015, an auction for electrical
capacity in Illinois produced a striking result. Capacity in
neighboring regions (from Louisiana up to Minnesota)
uniformly sold for less than $3.50 per megawatt-day. But in a
region covering much of Illinois, the auction resulted in
capacity prices of $150 per megawatt-day—more than 40 times
the price in those neighboring regions and a nearly ninefold
increase from the prior year’s price of $16.75.

     After complaints were filed, the Federal Energy
Regulatory Commission identified numerous problems with
the existing auction rules. The Commission ordered that the
auction rules be changed prospectively to prevent unjust and
unreasonable price spikes. The Commission also launched an
investigation into potential market manipulation in the 2015
Auction that lasted more than three years. Nevertheless, the
Commission later ruled that the identified flaws in the auction
rules and the high price range those rules established, as well
as the allegations of market manipulation, did not call into
question the 2015 Auction or the $150 price it had produced.
                                3
     We reject petitioner’s argument that the Commission must
approve every individual auction price before it goes into
effect. That is not what the market-based rate scheme requires.
And we lack the power to review the Commission’s
discretionary decision to close its investigation into market
manipulation in the 2015 Auction.

     As for the Commission’s analysis of the 2015 Auction, we
hold that its decision was arbitrary and capricious. The
Commission failed to adequately explain why the problems it
identified in the existing auction rules affecting pricing—
problems it ordered fixed going forward—did not also affect
the fairness of the 2015 Auction itself. That omission is
particularly glaring in light of the starkly anomalous rates that
the Auction produced. Based on the unwonted record before
the Commission and the multi-year Commission investigation
into market manipulation that record prompted, the agency’s
conclusory and unreasoned decision to sustain the 2015
Auction rates does not hold up.

    As a result, the petition for review is granted in part and
denied in part.

                                I

                                A

                                1

     The Federal Power Act, 16 U.S.C. §§ 791a et seq., governs
both the transmission and the wholesale marketing of
electricity in interstate commerce, id. § 824(a). The Act
assigns to the Federal Energy Regulatory Commission the
responsibility to regulate these activities in the public interest.
Id. § 824(a), (b).
                                4
     Section 205 of the Act, 16 U.S.C. § 824d, mandates that
“[a]ll rates and charges” within the Commission’s jurisdiction,
as well as “all rules and regulations” pertaining to those rates
and charges, must be “just and reasonable[.]” Id. § 824d(a).
Section 205 also requires all public utilities to “file with the
Commission * * * all rates and charges for any transmission or
sale subject to the jurisdiction of the Commission[.]” Id.
§ 824d(c).

     Section 206 of the Act, 16 U.S.C. § 824e, tasks the
Commission with ensuring that any rates charged are just and
reasonable. To do so, the Commission can initiate enforcement
proceedings on its own or upon a complaint from a third party.
Id. § 824e(a). If the Commission finds that any rate demanded
by a utility within the Commission’s jurisdiction is “unjust,
unreasonable, unduly discriminatory or preferential,” then the
Commission must overturn that rate and impose its own just
and reasonable rate. Id. The burden of proving an unjust or
unreasonable rate rests with the party that initiated the
proceeding—that is, the Commission or the third-party
complainant. Id. § 824e(b).

                                2

     Since the end of the last century, electricity production has
been increasingly characterized by competitive markets. In
light of that trend, Congress added a new provision to the
Federal Power Act in 2005, which is referred to as Section 222
(codified at 16 U.S.C. § 824v). Entitled “Prohibition of energy
market manipulation[,]” Section 222 makes it unlawful for any
entity “to use or employ, in connection with the purchase or
sale of electric energy or the purchase or sale of transmission
services subject to the jurisdiction of the Commission, any
manipulative or deceptive device or contrivance” in
contravention of Commission rules.                 Id. § 824v(a).
                                5
Section 222, though, does not “create a private right of action.”
Id. § 824v(b). Instead, enforcement of the prohibition on
manipulation is assigned exclusively to the Commission. Id.
Nonetheless, private persons may bring allegations of market
manipulation to the attention of the Commission by filing a
complaint under Section 306 of the Act, id. § 825e.

     Implementing the 2005 Act, the Commission has defined
market manipulation more precisely, modeling it on the
Securities Exchange Act’s anti-manipulation provisions, 15
U.S.C. § 78j(b). See Prohibition of Energy Mkt. Manipulation,
114 FERC ¶ 61,047, at 5 (Jan. 19, 2006). In that way, the
prohibition “is not intended to regulate negligent practices or
corporate mismanagement, but rather to deter or punish fraud
in wholesale energy markets.” Id. ¶ 5. The Commission’s
regulations make it unlawful, in connection with the purchase
or sale of electricity or transmission services, to (1) “use or
employ any device, scheme, or artifice to defraud,” (2) “make
any untrue statement of a material fact or * * * omit to state a
material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made,
not misleading,” or (3) “engage in any act, practice, or course
of business that operates or would operate as a fraud or deceit
upon any entity.” 18 C.F.R. § 1c.2.

     The Commission “defines fraud generally,” so that it
“include[s] any action, transaction, or conspiracy for the
purpose of impairing, obstructing or defeating a well-
functioning market.”          Prohibition of Energy Mkt.
Manipulation, 114 FERC ¶ 61,047, at 38–39. The Commission
has “repeatedly held” that “[a]n entity need not violate a tariff,
rule or regulation to commit fraud.” Houlian Chen Powhatan
Energy Fund, 151 FERC ¶ 61,179, at 58 (May 29, 2015). As
the Commission has explained, “tariffs cannot be written to
prohibit all possible fraudulent behavior as ‘[t]he methods and
                               6
techniques of manipulation are limited only by the ingenuity of
man.’” Id. (alteration in original); see also Vitol Inc. &
Federico Corteggiano, 169 FERC ¶ 61070, at 32 (Oct. 25,
2019); In Re Make-Whole Payments & Related Bidding
Strategies, 144 FERC ¶ 61068, at 15 n.8 (July 30, 2013)
(“Many of the Commission’s major enforcement actions under
Rule 1c (whether litigated or settled) have concerned, either in
whole or in part, market manipulation in the absence of a
violation of a specific tariff provision or comparable specific
market rule.”).

                               B

      Before the advent of competitive electricity markets, a
utility would commonly comply with the Federal Power Act by
determining the dollar prices it wanted to charge for units of
electricity, and then filing a schedule of those rates—known as
a “tariff”—with the Commission. See Morgan Stanley Cap.
Group Inc. v. Public Util. Dist. No. 1 of Snohomish County,
554 U.S. 527, 531 (2008). Those rates generally reflected the
utility’s costs plus a reasonable rate of return. Id. at 532.

     Since 1988, however, the Commission has permitted
wholesale electricity sellers, such as utilities that own power
plants, to file “market-based” tariffs instead. Morgan Stanley,
554 U.S. at 537; Market-Based Rates for Wholesale Sales of
Electric Energy, Capacity and Ancillary Services by Public
Utilities, 72 Fed. Reg. 39,904, 39,907 (July 20, 2007)
(“Market-Based Rates”). Market-based tariffs do not list any
actual prices for electricity, but instead “simply state that the
seller will enter into freely negotiated contracts with
purchasers.” Morgan Stanley, 554 U.S. at 537.

    This court has held that the Commission’s market-based
approach is consistent with the Federal Power Act’s
requirement of “just and reasonable” rates, reasoning that, in a
                                   7
“competitive market, where neither buyer nor seller has
significant market power, it is rational to assume that the terms
of their voluntary exchange are reasonable, and specifically to
infer that price is close to marginal cost, such that the seller
makes only a normal return on its investment.” Tejas Power
Corp. v. FERC, 908 F.2d 998, 1004 (D.C. Cir. 1990); see
Louisiana Energy & Power Auth. v. FERC, 141 F.3d 364, 365
(D.C. Cir. 1998); California ex rel. Lockyer v. FERC, 383 F.3d
1006, 1013 (9th Cir. 2004); see also Elizabethtown Gas Co. v.
FERC, 10 F.3d 866, 870 (D.C. Cir. 1993) (approving market-
based pricing under the Natural Gas Act).

     Even though market-based tariffs do not identify a specific
price for electricity, the Commission is still statutorily bound
to ensure that the resulting rates are just and reasonable. To do
that, the Commission requires assurance for any market-based
tariff that the seller cannot exercise anticompetitive market
power. See Blumenthal v. FERC, 552 F.3d 875, 882 (D.C. Cir.
2009). More specifically, the Commission has laid out three
mandatory conditions that must exist for a market-based tariff
to be approved.

     First, the seller of electricity must demonstrate to the
Commission’s satisfaction that it and its affiliates either lack,
or have adequately mitigated, any horizontal or vertical market
power, and the seller cannot erect any barriers to entry against
potential competitors. See Market-Based Rates ¶¶ 3, 791, 72
Fed. Reg. at 39,906, 39,997; 18 C.F.R. § 35.37; Morgan
Stanley, 554 U.S. at 537; Louisiana Energy, 141 F.3d at 365;
see also Elizabethtown Gas, 10 F.3d at 870–871. 1

     1
       The Commission has defined “market power” in this context
as a seller’s ability to “significantly influence price in the market by
withholding service and excluding competitors for a significant
                                 8
     Second, some sellers participate in organized regional
markets for electrical power operated by Regional
Transmission Organizations (described in more detail below).
Sellers in those markets “must also abide by additional rules”
contained in the tariffs filed by the Regional Transmission
Organizations. Market-Based Rates ¶ 4, 72 Fed. Reg. at
39,906. Those rules are “designed to help ensure that market
power cannot be exercised in those organized markets and
include additional protections,” such as mitigation measures,
when “appropriate to ensure that prices in those markets are
just and reasonable.” Id.

     Third, the Commission must continually perform
“ongoing oversight of market-based rate authorizations and
market conditions[.]” Market-Based Rates ¶ 5, 72 Fed. Reg. at
39,906; Blumenthal, 552 F.3d at 882 (approving the
Commission’s “reasonabl[e] reli[ance] on its continuing
oversight of the market to guard against potential abuses of
market power”). This oversight includes reviewing periodic
reports that sellers and Regional Transmission Organizations
are required to file, detailing their activities. See Blumenthal,
552 F.3d at 882–883; 18 C.F.R. §§ 35.10b, 35.28(g)(4),
35.37(a)(1), 35.42.

    As relevant here, sellers must file quarterly transaction
reports containing “(a) a summary of the contractual terms and
conditions in every effective service agreement for market-
based power sales; and (b) transaction information for * * *
market-based power sales during the most recent calendar
quarter[.]” Refinements to Policies & Procedures for Market-
Based Rates for Wholesale Sales of Elec. Energy, Capacity &

period of time.” California Indep. Sys. Operator Corp., 126 FERC
¶ 61150, at 33 n.123 (Feb. 20, 2009) (quoting Citizens Power & Light
Corp., 48 FERC ¶ 61,210, at 7 (Aug. 8, 1989)); Louisiana Energy,
141 F.3d at 365 n.1.
                                9
Ancillary Servs. by Pub. Utilities, 153 FERC ¶ 61,065, at 6–7
(Oct. 16, 2015). Sellers must also notify the Commission any
time they undergo a change of status “that would reflect a
departure from the characteristics the Commission relied upon
in granting market-based rate authority[.]” Id. at 7. Certain
large sellers must file updated market power analyses every
three years. Id.

    The Commission also requires the Regional Transmission
Organizations to submit data about their markets on an ongoing
basis, which helps the Commission “detect anti-competitive or
manipulative behavior, or ineffective market rules, thereby
helping to ensure just and reasonable rates.” Enhancement of
Elec. Market Surveillance & Analysis through Ongoing Elec.
Delivery of Data from Reg’l Transmission Orgs. & Indep. Sys.
Operators, 139 FERC ¶ 61,053, at 2 (April 19, 2012); 18
C.F.R. § 35.28(g)(4).

     Of course, the mere filing of reports by sellers and
Regional Transmission Organizations does not itself satisfy the
Commission’s monitoring obligations. See California ex rel.
Harris v. FERC, 784 F.3d 1267, 1273 (9th Cir. 2015). Rather,
the Commission must actively review those reports and assess
on an ongoing basis whether the market remains competitive.
This active supervision enables the Commission to take action
to “address seller market power or modify rates.” Market-
Based Rates ¶ 5, 72 Fed. Reg. at 39,906; Montana Consumer
Counsel v. FERC, 659 F.3d 910, 919 (9th Cir. 2011)
(upholding system of market-based tariffs because the
Commission “has confirmed that it will monitor the data to
ensure that the reported transactions are consistent with the
data expected of a competitive, unmanipulated market”).

     For instance, the Commission’s monitoring of transaction
data may lead it to revoke a seller’s authorization to use market-
                                 10
based tariffs if the Commission concludes that the seller may
have gained market power since its original authorization.
Market-Based Rates ¶ 5, 72 Fed. Reg. at 39,906. Alternatively,
the Commission could commence an investigation into
possible tariff violations or market manipulation, and if it finds
a violation, the Commission could seek remedies including
disgorgement, refunds, and civil penalties. Id.

     Whatever enforcement path is chosen, the core
requirement is that the Commission conduct an “active ongoing
review” of the performance of market-based tariffs based on
the filed reports. Harris, 784 F.3d at 1273. The reporting
requirements—and the continual vigorous monitoring those
reports enable—are “integral” to a market-based tariff
“pass[ing] legal muster[.]” Lockyer, 383 F.3d at 1015; see also
Market-Based Rates ¶ 955, 72 Fed. Reg. at 40,017.

     The Commission’s regulations also create mechanisms for
the public to participate in enforcing these requirements. For
instance, interested parties may file protests to tariff filings, and
may seek to intervene in the tariff-approval proceedings before
the Commission. See 18 C.F.R. §§ 35.8, 385.211, 385.214. In
addition, third parties may file complaints with the
Commission alleging violations of Commission rules or orders.
18 C.F.R. § 385.206; see, e.g., California ex rel. Lockyer, 99
FERC ¶ 61247, at 14–15 (May 31, 2002) (denying motions to
dismiss complaint that “challenge[d] sellers’ quarterly
compliance with the Commission’s reporting requirements”),
rev’d and remanded on other grounds by Lockyer, 383 F.3d at
1018; see also 16 U.S.C. § 824e(a) (permitting complaints
alleging unjust and unreasonable rates).

                                 C

     In many parts of the country not dominated by single,
vertically integrated utilities, the electricity system is managed
                               11
in part by Regional Transmission Organizations and
Independent System Operators (collectively, “Transmission
Organizations”). Transmission Organizations serve multiple
functions, including operating the grid in particular geographic
areas, constantly balancing supply and demand, and ensuring a
reliable transmission system. See FERC, ENERGY PRIMER: A
HANDBOOK FOR ENERGY MARKET BASICS 61 (April 2020),
https://www.ferc.gov/sites/default/files/2020-06/energy-
primer-2020_Final.pdf (last accessed July 30, 2021). Most
relevant here, Transmission Organizations also establish
markets in which electricity generators can sell their electricity
wholesale to distributors and other purchasers.

     Some Transmission Organizations also run markets for
electrical capacity. By way of reminder, in a capacity market,
distributors of electricity purchase commitments from
generators to produce set amounts of electricity in the future.
Advanced Energy Mgmt. All. v. FERC, 860 F.3d 656, 659 (D.C.
Cir. 2017). 2 With those commitments in hand, the electricity
distributor can meet high demands for electricity by calling on
the generators to produce it when the need arises. Id.
Purchasing capacity, in other words, ensures that distributors
can reliably meet predicted peak power demands in an
upcoming month, season, or year.

                                D

     Midcontinent Independent System Operator (“MISO”) is
a Transmission Organization that, among its other
responsibilities, conducts annual capacity auctions in portions
of fifteen states in the Midwest and South.

    2
        Capacity can sometimes also be purchased from consumers
who promise to forgo consuming a set amount of electricity in the
future. Advanced Energy Mgmt. Alliance, 860 F.3d at 659.
                              12
     For purposes of the auctions, MISO’s operational area is
divided into nine separate regional “zones.” For each zone,
MISO determines how much capacity will be required. It also
determines a “local clearing requirement,” which is “the
minimum amount of procured capacity that must be physically
located within the Zone (rather than imported [from another
Zone or region])” to meet anticipated need. Public Citizen,
Inc., 168 FERC ¶ 61,042, at 2 (July 19, 2019) (J.A. 62).

     In the auction, electricity generators offer to sell set
amounts of capacity at specific prices. Cf. Advanced Energy
Mgmt. Alliance, 860 F.3d at 659–660. MISO accepts offers,
beginning with the lowest, until the zone’s capacity
requirements are met. The price of the last increment of
capacity needed to meet the zone’s capacity requirements is the
“auction clearing price” for that zone, and all the capacity for
that zone is then purchased at that price.

     In addition to those basic rules, MISO applies specific
rules intended to mitigate the risk that, if the marketplace is
insufficiently competitive, a seller might exercise market
power, resulting in an unjust and unreasonable rate. In the
auction for the 2015-2016 planning year—the year at issue in
this case—several such rules were in effect.

    First, offers to sell capacity could not exceed the “cost of
new entry” in a particular zone—that is, the estimated cost of
building a new power plant to provide capacity in that zone.
Public Citizen, Inc. ¶ 33 (J.A. 76–77).

     Second, to prevent generators from selling capacity at
prices substantially higher than the amount they would receive
from exporting their capacity to another market, MISO
calculated an “initial reference level” that was “based on the
estimated opportunity cost” of selling capacity in MISO rather
than exporting it to a neighboring region. Public Citizen, Inc.
                               13
¶ 34 (J.A. 77). Specifically, MISO set the initial reference level
by estimating how much generators could earn by exporting
capacity to PJM Interconnection, a Transmission Organization
region that covers portions of thirteen states in the Midwest and
Mid-Atlantic, rather than selling it to MISO. Simplifying
somewhat, if an offer exceeded the sum of (i) the initial
reference level and (ii) ten percent of the cost of new entry—a
sum known as the “conduct threshold”—the offer was
automatically lowered to the initial reference level. Id. ¶ 33
(J.A. 77).

                                E

     This case involves a seemingly anomalous result in the
2015 Auction for MISO’s Zone 4—a zone that covers a large
portion of Illinois. For that auction, MISO had calculated the
cost of new entry for Zone 4 at $247.40 per megawatt (MW)-
day, and the initial reference level (again, based on the
estimated opportunity cost of not selling energy to PJM) at
$155.79 per MW-day. Based on these figures, the operating
rule to ensure fair prices in the auction was that any offer over
$180.53 per MW-day ($155.79 plus ten percent of $247.40)
would be automatically reduced to $155.79.

     The Auction took place in April 2015, and when the dust
settled, the auction clearing price in most of the zones was quite
uniform. Zones 1, 2, 3, 5, 6, and 7 all cleared at $3.48 per MW-
day. Similarly, Zones 8 and 9 cleared at $3.29 per MW-day.
But in Zone 4, the auction clearing price was far higher—$150
per MW-day. That was not only more than 40 times the price
set in the other zones, but it was also out of keeping with
historical rates in Zone 4.          For example, in MISO’s
immediately preceding 2014-2015 auction, the price in Zone 4
(along with five other zones) was $16.75 per MW-day.
Similarly, in MISO’s capacity auction for the 2013-2014
                               14
planning year, the clearing price for Zone 4 (and for the entire
region) was $1.05 per MW-day.

     The month after the 2015 Auction, four complaints were
filed with the Commission challenging the exceptionally high
Zone 4 auction results. The complaints were filed by (1) Public
Citizen, a public interest and consumer protection organization
with members in Zone 4; (2) the State of Illinois;
(3) Southwestern Electric Cooperative, an electric distribution
cooperative that serves rural consumers in Illinois; and
(4) Illinois Industrial Energy Consumers, an association of
large industrial consumers in Illinois.

     Public Citizen, the State of Illinois, and Southwestern
Electric Cooperative alleged that the 2015 Auction had resulted
in electricity rates for Zone 4 that were unjust and unreasonable
in violation of Section 206 of the Federal Power Act, 16 U.S.C.
§ 824e. The State of Illinois explained that the $150 per MW-
day capacity price would result in an additional $102.1 million
in total capacity charges in the coming year, and that the
average residential customer in Zone 4 would pay an additional
$131 that year.

     Those complainants pointed the finger at Dynegy, a power
company in Illinois that, in 2013, had purchased four additional
power plants in Zone 4. The State of Illinois alleged that
Dynegy had become a “pivotal supplier” for Zone 4, meaning
that Zone 4 could not meet its local clearing requirement
without purchasing Dynegy’s capacity. As a result, as the
auction rules were designed, Dynegy could offer—and would
receive—any price it wanted in the auction, so long as that
price was beneath the conduct threshold set by the auction
rules. In other words, Dynegy could exercise market power
and garner an unreasonably high price for its electricity
because the demand for capacity could not be met without it.
                               15
     Public Citizen alleged that the unjust and unreasonable
rates resulted not only from Dynegy’s exercise of market
power, but also from Dynegy’s “illegal market manipulation of
the auction through withholding” competitive offers during the
auction to drive the price up or “other illegal market actions[.]”
J.A. 152–153. The State of Illinois and Southwestern similarly
requested that the Commission investigate Dynegy for illegal
market manipulation.

     Public Citizen separately argued that, notwithstanding any
filed market-based tariffs, all auction results “must be reviewed
after-the-fact * * * to determine whether they actually produce
just and reasonable rates.” J.A. 153.

     Lastly, several complaints attacked the “initial reference
level” set out in MISO’s tariff as part of the annual auction
rules. The complaints alleged that the existing reference level
“[did] not appropriately reflect the opportunity cost of MISO
capacity resources because it overstate[d] the opportunity to
sell capacity to PJM.” J.A. 921.

                                F

     The Commission responded to these complaints in a series
of orders, three of which are relevant here.

                                1

    In its first order, issued in December 2015, the
Commission addressed only the portions of the complaints that
involved prospective challenges to the auction provisions of
MISO’s tariff. Public Citizen, Inc., 153 FERC ¶ 61,385, at 3
(Dec. 31, 2015) (“2015 Order”) (J.A. 910). The Commission
focused first on those claims because it wanted to act quickly
“given the limited amount of actionable time prior to the
2016/2017 Auction[.]” Id.
                               16
    The Commission granted the complaints in part and denied
them in part. As relevant here, the Commission determined
that “current provisions in the Tariff associated with
calculating Initial Reference Levels and Local Clearing
Requirements are no longer just and reasonable for prospective
application.” 2015 Order ¶ 3 (J.A. 910).

     Recall that the initial reference level reflected the amount
of money that generators could have earned by selling their
electricity into PJM, a neighboring market, rather than selling
it in the MISO auction. The initial reference level helped set
the upper limit on permissible offers into MISO’s auction,
based on the assumption that offers below the initial reference
level were necessarily competitive because a generator could
have sold its capacity to PJM at that same price.

    But the Commission determined that assumption was no
longer valid, and so it was no longer “appropriate to continue
to base the Initial Reference Level * * * on the opportunity
cost” of not selling capacity into PJM. 2015 Order ¶ 86 (J.A.
941). Two findings underlay that conclusion.

     First, the Commission found that the rules of the PJM
marketplace were changing in ways that made it harder to
compare MISO prices with PJM prices. The Commission had
recently approved changes to PJM’s capacity market that
required capacity sellers to be compensated through a more
complicated pricing model, including additional payments or
penalties based on performance during peak hours. This
change meant that, by the 2020-2021 planning year when the
transition to the new rules would be fully complete, “PJM and
MISO [would] be procuring different capacity products,” and
“simply using prices from PJM[] * * * [would] inaccurately
estimate the opportunity cost of [not] selling capacity into PJM
in future Planning Years.” 2015 Order ¶ 88 (J.A. 941).
                               17
     Second, the Commission concluded that, contrary to
MISO’s assumption that generators could always sell their
electricity capacity into PJM, there was neither sufficient
demand in PJM nor sufficient transmission availability into
PJM to make those sales possible. The Commission found that,
in the 2014-2015 planning year, MISO granted only a small
fraction of requests for transmission services from Zone 4 into
PJM. See 2015 Order ¶ 89 (J.A. 942) (“[O]nly 200 MW of the
3,650 MW of monthly firm point-to-point transmission service
requests were granted.”). Similarly, capacity sales per day
from MISO into the relevant PJM market were only 64.3 MW
in 2014-2015 and 12.3 MW in 2015-2016. Id. ¶ 90. In other
words, “in recent years, MISO capacity resources made limited
sales into the PJM replacement capacity market[.]” Id. As a
whole, this evidence demonstrated that “the opportunity [for
MISO generators] to make * * * sales [into PJM] is limited due
to both the limited demand for replacement capacity in PJM
and the limited ability to attain transmission service from
MISO to PJM.” 2015 Order ¶ 91.

     Given those findings, the Commission ruled that MISO’s
calculation of the initial reference level under its tariff was no
longer just and reasonable. That is because opportunity cost is
a valid consideration in structuring market prices only if the
opportunity is “legitimately available to a substantial share of
the market,” which it was not. 2015 Order ¶ 92 (J.A. 943).
With no other evidence available to estimate the amount of
money a generator would be forgoing by selling capacity in
MISO rather than exporting it elsewhere, the Commission
ordered that, going forward, the initial reference level must be
set at $0 per MW-day (rather than the $155.79 initial reference
level set by MISO for the 2015 Auction). Id. ¶ 93.

    The Commission separately determined that MISO’s tariff
provisions also miscalculated the amount of capacity that
                               18
needed to be procured from power plants located within each
MISO zone (that is, the local clearing requirement). In essence,
the Commission held that when MISO calculates the amount
of capacity that must be generated within a zone to ensure
reliability, it must consider the consequences for the grid when
capacity generated locally is exported to other regions, creating
so-called “counter-flows.” 2015 Order ¶¶ 145–147 (J.A. 963–
964). Since MISO’s tariff did not properly take these counter-
flows into consideration in calculating the local clearing
requirement, the Commission determined that MISO’s
methodology was unjust and unreasonable, and ordered
prospective changes to the local clearing requirement
calculations. Id. ¶¶ 3, 148.

     The Commission’s 2015 Order was explicit that the
complaints’ other arguments about the legality of the 2015
Auction remained under consideration. 2015 Order ¶ 4 (J.A.
910). It also advised that the Commission’s Office of
Enforcement had opened “a formal, non-public investigation
into whether market manipulation occurred before or during”
the 2015 Auction. Id.

                               2

     Three and a half years later, a divided Commission denied
the complaints’ remaining challenges to the 2015 Auction.

     The Commission majority ruled that the results of the 2015
Auction for Zone 4 were “just and reasonable.” Public Citizen,
Inc., 168 FERC ¶ 61,042, at 2 (July 19, 2019) (“2019 Order”)
(J.A. 62). It began by announcing that its investigation into
potential market manipulation in the 2015 Auction had been
closed. Id. ¶ 30 (J.A. 76). The Commission explained that the
investigation had spanned more than three years, during which
the Office of Enforcement reviewed over 500,000 pages of
documents and took seventeen days of testimony from eleven
                               19
witnesses. “Based on a review of the investigation,” the
Commission found that pricing in the 2015 Auction “did not
violate the Commission’s regulations regarding market
manipulation,” and so “no further action [was] appropriate to
address the allegations of market manipulation raised in the
complaints.” Id. ¶ 32.

     The Commission next rejected the contention that Dynegy
had exercised market power in the 2015 Auction that caused an
unjust or unreasonable auction clearing price in Zone 4. The
only reason given by the Commission for finding no improper
exercise of market power was that “MISO conducted the
2015/16 Auction in compliance with the MISO Tariff,” which
had been “designed to mitigate the exercise of market power
and result in a just and reasonable rate.” 2019 Order ¶ 84 (J.A.
104–105). Dynegy’s offers, the Commission observed, were
“competitive” because they were less than the “conduct
threshold” of $180.53 per MW-day that was calculated based
on the initial reference level. Id. ¶ 85 (J.A. 106). The
Commission added that “an Auction Clearing Price is not
unjust and unreasonable because it is higher than expected.”
Id. ¶ 84 (J.A. 105). The Commission also noted that there was
no evidence in the record that Dynegy had in any way violated
the terms of MISO’s tariff.

     Also relevant here, the Commission rejected Public
Citizen’s argument that the Commission must review
individual final auction prices across the board for justness and
reasonableness before those prices could go into effect. 2019
Order ¶ 89 (J.A. 107). The Commission stated that, while it
was required to enforce reporting requirements “that enable the
Commission to evaluate whether rates are just and
reasonable[,]” it was not required “to make an affirmative
finding that a rate is just and reasonable before allowing the
rate to go into effect.” Id. The Commission further explained
                                20
that, for purposes of the requirement that sellers file their rates
with the Commission, “the rate on file with the Commission is
the Tariff describing the Auction procedures, not the prices that
may change over time.” Id.

     Then-Commissioner (now Chairman) Glick dissented. In
his view, “the fact that MISO and the individual market
participants appear to have followed the relevant tariff
language does not respond to allegations that the resulting rates
are unjust and unreasonable as a result of market
manipulation.” 2019 Order (Glick, Comm’r, dissenting) ¶ 2
(J.A. 117). He added that the investigation into market
manipulation had been terminated by the Commission’s
chairman without a vote by the full Commission. Id. ¶ 1. He
expressed his personal disagreement with that decision, based
on his belief “that the evidence uncovered to date was more-
than-sufficient to justify continuing the enforcement process.”
Id. ¶ 4. He added that, regardless of the investigation, the
Commission’s Order “does not provide even the scantest
reasoning to support its finding that the nearly 1,000 percent
year-over-year increase in the MISO Zone 4 capacity price had
nothing to do with market manipulation.” Id. ¶ 5. For those
reasons, he did “not believe we can say with any confidence
that the 2015 auction was not subject to market manipulation.”
Id. ¶ 6.

                                3

     Public Citizen sought rehearing of the Commission’s 2019
Order. It argued that the Commission had failed both “to
explain the basis for its determination that Dynegy did not
engage in manipulative practices,” and “to consider whether
the rates themselves [were] just and reasonable[.]” J.A. 1035.
In Public Citizen’s view, the Commission had wrongly
“rel[ied] solely on [the rates] having been established in
                              21
compliance with a previously approved market-based rate-
setting mechanism[.]” J.A. 1035. In particular, Public Citizen
pointed out that “the Commission itself ha[d] already
determined [in its 2015 Order] that continued use of the
[tariff’s] auction mechanisms used in the 2015/16 auction
would be unjust and unreasonable[.]” J.A. 1035. Since the
Commission had “never determined that the tariff’s auction
provisions themselves were just and reasonable at the time of
the 2015/16 auction,” it had “failed to explain how it could
conclude that compliance with those provisions necessarily
resulted in just and reasonable rates.” J.A. 1036. Public
Citizen also objected to what it characterized as the
Commission’s failure to explain its conclusion that Dynegy had
not committed market manipulation.

     The Commission denied rehearing, again over a dissent
from then-Commissioner Glick.            Addressing first the
allegations of market manipulation, the Commission noted that
it “has discretion on whether and how to explore the possibility
that market manipulation has occurred.” Public Citizen, Inc.,
170 FERC ¶ 61,227, at 6 (March 19, 2020) (“Rehearing
Order”) (J.A. 130) (citing Heckler v. Chaney, 470 U.S. 821,
831 (1985)). The Commission added that Public Citizen had
“fail[ed] to accurately articulate and address the definition of
‘market manipulation’” in the Act. Id. at 7. And it asserted
that Public Citizen “ha[d] not met its burden” to show that
“activity meeting that definition occurred and resulted in rates
that are unjust and unreasonable.” Id. at 7–8.

    Turning to Public Citizen’s argument that the Commission
was required to assess whether the auction prices were just and
reasonable, the Commission held that the argument “rests on a
fundamental misunderstanding of the Commission’s market-
based rate program.” Rehearing Order ¶ 16. The Commission
then concluded that, because Dynegy had received prior
                              22
approval to charge market-based rates from the Commission,
and because Public Citizen did not allege that Dynegy had
failed to comply with its reporting obligations, the sales
“pursuant to Dynegy’s market-based rate tariff at the time of
the 2015/16 Auction were appropriately made.” Id. ¶ 18.

     Finally, with respect to the justness and reasonableness of
the 2015 Auction, the Commission rejected Public Citizen’s
reliance on the Commission’s 2015 Order directing prospective
changes to MISO’s tariff. The Commission reasoned that its
2015 Order’s finding that the tariff was unjust and
unreasonable going forward was based on “changes to the PJM
capacity market, including future changes to the capacity
market construct.” Rehearing Order ¶ 22 (J.A. 135–136). The
Commission reasoned that those changes would only affect the
opportunity costs for MISO generators “going forward,” so
they were properly considered only prospectively, and did not
undermine the Commission’s conclusion that the 2015 Auction
was based on a “just and reasonable approach to mitigating
anticompetitive behavior in the MISO capacity market.” Id.

     Dissenting again, Commissioner Glick repeated his
concern that the Commission “continues to sidestep the key
question” of whether the 2015 Auction results “were just and
reasonable in light of the allegations of market manipulation by
Public Citizen and others.” Rehearing Order (Glick, Comm’r,
dissenting) ¶ 1 (J.A. 137).

    Public Citizen timely petitioned this court for review of
both the 2019 Order and the 2020 Rehearing Order.

                              II

     We have jurisdiction under the Federal Power Act, 16
U.S.C. § 825l(b), and review Commission orders under the
arbitrary and capricious standard. West Deptford Energy, LLC
                               23
v. FERC, 766 F.3d 10, 17 (D.C. Cir. 2014). To that end, we
must determine “whether the Commission’s orders examined
the relevant data and articulated a rational connection between
the facts found and the choice made.” Id. (quotation omitted).

                              III

     Public Citizen raises three challenges to the Commission’s
orders. First, Public Citizen argues that the Commission failed
to meet its obligation to ensure just and reasonable rates
because it did not review the prices resulting from the 2015
Auction before those prices went into effect. Second, Public
Citizen argues that the Commission was arbitrary and
capricious in failing to adequately explain its decision to close
its investigation into whether Dynegy engaged in market
manipulation.       Third, Public Citizen argues that the
Commission failed to adequately explain its conclusion that the
results of the 2015 Auction were just and reasonable.

     We deny Public Citizen’s petition with respect to the first
two arguments. But we agree that the Commission’s decision
that the 2015 Auction results were just and reasonable solely
because the auction process complied with the filed tariff was
unreasoned on this record. So we grant the petition in part and
remand to the Commission.

                               A

     Public Citizen’s first contention is that Section 205 of the
Federal Power Act requires the Commission to give its
affirmative approval to each individual market-based price
resulting from an auction for electricity or electrical capacity
before that price can go into effect. That is incorrect.

     Market-based rate regulation is based on the premise that,
“[i]n a competitive market, where neither buyer nor seller has
                                24
significant market power, * * * the terms of their voluntary
exchange are reasonable, and * * * [the] price” they negotiate
will be “close to marginal cost, such that the seller makes only
a normal return on its investment.” Tejas Power Corp., 908
F.2d at 1004. On that understanding, we have held that the
Commission can rationally allow markets to set “just and
reasonable” prices as long as the Commission takes the
necessary steps to ensure that market participants cannot wield
anticompetitive market power. See Blumenthal, 552 F.3d at
882; Louisiana Energy, 141 F.3d at 365; Elizabethtown Gas,
10 F.3d at 870–871.

     The Commission has developed a two-part supervisory
process for ensuring that market rates are just and reasonable,
and we have held that this process satisfies the Commission’s
statutory obligations under Section 205 of the Federal Power
Act. See 16 U.S.C. § 824d. First, before approving the use of
a market-based tariff, the Commission must make a finding that
the seller lacks or has adequately mitigated market power.
Blumenthal, 552 F.3d at 882. Second, the Commission must
conduct “continuing oversight” of the market by reviewing the
mandatory transaction reports filed with it to make sure that
they corroborate “the continued competitiveness” of the
market. Id. at 882–883.

     This second step is just as critical as the first. See Lockyer,
383 F.3d at 1014; Harris, 784 F.3d at 1275. The Commission
must review auction results—including prices—as part of its
obligation to conduct “active ongoing review” of markets and
market participants. Harris, 784 F.3d at 1273. But in
conducting that active monitoring, the Commission examines
auction prices not to determine whether the prices themselves
are intrinsically just and reasonable, but instead “to ensure that
the reported transactions are consistent with the data expected
of a competitive, unmanipulated market.” Montana Consumer
                               25
Counsel, 659 F.3d at 919; see Market-Based Rates ¶ 117, 72
Fed. Reg. at 39,919 (Commission noting that, “as part of our
ongoing monitoring activities, we examine the [transaction]
data in an effort to identify whether market prices may indicate
an exercise of market power”); see also Market-Based Rates
¶ 5, 72 Fed. Reg. at 39,906 (affirming that the Commission’s
review of transactions includes looking out for signs of market
manipulation). So while prices provide important and relevant
evidence of the market’s functioning, prices are not themselves
the object of the Commission’s inquiry.

     This reasonable regulatory regime gives no quarter to
Public Citizen’s demand that the Commission must examine
and approve every individual price resulting from every single
auction to reconfirm that the price is “just and reasonable” in
its own right. The whole premise of the Commission’s market-
based system is that a properly competitive market will
necessarily produce just and reasonable prices.              The
Commission satisfies its statutory obligations under Section
205 by giving sellers ex ante approval for market-based pricing
so long as (1) sellers participating in regional markets obey the
rules designed to ensure fair and competitive markets, and
(2) the Commission’s continuing and vigilant monitoring of
transaction reports verify that the markets work properly when
the rubber meets the road. Public Citizen’s desire to pile on
another layer of agency review ignores longstanding precedent
upholding this regulatory scheme. See Elizabethtown Gas, 10
F.3d at 870 (In a competitive market, the Commission can “rely
upon market-based prices in lieu of cost-of-service regulation
to assure a ‘just and reasonable’ result.”); Lockyer, 383 F.3d
at 1013 (concluding that market-based tariffs satisfy the
Federal Power Act given “the dual requirement of an ex ante
finding of the absence of market power and sufficient post-
approval reporting requirements”) (emphasis omitted).
                                  26
     Public Citizen insists that the statute’s multiple references
to “rates and charges” indicates that sellers must seek
Commission approval of all auction prices. See 16 U.S.C.
§ 824d(a), (c), (d), (e). 3 But what those references to rates and
charges require is that they be just and reasonable. See also
Montana Consumer Counsel, 659 F.3d at 921 (“[T]he ‘rate’
filed by authorized power wholesalers is the ‘market rate,’ and
that rate does not ‘change’ even though the prices charged by
the wholesalers may rise and fall with the market.”); Lockyer,
383 F.3d at 1014 (“[T]here is nothing inherent in the general
concept of a market-based tariff that violates the [statute.]”).
Nothing in the statute dictates the precise methodology the
Commission must use to ensure the justness and
reasonableness of rates, whether through individualized review
or through reviewing and monitoring the process by which
rates are computed. See Elizabethtown Gas, 10 F.3d at 870
(citing Mobil Oil Exploration & Producing Se. Inc. v. United
Distribution Cos., 498 U.S. 211, 214 (1991)).

      Public Citizen points us to Farmers Union Central
Exchange v. FERC, 734 F.2d 1486 (D.C. Cir. 1984), but that
case is of no help to its argument. The Commission’s
protections of ex ante review, approval of the market design,
and active post-approval monitoring do not involve “largely
undocumented reliance on market forces as the principal means
of rate regulation,” which was the problem in Farmers. Id. at

     3
       Paragraph (a) of Section 824(d) requires that all “rates and
charges” be just and reasonable. 16 U.S.C. § 824d(a). Paragraph (c)
requires utilities to file schedules of all “rates and charges” with the
Commission. Id. § 824d(c). Paragraph (d) prohibits utilities from
changing any “rate” or “charge” without sixty-days’ notice to the
Commission and the public, “[u]nless the Commission otherwise
orders[.]” Id. § 824d(d). And paragraph (e) permits the Commission
to suspend a new “rate” or “charge” under certain circumstances. Id.
§ 824d(e).
                              27
1508; see Blumenthal, 552 F.3d at 882. TransCanada Power
Marketing Ltd. v. FERC, 811 F.3d 1, 4, 13 (D.C. Cir. 2015), is
also inapt because it did not involve a competitive market-
based rate system. And Public Citizen, Inc. v. FERC, 839 F.3d
1165 (D.C. Cir. 2016), concerned a settlement agreement that
specifically required the Commission to perform a “thorough
review” of actual auction-clearing prices, id. at 1167, a
requirement that has no analogue here.

     For all of those reasons, we reject Public Citizen’s
argument that the Commission was required under Section 205
to review the resulting auction prices themselves to determine
whether they were “just and reasonable.” See 16 U.S.C.
§ 824d.

                               B

    Public Citizen next challenges the Commission’s
conclusory statement that Dynegy did not engage in market
manipulation, which the Commission made in explaining its
wholly discretionary decision to close its investigation into
Dynegy. Because that brief statement was made for the sole
purpose of explaining the Commission’s decision not to pursue
an enforcement action, we have no power to review it.

     It has long been settled that “an agency’s decision not to
prosecute or enforce, whether through civil or criminal process,
is a decision generally committed to an agency’s absolute
discretion.” Chaney, 470 U.S. at 831; see 5 U.S.C. § 701(a)(2)
(excluding from judicial review agency actions “committed to
agency discretion by law”). In deciding whether to bring an
enforcement action, an agency must not only determine
whether a violation of the law occurred, but also whether
“agency resources are best spent on this violation or another,
whether the agency is likely to succeed if it acts, whether the
particular enforcement action requested best fits the agency’s
                               28
overall policies, and, indeed, whether the agency has enough
resources to undertake the action at all.” Chaney, 470 U.S. at
831.

     In this case, the Commission conducted a lengthy
investigation into whether the 2015 Auction’s localized rate
spike was the product of market manipulation.            The
Commission’s investigation spanned more than three years,
produced 500,000 pages of documents, and involved seventeen
days of testimony from eleven witnesses. 2019 Order ¶ 31
(J.A. 76). After that, the Commission concluded that “the
conduct investigated did not violate the Commission’s
regulations regarding market manipulation[,]” and for that
reason, “no further action [was] appropriate to address the
allegations of market manipulation raised in the complaints.”
Id. ¶ 32 (J.A. 76).

     That type of Commission decision not to pursue further
investigation or enforcement “is a paradigmatic instance of an
agency exercising its presumptively nonreviewable
enforcement discretion.” Baltimore Gas & Elec. Co. v. FERC,
252 F.3d 456, 460 (D.C. Cir. 2001). That the Commission
offered a brief and non-substantive passing word of
explanation—whether on the question of liability or resource
limitations—by itself does not open the door to judicial review
of the non-enforcement decision.

     Public Citizen acknowledges that it can neither “dictate the
agency’s investigative procedures” nor “seek[] review of an
exercise of enforcement discretion.” Public Citizen Br. 52. It
insists instead that it challenges the Commission’s “substantive
ruling,” in response to complaints, that Dynegy’s conduct did
not constitute market manipulation. Id. The Commission’s
enforcement decision, Public Citizen says, “rested entirely on
                                29
this resolution of the merits of the claim[,]” and “not on the
exercise of prosecutorial discretion.” Id.

     But the exercise of prosecutorial discretion is not
infrequently informed by the agency’s view of the merits—
whether a violation took place, or whether it could be proved.
See Chaney, 470 U.S. at 831 (including “whether a violation
has occurred” among the factors an agency considers in making
an enforcement decision).

     Nor is there any “law to apply” here. Chaney, 470 U.S.
at 834–835.       Under Chaney, the presumption of
nonreviewability can be defeated if Congress has provided law
for the court to apply. That would happen, for example, if
Congress had “indicated an intent to circumscribe agency
enforcement discretion, and had provided meaningful
standards for defining the limits of that discretion.” Id. at 834.
That exception does not apply here because nothing in the
Federal Power Act reins in the Commission’s enforcement
discretion or provides a meaningful standard for reviewing its
unexplained conclusion. See 16 U.S.C. § 825e (“[I]t shall be
the duty of the Commission to investigate the matters
complained of in such manner and by such means as it shall
find proper.”); Public Utils. Comm’n of State of Cal. v. FERC,
462 F.3d 1027, 1050 (9th Cir. 2006) (“[The Commission]
enjoys broad discretion in the management of its own [18
C.F.R.] § 1b prosecutorial investigations.”). 4

    4
         In this way, the Commission’s discretionary enforcement
decision to close an investigation under Section 306 of the Act, 16
U.S.C. § 825e, is quite different from the substantive adjudicative
decisions the Commission must make under Section 206, 16 U.S.C.
§ 824e(a), in response to complaints about whether particular rates
are just and reasonable.
                               30
     In short, under the Federal Power Act, we cannot review
either the Commission’s discretionary decision to close its
Section 222 investigation into Dynegy, or the fleeting
explanation the Commission gave for its action.

                               C

     Public Citizen fares better with its argument that the
Commission failed to explain adequately its conclusion that the
results of the 2015 Auction for Zone 4 were just and
reasonable. See 2019 Order ¶ 2. In addressing that issue, the
Commission fell far short of the type of reasoned explanation
that the law requires. Most notably, the Commission failed to
reconcile its prospective holding that the tariff could no longer
protect against anticompetitive behavior with its conclusion
that the conspicuously uneven 2015 results—obtained under
the same flawed tariff terms—were not similarly infected. Nor
did the Commission provide any explanation for its
determination that market manipulation did not lead to unjust
and unreasonable rates.

                               1

     In its December 2015 Order, the Commission ruled that
some of MISO’s tariff provisions—those used to calculate the
initial reference level and local clearing requirements—were
“no longer just and reasonable for prospective application[.]”
2015 Order ¶ 3 (J.A. 910). Most relevant here, the Commission
determined that it made no sense to estimate MISO sellers’
opportunity costs by reference to the PJM market because of
both the demonstrated lack of past demand and transmission
availability for generators located within MISO to sell their
energy capacity into PJM, as well as future changes to the PJM
marketplace. Id. ¶ 92. At bottom, that meant that the tariff’s
scheme for setting price parameters no longer protected against
                               31
sellers obtaining disproportionate prices through exercises of
market power or market manipulation.

     Yet in its 2019 Order, the Commission ruled that the
sharply disparate rates produced in the 2015 Auction by that
same tariff—applying its no-longer-valid opportunity-cost
assumptions—were just and reasonable. In doing so, the
Commission made no effort at all to reconcile its ruling with its
2015 Order’s findings that the tariff relied on flawed pricing
assumptions. Not until its rehearing decision did the
Commission even touch upon the issue. Even then, all the
Commission said was that the prospective changes ordered in
the 2015 Order rested exclusively on expected future changes
to the PJM market. Rehearing Order ¶ 22 (J.A. 135–136).
Since Dynegy’s auction offers were permissible under the then-
governing tariff, the Commission added, the results of that
Auction were necessarily just and reasonable. Id. ¶¶ 22, 23.

     That will not do. The Commission’s 2015 Order listed
future changes to PJM as only one of the reasons for finding
the tariff no longer just and reasonable. 2015 Order ¶¶ 87–88
(J.A. 941–942). The Commission also cited present-day
problems with the tariff’s assumptions, including the limited
opportunity, as of 2015, for MISO generators to sell into PJM
due to both limited demand in PJM and the limited ability to
obtain transmission service into PJM. Id. ¶¶ 89–92. Those
latter two determinations rested on evidence and data about
demand and transmission availability in the 2014-2015 and
2015-2016 planning years. Id. ¶¶ 89–91. The Commission, in
short, rested its invalidation of the tariff in material part on
evidence that, on its face, applies just as much to the 2015
Auction as to future auction years.

    That apparent flaw directly affected the boundaries within
which rates were set. For example, without those impugned
                                  32
assumptions about opportunity costs, the initial reference level
in 2015 likely could have been set at $0 per MW-day, just as
the Commission ordered for future auctions. Instead, based on
opportunity costs that the Commission’s 2015 Order directly
called into question, the initial reference level was set at
$155.79 per MW-day. With an initial reference level of $0,
generators like Dynegy would have been limited to offering
capacity at a price of no more than roughly $25 per MW-day,
and thus would have been unable to submit the 600% higher
offers that they did in the 2015 Auction. See 2015 Order ¶ 93. 5
Because this apparent flaw in the 2015 Auction rules led to an
outlier auction clearing price of $150 per MW-day, the
Commission was obligated to explain why its opportunity cost
analysis in the 2015 Order did not require the conclusion that
the 2015 Auction results—that were predicated on the same
flawed opportunity-cost assumption—were not unjust and
unreasonable. 6

     5
       At least, to submit such offers, the companies would have had
to request a facility-specific reference level and support that request
with evidence of an individual facility’s distinctive going-forward
costs.
     6
       We reject intervenor Vistra’s suggestion that Public Citizen
failed to preserve this issue on rehearing. Public Citizen’s rehearing
request argued that the Commission’s bare reliance on the 2015
Auction’s compliance with MISO’s tariff to demonstrate the justness
and reasonableness of the auction results was undermined by the
Commission’s own prior determination that the tariff provisions
were no longer just and reasonable. J.A. 1035–1036 (“That the
Commission itself has already determined that continued use of the
auction mechanisms used in the 2015/16 auction would be unjust and
unreasonable * * * further indicates the unlawfulness of relying
solely on the auction’s compliance with the then-applicable tariff
terms[.]”); J.A. 1054 (“[The Commission] failed to consider whether
                                 33
     The Commission’s orders are similarly devoid of
explanation as to why the changes to MISO’s local clearing
requirements dictated in the 2015 Order—that is, the changes
to MISO’s rules regarding how much capacity had to be
generated by power plants physically located within Zone 4—
did not equally implicate the justness and reasonableness of the
2015 Auction results. Perhaps, as the Commission and Vistra
(Dynegy’s successor-in-interest) argue, any flaws in the Zone
4 local clearing requirement would not have affected the
fairness of the auction. But that argument depends critically on
the assumption that the tariff’s mitigation provisions, such as
the initial reference level, were functioning properly. The 2015
Order takes the air out of that assumption. See 2015 Order
¶¶ 85–92 (J.A. 940–943).

                                 2

    As the Commission agrees, Section 206 allows a
complainant to allege that market manipulation led to unjust
and unreasonable rates. See Rehearing Order ¶ 14 (J.A. 131–
132); Oral Arg. Tr. 35:2–5 (Oral Arg. Rec. 45:38–45:52). Yet
the Commission’s orders wholly failed to adequately address

the tariff provisions governing the auction remained just and
reasonable” despite “the Commission’s determination in December
2015 that the tariff’s provisions were no longer just and
reasonable.”). The Commission read the filing that same way
because it directly responded to the argument that Public Citizen
made. Cf. Shafer & Freeman Lakes Env’t Conservation Corp. v.
FERC, 992 F.3d 1071, 1089 (D.C. Cir. 2021) (finding exhaustion
where the Commission’s express response “provide[d] strong
evidence that the * * * rehearing application put the Commission on
notice of the issue”). Public Citizen cannot be blamed for failing to
anticipate that the Commission’s response would forget the most
relevant portions of its own 2015 Order.
                               34
Public Citizen’s allegation that Dynegy’s market manipulation
produced unjust and unreasonable results in the 2015 Auction.

     Public Citizen’s complaint alleged that market
manipulation by Dynegy in the form of economic withholding
had rendered the 2015 Auction results unjust and unreasonable.
J.A. 151–153. Economic withholding is a type of market
manipulation in which a utility offers electricity (or capacity)
at auction at uncompetitively high prices, which artificially
inflates the market-clearing price. See ENERGY PRIMER 134
(“Withholding is the removal of supply from the market and is
one of the oldest forms of commodities manipulation.”).
Because Dynegy’s acquisition of four new power plants in
Zone 4 had made it a pivotal supplier of capacity in that zone,
Dynegy seemingly had the power to set the auction clearing
price. See Commission Br. 50 (acknowledging that Dynegy
was a pivotal supplier in the auction); J.A. 145 (Public Citizen
alleging that Dynegy is “now the dominant provider of capacity
in the zone”). To that point, Dynegy offered some of its
capacity in the 2015 Auction at relatively high prices, including
651 MW at $150 per MW-day and 2,775 MW at $167 per MW-
day. 2019 Order ¶ 84 (J.A. 105). Public Citizen alleged that
Dynegy, asserting its new market dominance, “may have
engaged in intentional capacity withholding to drive auction
prices from $16.75 to $150.00.” J.A. 145.

     Addressing this allegation for the first time, the
Commission’s Rehearing Order said that Public Citizen had
“fail[ed] to accurately articulate and address the definition of
‘market manipulation’” under the Federal Power Act, and had
“not met its burden as a complainant to demonstrate that
activity meeting that definition occurred and resulted in rates
that are unjust and [un]reasonable.” Rehearing Order ¶ 14
(J.A. 131–132).
                                35
    On this record, that truncated analysis was inadequate.

    First, Public Citizen more than adequately alleged that
conduct during the 2015 Auction met the definition of “market
manipulation” and resulted in unjust and unreasonable rates.
Public Citizen straightforwardly asserted that “[i]t is illegal for
an energy market participant to intentionally withhold
economically viable supply from a generating facility for the
purpose of inflating prices so it can earn greater profits on sales
from other remaining generating assets at the higher price
caused by the withholding.” J.A. 151–152. For this
proposition it cited the Federal Power Act’s prohibition on
market manipulation, 16 U.S.C. § 824v(a), and the
Commission’s implementing regulation, 18 C.F.R. § 1c.2(a),
which together set out the definition of market manipulation.
Public Citizen then cited two other proceedings in which,
according to Public Citizen, the Commission had taken the
position that “engaging in uneconomic conduct” for the
purpose of benefiting an entity’s other assets constituted
market manipulation. J.A. 152.

     For its part, the Commission did not suggest in its orders
that economic withholding would not constitute illegal market
manipulation. On its face, economic withholding seems to fit
within the regulatory definition of market manipulation as
including any “scheme * * * to defraud,” 18 C.F.R. § 1c.2,
where “fraud” includes “any action * * * for the purpose of
impairing, obstructing or defeating a well-functioning
market[,]” Prohibition of Energy Mkt. Manipulation, 114
FERC ¶ 61,047, at 38–39. To that point, a 2015 Commission
staff publication expressly identifies economic withholding as
a paradigmatic form of prohibited market manipulation under
the Federal Power Act. See FERC, ENERGY PRIMER: A
HANDBOOK OF ENERGY MARKET BASICS 129–130 (Nov. 2015)
(In “[e]conomic withholding * * * the manipulator sets an offer
                               36
price for a needed resource that is so high that the resource will
not be selected in the market * * * creat[ing] a shortage of
generation and * * * rais[ing] prices for the benefit of the rest
of its generation fleet or its financial positions.”). Under these
circumstances, the Commission’s unexplained reliance on the
“definition” of market manipulation did not answer Public
Citizen’s core allegation—that Dynegy may have manipulated
its auction offers to garner an unreasonably high price.

     Second, as for meeting its burden of proof, Public Citizen
pointed to the significant evidence before the Commission that
the auction results were not just and reasonable, and that
market power or manipulation could have affected the
outcome. To start, the $150 per MW-day auction clearing
price, which was 40 times higher than all of the other auction
clearing prices in zones where Dynegy lacked such market
dominance, should have raised eyebrows. That price was also
vastly higher than the Zone 4 clearing prices from prior years.
See J.A. 63 (clearing price was $16.75 per MW-day in 2014-
2015, and $1.05 per MW-day in 2013-2014).

      Yet the Commission backhanded the extraordinary price
spike with the anodyne statement that “an Auction Clearing
Price is not unjust and unreasonable because it is higher than
expected.” 2019 Order ¶ 84. Okay. But that does not excuse
the Commission from grappling with the unusual magnitude of
the rate increase and its incongruity with other rates within the
same auction. The Commission also ignored the chronological
link between the spike and Dynegy’s acquisition of pivotal
sources of electrical generation within Zone 4. See J.A. 144–
145, 173; Commission Br. 50; see also Delaware Div. of Pub.
Advocacy v. FERC, --- F.4th ---, No. 20-1212, 2021 WL
2878597, at *5 (D.C. Cir. July 9, 2021) (Commission acts
arbitrarily if it “fail[s] to consider an important aspect of the
                               37
problem”) (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).

    On this record, the Commission’s generic assertion that
“higher” prices alone do not suggest market manipulation
misses the mark. The clearing price was not just higher, but
was massively higher than the rates in every other zone, and
substantial evidence in the record raised the question of a
market failure. What this record required was nothing more
and nothing less than a reasoned assessment of the evidence as
a whole. Yet the Commission did not provide “even the
scantest reasoning to support its finding” that the massive price
spike in Zone 4 “had nothing to do with market manipulation.”
2019 Order (Glick, Commissioner, dissenting) ¶ 5 (J.A. 120).

     Third, instead of weighing the evidence, the Commission’s
orders repeatedly asserted that the Zone 4 clearing price was
necessarily just and reasonable “because it resulted from the
application of MISO’s tariff, which had previously been
accepted as a just and reasonable approach” to mitigating
anticompetitive behavior. 2019 Order ¶ 86 (J.A. 106).

     Ah, but “previously been accepted” is exactly the problem.
In the same year this auction occurred, the Commission found
that the same tariff could no longer produce just and reasonable
results. And it did so based in part on empirical grounds that
applied just as much to the 2015 Auction as to future auctions.
See 2015 Order ¶¶ 85–92 (J.A. 940–943).

    On top of that, the Commission’s breezy analysis
overlooks that a market participant could abide by a
Transmission Organization’s tariff and still manipulate the
market to produce an unjust or unreasonable rate, as
Commissioner Glick pointed out in dissent. See 2019 Order
(Glick, Commissioner, dissenting) ¶ 2 (J.A. 117–118); see also
Coaltrain Energy, L.P., 155 FERC ¶ 61,204 (May 27, 2016)
                               38
(Commission has “repeatedly held [that] [a]n entity need not
violate a tariff, rule or regulation to commit fraud.”). To put it
simply, because the record evidence raised a substantial
question of whether the tariff provisions had adequately
mitigated exercises of market power or market manipulation in
the 2015 Auction, the Commission could not rely reactively on
compliance with a hobbled tariff as the lodestar of
competitiveness.

     That is not to say that an extraordinary price spike
necessarily evidences market manipulation or a malfunctioning
auction process. The Commission could, on an appropriate
record, reasonably conclude that a particular price spike, while
unusual, was not unjust or unreasonable. The problem in this
case is that the Commission did not do that work. And that
failure made its order arbitrary and capricious.

    Because the Commission’s orders did not adequately
explain its conclusion that the 2015 Auction results in Zone 4
were just and reasonable given the evidentiary record and the
Commission’s own findings in the 2015 Order, we remand to
the Commission for further analysis and explanation.

                               IV

     For all of those reasons, we grant the petition in part and
deny it in part, and remand the case to the Commission for
further proceedings.

                                                     So ordered.