Court Opinion

ID: 820631
Source: CourtListenerOpinion
Date Created: 2013-02-15 15:41:56.640952+00
Date Added: 2024-06-11T09:03:06.792075
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 15, 2012           Decided February 15, 2013

                         No. 11-1422

  NEW ENGLAND POWER GENERATORS ASSOCIATION, INC.,
                   PETITIONER

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION,
                     RESPONDENT

  GEORGE JEPSEN, ATTORNEY GENERAL FOR THE STATE OF
                 CONNECTICUT, ET AL.,
                    INTERVENORS

                 Consolidated with 11-1465

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

     John Lee Shepherd argued the cause for petitioner New
England Power Generators Association, Inc. With him on the
briefs was John N. Estes III. Paul F. Wight entered an
appearance.

     John S. Wright, Assistant Attorney General, Office of the
Attorney General for the State of Connecticut, argued the cause
for State Petitioners. With him on the briefs were Michael C.
                                2
Wertheimer, Assistant Attorney General, Jesse S. Reyes,
Assistant Attorney General, Office of the Attorney General for
the Commonwealth of Massachusetts, and Lisa Fink.

     Robert H. Solomon, Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief was Lona T. Perry, Senior Attorney.

    Before: TATEL, BROWN, and GRIFFITH, Circuit Judges.

     BROWN, Circuit Judge: The Federal Energy Regulatory
Commission must ensure the rates charged for electric
generation capacity are “just and reasonable.” Federal Power
Act (FPA) § 205(a), 16 U.S.C. § 824d(a). Until recently, only
two types of rates were involved: tariff rates and contract rates.
FERC’s review of tariff rates is subject to considerable
discretion. On the other hand, unless a contract rate is
contrary to the public interest, FERC must presume it to be just
and reasonable under the Mobile-Sierra doctrine, a principle
that began with two eponymous Supreme Court precedents:
United Gas Pipe Line Co. v. Mobile Gas Serv. Corp. (Mobile),
350 U.S. 332 (1956), and Fed. Power Comm’n v. Sierra Pac.
Power Co. (Sierra), 350 U.S. 348 (1956).

     The debut of capacity auctions poses a new challenge. In
this case FERC reviewed rates resulting from an auction
process and concluded that though the rates are not contract
rates, they warrant the Mobile-Sierra presumption anyway—a
move that upset two groups of petitioners for opposite reasons.
The New England Power Generators Association (“NEPGA”)
likes the result but not the reasoning: it argues the auction
results, as contract rates, must receive the Mobile-Sierra
presumption. Another group, comprising the Maine Public
Utilities Commission and the Attorneys General of
Massachusetts and Connecticut (collectively, the “State
                                3
Petitioners”), supports much of FERC’s reasoning but not the
result: they contend that because the auction results are not
contract rates, FERC cannot presume them just and reasonable.
We dismiss NEPGA’s petition for lack of standing and deny
the State Petitioners’ petition on the merits.

                                I

                                A

     Regulated energy suppliers file compilations of their rate
schedules, called “tariffs,” with FERC. See Morgan Stanley
Capital Grp., Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty.,
554 U.S. 527, 531 (2008). Suppliers must abide by these
tariffs when providing service to electricity purchasers, though
they may change their tariffs if they afford FERC advance
notice. See 16 U.S.C. § 824d(c), (d); Morgan Stanley, 554
U.S. at 531. Along with the unilateral filing of tariffs, the
FPA also allows suppliers to set rates with individual
purchasers via bilateral contract, though these contracts must
also be filed with FERC before going into effect. See Morgan
Stanley, 554 U.S. at 531. All rates, whether determined by
tariff or contract, must be “just and reasonable.” 16 U.S.C. §
824d(a). This standard entitles FERC to some discretion, and
the agency “traditionally reviewed and set tariff rates under the
‘cost-of-service’ method, which ensures that a seller of
electricity recovers its costs plus a rate of return sufficient to
attract necessary capital.” Morgan Stanley, 554 U.S. at 532.

     Though bilateral contracts and unilateral tariffs offer
separate methods of rate-setting, a seller cannot abrogate a
contract rate simply by filing a new tariff with FERC. See
Mobile, 350 U.S. at 336–37. Nor may FERC conclude a new
tariff supersedes a contract rate just because the latter would
not qualify as “just and reasonable” under the cost-of-service
                                   4
method; rather, FERC, pursuant to the Mobile-Sierra doctrine,
may only upset such a contractually determined rate when “the
rate is so low as to adversely affect the public interest—as
where it might impair the financial ability of the public utility
to continue its service, cast upon other consumers an excessive
burden, or be unduly discriminatory.” Sierra, 350 U.S. at
355; see also Morgan Stanley, 554 U.S. at 533–35.

                                   B

    We adopt the facts as previously summarized in NRG
Power Mktg., LLC v. Me. Pub. Utils. Comm’n, 130 S. Ct. 693
(2010), and Me. Pub. Utils. Comm’n v. FERC (“MPUC I”),
520 F.3d 464 (D.C. Cir. 2008) (per curiam):

     In capacity markets, transmission providers pay
generators for the option to buy a quantum of power rather than
directly purchasing wholesale electricity. NRG, 130 S. Ct. at
697. As a failsafe, transmission providers typically purchase
more capacity than necessary to satisfy expected demand. Id.
That way, if a spike in demand occurs, customers will not
experience a power interruption.

    For some time, the situation in New England proved
precarious, with capacity supplies only barely satisfying
regional demand. Id. To mitigate this predicament, several
generators sought to enter into “reliability must-run” contracts
with the New England Independent System Operator (“ISO”).1

1
 An ISO is an independent company that “assume[s] operational
control—but not ownership—of the transmission facilities owned by
its member utilities . . . . [and] provide[s] open access to the regional
transmission system to all electricity generators at rates established
in a single, unbundled, grid-wide tariff that applies to all eligible
users in a non-discriminatory manner.” Midwest ISO Transmission
                               5
These contracts would allow generators to recover their full
cost of service as a means of guaranteeing their continued
operation in areas suffering from supply shortages. See
Devon Power LLC, 103 FERC ¶ 61,082, 61,266–68 (2003).
FERC denied the generators’ request, limiting recovery to
certain maintenance costs going forward. Id. at 61,266.
FERC also directed the ISO to file a mechanism for setting
different prices for separate subregions within New England
depending on their capacity needs. See id. at 61,271. The
ISO response met with some opposition, and FERC instituted
proceedings for the parties to negotiate a settlement. See
Devon Power LLC, 113 FERC ¶ 61,075, 61,271–72 (2005).
A settlement agreement endorsed by all but 8 of the 115
negotiating parties was filed in March 2006, and FERC
adopted it. See Devon Power LLC, 115 FERC ¶ 61,340,
62,304, 62,306 (2006).

     Central to the settlement agreement is the “Forward
Capacity Auction,” at which generators commit themselves to
selling a certain amount of capacity at a particular price three
years in advance. Id. at 62,306. The Forward Capacity
Auction is a “descending clock auction,” in which the ISO,
after announcing a starting price, gradually reduces its offered
price until the capacity bids equal the amount the ISO
determined is necessary to guarantee grid reliability. See id.
at 62,306–07; see also PSEG Energy Res. & Trade LLC v.
FERC, 665 F.3d 203, 206 (D.C. Cir. 2011). Transmission
providers such as public utilities ultimately purchase the
capacity, paying for a portion of the capacity proportionate to
their peak loads, though transmission providers may also
self-supply to meet their capacity obligations. Devon Power
LLC, 115 FERC at 62,307. The settlement agreement also

Owners v. FERC, 373 F.3d 1361, 1364 (D.C. Cir. 2004) (internal
quotation marks omitted).
                                 6
prescribed “separate but simultaneous auctions” for different
subregions based on their unique capacity needs. 2 Id.
Additionally, the settlement specified challenges to the rates
set by the Forward Capacity Auction would be reviewed under
Mobile-Sierra’s public interest standard, “whether the change
is proposed by a Settling Party, a non-Settling Party, or the
FERC acting sua sponte.” Id. at 62,333. Several objectors to
the settlement agreement petitioned this Court for review of
FERC’s decision.       Concluding that “the Mobile–Sierra
doctrine is designed to ensure contract stability as between the
contracting parties—i.e., to make it more difficult for either
party to shirk its contractual obligations,” we held the
settlement’s Mobile-Sierra provision inapplicable to
noncontracting third parties. See MPUC I, 520 F.3d at 479.

     The Supreme Court reversed, however, and explained that
Mobile-Sierra’s animating purpose—the promotion of stable
energy supply arrangements—required application of the
public interest standard to both contracting parties and third
parties. See NRG, 130 S. Ct. at 700–01. Rejecting an
interpretation of Mobile-Sierra as merely an application of
contract law, the Court wondered, “[I]f FERC itself must
presume just and reasonable a contract rate resulting from fair,
arms-length negotiations, how can it be maintained that
noncontracting parties nevertheless may escape that
presumption?” Id. at 700. After holding the Mobile-Sierra
presumption applicable to any party challenging a contract
rate, the Supreme Court noted uncertainty as to whether the
prices set by the Forward Capacity Auctions were in fact
contract rates and remanded the case. See id. at 701. With
2
 Though no longer relevant in this case, because the auctions were
set to be conducted three years before the capacity would be needed,
a fixed payment schedule governed this initial transition period.
See Me. Pub. Utils. Comm’n v. FERC (“MPUC II”), 625 F.3d 754,
757 n.1 (D.C. Cir. 2010).
                                7
the case once again before our court, FERC’s counsel declared
that the Forward Capacity Auctions did not actually produce
contract rates, but that the agency nevertheless had discretion
to cloak the auction rates in Mobile-Sierra’s public interest
mantle. See MPUC II, 625 F.3d at 759. We concluded
FERC failed to articulate a justification for this position in the
underlying orders and returned the case to the agency to afford
an opportunity to address the question. Id. at 759–60; see SEC
v. Chenery Corp., 318 U.S. 80, 88 (1943).

     On remand, FERC endorsed the position its counsel had
already adopted: the Forward Capacity Auction rates were not
technically contract rates for the purpose of Mobile-Sierra, but
because they “possess certain characteristics of contracts,” the
agency would, as an exercise of its discretion, enforce the
settlement agreement’s provision calling for application of the
public interest standard when reviewing the rates. Devon
Power LLC, 134 FERC ¶ 61,208, 62,044 (2011); see also
Devon Power LLC, 137 FERC ¶ 61,073 (2011) (Order
Denying Rehearing). This decision appears to have satisfied
no one.

                                II

     FERC did not challenge NEPGA’s standing to bring this
petition, but because Article III standing is a prerequisite to a
federal court’s exercise of jurisdiction, we are obliged to raise
the issue even when the parties do not. Am. Library Ass’n v.
FCC, 401 F.3d 489, 492 (D.C. Cir. 2005). To have standing, a
petitioner must, at a constitutional minimum, satisfy three
requirements: (1) suffer an “injury in fact” that is both
“concrete and particularized” and “actual or imminent, not
conjectural or hypothetical”; (2) draw a causal connection
between the injury and the agency action complained of; and
(3) seek relief that is likely to redress the injury. Lujan v.
                                8
Defenders of Wildlife, 504 U.S. 555, 560–61 (1992) (internal
quotation marks omitted). The injury prong is missing here.

     NEPGA may have preferred FERC’s wholehearted
endorsement of the Forward Capacity Auction rates as contract
rates, but its desired outcome—application of Mobile-Sierra’s
public interest standard—has already been achieved. That
FERC may one day attempt to alter its position is insufficient
injury to NEPGA now, for neither a FERC decision’s legal
reasoning nor the precedential effect of such reasoning confers
standing unless the substance of the decision itself gives rise to
an injury in fact. See Wis. Pub. Power Inc. v. FERC, 493 F.3d
239, 268 (D.C. Cir. 2007) (per curiam). We have recognized
an exception to this principle under certain narrow
circumstances where “the petitioner is not merely quibbling
over the agency’s rationale in a case in which it has prevailed”
but is instead arguing the agency “lacked jurisdiction even to
consider this type of case.” Int’l Bhd. of Elec. Workers v. ICC,
862 F.2d 330, 334 (D.C. Cir. 1988). This, however, is not
such a case: the precedent going forward—that Mobile-Sierra
applies to the Forward Capacity Auction rates—is precisely the
outcome NEPGA desires. NEPGA simply wishes FERC had
been more definitive in its support for this result.

     NEPGA offers a number of theories, all too hypothetical
to support standing. First, NEPGA claims FERC’s decision
“will increase suppliers’ costs of capital because ‘uncertainties
regarding rate stability and contract sanctity can have a chilling
effect on investments.’” NEPGA Br. 16 (quoting Morgan
Stanley, 554 U.S. at 551. The argument is unavailing. In
essence, NEPGA’s challenge to the orders is predicated not on
any injury legitimately traceable to the order, but on the
potential for FERC to issue future, contrary orders. And in
any event, broad-based market effects stemming from
regulatory uncertainty are quintessentially conjectural, and it is
                                9
difficult to imagine a FERC action that would not confer
standing under this theory. See Shell Oil Co. v. FERC, 47
F.3d 1186, 1202 (D.C. Cir. 1995) (rejecting a party’s attempt to
establish standing based on a conceivable yet “hypothetical”
scenario involving future business relations).

     NEPGA has cited no factual support for its claim of
economic harm, nor has it sought to supplement the record.
See Sierra Club v. EPA, 292 F.3d 895, 900 (D.C. Cir. 2002)
(“When the petitioner’s standing is not self-evident . . . the
petitioner must supplement the record to the extent necessary
to explain and substantiate its entitlement to judicial review.”).
That is not to say the impact of an agency decision on a
company’s ability to raise capital is never sufficient to ground
standing. But that impact must be concrete, tethered to
something more than the possibility an agency may one day
reverse its position. Cf. CNG Transmission Corp. v. FERC,
40 F.3d 1289, 1293 (D.C. Cir. 1994) (finding injury where
FERC’s decision required the petitioner “to record a $7.1
million loss in its 1993 financial statements, adversely
affecting the company’s bottom line, reducing the earnings
available for dividend payments and investment, and damaging
the company’s standing in the financial markets by reducing
company value and making it more difficult (and more costly)
to raise capital.”). It would be a strange thing indeed if
uncertainty were a sufficiently certain harm to constitute an
injury in fact.

     Next, NEPGA complains the FERC orders “deny market
participants their long-recognized right to determine for
themselves the standard of review that will apply to their
commercial arrangements.” NEPGA Br. 16. This is an
argument on the merits, not a basis for standing. Missing here
is an explanation of how the supposed alteration to existing
doctrine has in fact injured NEPGA.
                               10

     Finally, NEPGA asserts that FERC’s decision “voids the
fundamental concomitant rights of contract holders to sue on
the contract, either at FERC for jurisdictional claims or in the
courts for other claims, and to enforce their claims in
bankruptcy courts.” NEPGA Br. 16–17 (internal citations
omitted). Aside from the fact that a regulatory decision’s
precedential effect does not confer standing, NEPGA
exaggerates the impact of FERC’s orders. That FERC has
decided the auction rates are not contract rates for
Mobile-Sierra purposes does not, of its own force, foreclose
any contract or bankruptcy claim NEPGA’s members may one
day choose to bring. To bolster its point, NEPGA cites
Consumers Energy Co. v. FERC, 428 F.3d 1065 (D.C. Cir.
2005), but while that case also involved issues related to
standing and contracts, the similarities to NEPGA’s
circumstances end there. In Consumers Energy Co., we held
that a petitioner could have standing to challenge an agency
decision concerning another party when, because of a private
contractual relationship, the petitioner’s interests were directly
implicated by that decision. See id. at 1069. The case said
nothing of a party’s standing to challenge an agency decision
because it expressed doubt as to the existence of an underlying
contract.

     NEPGA’s asserted injuries are overly speculative and so
inadequate to establish standing.       We therefore lack
jurisdiction to review NEPGA’s petition and must dismiss it.

                               III

    Agreeing with FERC that the Forward Capacity Auction
results are not contract rates, the State Petitioners nevertheless
object to FERC’s decision to review the rates under
Mobile-Sierra’s public interest standard. Assuming, without
                               11
deciding, that the auction rates are not contract rates, we
conclude the State Petitioners are wrong. Their argument
boils down to a single misconception: because the existence of
a contract rate mandates application of the Mobile-Sierra
presumption, the absence of a contract rate precludes it. An
example of the logical fallacy “denying the antecedent,”3 the
State Petitioners’ reasoning is invalid.

     As the Supreme Court has clarified, Mobile-Sierra’s
public interest standard is an instance of (rather than an
exception to) the FPA’s just and reasonable standard.
Morgan Stanley, 554 U.S. at 545. Application of public
interest review is simply one method by which FERC may
assure itself a rate is just and reasonable, just as the
cost-of-service method, which the State Petitioners dub
“ordinary” just and reasonable review, is another. Typically,
reasonable agency interpretations of ambiguous statutory
terms like “just and reasonable” are already subject to judicial
deference under the regime set forth in Chevron, U.S.A. Inc. v.
NRDC, Inc., 467 U.S. 837 (1984). And, just in case there
existed any uncertainty whether Chevron applied here, the
Supreme Court has also explained, “The statutory requirement
that rates be ‘just and reasonable’ is obviously incapable of
precise judicial definition, and we afford great deference to the
Commission in its rate decisions. We have repeatedly
emphasized that the Commission is not bound to any one
ratemaking formula.” Morgan Stanley, 554 U.S. at 532
(internal citations omitted). In challenging FERC’s decision,
therefore, the presumption the State Petitioners must rebut is a
daunting one.

    The only question, then, is whether FERC exceeded the
bounds of its considerable discretion by adopting the public

3
    “P ⊃ Q” does not mean “¬P ⊃ ¬Q.”
                              12
interest standard for deciding whether a given Forward
Capacity Auction rate is just and reasonable. There is no
reason to believe it has. FERC offered ample reasoning in
support of its position, recognizing that the auction rates
exhibit many of the indicia of contract rates: not only did
FERC conclude the rates “provide a market-based mechanism
to appropriately value capacity resources based on their
location,” but, as FERC explained, “rates disciplined by a
market are consistent with the FPA’s requirements.” Devon
Power LLC, 134 FERC at ¶ 62,045. Whether the auction
results are contract rates or not, FERC’s determination that the
logic of Mobile-Sierra still applied is “a reasonable choice
within a gap left open by Congress” and so within the purview
of the agency’s discretion under § 205(a) of the FPA.
Chevron, 467 U.S. at 866. We reject the State Petitioners’
argument to the contrary.

                              IV

     Because NEPGA lacks standing, we dismiss its petition
for review.      Having rejected the merits of the State
Petitioners’ arguments, we deny their petition for review.

                                                    So ordered.