Court Opinion

ID: 9410490
Source: CourtListenerOpinion
Date Created: 2023-07-21 16:01:04.859469+00
Date Added: 2024-06-11T17:20:58.095596
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 12, 2023                 Decided July 21, 2023

                        No. 22-1090

                   CITADEL FNGE LTD.,
                       PETITIONER

                             v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

MONITORING ANALYTICS, LLC AND PJM INTERCONNECTION,
                      L.L.C.,
                   INTERVENORS

                Consolidated with 22-1106

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

    Brian P. Morrissey argued the cause for petitioner. With
him on the briefs were Carter G. Phillips, Kenneth W. Irvin,
and Peter A. Bruland.

   Matthew J. Glover, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
                               2
the brief were Matthew R. Christiansen, General Counsel, and
Robert H. Solomon, Solicitor. Susanna Y. Chu, Attorney,
entered an appearance.

     Paul M. Flynn argued the cause for intervenors in support
of respondent. With him on the brief were Jeffrey W. Mayes,
Ryan J. Collins, and Elizabeth P. Trinkle.

    Before: SRINIVASAN, Chief Judge, MILLETT, and WALKER,
Circuit Judges.

    Opinion for the Court filed by Circuit Judge MILLETT.

    Dissenting opinion filed by Circuit Judge WALKER.

     MILLETT, Circuit Judge: This case concerns how PJM,
the manager of a large, multi-state electrical grid, prices the
flow of electricity to utilities in times of congestion. Such
congestion arises when energy is scarce in a particular location
on the grid due to, for example, extreme weather conditions or
a fire at a transmission station. That scarcity causes the
dispatch of more expensive generation and can trigger the
Transmission Constraint Penalty Factor (“Penalty Factor”)
when such alternative generation is unavailable. The Penalty
Factor imposes an upper bound on the costs PJM will incur to
control a transmission constraint, and it is designed to send
transparent price signals to the market and incentivize
investment that will resolve the congestion and prevent it from
recurring.

     In early 2022, PJM temporarily removed one of three
electric transmission lines that served consumers in Virginia’s
Northern Neck peninsula as part of planned upgrades.
Because the Northern Neck lacked additional generation
sources to make up for the outage, the other two transmission
                               3
lines serving the Northern Neck experienced congestion that
PJM could not resolve with low-cost generation. As a result,
the Penalty Factor frequently set the congestion cost in the
Northern Neck.

     After PJM filed a complaint with the Federal Energy
Regulatory Commission, the Commission found that
application of the Penalty Factor to the Northern Neck during
the transmission-line outage was unjust and unreasonable
under the Federal Power Act and temporarily suspended its
application at the Northern Neck for the duration of the
transmission line’s outage. 16 U.S.C. § 791a et seq.

     Petitioner Citadel FNGE Ltd. is an energy trading firm. It
challenges the Commission’s suspension of the Penalty Factor
as arbitrary and capricious.

    We deny the petitions for review. Substantial evidence
supported the Commission’s decision that the Penalty Factor,
as applied to the unique Northern Neck circumstances, could
not work as designed because it increased costs without
incentivizing supply or demand responses.               Because
application of the Penalty Factor increased costs for consumers
without a commensurate benefit, the Commission reasonably
found that its application in this context was unjust and
unreasonable.

                               I

                               A

    The Federal Power Act grants the Commission the
authority to regulate “the transmission of electric energy * * *
and the sale of such energy at wholesale in interstate
commerce[.]” 16 U.S.C. § 824(a). Under Section 206 of the
                                 4
Act, the Commission must ensure that any rates charged for
energy are “just and reasonable[.]” Id. § 824e(a); see also id.
§ 824d(a). One way the Commission can enforce that
requirement is by initiating enforcement proceedings on its
own or in response to a third-party complaint. Id. § 824e(a).
If the Commission finds that a rate is “unjust, unreasonable,
unduly discriminatory or preferential,” the Commission must
overturn that rate and impose a new just and reasonable rate.
Id.

                                 B

                                 1

     In many parts of the United States, the electrical
generation and transmission system is managed by Regional
Transmission Organizations.           Regional Transmission
Organizations serve several functions, including operating the
electrical grid in a defined geographic area, balancing energy
supply and demand, establishing markets for the sale and
purchase of electricity, and ensuring the reliable transmission
of electricity. See Public Citizen, Inc. v. FERC, 7 F.4th 1177,
1186 (D.C. Cir. 2021) (citing FERC, ENERGY PRIMER: A
HANDBOOK FOR ENERGY MARKET BASICS, at 61 (April 2020),
https://perma.cc/7UN6-6TR8 (“ENERGY PRIMER”)).

     PJM Interconnection, L.L.C. (“PJM”) is the Regional
Transmission Organization that oversees the electric grid
covering thirteen Mid-Atlantic and Midwestern States and the
District of Columbia. Power generators—such as natural-gas
fired or nuclear power plants and renewable energy
resources—produce electricity. Advanced Energy Mgmt. All.
v. FERC, 860 F.3d 656, 659 (D.C. Cir. 2017). Power
generators sell electricity at wholesale rates to utilities that then
deliver the electricity to consumers. Id. PJM coordinates the
                                5
dispatch of generation and demand resources by operating
markets for the supply and purchase of energy. Id. The
markets reflect the availability and need for electricity and set
price signals that indicate to market participants the value of
the electricity. FERC v. Electric Power Supply Ass’n, 577
U.S. 260, 268 (2016).

     PJM operates two energy markets. The first is the day-
ahead market, which allows market participants to bid on
selling or purchasing electricity that will be dispatched the next
day. See ENERGY PRIMER, at 87. The day-ahead market
produces the schedule and financial terms of energy production
for the day. But various risk factors may alter the actual
supply of and demand for electricity—for example, a sudden
outage at a power plant. Black Oak Energy, LLC v. FERC,
725 F.3d 230, 233 (D.C. Cir. 2013). To adjust for such
changes, PJM operates a second market, known as the real-time
market. That market is used to meet immediate demand for
electricity by trading electricity at prices quoted for sale and
delivery within five-minute intervals based on the then-current
grid operating conditions. Id.; see ENERGY PRIMER, at 87–88.

                                2

     PJM outlines its market rules, rates, and operating
procedures in a document called the Open Access
Transmission Tariff. Most relevant here, that tariff contains
rules that establish the wholesale price of electricity. PJM
calculates the wholesale price using a method called locational
marginal pricing. See Black Oak Energy, LLC, 725 F.3d at
233–234. Under this method, prices are designed to reflect the
lowest cost of meeting an incremental megawatt-hour of
demand at each location on the grid. Id. Prices vary based
on time and location. Id. The local marginal price is the
bottom-line wholesale price at a particular place, which may be
                              6
the price at which wholesale transactions actually settle or
otherwise a component of an average price used for settlement.
Id. at 234; see also ENERGY PRIMER, at 65; Letter from
Chenchao Lu, Assistant Counsel & Craig Glazer, Vice
President—Federal Government Policy, PJM Interconnection,
L.L.C., to the Hon. Kimberly D. Bose, Secretary, Fed. Energy
Regulatory Comm’n, at 4 (Feb. 15, 2022) (J.A. 283); Citadel
Opening Br. 14.        The local marginal price has three
components: (1) the cost of generation; (2) the cost of
transmission losses when electricity flows across the
transmission system; and (3) the cost of congestion. Black
Oak Energy, LLC, 725 F.3d at 233–234. Congestion costs are
at issue in this case.

     Congestion arises when energy becomes scarce in a
defined location. International Transmission Co. v. FERC,
988 F.3d 471, 473 (D.C. Cir. 2021). Congestion can be caused
by transmission constraints—such as line outages or weather
events—meaning that the power lines needed to deliver the
cheapest energy to a particular destination are at capacity or
otherwise unavailable.

     When congestion occurs, the lowest-priced electricity
cannot reach areas of high demand because there is some
barrier to transporting that cheaper power to consumers.
International Transmission, 988 F.3d at 473. In those
circumstances, PJM is forced to dispatch more expensive
generation that can follow a less congested path. Id.; see also
PJM INTERCONNECTION, L.L.C., FTRS:                PROTECTION
AGAINST CONGESTION CHARGES, at 1 (June 18, 2020),
https://perma.cc/9BDQ-PVFL         (“FTR     FACT     SHEET”)
(“[C]ongestion is addressed by dispatching higher-priced
                                7
electricity that can follow a less congested path in the
transmission system[.]”).

      The entity providing electricity to consumers, often a
utility or electric company, bears the initial cost of congestion.
When electricity travels between the source of its generation
and its delivery point, the utility must pay the difference
between the local marginal price at those two destinations. If
there is no congestion, the local marginal price at each location
should be the same. However, when a particular part of the
grid is congested (when PJM must call on more expensive
electricity to meet demand), the congestion cost in the
constrained area will be higher. Because congestion costs
serve as one of the three components used to calculate the local
marginal price, an increase in congestion costs in one area will
commonly raise the local marginal price of electricity in that
area.

                                3

     PJM’s market rules set an upper limit on the price of
electricity during times of congestion. To do that, PJM
coordinates the dispatch of energy using an algorithm. When
congestion arises, the algorithm uses the Penalty Factor to
ensure electricity arrives where it is needed. The Penalty
Factor represents the maximum cost that PJM will incur to
resolve the problem causing congestion.

     Here is how it works: The algorithm determines the least
expensive means of delivering electricity to different locations
across the grid based on system conditions, including
transmission constraints. When congestion is present at a
point, the algorithm exhausts all available options to relieve the
constraint up to the cost of the Penalty Factor. If available
generation cannot fix the problem, the marginal value for
                                 8
transmitting electricity around the congestion point will be
capped at the Penalty Factor’s amount.

     In that way, congestion on the electrical grid is like a traffic
jam that makes it difficult for PJM to move electricity where it
needs to go. Yet PJM must still deliver the electricity. To do
so, PJM routes electricity across transmission lines that are less
jammed. PJM will search for alternative resources to provide
electricity and will spend up to the price of the Penalty Factor
on those resources. If an alternative resource can resolve the
congestion at a price that is lower than the Penalty Factor, that
alternative resource will set the price. But if PJM cannot find
an alternative resource to resolve the congestion, the Penalty
Factor sets the price. That price then factors into computation
of the congestion cost. And that congestion cost then gets
factored into the local marginal price of the electricity received.

     Prior to 2019, PJM did not use the Penalty Factor to set the
marginal value of electricity. That changed when the
Commission issued a rule in 2018 requiring Regional
Transmission Organizations, like PJM, to include Penalty
Factors in their tariffs and to specify when the Penalty Factor
could set the local marginal price.                18 C.F.R.
§ 35.28(g)(10)(iii) (2022); Uplift Cost Allocation &
Transparency in Markets Operated by Reg’l Transmission
Orgs. & Indep. Sys. Operators, 163 FERC ¶ 61041, at 85–86
(April 19, 2018) (“Order 844”). The Commission did so
because Penalty Factors provide greater predictability and
transparency to market participants about how PJM’s actions
and practices in periods of congestion affect prices. Without
transparency, the Commission reasoned, participants cannot
understand the impact of the Penalty Factor on wholesale rates
                               9
or create solutions to improve the market’s efficient operation.
See Order 844, 163 FERC ¶ 61041, at 85.

     PJM accordingly filed a tariff that adopted and explained
the operation of its Penalty Factor. PJM advised that it would
allow the Penalty Factor to cap the marginal value of resolving
a constraint. For the real-time energy market at issue here,
PJM set the Penalty Factor at $2,000/MWh. In practice, this
means that if a constraint arises, PJM will attempt to resolve it
by dispatching higher cost electricity. PJM first will exhaust
all possible remedies that cost less than $2,000/MWh. If PJM
finds a remedy that costs less than $2,000/MWh, the cost of
that remedy will set the congestion price. If PJM cannot
resolve the congestion constraint below $2,000/MWh, the
congestion price will be locked in at $2,000/MWh.

    The Commission adopted PJM’s proposed tariff. It
became effective on February 1, 2019. PJM Interconnection,
L.L.C., 166 FERC ¶ 61015 (Jan. 8, 2019).

                               4

     As noted above, utilities are responsible for paying
congestion costs—the difference between the local marginal
price where the electricity goes into the grid and where it is
received by the utility. When congestion occurs, utilities must
pay more to receive electricity than the generators got paid to
produce the electricity.

     Financial Transmission Rights are a type of investment
that can help protect market participants against high
congestion costs.       Financial Transmission Rights are
“financial instruments that entitle their holders to be paid the
congestion costs associated with transmitting a given quantity
of electricity between two specified points.” Wisconsin Pub.
                               10
Power, Inc. v. FERC, 493 F.3d 239, 251 (D.C. Cir. 2007). In
doing so, Financial Transmission Rights let market participants
hedge or offset their potential losses due to congestion. See
id. At the time of transmission, the party will pay PJM the
applicable congestion costs, but then will redeem its
transmission right to receive the same amount back from PJM.

     Market participants that do not transmit electricity, such as
energy traders like Citadel, can also acquire Financial
Transmission Rights. These traders effectively place a bet on
congestion charges between two points on the grid. Financial
Transmission Rights are beneficial for these parties because,
for each hour congestion exists between the source and place
of receipt, the holder of the right receives a share of the
congestion cost collected from the utility. 6 PJM MANUAL:
FINANCIAL TRANSMISSION RIGHTS, at 10 (Feb. 23, 2023),
https://perma.cc/GV48-6XUE; FERC Br. 14. When the price
is higher at the recipient’s end than at the source, the Financial
Transmission Right is an asset to its holder. FTR FACT SHEET,
at 2. But when the price of electricity is lower at the
recipient’s end than at the source, a Financial Transmission
Right is a liability to its holder. Id.

                               II

                                A

     This dispute involves the impact of congestion in the
Northern Neck peninsula in Virginia and the Penalty Factor’s
response to such congestion. The Northern Neck peninsula is
served by three transmission lines: (1) the Lanexa Line, (2)
the Fredericksburg Line, and (3) the Harmony Village Line.

     In January 2022, PJM took the Lanexa Line out of service
to conduct planned upgrades. PJM estimated that the Lanexa
                              11
Line would be out of service for two years, until December
2023.

     The Lanexa Line outage quickly caused congestion along
the two remaining lines. As a result, in the early months of
2022, the Penalty Factor frequently set congestion costs for the
Northern Neck.

    In response, PJM asked the Commission to suspend the
application of the Penalty Factor at the Northern Neck for the
duration of the Lanexa Line outage because it caused unjust
and unreasonable rates for consumers in violation of Section
206 of the Federal Power Act.

     PJM noted that the Penalty Factor is intended to send price
signals that alert market participants to the existence of a
transmission constraint and indicate where transmission and
generation investments are needed. Those signals, in turn, are
meant to incentivize investments to alleviate the constraint and
to develop long-term solutions.

     PJM argued that, because of the unique and temporary
circumstances causing congestion at the Northern Neck, the
Penalty Factor was not serving its purpose. And the Penalty
Factor’s increased costs had not and likely would not
incentivize responses to mitigate the congestion for four
reasons.

    First, there were only two other transmission lines
available to bring electricity into the Northern Neck while the
Lanexa Line was being upgraded. There also was only one set
of combustion turbine units available that could attempt to
make up for some of the lost energy transmitted by these lines.
                              12
So the Northern Neck’s ability to respond to the congestion was
quite limited.

     Second, that lack of available resources caused the local
marginal price to fluctuate drastically in times of congestion.
For example, even when the turbine units were fully operating
in the early morning hours, they were insufficient to prevent
congestion, so the Penalty Factor kicked in. But as the sun
came out, local solar production in the Northern Neck
combined with those local turbine units mitigated congestion,
which often kept the congestion cost below the Penalty Factor
cap. As a result, the Penalty Factor was incapable of sending
consistent or reliable signals about whether an investment
response to the congestion was needed.

     Third, the Penalty Factor’s function is to incentivize
investment or increased production, but neither would occur in
the unique situation at hand. Material short-term investments
would not occur, PJM explained, because new resources would
not come online until after the Lanexa Line upgrade was
completed. At that point, the demand for the newly placed
resource would evaporate. Also, without any long-term
payoff, investors would be unlikely to fund a new resource
because alleviating the constraint would eliminate the need to
apply the Penalty Factor in the short term, which in turn would
reduce their revenue.

    Long-term solutions were even more unlikely, in PJM’s
view. Congestion happened because of the Lanexa Line
upgrade. And there was no evidence that additional long-term
investments were needed beyond what the updated Lanexa
Line would provide.     In other words, it is long-term
                              13
investment that temporarily caused—but would ultimately
resolve—the congestion problem.

     Fourth, demand for electricity in the Northern Neck was
inelastic, and so the congestion problem could not be materially
redressed by reducing demand.

     Citadel opposed PJM’s proposal. Citadel argued that
PJM failed to prove a link between the application of the
Penalty Factor and rates paid by consumers. Even if
consumers paid higher rates, Citadel argued, PJM failed to
show why the higher rates are unjust and unreasonable.
Citadel also asserted that PJM did not demonstrate that the
market was incapable of responding to the price signals being
sent by the Penalty Factor, and that the Commission’s decision
injects regulatory uncertainty into the market.

     In response, PJM advised that it was considering upgrades
to two parts of the Harmony Village line—the Harmony
Village-Greys Point segment (“Greys Point segment”) and the
Rappahannock-White Stone segment (“White Stone
segment”). Dominion Energy Services, Inc., the utility whose
transmission lines serve the Northern Neck, proposed
accelerating that timeframe so that the upgrades would be in
service by the end of May 2022. PJM predicted that, if
approved, the project would “significantly alleviate” the
constraint causing congestion and would limit the potential for
anomalous prices. PJM’s Answer to Citadel’s Protest, at 11
(J.A. 254).

      PJM cautioned, though, that the start date was speculative
and that, even if completed by May, there was a material risk
that the upgrades would not prevent anomalous prices during
periods of high demand in the summer and winter. For that
reason, PJM proposed that the Penalty Factor remain
                              14
suspended so that, if the Dominion upgrades went forward, the
two measures could work in tandem to control prices and
congestion during the balance of the Lanexa Line upgrade.

                              B

                              1

     In mid-February 2022, the Commission ordered
suspension of the Penalty Factor at the Northern Neck during
the remainder of the Lanexa Line’s outage. The Commission
agreed with PJM that the Penalty Factor was creating abnormal
price signals that were neither warranted nor actionable. New
generation sufficient to relieve the congestion was not
reasonably expected to go online before the outage would be
resolved. And long-term investments would be redundant of
the ongoing Lanexa Line upgrade. In addition, there had been
no material reduction in the need for power, and the record
lacked any indication that a demand response sufficient to
control the constraint was on the horizon. Because of the
unique and temporary circumstances causing the congestion
and the unavailability of market responses, the Commission
explained, the Penalty Factor would result in higher prices
without any commensurate benefit of helping to meet
consumer demand, which would be antithetical to the Penalty
Factor’s purpose.

     The Commission further found that PJM’s replacement
rate was just and reasonable because it was limited in time and
scope. That replacement rate allowed the price, in times of
congestion, to be set by the price of the resources employed in
the effort to resolve the congestion.

    The Commission rejected Citadel’s contention that short-
term investments were forthcoming that would obviate the
                              15
need for the Penalty Factor. The Commission found that
Citadel’s projections were speculative because it was unclear
whether the project it identified would actually be constructed
and put in service in time to redress the congestion issue.

      The Commission also rejected Citadel’s argument that
PJM had failed to show a link between the application of the
Penalty Factor and high prices, pointing to two charts provided
by PJM showing that congestion prices continued to oscillate
between $2000/MWh (when the Penalty Factor made up part
of the congestion price) and near $0/MWh (when lower priced
energy was available). The charts also showed that a rise in
the congestion price directly impacts the rates paid by
consumers because the congestion price is one of three
components of the local marginal price.

    Citadel also argued that the congestion caused by the
Lanexa Line outage was not unforeseen, unusual, or unique, as
outages had also occurred in 2020 and 2021. The Commission
responded that this situation was different because of how
frequently the Penalty Factor was being triggered, combined
with the Factor’s inability to serve its intended function of
encouraging short or long-term investment, or reductions in
demand.

    Finally, the Commission rejected the argument that
suspension of the Penalty Factor in these circumstances was
inconsistent with Order 844, which generally requires Regional
Transmission Organizations to establish a Penalty Factor.
The Commission reasoned that (1) PJM hewed to the
Commission-approved method for changing Penalty Factors
by providing fair notice, specificity, and transparency about
when and how PJM would modify the Penalty Factor, and (2)
                              16
nothing in Order 844 barred PJM from making such a
temporary modification.

                              2

     Citadel petitioned for rehearing. While that petition was
pending, PJM advised the Commission that, from February 15,
2022, to March 15, 2022, congestion patterns in the Northern
Neck had remained significantly high. But since March 15th,
there had not been additional congestion due in part to milder
temperatures and lower demand. In addition, between March
28th and April 26th, Dominion had upgraded the Harmony
Village Line’s Greys Point and White Stone segments. To
accommodate this, PJM had temporarily placed the Lanexa
Line back into service while it updated the other two segments.
There was no congestion while the Lanexa Line was back in
service. Likewise, since the completion of the upgrades to the
other two segments, congestion on the Northern Neck had
decreased even after the Lanexa Line was taken back out of
service. Though congestion had decreased, PJM maintained
that the Penalty Factor should remain suspended because of
concerns that congestion would recur during the high-demand
summer and winter periods.

                              3

    The Commission subsequently denied rehearing.

     At the outset, the Commission addressed the upgrades to
the Greys Point and White Stone segments of the Harmony
Village Line.       The Commission found as fact that,
notwithstanding the upgrades, the Penalty Factor “could be
triggered” in high-demand periods, and would continue to
result in increased prices without any corresponding benefit.
                              17
Order Addressing Arguments Raised on Rehearing, 179 FERC
¶ 61161, at 8 (May 31, 2022) (J.A. 359) (“Rehearing Order”).

     The Commission then rejected Citadel’s argument that this
outage was like the others that had occurred in the Northern
Neck in 2020 and 2021, during which the Penalty Factor was
allowed to operate. The Commission explained that those
prior outages were far less severe, and neither occurred in the
middle of winter when solar resources are less effective. Plus,
the prior outages were much more limited in duration (lasting
only from one to six months), while the Lanexa Line upgrade
was expected to take nearly two years. The Commission also
noted that the prior outages were not the subject of Section 206
proceedings and there was no evidence that the Penalty Factor
was ineffective at sending price signals during those more
limited congestion periods.

     Turning to Citadel’s argument that the Penalty Factor was
not linked to higher retail rates, the Commission explained that
its Section 206 inquiry is concerned with wholesale rates and
does not necessarily require retail-price harm to ratepayers.
As for wholesale rates, the increase in prices at the Northern
Neck increased the average price in a way that was unjust and
unreasonable because the price increase could not elicit any
commensurate short-term or long-term response, nor did it
consistently provide consumers with all the electrical power
they needed.

     The Commission also found that suspension of the Penalty
Factor is consistent with Order 844 because PJM provided
adequate notice to market participants and satisfied the Order’s
transparency requirements.

    Lastly, the Commission rejected Citadel’s assertion that
suspension of the Penalty Factor introduced regulatory
                               18
uncertainty. Citadel’s argument, the Commission explained,
incorrectly presumed that the Penalty Factor was working as
intended. Because it was not functioning properly, the
Commission’s decision did not disrupt settled expectations.

                              III

     We have jurisdiction under the Federal Power Act, 16
U.S.C. § 825l(b), and we review Commission orders under the
arbitrary and capricious standard. West Deptford Energy,
LLC 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. (quoting Alcoa Inc. v. FERC, 564 F.3d 1342, 1347 (D.C.
Cir. 2009)). Our review is “highly deferential” in matters of
ratemaking because issues regarding rate design are fairly
technical and involve policy judgments. Consolidated Edison
Co. of New York, Inc. v. FERC, 45 F.4th 265, 278 (D.C. Cir.
2022) (quoting Alcoa Inc., 564 F.3d at 1347).

                               IV

     Citadel raises four challenges to the Commission’s orders,
arguing that the Commission (1) lacked substantial evidence
that the Penalty Factor caused unjust and unreasonable rates,
(2) lacked substantial evidence that the Penalty Factor failed to
serve its intended purpose, (3) failed to provide a reasoned
explanation for its departure from precedent, and (4) failed to
                                19
show that the replacement rate was just and reasonable. The
record in this case forecloses each of those arguments.

                                A

    Citadel’s objection to the Commission’s decision that the
Penalty Factor caused unjust and unreasonable rates takes three
forms, none of which withstands scrutiny.

                                1

     Citadel first contends that Section 206 of the Federal
Power Act requires the Commission to demonstrate both the
existence and the magnitude of the Penalty Factor’s effect on
rates before determining that rates are unjust and unreasonable.
That is incorrect.

     The statutory text focuses not on computations, but on the
bottom-line unjustness and unreasonableness of rates. 16
U.S.C. § 824e(a) (“Whenever the Commission, * * * shall find
that any rate * * * demanded, observed, charged, or collected
by any public utility * * * or that any rule, regulation, practice,
or contract affecting such rate, * * * is unjust, unreasonable,
unduly discriminatory or preferential, the Commission shall
determine the just and reasonable rate * * * to be thereafter
observed and in force, and shall fix the same by order.”). For
that reason, we have repeatedly allowed the Commission to
find components of a wholesale rate to be unjust and
unreasonable without calculating their dollars-and-cents
impact on the final wholesale or retail rate. See, e.g., MISO
Transmission Owners v. FERC, 45 F.4th 248, 262 n.9 (D.C.
Cir. 2022) (“Although the statute uses ‘rate,’ in this case the
only component of the rate that was at issue was the Return, so
that is what FERC focused on.”); Electricity Consumers Res.
                               20
Council v. FERC, 747 F.2d 1511, 1513 (D.C. Cir. 1984)
(focusing on individual components of the wholesale rate).

     So too here. The Commission determined that one
important component of the wholesale rate—the congestion
cost—was unjust and unreasonable as applied in the distinct
context of a temporary repair in an area where additional
resources and demand reduction are geographically
constrained.     In doing so, the Commission considered
evidence demonstrating that the Penalty Factor was setting
congestion costs with abnormal frequency, demand was
inelastic, and application of the Penalty Factor had not resulted
in, and likely would not incentivize, the development of
additional supply capable of resolving the problem going
forward.

     The evidence also revealed that, due to the inelasticity of
demand and unavailability of new supply, application of the
Penalty Factor was inflating prices while failing to provide a
commensurate benefit by stimulating demand and supply
responses when transmission constraints could not be resolved.
See San Diego Gas & Elec. Co. v. FERC, 913 F.3d 127, 138
(D.C. Cir. 2019) (upholding Commission’s decision to deny
use of a rate incentive when application of the incentive would
not serve its intended benefit); NextEra Energy Res., LLC v.
FERC, 898 F.3d 14, 21 (D.C. Cir. 2018) (“We defer to the
Commission’s determination that the renewable exemption
effectuates the market’s primary purpose by sending the correct
demand signals to new entrants and by protecting consumers
from excessive rates.”).

     Said another way, the Commission concluded that
increased prices on one side of the balance without any value
on the other side of the scale—all pain and no gain—were
unjust and unreasonable. That was “a principled and reasoned
                              21
decision supported by the evidentiary record[.]” MISO
Transmission Owners, 45 F.4th at 258 (quoting Emera Maine
v. FERC, 854 F.3d 9, 22 (D.C. Cir. 2022)).

     And the Commission did not stop there. It causally
connected the application of the Penalty Factor to increased
wholesale rates. During periods of congestion, the Penalty
Factor frequently set the congestion cost on the Northern Neck.
That increase in the congestion cost necessarily increased
overall prices because the congestion cost is one component of
the wholesale rate, and the record showed no offsetting price
reductions in the other components. Order Finding Operating
Agreement Unjust & Unreasonable & Establishing
Replacement Rate, 178 FERC ¶ 61104, at 27 (Feb. 18, 2022)
(J.A. 311) (“Initial Order”) (local marginal data showing price
fluctuation due to the Penalty Factor “is sufficient to
demonstrate the link between high prices and the Transmission
Constraint Penalty Factor”); Rehearing Order, 179 FERC
¶ 61161, at 11 (J.A. 362) (“[A]n increase in real-time prices at
the Northern Neck peninsula has the effect of increasing the
real-time average zonal prices in a way that renders them unjust
and unreasonable in these circumstances.”).

     Contrary to Citadel’s argument, “[t]he Commission is not
required to rely only on quantitative predictions” or
measurements. NextEra, 898 F.3d at 24. In NextEra, the
Commission approved an exemption to its minimum offer price
rules, which set a floor for how much capacity a new resource
must submit to an auction. Id. at 18. The generators argued
that the Commission acted arbitrarily because it did not
quantify the price suppression that would result from the
exemption. Id. at 23. We rejected this argument and held
that the Commission acted reasonably in finding the rate to be
just and reasonable on the ground that any price suppression
resulting from the Commission’s approved rate would be
                                22
minimal, even though it had failed to quantify its precise
impact on prices, id. at 23–24. The Commission permissibly
relied on “substantial evidence to make a predictive judgment
in an area in which it has expertise.” Id. at 24.

     Citadel points out that the congestion price at the Northern
Neck is diluted because residents pay a “zonal rate” composed
of an average of prices over many supply sources, of which the
Northern Neck is just one. True, but Citadel overlooks how
averages work. Where one component of an average
drastically increases, the entire average will increase if all other
factors remain constant. Given that Citadel did not identify
any compensating offsets that would hold prices down, the
spike in the congestion price would necessarily result in an
increase in the average.

     Beyond that, the fundamental problem identified by the
Commission was that, in the Northern Neck’s unusual
circumstances, the Penalty Factor was all harm and no help to
consumers, contrary to its intended purpose. In this way, the
Commission found that the application of the Penalty Factor
was unjust and unreasonable not just because of how much it
increased the wholesale rate, but because it caused that increase
for no justifiable purpose. That comfortably fits the definition
of unjust and unreasonable.

      For nearly 70 years, the Supreme Court and this court have
consistently held that “the purpose of the power given the
Commission by [Section] 206(a) is the protection of the public
interest, as distinguished from the private interests of the
utilities.” Metropolitan Edison Co. v. FERC, 595 F.2d 851,
855 (D.C. Cir. 1979) (quoting Federal Power Comm’n v.
Sierra Pac. Power Co., 350 U.S. 348, 355 (1956)). Citadel
does not, and cannot, argue that an increase in rates without any
commensurate benefit is in the public’s interest, let alone just
                               23
or reasonable. Even a penny increase would be unjust and
unreasonable if it was imposed just because PJM felt like it.

     Citadel also errs in arguing that Public Citizen requires the
Commission to calculate the magnitude of a price increase
before declaring it unjust and unreasonable. In Public Citizen,
we found unjust and unreasonable auction rules that had
anomalously produced capacity prices that were forty times
higher than prices in neighboring regions. 7 F.4th at 1182.
There, the Commission had acted unreasonably because it
failed to “grappl[e] with the unusual magnitude of the rate
increase and its incongruity with other rates within the same
auction.” Id. at 1199.

     That made sense because the “extraordinary” nature of the
price increase was the issue at hand in Public Citizen—the sole
basis for the unjust-and-unreasonable determination. Public
Citizen, 7 F.4th at 1200. If a challenger’s central argument is
that a rate is impermissible because of its magnitude, then the
Commission must grapple with magnitude.

     But that does not make the magnitude of a price increase a
mandatory component of the Commission’s assessment of
every unjust-and-unreasonable challenge to rates. Rather,
whether rates are unjust and unreasonable is a context-specific
inquiry. See Emera Maine, 854 F.3d at 22. The court in
Public Citizen acknowledged as much when it held that an
extraordinary price increase under different circumstances may
well be appropriate. Public Citizen, 7 F.4th at 1200 (“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 [otherwise.]”). Rate increases could be
unjust because they are inexplicably large relative to their
corresponding purpose. Or because they serve no purpose at
                              24
all. See National Fuel Gas Supply Corp. v. FERC, 900 F.2d
340, 342 (D.C. Cir. 1990) (under the National Gas Act, “the
Commission is [not] bound to permit all relatively minor but
nonetheless real [unjustified payments]”). No doubt rates
could be struck down for other reasons too. See, e.g., Public
Serv. Elec. & Gas Co. v. FERC, 989 F.3d 10, 19 (D.C. Cir.
2021) (cost allocation method unjust and unreasonable because
it fails to comport with cost-causation principles); Verso Corp.
v. FERC, 898 F.3d 1, 5 (D.C. Cir. 2018) (rate methodology
unjust and unreasonable because it did not follow cost-
causation principles).

     At bottom, the issue in this case is not the magnitude of a
price increase, but rather the presence of an unjustified price
increase that the Commission found was serving no good
purpose. The lack of a reasoned justification for the price
increase made it unjust and unreasonable in its own right.

                               2

     Next, Citadel contends that the Commission could not
have found the rates to be unjust and unreasonable without
determining the Penalty Factor’s impact on retail rates.
Specifically, Citadel asserts that the Commission failed to cite
evidence showing financial harm to retail consumers, and the
evidence the Commission did cite—two charts that show
congestion prices in the Northern Neck—are insufficient
because they do not show the final retail prices.

     By focusing only on end retail rates, Citadel’s argument
asks the wrong question. The Commission’s obligation was
to determine if the operation of the Penalty Factor at the
Northern Neck was creating unjust and unreasonable rates. In
this case, it did not need to compute the final dollar impact on
retail rates to make a reasoned judgment that the Penalty Factor
                                25
was having an unjustifiable impact on energy prices.
Unjustifiability can be more than a dollars-and-cents inquiry.

     The charts on which the Commission relied constitute
substantial evidence undergirding its determination. Here,
each chart depicted the frequency with which the Penalty
Factor (as opposed to available energy resources) set the
congestion price during the Lanexa Line outage. Specifically,
the charts illustrated that the congestion price continued to
oscillate between nearly $0/MWh (when the marginal resource
set the congestion cost) and $2000/MWh (when the Penalty
Factor set the congestion cost).

     More importantly, the charts revealed that the Penalty
Factor set the congestion cost with striking frequency, during
which times consumers paid high prices with no supply or
demand response. Because the Penalty Factor’s much-larger
rate so frequently set congestion prices, yet still failed to induce
production of the power supply that the Northern Neck needed
or new investments that could address the problem, the
Commission reasonably concluded it was not worth the candle.
That determination is neither arbitrary nor capricious.

     What is more, the charts illustrate the connection to retail
rates that Citadel claims is missing. Because the congestion
price is one of three components that make up the local
marginal price, “it is undisputed” that the application of a
$2000 Penalty Factor for congestion “on the Northern Neck
peninsula significantly raises the Congestion Price and
ultimately the [local marginal prices] that are realized by
customers[.]” Letter from Chenchao Lu, Assistant Counsel &
Craig Glazer, Vice President—Federal Government Policy,
PJM Interconnection, L.L.C., to the Hon. Kimberly D. Bose,
Secretary, Fed. Energy Regulatory Comm’n, at 2 n.2 (Feb. 15,
2022) (J.A. 281 n.2). When evaluating this evidence, the
                               26
Commission itself underscored the critical relationship
between the Penalty Factor and the wholesale rate. And that
wholesale price will inevitably be reflected in the retail rate.
Initial Order, 178 FERC ¶ 61104, at 26 (J.A. 310) (application
of the Penalty Factor will increase congestion costs and will
“only result in higher costs to ratepayers”); Rehearing Order,
179 FERC ¶ 61161, at 11 n.57 (J.A. 362 n.57) (“In this case,
the transmission Penalty Factor is increasing real-time prices
in the area but is also increasing real time Dominion zonal
prices because they are part of the average zonal price.”)
(quoting Market Monitor Comments at 1–2 (Feb. 2, 2022)).

     The Commission’s logical economic reasoning suffices to
sustain its judgment. The Commission is entitled to rely on
“basic economic theory, including relying on generic factual
predictions, as long as the agency explains and applies the
relevant economic principles in a reasonable manner.” Xcel
Energy Servs. Inc. v. FERC, 41 F.4th 548, 561 (D.C. Cir. 2022)
(formatting modified) (internal quotation marks and citation
omitted). The record here lacked any evidence of decreases in
the other components of the wholesale rate that would have
offset, or even reduced, the spike in the congestion cost.
Given that, determining that a significant increase in one out of
three components (congestion costs) of the final wholesale rate
increases the wholesale rate is basic math. And a spike to
$2000, when the regular congestion cost is typically $300, and
can approach $0, would unquestionably increase the average.

     The Commission’s connection between wholesale rates
and retail rates is equally elementary. When the Commission
“takes virtually any action respecting wholesale
transactions[,]” it “has some effect, in either the short or the
long term, on retail rates.” Electric Power Supply Ass’n, 577
U.S. at 281. After all, “[i]t is a fact of economic life that the
wholesale and retail markets in electricity * * * are not
                               27
hermetically sealed from each other.” Id. And transactions
occurring “on the wholesale market have natural consequences
at the retail level.” Id.; see American Paper Inst., Inc. v.
American Elec. Power Serv. Corp., 461 U.S. 402, 417 n.11
(1983) (“In the context of rate-making, it is typically the case
that any increment in the rate will ‘make a small dent in the
consumer’s pocket[.]’”) (quoting Federal Power Comm’n v.
Texaco Inc., 417 U.S. 380, 399 (1974)).

     Citadel does not deny that. Instead, it argues that a prior
PJM price analysis had shown that application of the Penalty
Factor had only a “negligible” price impact. Citadel Opening
Br. 46 (citation omitted). Specifically, PJM’s tariff contained
a price-impact analysis predicting that if the Penalty Factor set
prices in 2017, the net load payments would have increased by
$13.5 million, which PJM described as a “negligible” change.
See Devendra Canchi & John Hyatt, MONITORING ANALYTICS,
MARKET IMPLEMENTATION COMMITTEE—SPECIAL SESSION:
IMPACT ON ENERGY MARKET IF TRANSMISSION PENALTY
FACTORS SET PRICES, at 14 (June 27, 2018),
https://perma.cc/Z3B7-AKXN (market monitor presentation
stating that the Penalty Factor would increase payments by
$13.5 million); Letter from Chenchao Lu, Assistant General
Counsel, PJM Interconnection, L.L.C., to the Hon. Kimberly
D. Bose, Secretary, FERC, at 5 n.12 (Nov. 9, 2018) (J.A. 23
n.12) (citing presentation and arguing “the price impact is
negligible”).

    But Citadel’s argument does not serve its cause. PJM’s
prediction about the application of the Penalty Factor in 2017
was based on historical data revealing that only eight percent
of congestion constraints over the course of an entire year
would not be resolved at a cost below the Penalty Factor.
What happened at the Northern Neck, though, was that the
Penalty Factor kicked in eight percent of the time over all five-
                               28
minute intervals when electricity prices were quoted for sale
and delivery (congestion constraint or no congestion
constraint) in fourteen days after the Lanexa Line went out of
service. Put another way, the 2017 statistic on which the
“negligible” comment relied is based on a prediction that the
Penalty Factor would kick in for eight percent of transmission
constraints, which themselves occur relatively infrequently.
That was a far lower estimate than the eight percent of all five-
minute intervals that occurred at the Northern Neck. This
means that, in 2022, the Penalty Factor was applying at a
frequency much greater than a historical frequency that would
have resulted in $13.5 million in incremental annual net load
payments—hardly chump change.             In any event, the
Commission may fairly conclude that a rate is unjust and
unreasonable if applying it delivers no commensurate benefit
to ratepayers—even if the rate increase might, in some absolute
sense, be considered “negligible.” See Section IV.A.1, supra.
As we have explained, the Commission reasonably concluded
as much here. Id.

    For those reasons, substantial evidence sustains the
Commission’s finding that the Penalty Factor was having an
adverse impact on electricity rates at the Northern Neck.

                               3

    Citadel also argues that changed circumstances critically
undermine the Commission’s finding that the rates were unjust
and unreasonable.      Citadel points in particular to the
“significant alleviat[ion]” of congestion following the
upgrades to the Harmony Village Line’s Greys Point and White
Stone segments. Letter from Chenchao Lu, Assistant Counsel
& Craig Glazer, Vice President—Federal Government Policy,
PJM Interconnection, L.L.C., to the Hon. Kimberly D. Bose,
                               29
Secretary, Fed. Energy Regulatory Comm’n, at 4 (May 18,
2022) (J.A. 348).

     Based on that evidence, Citadel argues that the problem of
excessive and repetitive congestion had largely been remedied,
so there no longer was any need to suspend the Penalty Factor.
In Citadel’s view, the Penalty Factor would now kick in “far
less frequently than first assumed.” Citadel Opening Br. 54.

     The Commission spoke directly to this argument. It
acknowledged the upgrades and the improved congestion
conditions, but nonetheless found that congestion still could
readily recur during the high-demand summer and winter
months. In other words, the segment upgrades left a material
risk that the Penalty Factor would have the same unwanted
effects over the coming months.

     Contrary to Citadel’s assertion, the Commission was not
requiring that an upgrade ensure that congestion would never
occur again. Instead, the Commission was returning to the
point it had made throughout both orders—that any solution
must resolve the conflict between the purpose of the Penalty
Factor, on one hand, and the realized adverse effects of the
Penalty Factor in the Northern Neck’s unique circumstances,
on the other. With the Penalty Factor already having produced
consumer-harming unjust and unreasonable rates in the early
months of the Lanexa Line upgrade, the Commission acted
within its discretion by protecting against the predicted risk of
harm recurring when demand increased in the summer and
winter. See Wisconsin Pub. Power, Inc., 493 F.3d at 260–261
(“[I]t is within the scope of the agency’s expertise to make
* * * a prediction about the market it regulates, and a
reasonable prediction deserves our deference notwithstanding
that there might also be another reasonable view.”) (quoting
Environmental Action, Inc. v. FERC, 939 F.2d 1057, 1064
                              30
(D.C. Cir. 1991)); see also MISO Transmission Customers, 45
F.4th at 1017 (deferring to the Commission’s reasonable
predictive judgments).       Given the Commission’s risk
prediction, nothing in the law or precedent required it to give
the Penalty Factor a second chance at the expense of
consumers.

     In short, the Commission acknowledged and considered
the impact of the changed circumstances on the application of
the Penalty Factor and reasonably explained why they did not
alter its judgment that the Penalty Factor had inflicted and
would likely continue to inflict an unreasonable pricing harm
without any corresponding benefit. Rehearing Order, 179
FERC ¶ 61161 (J.A. 359). For those reasons, Citadel’s
arbitrary and capricious claim fails. See FCC v. Prometheus
Radio Project, 141 S. Ct. 1150, 1158 (2021) (“A court simply
ensures that the agency has acted within a zone of
reasonableness and, in particular, has reasonably considered
the relevant issues and reasonably explained the decision.”).

                              B

     Citadel next takes on the evidence underlying the
Commission’s decision that the Penalty Factor was not serving
its intended purpose. Here, Citadel argues that (1) the
Commission lacked enough data points to determine that the
Penalty Factor was acting contrary to its purpose, and (2) the
Commission failed to consider evidence showing that the
Penalty Factor actually did serve its purpose. Both objections
come up short.

                              1

    The Commission’s judgment that the Penalty Factor would
not serve its purpose in the unusual Northern Neck
                               31
circumstances rested in part on two charts that depicted price
fluctuations over a fifteen-day period. Citadel asserts that
fifteen days’ worth of scarcity pricing data is factually
insufficient to show that the Penalty Factor did not operate as
intended. Not so.

     As a preliminary matter, the charts revealed more
information than Citadel credits. They documented drastic
fluctuations in congestion pricing and the extraordinary
frequency with which the Penalty Factor had been applied—
setting the congestion cost 334 times in just two weeks.

     Citadel’s argument also overlooks that the Commission
relied on more than just the charts to determine that the Penalty
Factor was not serving its intended purpose. The Commission
also considered evidence about supply and demand conditions
at the Northern Neck to determine that application of the
Penalty Factor would not result in either corrective investments
or demand reduction. For example, the Commission had
record evidence that, when the congestion began, there was no
immediate demand response. Nor was a sufficient demand
reduction feasible.      And, in any event, any possible
prospective demand response would be insufficient to offset
the pricing distortions being caused by the Penalty Factor.

     The evidence similarly revealed that supply responses
could not reduce the high prices because the two turbine units
on the Northern Neck available to supply power lacked
sufficient capacity to make a dent in the unsatisfied demand.
Also, PJM’s Senior Vice President of Market Services testified
that PJM was unaware of any available demand or supply
responses to address the situation.

    Evidence that current supply and demand responses were
unavailable or insufficient and predictions about the lack of a
                              32
future response, coupled with charts depicting the real-world
impact on the market, sufficed to support the Commission’s
judgment that, under the circumstances, the Penalty Factor was
not serving and could not serve its intended purpose.

                               2

     Next, Citadel argues that Dominion’s acceleration of its
already-planned upgrades to the Greys Point and White Stone
segments proved that the Penalty Factor had worked as
intended all along.

     Citadel, however, failed to exhaust this argument. Our
jurisdiction is strictly limited by the specific arguments a
petitioner makes in its application for rehearing. Indiana Util.
Regul. Comm’n v. FERC, 668 F.3d 735, 738–739 (D.C. Cir.
2012). The specificity requirement is not met if the petitioner
merely refers to an argument generally, Connecticut Dep’t of
Pub. Util. Control v. FERC, 593 F.3d 30, 36 (D.C. Cir. 2010),
or simply alludes to the argument in a single statement, Indiana
Util., 668 F.3d at 739. While an objection could be deemed
specific if it was explicit and elicited a response from the
Commission, neither of those happened here. Cf. Allegheny
Power v. FERC, 437 F.3d 1215, 1220 (D.C. Cir. 2006)
(petitioner did not object with the required specificity because
the Commission did not respond to their “attempted
incorporation by reference”).

    Citadel did not argue to the Commission that its decision
was wrong because the Penalty Factor had worked exactly as
designed when it prompted an acceleration of the segment
upgrades. Though Citadel mentioned the upgrades in its
rehearing petition, it argued only that the upgrades would
resolve the congestion problem earlier than expected and
would reduce the frequency with which the Penalty Factor was
                               33
triggered. Citadel’s Reh’g Req. at 4–5 (J.A. 327–328). The
argument pressed here—that the Penalty Factor worked as
intended all along—is quite different.

     The most to which Citadel can point is one sentence in its
rehearing request about the Penalty Factor accelerating the
Harmony Village Line segments’ upgrades. Citadel’s Reh’g
Req. at 10 (J.A. 333). But even there, the point being made
was that the Commission had departed from prior precedent,
not that the Commission was factually wrong in concluding
that the Penalty Factor was not working properly. Citadel’s
Reh’g Req. at 8–10 (J.A. 331–333).

     Though the court can hear an argument not raised in a
petitioner’s application for rehearing if “there is a reasonable
ground for [the petitioner’s] failure” to raise the argument, 16
U.S.C.A. § 825l(b), that exception does not apply here. The
“reasonable ground” exception is typically reserved for an
“extraordinary situation, such as when a Commission practice
is admitted or adjudged to be unlawful,” New England Power
Generators Ass’n, Inc. v. FERC, 879 F3d 1192, 1199 (D.C. Cir.
2018) (internal quotations omitted), or when new evidence first
arises after the rehearing request, see Wabash Valley Power
Ass’n. Inc. v. FERC, 268 F.3d 1105, 1114 (D.C. Cir. 2001)
(considering a claim that was not raised below because it was
based on a report issued several months after the rehearing
request).

    None of those circumstances are applicable in this case.
Citadel knew when it filed its rehearing petition that Dominion
was accelerating the upgrades in the wake of the congestion
problem. Yet it still did not raise the argument that the Penalty
Factor was working as planned in its request for rehearing. So
we lack jurisdiction to consider Citadel’s argument.
Consolidated Edison Co. of New York, Inc., 45 F.4th at 289
                               34
(“Under 16 U.S.C. § 825l(b), ‘[n]o objection to [an] order of
the Commission shall be considered by the court unless such
objection shall have been urged before the Commission in the
application for rehearing[.]’”); United Power, Inc. v. FERC, 49
F.4th 554, 559 (D.C. Cir. 2022) (“We therefore have no
jurisdiction over an objection the petitioner fails to raise with
specificity.”).

     The dissenting opinion agrees that Citadel did not raise this
argument to the Commission. Dissent at 5 n.1. But it errs in
arguing that Citadel had no opportunity to raise this issue in its
request for rehearing. Id. By way of reminder, Citadel’s
argument is that Dominion’s acceleration of the Harmony
Village Line upgrades proved that the Penalty Factor worked
as intended. See, e.g., Citadel Opening Br. 58. Yet PJM
notified all parties of the acceleration on February 10, 2022.
PJM’s Answer to Citadel’s Protest, at 10–11, 24 (J.A. 253–254,
267). That was more than one month before Citadel filed its
request for rehearing. Citadel’s Reh’g Req., at 12 (J.A. 335)
(request for rehearing filed on March 18, 2022). That gave
Citadel the opportunity to raise its current argument in its
application for rehearing. See 18 C.F.R. § 385.713(c)(3)
(parties can raise arguments in a request for rehearing that were
not raised in or addressed by the initial order “if rehearing is
sought based on matters not available for consideration by the
Commission at the time of the final decision or final order”).
The proof is in the pudding: Citadel cited to PJM’s factual
update informing of the accelerated upgrades when raising a
different argument in its request for rehearing. Citadel’s
Reh’g. Req. at 5 (J.A. 328) (citing PJM’s Answer to Citadel’s
Protest, at 11–12 (J.A. 254–255)). Citadel likewise could
have, and should have, cited to the factual update to allow the
Commission to address in the first instance its argument that
                              35
the upgrades proved that the Penalty Factor worked as
intended.

     The dissenting opinion disputes none of that. Instead, it
reasons that Citadel could not have objected either to the
Commission’s supposed failure to address new evidence or its
alleged moving of the goalposts until the rehearing decision
issued. But the Commission cannot be blamed for failing to
address new evidence about whether the Penalty Factor worked
when Citadel never made that argument, nor can the
Commission move the goalposts on an issue never presented to
or decided by it.

     Had Citadel fairly teed up the issue for the Commission, it
might have explained, as PJM suggests, that the Harmony
Village Line upgrades were routine and already-planned
reliability updates, and not the type of new investment that the
Penalty Factor is meant to incentivize. PJM Br. 17–18. Or
perhaps it would have had a different explanation. We cannot
review what has not been decided because the argument
Citadel presses here was not fairly posed to the Commission.

                               C

     Citadel’s third challenge is that the Commission’s orders
departed from its own precedent in Order 844, which required
Regional Transmission Organizations to include Penalty
Factor rules and values in their tariffs, see Order 844, 163
FERC ¶ 61041. In that order, the Commission explained that
the grid-wide use of Penalty Factors would produce more
transparent pricing signals that would incentivize investment.
Id. at 5, 21–22.

    The Commission’s temporary suspension of the Penalty
Factor in the unusual circumstances presented in the Northern
                              36
Neck does not contravene Order 844. In obligating Regional
Transmission Organizations to implement Penalty Factors,
Order 844 also required them to prepare procedures for
temporarily modifying their Penalty Factors. Order 844, 163
FERC ¶ 61041, at 85–86.           Among other things, any
modification must provide for notice to market participants of
the modification “as soon as practicable.” Id. at 85.

     As the Commission explained, the orders on review built
on Order 844’s requirement to create modification procedures
by introducing an additional, limited circumstance under which
the Penalty Factor could be modified—when circumstances
prevent the Factor from working as designed. Within weeks
of the congestion, PJM notified the Commission of the issue
and filed a proposed tariff that detailed the new procedures for
modifying the application of the Penalty Factor. In doing so,
PJM provided adequate notice and transparency regarding its
temporary suspension of the Penalty Factor. And consistent
with Order 844, the Commission approved a limited and
targeted modification to address the circumstances at hand.

                               D

     Citadel’s final contention is that the Commission failed to
show that its replacement rate was just and reasonable. The
Commission replaced the Penalty Factor with the uncapped
rates offered by resources available to help resolve the
constraint. Citadel contends that, in finding the replacement
rate just and reasonable, the Commission did not account for
the regulatory uncertainty that its actions created. Citadel’s
argument is incorrect.

    “[B]ecause ‘the statutory requirement that rates be “just
and reasonable” is obviously incapable of precise judicial
definition, we afford great deference to the Commission in its
                               37
rate decisions.’” Emera Maine, 854 F.3d at 22 (formatting
modified) (quoting Morgan Stanley Cap. Group, Inc. v. Public
Util. Dist. No. 1 of Snohomish County, 554 U.S. 527, 532
(2008)). As a result, our review is “limited to ensuring that the
Commission has made a principled and reasoned decision
supported by the evidentiary record.” Id. (quoting Southern
Cal. Edison Co. v. FERC, 717 F.3d 177, 181 (D.C. Cir. 2013)).
The Commission did so here.

     The Commission explained that, while it seeks to increase
regulatory certainty, circumstances may require it to adjust
rates when they are operating contrary to investor expectations
by producing anomalous results, contrary to their purpose and
design. Here, the Penalty Factor was functioning in an
unanticipated and counter-productive manner, and it had
proven incapable of sending transparent signals to the market
to encourage investment in new energy sources or transmission
capability. Because the Penalty Factor was malfunctioning
and causing prices to rise unjustifiably, suspending the Penalty
Factor did not disrupt settled expectations. Rather, it was the
application of the Penalty Factor that introduced uncertainty
and confusion by sending incorrect price signals and inflicting
significant financial harm for no good reason.              The
Commission appropriately responded in a calibrated manner to
bring stability and reason to rates and adequate power supply
to Northern Neck consumers.

     Keep in mind also that the Federal Power Act on its face
authorizes the Commission to step in and change rates
whenever they become unjust or unreasonable. 16 U.S.C.
§ 824e(a) (“Whenever the Commission, after a hearing held
upon its own motion * * * shall find that any rate * * * is unjust
[or] unreasonable * * * the Commission shall determine the
just and reasonable rate[.]”). All interested parties are charged
with knowledge of that settled regulatory scheme, and so are
                               38
fully aware that tariff terms are not set in stone. That is the
authority the Commission reasonably exercised here.

     Citadel argues that if the Penalty Factor can be “suddenly
and selectively” removed, market participants, especially
suppliers (which Citadel is not), “will have little incentive to
respond to * * * price signals.” Citadel Opening Br. 62. That
argument does not work here where the Commission found that
suppliers were not able to respond to the price signals being
sent by the Penalty Factor.

     Citadel separately argues that the Commission’s action
will harm the Financial Transmission Rights market.
Specifically, it argues that if Penalty Factors can be suspended,
“financial firms will have little incentive to invest in such
unpredictable markets.” Citadel Opening Br. 63. But the
temporary suspension of the Penalty Factor in one
geographically unique area does not stop financial firms from
benefiting from congestion pricing. Financial firms will still
receive congestion costs, albeit less in one small part of the
grid, during the temporary suspension of the Penalty Factor.
Anyhow, nothing in the Federal Power Act or precedent
compels the Commission to maintain an unjust and
unreasonable rate simply because it increases the amount of
money financial firms receive.

                               V

     For the foregoing reasons, Citadel’s petitions for review
are denied.

                                                    So ordered.
WALKER, Circuit Judge, dissenting:

     Transmission grids take electricity from power plants to
America’s homes and businesses. Without transmission, the
lights won’t turn on. So when a transmission line goes down,
the supply of electricity to consumers is limited and prices go
up.

     That is what happened here. PJM Interconnection man-
ages a transmission grid in Virginia. A transmission line on
PJM’s grid went down for a two-year maintenance project, lim-
iting the supply of electricity and raising prices.

     To address that problem, PJM charged grid users a special
rate called the Transmission Constraint Penalty Factor. The
penalty factor boosts the price of electricity, thus incentivizing
companies in the market to build more transmission capacity.

     But shortly after the penalty factor started to apply, FERC
suspended it. FERC held that the penalty factor was “not
achieving its intended purpose” because it would “result in
higher costs to ratepayers” without causing any “transmission
investment.” JA 309-310. Yet when FERC was later given
evidence that the penalty factor was incentivizing transmission
investment, FERC moved the goalposts. Instead of reasoning,
as it had before, that the rate was providing no benefit, FERC
instead said any benefit it provided wasn’t big enough. See JA
359.

     That unexplained shift in standards was arbitrary and ca-
pricious. So I would vacate FERC’s order and remand.
                               2

                                I

                               A

     Transmission-grid operators set out the terms for using the
grid in a document called a tariff. Those terms — called
rates — must be filed with FERC and approved as “just and
reasonable.” 16 U.S.C. § 824d(a). Tariffs thus contain trans-
parent and consistent rules for determining which rates apply
when power moves along the grid. 18 C.F.R. § 35.1(a)-(c).

      But those rules aren’t set in stone. FERC may modify rates
if it determines that they are “unjust, unreasonable, unduly dis-
criminatory or preferential.” 16 U.S.C. § 824e(a). “The bur-
den of demonstrating that the existing [rate] is unlawful is on
FERC.” Emera Maine v. FERC, 854 F.3d 9, 21 (D.C. Cir.
2017). And FERC must give “substantial evidence” supporting
its decision to suspend a rate. Id. at 22.

                               B

     In Eastern Virginia, a peninsula called the Northern Neck
juts out into Chesapeake Bay. The Northern Neck’s geography
means that access to the rest of the state is limited. Just three
transmission lines take power onto the peninsula.

     In early 2022, a two-year maintenance project took one of
those lines out of service. The reduced transmission capacity
caused “congestion” in the Northern Neck’s power supply.
Resp. Br. 2. That is, the area’s “transmission lines [were] not
available to send lower-cost power to [a] location, resulting in
the dispatch of more expensive power” — and raising electric-
ity prices for consumers in the area. Id.
                                3
     To combat congestion, the tariff governing the Northern
Neck’s grid provides for a special rate called the Transmission
Constraint Penalty Factor. When it applies, the penalty factor
artificially raises the cost of electricity above the market price,
thus incentivizing companies to build more transmission ca-
pacity.

     When the maintenance project got under way, congestion
frequently triggered the penalty factor in parts of the Northern
Neck. That caused the price of electricity to go up. But weeks
later, the company managing the Northern Neck’s grid — PJM
Interconnection — asked FERC to suspend the penalty factor
for the duration of the congestion-causing upgrades.

     Despite opposition from Citadel and other market actors,
FERC agreed to suspend the penalty factor using its authority
to modify “unjust [and] unreasonable” rates. 16 U.S.C.
§ 824e(a). It concluded that the penalty factor was “not achiev-
ing its intended purpose” and was “establish[ing] high prices
without a commensurate benefit.” JA 309.

     FERC explained that the penalty factor’s “intended pur-
pose” was to “incentivize supply and/or load response to help
mitigate the constraint in the short-term, while also incentiviz-
ing the development of additional supply, load response and/or
transmission through long-term investments.” JA 309. In plain
English: The penalty factor’s goal is to spur market actors to
use less electricity (“load response”) or invest in solutions to
the congestion (“additional supply” and “transmission”).

     But FERC reasoned that the penalty factor was unlikely to
achieve that goal here because it would “not result in genera-
tion, demand response, or transmission investment to resolve
the current situation or reduce the likelihood of future issues.”
JA 310. That’s because there was “no known additional
                                4
supply” in the area and “demand response” was unlikely. Id.
So the penalty factor would “only result in higher costs to rate-
payers without a commensurate benefit.” Id.

      A month after FERC issued its decision, Citadel asked the
agency to reconsider. Citadel argued that the penalty factor
had led to investment in new transmission capacity. It pointed
to an upgrade to another of the transmission lines into the
Northern Neck — the Harmony Village Line. And it claimed
that the penalty factor had “‘accelerated’” work on that up-
grade, JA 328, thus undermining FERC’s conclusion that “con-
tinued application” of the penalty factor would “not result
in . . . transmission investment,” JA 310.

      On rehearing, FERC refused to change its mind. But ra-
ther than defend its earlier claim that the rate would “not result
in . . . transmission investment,” it argued that the Harmony
Village upgrade was not good enough. JA 310. It reasoned
“the record does not indicate that the upgrade . . . will com-
pletely resolve the Constraint to prevent application of the . . .
Penalty Factor.” JA 359 (emphasis added).

    Citadel petitioned this Court for review.

                                II

    Our review of FERC’s ratemaking decisions is “highly
deferential.” Consolidated Edison Company of New York, Inc.
v. FERC, 45 F.4th 265, 277 (D.C. Cir. 2022). But it’s not a
rubber stamp. FERC’s orders must be reasonable and reason-
ably explained. Id.

     That means that FERC cannot “ignore evidence contra-
dicting its position.” Genuine Parts Co. v. EPA, 890 F.3d 304,
312 (D.C. Cir. 2018) (cleaned up). And it may not “depart
                                   5
from” a previous ruling “without providing a reasoned analysis
indicating that prior policies and standards are being deliber-
ately changed.” Public Service Electric & Gas Co. v. FERC,
989 F.3d 10, 17 (D.C. Cir. 2021) (cleaned up).

    In response to Citadel’s rehearing petition, FERC broke
both those rules.1

                                   A

     To start, FERC ignored evidence suggesting that the pen-
alty factor accelerated upgrades to the Harmony Village Line,
helping to mitigate congestion in the Northern Neck.

     In its original order, FERC said the penalty factor would
not serve its intended purpose because there was no evidence
that it would “help mitigate the constraint” on the transmission
grid by incentivizing investment. JA 309-10.

1
     Citadel raised this argument at its first opportunity — in its first
brief before this Court. See Pet. Br. 57-59. Citadel could not have
pointed out an error in the rehearing order in its petition for rehearing
because FERC made the alleged error in the rehearing order. We
thus have jurisdiction over Citadel’s argument. See Columbia Gas
Transmission Corp. v. FERC, 477 F.3d 739, 741-42 (D.C. Cir. 2007).
     The majority may be correct that we do not have jurisdiction
over Citadel’s broad argument “that Dominion’s acceleration of the
Harmony Village Line upgrades proved that the Penalty Factor
worked as intended.” Majority Op. 34; see also Pet. Br. 58. But we
have jurisdiction over its narrower legal argument that FERC failed
to adequately address new evidence and “moved the goalposts” in its
rehearing order. Pet. Br. 57-58. Citadel could not have known that
FERC’s rehearing order would suffer from those defects until after
the rehearing order was issued.
                               6
     But on rehearing, new evidence undermined that conclu-
sion. Citadel asserted that the penalty factor had “accelerated
a transmission upgrade” on the Harmony Village Line that was
“designed to significantly alleviate the transmission con-
straint.” JA 328 (cleaned up). That upgrade, Citadel argued,
would “significantly diminish the need to apply the [penalty
rate]” going forward, by “resolv[ing] the constraint [on the
grid] 19 months earlier than . . . initially predicted.” Id.
(cleaned up).

      Tellingly, earlier in FERC proceedings, PJM acknowl-
edged that the Harmony Village Line was “expected to signif-
icantly alleviate the transmission constraint” in the Northern
Neck. JA 254. Yet FERC dismissed the potential upgrade in
its initial order because it was “unclear whether [it would] ac-
tually be constructed and put in service.” JA 311.

     On rehearing, FERC recognized that the upgrade had
“been placed into service.” JA 359. But it failed to explain
why the upgrade did not show that the penalty factor was in-
centivizing transmission investment that would help mitigate
congestion.

     To be clear, I take no position on whether the Harmony
Village upgrade is sufficient evidence to compel FERC to keep
the penalty factor. It is the agency’s job to weigh evidence, not
ours. Calcutt v. Federal Deposit Insurance Corp., 143 S. Ct.
1317, 1320-21 (2023). But FERC’s failure to address “evi-
dence contradicting its position” was arbitrary and capricious.
Genuine Parts Co, 890 F.3d at 312 (cleaned up).
                                7
                                B

     Rather than explain why it discounted the Harmony Vil-
lage upgrade, FERC moved the goalposts, changing the test for
whether the penalty factor was serving its purpose.

     Begin with FERC’s test in its original order. It said the
purpose of the penalty factor is to spur transmission investment
that could help mitigate congestion. For example:

 •   FERC adopted the testimony of an expert witness who
     stated that “the underlying goal and intent of [the penalty
     factor] is to provide market signals that incentivize supply
     and/or load response to help mitigate the constraint in the
     short-term, while also incentivizing . . . long-term invest-
     ments.” JA 309 (cleaned up).
 •   FERC recognized that it was possible that “resources”
     might enter the market to “help relieve the Constraint,” but
     concluded that it was unlikely. JA 310 (emphasis added).

    Now consider the test in FERC’s rehearing order. It said
the Harmony Village upgrade evidence was inadequate be-
cause it “does not indicate that the upgrade . . . will completely
resolve the Constraint to prevent application of the . . . Trans-
mission Constraint Penalty Factor.” JA 359 (emphasis added).

    That is a new test. Before, FERC said the penalty factor’s
purpose was to “mitigate” or “help relieve” congestion. JA
310. On rehearing, when confronted with evidence that the
penalty factor was doing just that, FERC said the rate’s purpose
was to completely resolve congestion. See JA 359.

     Yet FERC did not address — let alone explain — its deci-
sion to change the test. Indeed, FERC showed no awareness
that it was changing the test. On rehearing, it said the Harmony
                               8
Village upgrade did not address “the flaws” with applying the
penalty factor that FERC had identified in its initial order. JA
359.

     FERC cannot explain away contradictory evidence on re-
hearing by moving the goalposts — and pretending that no one
will notice. It must either explain why the new evidence does
change its conclusion under the original standard or, alterna-
tively, explain why it changed that standard. Its failure to do
so falls far short of the “reasoned analysis” an agency must pro-
vide to show a standard is being “deliberately changed.” Pub-
lic Service Electric & Gas Co. v. FERC, 989 F.3d at 17
(cleaned up); see also Alcoa Inc. v. FERC, 564 F.3d 1342, 1347
(D.C. Cir. 2009) (agency may not “casually ignore[]” “prior
policies and standards”).

                           *   *    *

    Because FERC’s reasoning in its response to Citadel’s re-
hearing petition was arbitrary and capricious, I would vacate
FERC’s order and remand to the agency.