Court Opinion

ID: 2645936
Source: CourtListenerOpinion
Date Created: 2013-12-14 01:01:18.482484+00
Date Added: 2024-06-11T11:58:22.345828
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 15, 2013           Decided December 13, 2013

                       No. 12-1008

                 TC RAVENSWOOD, LLC,
                      PETITIONER

                             v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT

       ASTORIA GENERATING COMPANY, L.P., ET AL.,
                    INTERVENORS

                Consolidated with 12-1081

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

     Kenneth L. Wiseman argued the cause for petitioner TC
Ravenswood, LLC. Robert C. Fallon argued the cause for
petitioner The NRG Companies. With them on the briefs were
Mark F. Sundback, Lisa M. Purdy, William M. Rappolt, J.
Peter Ripley, Kristine L. Delkus, Christopher C. O’Hara,
Blake R. Urban, James M. D’Andrea, Marcia A. Stanford, and
Abraham H. Silverman.
                              2
    Jennifer S. Amerkhail, Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were David L. Morenoff, Acting General
Counsel, and Robert H. Solomon, Solicitor.

    Robert M. Loughney argued the cause for intervenors City
of New York and the New York State Public Service
Commission. On the brief were Kevin M. Lang, Sean Mullany,
and Peter McGowan.

     Kevin M. Lang and Neil H. Butterklee were on the brief for
intervenors Consolidated Edison Company of New York, Inc.,
et al. in support of respondent.

     Shawn Patrick Regan and Ted J. Murphy were on the brief
for intervenor New York Independent System Operator, Inc. in
support of respondent.

   Before: TATEL and KAVANAUGH, Circuit Judges, and
SENTELLE, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge TATEL.

     TATEL, Circuit Judge: Utilizing administratively
determined “demand curves,” the New York Independent
System Operator (NYISO) holds monthly auctions to set the
price of electrical power capacity in New York. Petitioners,
owners and operators of electrical power generation facilities,
challenge several Federal Energy Regulatory Commission
orders concerning the creation of the 2011–2014 demand
curves. According to petitioners, the Commission exceeded its
statutory authority by suspending NYISO’s proposed demand
curves for more than five months and acted arbitrarily and
capriciously by failing to follow its own precedent requiring
only a nominal suspension. Petitioners also challenge several
                                3
technical aspects of the proposed curves. For the reasons set
forth in this opinion, we deny the petitions for review.

                                I.
     The not-for-profit NYISO manages the flow of electricity
over New York’s electrical grid. One of NYISO’s challenges is
to maintain an adequate supply of electrical power to meet
consumer demand. To accomplish this, NYISO works to
ensure that power generators have sufficient incentives to build
new power plants when the grid needs additional supply. The
cost of power plant construction and fluctuations in price and
consumer demand complicate this task. Fearing that
unexpected decreases in price or demand might thwart cost
recovery, power generators may forgo desirable investment in
new generation. If needed development fails to occur, supply
will eventually dip below demand, leaving consumers in the
dark.

     NYISO utilizes monthly capacity auctions to reduce such
uncertainties and encourage desirable investment. Unlike the
electricity market, in which generators sell actual power to
retailers, the capacity market trades in the future supply of
electrical power. NYISO’s capacity market encourages
infrastructure investment by linking the price of capacity to the
price needed to recoup the cost of building a hypothetical new
“peaker” power plant, i.e., a plant that operates only in times of
high demand.

     Here’s how it works. Capacity suppliers bid a quantity of
capacity into the auction, and the total amount of capacity bid
creates a supply curve, which intersects with a predetermined
demand curve. The intersection of the two curves establishes
the available quantity of capacity and the price for this
capacity. See Electricity Consumers Resource Council v.
FERC, 407 F.3d 1232, 1235–36 (D.C. Cir. 2005) (describing
                                4
use of demand curves in capacity auctions). Power retailers
then purchase capacity at that price. In theory, this market
design encourages desirable investment by signaling the need
for more generation and by enabling power generators to
recoup their costs in the capacity market.

     Pursuant to its Market Administration and Control Area
Services Tariff, NYISO files new demand curves with the
Commission every three years. The curve-design process
focuses on estimating the “cost of new entry” for a hypothetical
new peaker plant. In Commission lingo, this requires
calculating the “localized levelized cost per kW-month to
develop a new peaking unit with energy and ancillary services
revenues subtracted.” See New York Independent System
Operator, Inc. (“January Order”), 134 FERC ¶ 61,058, at P 6
(2011). In plain English, the cost of new entry equals the
hypothetical plant’s total cost of producing a unit of
electricity—the cost of constructing and operating a plant
divided by its expected lifetime energy output—minus what
the plant will receive for selling this electricity. Because curves
are set for three years, NYISO also establishes an “escalation
factor,” which it uses to adjust the curves each year for
inflation.

     In November 2010, NYISO filed its 2011–2014 demand
curves (the “Proposed Curves”) with the Commission. The
Proposed Curves were to take effect in the May 2011 auction
following expiration of the then-in-effect curves on April 30,
2011 (the “Preexisting Curves”). Relevant to this appeal, the
Proposed Curves excluded the cost of property taxes from the
cost of new entry, included a 1.7% escalation factor based on a
general inflation index, and estimated the energy and ancillary
services revenues (“E&AS revenues”) using a regression
model based on three years of data.
                               5
     On January 28, 2011, the Commission approved the
escalation factor and E&AS revenues estimate but found the
property tax exclusion unreasonable. January Order, 134
FERC ¶ 61,058 at PP 88–90, 136, 150. Believing that the
Proposed Curves might not be “just and reasonable” as
required by section 205(a) of the Federal Power Act, 16 U.S.C.
§ 824d(a), the Commission exercised its section 205(e)
authority to suspend the proposed rates for up to five months,
id. § 824d(e), and suspended the Proposed Curves “for five
months, to become effective the earlier of June 28, 2011, or a
date set by a subsequent Commission order.” January Order,
134 FERC ¶ 61,058 at P 168. The order also directed NYISO to
make a further compliance filing to correct the problems
identified in the order, id. at P 1, and to inform the Commission
of “the date it anticipates implementing the new demand
curves,” provided such “date should be no later than November
1, 2011,” id. at P 168. “[T]he currently effective demand
curves,” the order concluded, “will remain in effect until
superseded.” Id. at P 168.

     In response, NYISO asked the Commission whether it
should apply an escalation factor to the “currently effective
demand curves” during the suspension period, and several
petitioners sought rehearing of the Commission’s imposition
of the maximum five-month suspension period. Rejecting both
requests, the Commission ruled that the January Order
“clear[ly] and unambiguous[ly]” did not provide for escalation,
and justified the suspension length citing the “unique nature
and purpose of the rates filed” and the need for market
participants to “have the actual re-calculated rates before them
when they bid in the ICAP auctions.” New York Independent
System Operator, Inc. (“Suspension Rehearing Order”), 134
FERC ¶ 61,178 at PP 16–18 & n. 13 (2011).
                               6
     NYISO responded with two new filings. In the first,
submitted March 28, NYISO sought to “establish that the
currently effective ICAP Demand Curves will be in effect as of
May 1, 2011 and reflect that they will remain in effect until a
date established by Commission order.” Compliance Filing to
State Currently Effective ICAP Demand Curves, March 28,
2011, Joint Appendix (J.A.) 856. Accepted by the Commission
on April 4, this filing enabled the Preexisting Curves to remain
in place beyond the end of the suspension period. See New
York Independent System Operator, Inc. (“April Order”), 135
FERC ¶ 61,002 at P 10 (Apr. 4, 2011), reh’g denied, 137 FERC
¶ 61,218 (2011). In the second filing, NYISO submitted
revised curves that implemented the changes the Commission
required in its January Order (“the Compliance Curves”).

     Petitioners, TC Ravenswood and others with an interest in
power generation, sought rehearing on a host of issues. They
argued that the Commission’s acceptance of NYISO’s March
28 filing violated the Federal Power Act because it effectively
suspended the Proposed Curves beyond the end of the
five-month suspension period. They further challenged the
Commission’s approval of both the 1.7% escalation factor and
the anticipated E&AS revenues estimate. NYISO and other
objectors challenged the Commission’s decision to account for
property taxes in the cost of new entry.

     The Commission granted rehearing on the property tax
issue but denied the other requests. See New York Independent
System Operator, Inc. (“Rehearing Order”), 135 FERC ¶
61,170 (2011), reh’g denied, 137 FERC ¶ 61,218 (2011).
Because New York had just enacted legislation to provide full
property tax abatement for new peaking plants, the
Commission found that including property taxes in the cost of
new entry would no longer be appropriate. Id. at P 41–43. On
September 15, the Commission accepted NYISO’s
                               7
Compliance Curves as modified to reflect the grant of
rehearing on the property tax issue, New York Independent
System Operator, Inc., 136 FERC ¶ 61,192 (2011), and NYISO
used the curves in the October auction.

     TC Ravenswood and other New York City suppliers now
petition for review, challenging the suspension period, as well
as the Commission’s acceptance of the 1.7% escalation factor,
its approval of the E&AS revenues model, and its grant of
rehearing on the property tax issue. We address the suspension
issues in Part II and the remaining issues in Part III.

                              II.
     Section 205(e) of the Federal Power Act authorizes the
Commission to suspend proposed rates for a maximum of five
months. 16 U.S.C. § 824d(e). In West Texas Utility Co., 18
FERC ¶ 61,189 (1982), the Commission announced that it
would suspend rates “for only one day instead of the five
month maximum in those cases where [its] preliminary
analysis indicates that no more than ten percent of the increase
appears to be excessive,” unless “extraordinary factors indicate
that wholesale customers may suffer irreparable harm absent a
five month suspension.” Id. at 61,375. Petitioners contend that
the suspension violates both West Texas and section 205(e).
We review challenges to suspension periods deferentially.
Specifically, as we explained in Exxon Pipeline Co. v. United
States, 725 F.2d 1467, 1473–74 (D.C. Cir. 1984), so long as the
Commission’s reasons are “in some way relevant to [its]
statutory inquiries,” id. at 1473, we will remand only if the
Commission “impos[es] two different suspension lengths in
cases that [a]re absolutely indistinguishable” or imposes a
suspension length “plainly and absolutely foreclosed” by
existing rules or precedent, id. at 1474.
                               8
     We begin with the West Texas issue. Recall that the
Commission suspended the Proposed Curves for five months,
finding “the unique nature and purpose of the rates filed, in
contrast to the typical rates at issue in cases where [it had]
applied West Texas” brought the case within West Texas’s
“extraordinary factors” exception. Suspension Rehearing
Order, 134 FERC ¶ 61,178 at P 17 n.13. Further explaining its
decision, the Commission noted that “the exact revised
[demand curve] prices . . . [could not] be predicted with any
certainty” at the time and that “market participants should have
the actual re-calculated rates before them when they bid in the
ICAP auctions.” Id. at PP 17–18.

    Petitioners argue that because the changes required by the
January Order would necessarily produce higher prices than
the Proposed Curves, the Commission had no basis for
concluding under West Texas that the Proposed Curves would
be excessively high or that customers would suffer irreparable
harm without a maximum suspension. Given this, petitioners
assert, West Texas required the Commission to impose a
nominal suspension.

     Petitioners’ focus on higher prices rests on the assumption
that West Texas limits the extraordinary factors exception to
circumstances that actually produce higher prices for
consumers. But in West Texas, the Commission rejected such a
limitation. By its own terms, the West Texas extraordinary
factors exception applies when “increased revenues do not
appear to be excessive, but other, extraordinary factors indicate
that wholesale customers may suffer irreparable harm.” West
Texas, 18 FERC ¶ 61,189 at 61,375 (emphasis added). The
Commission’s reasons for imposing a maximum suspension in
this case—the unique nature of the auction markets and
bidders’ need for the “actual re-calculated rates”—thus
comport with the extraordinary factors exception. Moreover,
                                9
effectively acknowledging the reasonableness of the
Commission’s justification, petitioners agree that affording
“bidders access to final rules and rates ahead of auctions [is]
beneficial.” Pet’rs’ Reply Br. 24. Petitioners have thus failed to
demonstrate that West Texas “plainly and absolutely
foreclose[s]” the five-month suspension. See Exxon Pipeline,
725 F.2d at 1474.

     Petitioners next claim that the Commission acted
arbitrarily by ignoring their argument that the Compliance
Curves would necessarily exceed the Proposed Curves. The
Commission did no such thing. It expressly recognized
petitioners’ argument, explained its uncertainty regarding its
ability to predict final demand curve prices, and relied on a
countervailing concern, i.e., that bidders need access to the
final curves before bidding in the auction. See Suspension
Rehearing Order, 134 FERC ¶ 61,178 at PP 17–18.

      Finally, petitioners argue that the Commission’s decision
conflicts with an earlier decision that they claim involved
“absolutely indistinguishable” facts. Pet’rs’ Reply Br. 23. But
because this argument first appears in petitioners’ reply brief, it
comes too late. See American Wildlands v. Kempthorne, 530
F.3d 991, 1001 (D.C. Cir. 2008) (finding argument raised for
first time in reply brief forfeited).

     Having concluded that the Commission reasonably
imposed the maximum suspension period, we turn to
petitioners’ alternative argument that the Commission
exceeded its section 205(e) authority by effectively suspending
the Proposed Rates for longer than the five-month statutory
maximum. According to petitioners, the Commission’s April
Order accepting NYISO’s March 28 filing to maintain the
then-in-effect curves “until replaced by rates effective on a
date set when the Commission acts on NYISO’s filing to
                              10
comply with the” January Order, April Order, 135 FERC ¶
61,002 at P 10, extended the suspension period beyond five
months because it permitted the Preexisting Curves to remain
in effect until October 2011, two and a half months after the
end of the maximum suspension period.

     As both the Commission and intervenor NYISO point out,
this argument suffers from an obvious defect: the Commission
suspended the rates for only five months and then accepted
NYISO’s voluntary decision to delay implementation of the
new curves until approval of the Compliance Curves. At no
time did the Commission prohibit NYISO from implementing
the Proposed Curves at the end of the suspension period.
Petitioners contend that NYISO “needed to submit tariff
revisions to implement [the Commission’s] directive to enable
the [Preexisting Curves] to remain in effect” beyond April 30
when the Preexisting Curves were to expire. Pet’rs’ Br. 38. But
regardless of whether the Commission required NYISO to
make a filing extending the rates beyond April 30, it never
directed NYISO to extend the Preexisting Curves beyond the
five-month suspension period. The Commission’s acceptance
of NYISO’s voluntary extension complied with section 205(e).
Cf. City of Kaukauna, Wis. v. FERC, 581 F.2d 993, 996–97
(D.C. Cir. 1978) (“And though the Commission may not
withhold a supplier’s new rate beyond the maximum statutory
suspension period, the Act in no way prevents the supplier
from agreeing to defer its operation until later.”).

     Petitioners question the policy implications of NYISO’s
postponement of the Proposed Curves. Because petitioners
depend on demand curves for their revenue but have no
responsibility for filing the curves, if “NYISO, at its sole
discretion, can delay implementation of new rates as [the
Commission] suggests, public utility generators’ rights under
FPA Section 205 to a just and reasonable rate would be
                              11
usurped by a utility that incurs no financial harm from delay.”
Pet’rs’ Reply Br. 13. Although this concern is understandable,
nothing in section 205(e) prohibits the Commission from
accepting such a voluntary delay.

    Finally, petitioners challenge the Commission’s approval
of NYISO’s March 28 filing that extended the then-in-effect
curve values without escalation for the remainder of the
suspension period. Because the escalation factor was a
component of the Preexisting Curves, they contend, the
Commission’s decision violates its ban on piecemeal
ratemaking—a policy that prohibits altering a single
component of a rate without reviewing all rate components.
See Houlton Water Co. v. Maine Public Service Co., 55 FERC
¶ 61,037 at 61,110 (1991) (describing piecemeal ratemaking).
As the Commission points out, however, the piecemeal
ratemaking doctrine is beside the point. The Preexisting
Curves expired on April 30 and NYISO’s March 28
submission filled this void with a new filing. Because the
Preexisting Curves were no longer in effect, the Commission
never modified an existing rate.

                                   III.
     Petitioners also challenge three technical aspects of the
approved demand curves. We review such challenges under
the highly deferential arbitrary and capricious standard,
“affirming if the Commission has articulated a ‘rational
connection between the facts found and the choice made.’”
Keyspan-Ravenswood, LLC v. FERC, 474 F.3d 804, 809 (D.C.
Cir. 2007) (quoting Motor Vehicle Manufacturers Ass’n v.
State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43
(1983)).

   Petitioners first object to the Commission’s approval of
NYISO’s proposed 1.7% escalation factor, which was based on
                               12
a general inflation index, rather than their preferred escalation
factor of 7.8%, which they derived from the industry-specific
Handy-Whitman Index. The Commission, they contend, not
only departed from past precedent approving of the
Handy-Whitman Index, but also ignored substantial evidence
that the general index was inadequate. The Commission made
neither misstep. In the earlier cases petitioners cite, the
Commission ruled that the Handy-Whitman Index was a
reasonable measure of inflation, not the only reasonable
measure. See, e.g., PJM Interconnection, L.L.C., 129 FERC ¶
61,090 at P 38 (2009), reh’g denied 131 FERC ¶ 61,168
(2010); ISO New England Inc., 131 FERC ¶ 61,065 at PP 136–
39, order on reh’g 132 FERC ¶ 61,122 (2010). The
Commission, moreover, ignored no record evidence. To be
sure, petitioners presented some evidence suggesting prices
would continue to rise rapidly. See Joint Aff. of Richard L.
Levitan, Seth G. Parker, and Edward K. Tsikirayi, J.A. 293–95.
Against this, the Commission found persuasive NYISO’s
experts’ testimony showing that the Handy-Whitman Index
likely overstated future price increases because it failed to
account for the then-deepening recession. See Rehearing
Order, 135 FERC ¶ 61,170 at PP 83–85. In such
circumstances, where the Commission weighs competing
record evidence, we defer to its reasonable choice, and
petitioners have given us no basis for questioning its judgment.
See Wisconsin Valley Improvement Co. v. FERC, 236 F.3d
738, 747 (D.C. Cir. 2001) (“[W]e are not called upon to weigh
competing experts’ opinions ‘as an original matter.’”) (quoting
Marsh v. Oregon Natural Resources Council, 490 U.S. 360,
378 (1989))).

     This principle also dooms petitioners’ challenge to the
Commission’s acceptance of NYISO’s E&AS revenues
estimate. To estimate these revenues, NYISO’s expert, NERA
Economic Consulting, predicted future revenues by drawing
                              13
statistical inferences from three years of historical data.
According to petitioners, this period was too short to predict
revenues accurately and NYISO failed to use proper statistical
tests to verify the accuracy of the results. But the Commission
appreciated the model’s shortcomings, see January Order, 134
FERC ¶ 61,058 at P 136; Rehearing Order, 135 FERC ¶
61,170 at P 75 (recognizing “that greater variation in the
dependent variable . . . may yield more robust econometric
estimations”), yet concluded NERA’s “approach to developing
pricing models [was not] so seriously flawed that it [could not]
be relied on for estimating energy and ancillary services
revenues,” January Order, 134 FERC ¶ 61,058 at P 136. The
Commission also believed that petitioners’ competing
approach was unreasonable because it suggested that “energy
prices do not respond to changes in supply when demand is
fixed,” a claim the Commission explained was inconsistent
with its own experience. Rehearing Order, 135 FERC ¶ 61,170
at P 75. Petitioners have given us no cause to second-guess the
Commission’s reasonable resolution of this technical question.
See Southwest Airlines Co. v. TSA, 650 F.3d 752, 756 (D.C.
Cir. 2011) (declining to “second-guess” agency determination
in “data-poor environment” when any decision “would have
required considerable guess work” (internal quotation marks
omitted)).

     Finally, petitioners challenge the Commission’s exclusion
of property taxes from the cost of new entry. See Rehearing
Order, 135 FERC ¶ 61,170 at P 42, reh’g denied, 137 FERC ¶
61,218 at P 33. As explained above, while NYISO’s request for
rehearing of the January Order was pending, New York passed
a new law providing tax exemptions to new power generators.
The exemption applies to generators that meet two conditions:
(1) the new generating unit’s construction costs exceed 30% of
the property’s taxable assessed value, and (2) the new
generating unit has an average annual run time of less than 18
                              14
hours per start. See New York Independent System Operator,
Inc. (“December Rehearing Order”), 137 FERC ¶ 61,218 at P
35. Based on this change, the Commission granted NYISO’s
request to exclude property taxes from the cost of new entry.

     According to petitioners, this decision conflicts with
Independent Power Producers of New York (IPPNY), 125
FERC ¶ 61,311 (2008), in which the Commission declined
capacity suppliers’ request to alter the 2008 demand curves
when New York passed a law eliminating a property tax
exemption approximately six months after the Commission
approved the 2008 curves. See id. at PP 32–37. But that case
differs from this case in a critical respect. In IPPNY, no party
had petitioned for rehearing on the property tax issue. The
suppliers in that proceeding therefore bore the burden of
proving the entire rate unreasonable, and the Commission
accordingly refused to consider the property tax change in
isolation. See id. at P 33. Here, by contrast, NYISO did request
rehearing on the property tax issue. NYISO therefore had to
demonstrate only that the Commission should exclude
property taxes from the cost of new entry, and the Commission
reasonably considered the property tax change in isolation.
This hardly amounts to a “distinction without any difference.”
Pet’rs’ Br. 73.

    Nor did the Commission ignore substantial evidence that
the hypothetical new peaker plant would fail to satisfy the
necessary criteria for the tax exemption. Granting NYISO’s
rehearing request on the property tax issue, the Commission
assumed that the hypothetical new peaker unit would qualify
for full tax abatement because the abatement requirements
were known upfront and because the legislature’s stated intent
was to provide tax abatement for peaker units. See December
Rehearing Order, 137 FERC ¶ 61,218 at P 35. True, the
Commission did not examine the hypothetical peaker unit’s
                              15
construction costs and average annual run time to determine
whether it would actually qualify for a property tax abatement.
As the Commission points out, however, petitioners offered no
evidence that called into question the Commission’s
assumption that it would. Id.

                             IV.
     For the foregoing reasons, we deny the petitions for
review.

                                                   So ordered.