Court Opinion

ID: 7802775
Source: CourtListenerOpinion
Date Created: 2022-08-23 15:00:51.840935+00
Date Added: 2024-06-11T16:29:31.036824
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 5, 2022                   Decided August 23, 2022

                         No. 20-1343

           CONSTELLATION MYSTIC POWER, LLC,
                      PETITIONER

                              v.

        FEDERAL ENERGY REGULATORY COMMISSION,
                     RESPONDENT

     BRAINTREE ELECTRIC LIGHT DEPARTMENT, ET AL.,
                    INTERVENORS

  Consolidated with 20-1361, 20-1362, 20-1365, 20-1368,
                    21-1067, 21-1070

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

    Matthew A. Fitzgerald argued the cause for petitioner
Constellation Mystic Power, LLC. With him on the briefs were
Noel H. Symons and Katlyn A. Farrell.

    Jeffrey A. Schwarz argued that cause for State petitioners.
With him on the briefs were Seth A. Hollander, Assistant
                              2
Attorney General - Special Litigation, Office of the Attorney
General for the State of Connecticut, Scott H. Strauss, Amber
L. Martin Stone, Kirsten S. P. Rigney, Robert Snook, Assistant
Attorney General - Environment, Office of the Attorney
General for the State of Connecticut, Andrew Minikowski and
Julie Datres, Staff Attorneys, Ashley M. Bond, Maura Healy,
Attorney General, Office of the Attorney General for the
Commonwealth of Massachusetts, Christina Belew, Assistant
Attorney General, Jason Marshall, and Phyllis G. Kimmel.

     Scott H. Strauss, Jeffrey A. Schwarz, Amber L. Martin
Stone, and John P. Coyle were on the briefs for intervenors
Braintree Electric Light Department, et al. in support of State
petitioners.

    Robert M. Kennedy and Carol J. Banta, Senior Attorneys,
Federal Energy Regulatory Commission, argued the causes for
respondent. With them on the brief were Matthew R.
Christiansen, General Counsel, and Robert H. Solomon,
Solicitor.

    John P. Coyle argued the cause for intervenors Braintree
Electric Light Department, et al. in support of respondent.
With him on the brief were Scott H. Strauss, Jeffrey A.
Schwarz, and Amber L. Martin Stone.

    Michael J. Thompson, Ryan J. Collins, and Maria Gulluni
were on the brief for intervenor ISO New England, Inc. in
support of respondent.

    Before: SRINIVASAN, Chief Judge, HENDERSON and RAO,
Circuit Judges.

    Opinion for the Court filed PER CURIAM.
                                 3
     PER CURIAM: In March 2018, Constellation Mystic Power,
LLC (Mystic)—a subsidiary of Exelon Generation Company,
LLC (ExGen), which itself is a subsidiary of Exelon
Corporation (Exelon)1—announced its intention to retire the
Mystic Generating Station (Mystic Station), a natural gas-fired
generator serving the greater Boston metropolitan area, after
the facility’s existing capacity obligations expired in May
2022. The region’s independent system operator, ISO New
England, concluded that Mystic Station’s loss would
exacerbate anticipated stresses on the region’s electricity
network during winter months and increase the risk of rolling
blackouts. ISO New England also found that Mystic Station’s
retirement risked the closure of its sole fuel source, the Everett
Marine Terminal (Everett)—a liquified natural gas (LNG)
import and regasification facility currently owned and operated
by an ExGen subsidiary—adding to the risk of blackouts in the
region.

     In light of these findings, ISO New England entered into a
cost-of-service agreement with Mystic and ExGen to keep two
of Mystic Station’s generating units, referred to as Mystic 8 and
9, in service between June 2022 and May 2024. The parties
filed the proposed agreement (Mystic Agreement) with the
Federal Energy Regulatory Commission (Commission or
FERC). The Commission ultimately approved the terms of the
Mystic Agreement, albeit with significant modifications.

    1
       In February 2022, after the petitions for review here had been
filed, Exelon consummated a spinoff transaction that placed
ExGen—which was renamed Constellation Energy Generation,
LLC—and Mystic under the corporate parentage of Constellation
Energy Corporation. Despite this transaction, we will refer to
Mystic’s parents as ExGen and Exelon, as the parties have done,
unless context dictates otherwise.
                                 4
     At issue are six Commission orders related to its approval
of the Mystic Agreement. See Constellation Mystic Power,
LLC, 164 FERC ¶ 61,022 (July 13, 2018) (July 2018 Order);
Constellation Mystic Power, LLC, 165 FERC ¶ 61,267 (Dec.
20, 2018) (December 2018 Order); Constellation Mystic
Power, LLC, 172 FERC ¶ 61,043 (July 17, 2020) (First July
2020 Rehearing Order); Constellation Mystic Power, LLC, 172
FERC ¶ 61,044 (July 17, 2020) (Second July 2020 Rehearing
Order); Constellation Mystic Power, LLC, 172 FERC ¶ 61,045
(July 17, 2020) (Compliance Order); Constellation Mystic
Power, LLC, 173 FERC ¶ 61,261 (Dec. 21, 2020) (December
2020 Rehearing Order). Two groups of petitioners now seek
review of those orders: Mystic and a group of New England
state regulators (State Petitioners).2 As detailed infra, we
dismiss Mystic’s petition for review in part and deny it in part;
we grant the State Petitioners’ petitions.

                        I. BACKGROUND

                   A. Statutory Background

     Section 201(b) of the Federal Power Act (FPA) grants the
Commission jurisdiction of the transmission and wholesale
sale of electric energy in interstate commerce. 16 U.S.C.
§ 824(b); see New York v. FERC, 535 U.S. 1, 6–7 (2002). The
FPA provides that “[a]ll rates for or in connection with
jurisdictional sales and transmission service are subject to
review by FERC to ensure that the rates are just and reasonable

    2
      The State Petitioners include the Connecticut Public Utilities
Regulatory Authority, the Connecticut Department of Energy and
Environmental Protection, the Connecticut Office of Consumer
Counsel (collectively, Connecticut Parties), the Attorney General of
the Commonwealth of Massachusetts (Massachusetts AG) and the
New England States Committee on Electricity, Inc. (States
Committee).
                                  5
and not unduly discriminatory or preferential.” New England
Power Generators Ass’n v. FERC (NEPGA), 881 F.3d 202, 205
(D.C. Cir. 2018)); see 16 U.S.C. §§ 824d(a), (e), 824e(a).
Section 205 requires that all public utilities “file with the
Commission . . . all rates and charges for any transmission or
sale subject to the jurisdiction of the Commission,” 16 U.S.C.
§ 824d(c), with the utility bearing the burden to show that its
proposed rate is lawful, id. § 824d(e). See NEPGA, 881 F.3d at
205. If the Commission determines that a rate is “unjust,
unreasonable, unduly discriminatory or preferential,” it must
set aside the rate and replace it with one that is just and
reasonable. 16 U.S.C. § 824e(a)–(b). A negatively affected
party may challenge a Commission-approved rate by filing a
complaint with the Agency, and it carries the burden of
demonstrating that the rate is unjust or unreasonable. See id.
§ 824e(a)–(b). The reasonableness of a rate is assessed in light
of the FPA’s goals of promoting reliable service at reasonable
rates and developing plentiful energy supplies. See Consol.
Edison Co. v. FERC, 510 F.3d 333, 342 (D.C. Cir. 2007); see
also NAACP v. FPC, 425 U.S. 662, 669–70 (1976).

           B. The New England Electricity Market

    ISO New England is the independent system operator3 that
operates the transmission facilities and administers the
wholesale electricity markets across six states—Connecticut,
Maine, Massachusetts, New Hampshire, Rhode Island and
Vermont. The wholesale markets facilitate the sale of

     3
       Independent system operators result from the unbundling of
transmission and generation services—which were historically
handled by a single, vertically integrated utility—and serve to
coordinate, control and monitor the electricity transmission facilities
owned by its member utilities in order to ensure nondiscriminatory
access to all electricity generators. See Midwest Indep. Transmission
Sys. Operator, Inc. v. FERC, 388 F.3d 903, 906 (D.C. Cir. 2004).
                               6
electricity by generators to electric utilities and electricity
traders before its eventual sale to end-use consumers. The rates
charged by ISO New England for access to its transmission
system and the rules governing the wholesale markets under its
purview are set out in a grid-wide tariff.

      In addition to ensuring adequate supply to meet present-
day electricity demands, ISO New England must also ensure
sufficient supplies to meet future needs. This is accomplished
via a forward-capacity market, in which load serving entities—
i.e., the utilities delivering electricity to end users—purchase
capacity, which “is not electricity itself but the ability to
produce it when necessary,” from generators. Pub. Citizen, Inc.
v. FERC, 839 F.3d 1165, 1167–68 (D.C. Cir. 2016) (quoting
Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477, 479
(D.C. Cir. 2009)). The forward-capacity market is conducted
via an auction held three years in advance of a particular
capacity commitment period. Generators submit bids reflecting
the lowest price they will accept before exiting the market.
During the “descending clock” auction, the capacity price is
steadily lowered, causing bidding generators to exit. Once the
amount of capacity offered reaches ISO New England’s
projected capacity requirement for the commitment period, the
auction stops, and those generators remaining in the market are
paid the clearing price, regardless of their initial bids. See
generally id. (explaining forward-capacity auction).

     Once a generator participates in a forward-capacity
auction, it is automatically re-entered into every subsequent
auction unless it affirmatively seeks to remove its capacity
from the market for that commitment period or permanently,
with the latter option constituting “retirement.” If a generator
seeks to retire from the market, it must submit a Retirement De-
List Bid eleven months before the auction corresponding to the
period for which it intends to retire, which signals the
                                  7
generator’s intent to exit the market if the clearing price falls
below its bid price and gives ISO New England an opportunity
to determine if the generator’s proposed retirement presents a
service risk to the region. If ISO New England so concludes, it
may ask the generator to remain in operation; if the generator
accepts, it can then elect to receive either its initial bid price or
a cost-of-service rate.

                        C. Mystic 8 and 9

    Mystic 8 and 9 are combined-cycle natural gas-fired
generating units with a combined summer capacity of about
1,400 megawatts.4 The two units run on revaporized LNG
imported via marine terminal, making them unique among
other natural gas-fired units in the region, which run on vapor
natural gas imported through regional pipelines.

    Following the restructuring of the Massachusetts energy
market in the 1990s, Mystic Station was acquired from the
Boston Edison Company by Sithe Energies, Inc. in 1999. Sithe
shortly thereafter began construction of Mystic 8 and 9, with
the two units beginning commercial operation as merchant
generators in 2003; according to Mystic, the two units were
constructed at a cost of just under $1 billion. In 2002, ExGen
acquired Sithe but subsequently ran into financial troubles in
connection with the construction of Mystic 8 and 9. In May
2004, ExGen reached a settlement with its lenders, transferring
Mystic Station to a special purpose entity owned by a
consortium of lenders in exchange for the cancellation of debts.

     4
       Mystic units 1 through 6 have been decommissioned, and the
other units still in operation, Mystic 7 and Mystic Jet, are subject to
Retirement De-List Bids but have not been designated as units
necessary to meet reliability needs. None of these units is at issue
here.
                               8
According to Mystic, as a result of this transaction, Mystic 8
and 9 were valued at approximately $547 million.

     In 2010, after the special purpose entity declared
bankruptcy, subsidiaries of Constellation Energy Group, Inc.
purchased Mystic Station, as well as a separate natural gas-
fired facility unrelated to the proceedings at issue, for $1.1
billion. In 2012, Constellation Energy Group merged with
Exelon. According to Mystic, as part of the merger, Mystic 8
and 9 were independently appraised at $925 million. As a result
of the merger, Mystic, which traces its parentage through
ExGen to Exelon, became the owner of Mystic 8 and 9.

                D. The Everett Marine Terminal

     Everett, located on a property near Mystic Station, is
Mystic 8 and 9’s sole source of revaporized LNG, making the
two units “the only natural gas-fired units in the United States
that are directly connected to an LNG import regasification
facility.” Joint Appendix (J.A.) 7. Everett, the longest-
operating LNG import terminal in the United States, has a
storage capacity of 3.4 billion cubic feet and connects to, aside
from Mystic 8 and 9, two outbound interstate pipeline facilities
and a local gas company’s distribution facility.

     When the Commission proceedings began, Everett was
owned by Distrigas of Massachusetts, LLC, a subsidiary of
Engie Gas & LNG Holdings LLC, although Exelon was
already in the process of purchasing the Everett facility.
According to William Berg, an Exelon executive, the company
determined that acquisition of Everett “was the best and most
reliable option for Mystic to meet its existing capacity supply
obligations through May 2022 without significant risk of non-
performance.” J.A. 197. In late 2018, while the Commission’s
proceedings were ongoing, Exelon finalized its purchase of
                               9
Everett, which is now owned by Constellation LNG, LLC,
another subsidiary of ExGen.

                 E. The Mystic Agreement

     In 2018, Mystic concluded that Mystic Station was no
longer economically viable, notified ISO New England of its
intent to retire when its existing capacity supply obligations
expired in May 2022 and submitted the required Retirement
De-List Bid. Following Mystic’s announcement, ISO New
England analyzed the impact of Mystic 8 and 9’s retirements
on the region’s fuel security during the winter months, when
natural gas-fired power plants have difficulties obtaining the
necessary fuel through the region’s limited pipeline network
due to priority demands for heating. See Belmont Mun. Light
Dep’t v. FERC, 38 F.4th 173, 180–81 (D.C. Cir. 2022)
(discussing ISO New England’s fuel security analysis). ISO
New England concluded that the loss of Mystic 8 and 9, given
their unique reliance on imported LNG rather than vapor
natural gas distributed through regional pipelines, would likely
result in multiple days of “load shedding”—i.e., rolling
blackouts—during the 2022 through 2024 capacity
commitment periods. ISO New England further determined
that Mystic 8 and 9’s retirements could affect the financial
viability of Everett, whose retirement could further exacerbate
the length and severity of load shedding events.

     In light of these findings, ISO New England sought to
retain Mystic 8 and 9 for two years beyond their planned
retirements. In May 2018, Mystic, acting pursuant to section
205 of the FPA, filed with the Commission an agreement, the
Mystic Agreement, among itself, Exelon and ISO New
England that would provide Mystic cost-of-service
compensation for the continued operation of Mystic 8 and 9
from June 1, 2022, until May 31, 2024. We go into greater
                                10
detail infra as to several of the cost inputs comprising Mystic’s
cost-of-service rate under the agreement but, in simplified
terms, the rate is derived from four primary cost inputs: (1) a
return on Mystic 8 and 9’s “rate base,” meaning the value of
the facilities used to provide service to ratepayers less
depreciation; (2) operation and maintenance expenses;
(3) depreciation expenses; and (4) taxes.

     As part of its filing, Mystic attached a separate agreement
between Mystic and Everett, referred to as the Everett
Agreement. Per the Everett Agreement, over which the
Commission disclaims jurisdiction, see Second July 2020
Rehearing Order, at ¶ 43; FERC Br. 53, Mystic agreed to pay
Everett a cost-based rate for the fuel used by Mystic 8 and 9
alongside a monthly charge (Fuel Supply Charge) covering 100
per cent of Everett’s fixed operating and maintenance costs as
well as a return on investment tied to Everett’s rate base. As
originally proposed, the Fuel Supply Charge would be offset
by 50 per cent of the profits Everett earned on third-party sales
over the course of the Everett Agreement.

               F. The Commission Proceedings

     This brings us to the Commission orders underlying this
litigation. For clarity, rather than take the orders
chronologically, we break up the orders according to the five
disputed components of the Commission-approved Mystic
Agreement.

     Mystic’s Rate Base: Under cost-of-service ratemaking
principles, the starting point to calculate a generator’s return on
capital is the generating facility’s rate base, or the value of the
assets used to serve ratepayers. See NEPCO Mun. Rate Comm.
v. FERC, 668 F.2d 1327, 1335 (D.C. Cir. 1981). Mystic
initially proposed to set Mystic 8 and 9’s rate base according to
the $925 million valuation it made in connection with the 2012
                                11
Constellation Energy Group-Exelon merger, before adding
post-acquisition capital expenditures and subtracting
depreciation. In its December 2018 Order, however, the
Commission rejected Mystic’s approach as inconsistent with
the Commission’s “original cost test,” which provides that a
utility “may only earn a return on (and recovery of) the lesser
of the net original cost of plant or, when plant assets change
hands in arms-length transactions, the purchase price of the
plant,” id. at ¶ 63; see infra Part III (explaining original cost
test), and directed Mystic to reduce its valuation of Mystic 8
and 9 to account for past sales of the units at prices lower than
the 2012 valuation, see id. at ¶¶ 63–66.

     On rehearing, the Commission rejected Mystic’s claim
that the original cost test, as applied by the Commission, was
inappropriate to calculate its return on Mystic 8 and 9’s rate
base, see generally Second July 2020 Rehearing Order, at
¶¶ 105–111, and on compliance, rejected Mystic’s proposed
rate base calculation for failing to account for the 2004 $547
million transfer in lieu of foreclosure, see Compliance Order,
at ¶ 45.

     Mystic’s Capital Structure: Alongside its rate base, a
generator’s return on capital under a cost-of-service model is
derived from its overall rate of return, which is dependent upon
its capital structure—i.e., the relative amounts of debt and
equity. See NEPCO, 668 F.2d at 1335. Mystic initially
proposed using the capital structure of its immediate parent,
ExGen: 67.28 per cent equity and 32.72 per cent debt. See
December 2018 Order, at ¶ 35. The Commission rejected this
proposal, finding the proposed structure too equity-heavy
relative to the industry, see id. at ¶¶ 48–51, and instead directed
Mystic to use the capital structure of ExGen’s parent, Exelon,
which was 52.4 per cent debt and 47.6 per cent equity, id. at
¶ 52. After Mystic sought rehearing, the Commission
                               12
reaffirmed its determination, again citing the anomalous nature
of ExGen’s capital structure relative to the industry. See
Second July 2020 Rehearing Order, at ¶¶ 132–34.

     After the petitions for review had been filed but before oral
argument, the Commission issued an additional order that,
although not subject to review in this proceeding, is
nevertheless relevant. In February 2022, Exelon consummated
a spinoff transaction that placed ExGen and Mystic under the
corporate parentage of Constellation Energy Corporation. See
Constellation Mystic Power, LLC, 179 FERC ¶ 61,081, at ¶ 6
(May 2, 2022) (May 2022 Order). As a result, Mystic amended
the Mystic Agreement to reflect the changes in corporate
structure and, as relevant here, argued that Exelon’s capital
structure was no longer relevant—as Exelon no longer had any
relationship with Mystic—and again requested to use ExGen’s
capital structure. Id. at ¶ 9. The Commission “agree[d] with
Mystic that it would be inappropriate to continue basing its
capital structure and cost of debt on those of Exelon
Corporation,” id. at ¶ 25, but further explained that Mystic had
not yet shown ExGen’s capital structure to be just and
reasonable, id. at ¶ 24. The Commission accordingly set a
hearing to determine the appropriate capital structure. Id. at
¶¶ 24–25.

     Everett’s Costs: The Commission rejected Mystic’s
proposal to recover 100 per cent of Everett’s fixed operating
and maintenance costs via the Fuel Supply Charge, instead
adopting its Trial Staff’s proposal that would allocate 91 per
cent of Everett’s costs—the historical ratio of Everett’s vapor
sales, as opposed to its LNG sales, to its total sales—and the
Staff’s related revenue crediting mechanism, whereby Everett
would retain up to 50 per cent of the margin on third-party
forward sales, meaning those made at least three months in
                                13
advance.5 See December 2018 Order, at ¶¶ 133–35. The
Commission also rejected Mystic’s proposal to include the
Everett acquisition cost as part of Everett’s rate base, which is
used to calculate the return-on-investment component of the
Fuel Supply Charge. See id. at ¶¶ 148–49.

     On rehearing, the Commission rejected Mystic’s
arguments regarding the exclusion of Everett’s acquisition cost
from its rate base. See Second July 2020 Rehearing Order, at
¶¶ 113, 118–20. Further, the Commission rejected arguments
by the Massachusetts AG, one of the State Petitioners, that the
Commission lacked jurisdiction to review and approve the
inclusion of Everett’s fixed operating costs as a component of
Mystic’s proposed cost-of-service rate, asserting that “[t]he
Fuel Supply Charge is a component of Mystic’s cost-of-service
rate and, as a result, is subject to Commission review and
approval.” First July 2020 Rehearing Order, at ¶¶ 16–18, 26–
31. Despite comments from several State Petitioners objecting
to the Commission’s allocation of Everett-related costs, see
Second July 2020 Rehearing Order, at ¶¶ 57–60, 62, the
Commission reaffirmed the appropriateness of its 91 per cent
allocation, see id. at ¶¶ 64–65. In response to comments noting
that vapor sales are made to parties other than Mystic, the
Commission reasoned that those sales nevertheless benefit
Mystic “by helping to manage Everett’s tank.” Id. at ¶ 64. But
the Commission did decide to eliminate revenue crediting,
finding that “proper cost allocation based on cost-causation
principles obviate[d] the need” for the revenue crediting and

    5
       Under the revenue crediting mechanism, “the first 10 million
MMBtus are credited 90 percent to Mystic (i.e., back to ratepayers)
and 10 percent to Constellation LNG, revenue from the next 30
million MMBtus are credited 80 percent to Mystic and 20 percent to
Constellation LNG, and so on until all deliveries above 60 million
MMBtus are credited 50/50 as initially proposed by Mystic.”
December 2018 Order, at ¶ 134.
                               14
questioning its own jurisdiction to approve an incentive
mechanism that “focuses directly on Everett’s conduct rather
than Mystic’s.” Id. at ¶ 66. The Connecticut Parties, a subset of
the State Petitioners, sought rehearing on the elimination of
revenue crediting, arguing that “unless or until Mystic’s share
of Everett costs is reduced to correspond to its use of the
facilities,” the Commission should “restore the crediting
mechanism.” J.A. 1664. The Commission denied their request.

     On this issue, then-Commissioner (now Chairman) Glick
dissented from all of the orders at issue, asserting that the
Commission overstepped its jurisdictional boundaries by
reviewing and approving recovery of Everett-related costs that,
in his view, bore little relationship to Mystic’s jurisdictional
rate. See, e.g., December 2018 Order (Glick, C., dissenting);
First July 2020 Rehearing Order (Glick, C., dissenting).

     True-Up Mechanism: Recognizing that many of the
components of Mystic’s cost-of-service rate were based, at
least in part, on Mystic’s projections of future costs, the
Commission directed Mystic to include a “true-up” mechanism
in the Mystic Agreement, which would allow parties to
reconcile cost projections with actual expenditures via
surcharges and refunds as necessary. See July 2018 Order, at
¶ 20. Mystic initially proposed a true-up mechanism that would
have applied only to specific subsets of rate inputs, see
December 2018 Order, at ¶ 165, but the Commission rejected
this approach, instead “direct[ing] that the true-up mechanism
apply to the entire [Mystic] Agreement, with the exception of
the [return on equity],” id. at ¶ 177. The Commission
emphasized that the true-up process included Mystic’s
revenues. Id. at ¶ 179. The Commission also noted that the
reasonableness of tank congestion charges passed along to
ratepayers “is more appropriately reviewed during the true-up
process,” id. at ¶ 164, but later determined that review of tank
                                15
congestion charges was “no longer required” given its
elimination of the revenue crediting mechanism, see Second
July 2020 Rehearing Order, at ¶ 73.

    Mystic sought rehearing on the breadth of the true-up
mechanism as it applied to pre-2018 costs related to Mystic 8
and 9 that, in Mystic’s view, had already been fully litigated.
See Second July 2020 Rehearing Order, at ¶ 79. The
Commission denied rehearing, finding that those historic
numbers had not yet been fully litigated and were thus
appropriately “subject to true-up.” Id. at ¶ 86. Mystic also
objected to the inclusion of revenues as part of the true-up
process. Id. at ¶ 80. The Commission agreed with this argument
and “set aside” its earlier requirement that Mystic “true-up
revenues.” Id. at ¶ 88.

      The States Committee, another of the State Petitioners,
sought clarification, or rehearing in the alternative, as to
whether interested parties could still challenge the calculation
of revenue credits despite the Commission’s decision to omit
revenues from the true-up process. See J.A. 1716. As they see
it, the Commission acknowledged their request, see December
2020 Rehearing Order, at ¶ 25, but failed to address it
adequately. See infra Part VI.B.1. With regard to the tank
congestion charges, the States Committee also sought
rehearing, arguing that if the costs of third-party sales are being
passed on to ratepayers, ratepayers should have some
mechanism to review and challenge the reasonableness of those
sales, see J.A. 1712–13, arguments that the Commission
addressed in its final rehearing order, see December 2020
Rehearing Order, at ¶¶ 26–28.

     Clawback Provision: In its December 2018 Order, the
Commission determined that the Mystic Agreement was not
just and reasonable without a “clawback” provision—which
                              16
would require Mystic to reimburse ratepayers for certain
capital and repair expenditures made over the course of the
Mystic Agreement if Mystic 8 and 9 were to re-enter the New
England energy market after the Agreement expires. See
December 2018 Order, at ¶ 208. In essence, a clawback
provision disincentivizes a generating facility from switching
between cost-of-service and market-based rates so that
ratepayers finance investments during the term of a cost-of-
service agreement that benefit the facility beyond the term of
the agreement. Id.; see also Midcontinent Indep. Sys. Operator,
Inc., 161 FERC ¶ 61,059, at ¶ 55 (2017). The Commission
accordingly directed Mystic to revise the Mystic Agreement to
include a clawback provision. See December 2018 Order, at
¶ 208. The States Committee sought clarification as to whether
the required clawback provision would apply to consumer-
funded investments and repairs in connection with both Mystic
8 and 9 and Everett. See J.A. 1374.

    On compliance, Mystic proposed a clawback provision
applicable to certain repairs and capital expenditures made by
Mystic. See J.A. 1506 (proposed clawback language);
Compliance Order, at ¶ 16. The States Committee and
Connecticut Parties protested the omission of Everett
expenditures from Mystic’s proposed clawback provision,
pointing to the affiliate relationship between Mystic and
Everett. See J.A. 1509–11 (States Committee); J.A. 1512–15
(Connecticut Parties).

     The Commission ultimately approved Mystic’s proposed
clawback provision. See Compliance Order, at ¶ 25. In the
Second July 2020 Rehearing Order, the Commission rejected
the request that the provision encompass Everett’s costs, noting
that neither Everett nor the Everett Agreement falls within the
Commission’s jurisdiction and concluding that it “lack[ed]
jurisdiction to require a clawback, true-up, and/or refund of
                                17
Everett’s costs.” See Second July 2020 Rehearing Order, at
¶ 43. The Commission further explained that, if Mystic 8 and 9
retired while Everett remained in service, the Mystic
Agreement would terminate, leaving “no rate within the
jurisdiction of the Commission through which to order a
refund.” Id. In the Compliance Order, the Commission denied
the States Committee’s and Connecticut Parties’ related
protests, referring back to the Second July 2020 Rehearing
Order. See Compliance Order, at ¶ 28. The Commission also
denied the Connecticut Parties’ subsequent request for
rehearing for the same reasons it outlined in the July 2020
orders. See December 2020 Rehearing Order, at ¶ 39.

                    G. Petitions for Review

     Mystic and the State Petitioners petitioned for review of
the various Commission orders modifying and ultimately
approving the Mystic Agreement. Mystic objects to the
Commission’s application of the original cost test in
determining Mystic 8 and 9’s rate base; the selection of
Exelon’s capital structure instead of ExGen’s; the exclusion of
Everett’s acquisition cost from the Fuel Supply Charge
calculation; and the inclusion of Mystic 8 and 9’s rate base
components as part of the true-up process. The State
Petitioners, for their part, object to the Commission’s exercise
of jurisdiction of and allocation of Everett’s costs as part of the
Fuel Supply Charge; the exclusion of Everett’s costs from the
clawback provision; the failure to address the request to allow
revenue credit calculations to be reviewed during the true-up
process; the confusion over who can review the reasonableness
of tank congestion charges during that process; and the failure
                              18
to address the incentives created by the Mystic Agreement’s
treatment of delayed capital projects.

     We dismiss Mystic’s petition for review in part and deny
it in part, and we grant the State Petitioners’ petitions. The
opinion proceeds as follows: In Part III, we hold that the
Commission’s application of the original cost test to determine
Mystic 8 and 9’s rate base was not arbitrary and capricious. In
Part IV, we dismiss Mystic’s objection to the Commission’s
selection of capital structure as moot in light of the
Commission’s May 2022 Order. In Part V, we find that the
Commission acted arbitrarily and capriciously in allocating
Everett’s operating costs but otherwise acted lawfully in
excluding Everett’s acquisition cost from the Fuel Supply
Charge calculation. In Part VI, we conclude that the
Commission properly included historical rate base components
in the true-up mechanism but also find that the Commission
failed to respond to the State Petitioners’ request for
clarification as to whether interested parties may challenge the
calculation of Mystic’s revenue credits and that the December
2020 Rehearing Order created confusion over who can review
the tank congestion charges during the true-up process. Finally,
in Part VII, we hold that the Commission’s jurisdictional
rationale for excluding costs related to Everett from the
clawback process does not constitute reasoned decisionmaking
and that the Commission failed to address related arguments
raised by the State Petitioners.

                  II. STANDARD OF REVIEW

     We begin by setting forth the standard of review common
to all of the objections brought by the petitioners. This Court
will set aside a Commission order found to be “arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A); see Del. Div. of
                                19
Pub. Advoc. v. FERC, 3 F.4th 461, 465 (D.C. Cir. 2021). Our
role is not to ascertain “whether a regulatory decision is the best
one possible or even whether it is better than the alternatives.”
FERC v. Elec. Power Supply Ass’n (EPSA), 577 U.S. 260, 292
(2016). It is instead limited to ensuring the Commission can
demonstrate that its decision is supported by substantial
evidence in the record, see Emera Me. v. FERC, 854 F.3d 9, 22
(D.C. Cir. 2017); see also 16 U.S.C. § 825l(b), and
“articulate[s] a satisfactory explanation for its action including
a rational connection between the facts found and the choice
made,” Del. Div. of Pub. Advoc., 3 F.4th at 465 (quoting Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins.
Co., 463 U.S. 29, 43 (1983)).

     Regarding ratemaking, the Commission is required to
ensure that electricity rates are “just and reasonable.” 16 U.S.C.
§§ 824d(a), 824e(a). “The statutory requirement that rates be
‘just and reasonable’ is obviously incapable of precise judicial
definition,” and we accordingly grant the Commission “great
deference . . . in its rate decisions.” Morgan Stanley Cap. Grp.
Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cnty., Wash., 554
U.S. 527, 532 (2008); see also EPSA, 577 U.S. at 295 (“The
Commission, not this or any other court, regulates electricity
rates.”). But deference does not mean carte blanche, and the
Commission must at all times demonstrate the markers of
“principled and reasoned decision[making] supported by the
evidentiary record.” Emera Me., 854 F.3d at 22 (quoting S. Cal.
Edison Co. v. FERC, 717 F.3d 177, 181 (D.C. Cir. 2013)).

              III. MYSTIC 8 AND 9’S RATE BASE

    Mystic first contends that the Commission erred by
applying the original cost test to calculate the rate base for
Mystic 8 and 9.
                                20
     When calculating a cost-of-service rate for a facility
devoted to public use, a generator must first establish what
return it is permitted to recover on its capital. That is
determined in part by the rate base, which represents a utility’s
total investment in the facility. See FEDERAL ENERGY
REGULATORY COMMISSION, COST-OF-SERVICE RATES
MANUAL 8 (1999). We have explained that the Commission
“may adopt any method of valuation for rate base purposes so
long as the end result of the rate order cannot be said to be
unjust or unreasonable.” NEPCO, 668 F.2d at 1333 (cleaned
up).

     To calculate the rate base, the Commission applies a set of
accounting principles collectively known as the “original cost
test.” The test begins with the “original cost” of a facility, such
as the cost of construction, “to the person first devoting it to
public service.” 18 C.F.R. pt. 101(23). The next step is
calculating how much the facility has depreciated over time.
The difference between the original cost and accumulated
depreciation represents the facility’s depreciated original cost,
or net book value. Net book value is a primary input for
calculating the facility’s rate base. COST-OF-SERVICE RATES
MANUAL, supra, at 8–9.

     Under the original cost test, the net book value may adjust
after a facility is sold. If the sale price is below the net book
value, that price becomes the new net book value, and the rate
base will be lowered. Locust Ridge Gas Co., 29 FERC
¶ 61,052, at 61,114 (1984). If the sale price is higher than the
net book value, the net book value (and thus the rate base)
generally remains unchanged.6 In short, under the original cost

    6
        The Commission treats the amount of the purchase price
above net book value as an “acquisition premium,” which does not
increase the net book value or the rate base. Mo. Pub. Serv. Comm’n
v. FERC, 783 F.3d 310, 313 (D.C. Cir. 2015). A utility paying a sale
                                 21
test, the rate base decreases after a sale below net book value,
yet generally cannot increase after a sale above net book value.

     Mystic’s parent company valued Mystic 8 and 9 as part of
a merger in 2012 at around $925 million, and Mystic claims
this “sale” price should determine its rate base. The
Commission rejected that approach as inconsistent with the
original cost test because, considering the units’ full purchase
history, the rate base was in fact much lower. The Commission
recognized that Mystic 8 and 9 were “first devoted to public
service” in 2003 after being constructed for just under $1
billion. See December 2018 Order, at ¶ 64. When the units were
transferred in 2004 for approximately $547 million in lieu of
foreclosure, that “sale” price fell below the units’ net book
value. See Second July 2020 Rehearing Order, at ¶ 112. The
net book value thus reset to $547 million, and under the original
cost test, could not be increased to account for later sale prices
above that amount, such as the $925 million merger valuation
in 2012. See December 2018 Order, at ¶ 64; see also Second
July 2020 Rehearing Order, at ¶ 105; Compliance Order, at
¶ 45. The Commission explained that the $547 million “sale”
capped the units’ net book value, determining Mystic’s rate
base going forward. See Second July 2020 Rehearing Order, at
¶ 112. This conclusion followed from a straightforward
application of the original cost test as articulated in the
Commission’s precedents.

price above the seller’s net book value may be able to incorporate
some of the acquisition premium into its rate base if it can “prove
that benefits, equal to the excess acquisition costs and measurable in
dollars, were conferred on its ratepayers.” Locust Ridge Gas Co., 29
FERC at 61,114; see also Mo. Pub. Serv. Comm’n, 783 F.3d at 313
(describing the Commission’s “two-part benefits exception test”).
Mystic does not claim this exception applies.
                              22
     Mystic maintains it was arbitrary and capricious to apply
the original cost test to the circumstances here. Mystic first
contends that using the original cost test was arbitrary because
Mystic 8 and 9 previously functioned as merchant generators.
According to Mystic, the original cost test should not apply to
merchant generators that have converted to cost-of-service
facilities because the economic calculus of selling a merchant
generator differs from the calculus of selling a cost-of-service
facility. While cost-of-service facilities are bought and sold
with the original cost test in mind, Mystic claims merchant
generators like Mystic 8 and 9 are bought and sold based on
fair market value, which often does not track original cost.

     As the Commission explained, however, Mystic’s request
for a merchant-generator exception to the original cost test is
inconsistent with Commission precedent. For instance, the
Commission has required a facility that previously operated as
a merchant generator to apply original cost principles and
explained that those principles apply to all cost-of-service
facilities, “regardless of the rate treatment afforded the
facilities” in the past. PacifiCorp, 124 FERC ¶ 61,046, at ¶¶ 7,
10–11, 28–31 (2008). Likewise, the Commission in another
decision concluded that the original cost test was “consistent”
with past practice and “appropriate” for facilities converting
from merchant generators to cost-of-service facilities, a
situation almost identical to the facts presented here. PSEG
Power Conn., LLC, 110 FERC ¶ 61,020, at ¶¶ 27, 30–31
(2005). The Commission reasonably relied on its consistent
precedent when applying the original cost test to Mystic 8 and
9, even though those facilities were once merchant generators.
See December 2018 Order, at ¶ 65.

     Furthermore, the Commission explained why Mystic’s
argument rests on a mistaken assumption. Mystic presses for
the Commission to create an exemption to the original cost test
                                23
for facilities that previously charged market-based rates
because, it claims, original cost accounting principles are not
considered during the sale of a merchant generator. But
charging market rates as a merchant generator and using
original cost accounting are not “mutually exclusive.” Id. at
¶ 66; Second July 2020 Rehearing Order, at ¶ 106. Instead, a
facility could be a merchant generator and use original cost
accounting principles, which would be taken into account
during a sale. Given this possible overlap, it was reasonable for
the Commission to decline making an exception to the original
cost test for a facility that previously operated as a merchant
generator.

     Mystic next argues it was unreasonable for FERC to apply
the original cost test in this context because such an application
would not serve the policy interests protected by the test. The
original cost test was developed in part to prevent utilities from
artificially inflating a facility’s purchase price, which would
then increase the facility’s rate base and allow the utility to
charge higher rates to the public. Mo. Pub. Serv. Comm’n v.
FERC, 783 F.3d 310, 313 (D.C. Cir. 2015). Mystic argues that
as a merchant generator it had no incentive to inflate the $925
million valuation in 2012, and therefore there was no need to
apply the original cost test. But the Commission set the original
cost test as an across-the-board rule, not a calculation that
applies only when certain policy concerns are present. See
Second July 2020 Rehearing Order, at ¶ 105. Even when
“[t]here is no allegation” that a utility “attempted to artificially
inflate its rate base when it acquired” a facility, “the purpose of
the [Commission]’s original cost accounting rules is to obviate
the need for such allegations.” Mont. Power Co. v. FERC, 599
F.2d 295, 300 (9th Cir. 1979). Instead, these “rules provide an
objective method of valuation without the need for independent
assessment of the fair market value of individual acquisitions.”
Id.; see also, e.g., PacifiCorp, 124 FERC at ¶¶ 11, 28–31
                                24
(applying the original cost test despite a utility arguing the “the
policy concern” behind the original cost test “does not apply”).

     Mystic next argues it was arbitrary and capricious to apply
the original cost test to merchant generators that convert to
cost-of-service facilities because the fair market value of a
merchant generator facility may rise or fall based on market
forces, but the original cost test captures only the downward
swings. This discrepancy, however, is the necessary and
expected outcome of the original cost test. In an effort to
protect ratepayers, the test was designed to ratchet down a
facility’s net book value based on a facility’s lower sale price
but prohibit ratcheting up the value based on a higher sale price.
See Locust Ridge Gas Co., 29 FERC at 61,114. That design
choice protects ratepayers from higher rates due to changes in
ownership that do not increase the value of services provided.
Id. A general rule “may produce unfortunate results in
individual cases”; however, the possibility of such disparities
does not “preclude the [Commission] from” adopting an
objective and generally applicable accounting method. Mont.
Power Co., 599 F.2d at 300. The Commission chose original
cost accounting principles in part to “avoid the difficulties of
more subjective methods of property valuation,” id., and we
find that it applied that objective test here.

     Furthermore, the Commission declined to create an
exception to its objective test because doing so would lead to
unequal treatment between similarly situated electricity
generators. The Commission determined it was unfair to allow
a utility’s return to depend on its past accounting method,
especially when a non-original cost method is not indicative of
a facility’s actual cost and when actual cost is what lies at the
heart of cost-of-service rates. See Second July 2020 Rehearing
Order, at ¶ 107.
                                 25
     Mystic also maintains that Mystic 8 and 9 never would
have been transferred in lieu of foreclosure in 2004 if the
facilities had been charging cost-of-service rates, and therefore
the 2004 valuation was an improper and unreliable input for
calculating the rate base. The Commission reasonably rejected
this argument, explaining that charging cost-of-service rates
does not insulate facilities from financial distress or fire sales.
Mystic’s assertions that the 2004 transfer would not have
occurred were therefore speculative. See id. at ¶ 106. It was not
unreasonable for the Commission to bypass such conjecture
and instead rely on its objective test and the units’ actual
purchase history.

    Because the Commission’s decision to apply original cost
principles to Mystic 8 and 9 accorded with its precedent and
was supported by reasoned explanation, Mystic’s petition
cannot succeed on this ground.

              IV. MYSTIC’S CAPITAL STRUCTURE

     We next take up Mystic’s challenge to the capital structure
adopted by the Commission for ratemaking purposes. Because
the Commission’s subsequent order has mooted Mystic’s
challenge, we dismiss the petition on this issue.7

     A case becomes moot if intervening events mean the
court’s “decision will neither presently affect the parties’ rights
nor have a more-than-speculative chance of affecting them in
the future.” Clarke v. United States, 915 F.2d 699, 701 (D.C.
Cir. 1990) (quotation marks and citation omitted). While no
party contends that has happened here, we “have an

     7
        On August 12, 2022, Mystic notified the court it had reached
a settlement in principle with the Commission on this issue. Because
we find the issue moot, that settlement in principle has no bearing on
our analysis.
                               26
‘independent obligation’ to ensure that appeals before us are
not moot.” Planned Parenthood of Wis., Inc. v. Azar, 942 F.3d
512, 516 (D.C. Cir. 2019) (citation omitted).

     In the orders under review, the Commission adopted
Exelon’s capital structure for ratemaking purposes. Mystic
challenges that decision as arbitrary and capricious, contending
that the Commission instead should have imputed the capital
structure of Mystic’s immediate parent, ExGen. But after the
petitions for review were filed in this case, the Commission
revised its initial decision on this issue in response to
intervening developments.

      On February 1, 2022, Exelon and a newly created holding
company, Constellation Energy Corporation, consummated a
spin-off transaction. May 2022 Order, at ¶¶ 6–7; supra Part I.F,
at 12. As a result of that transaction, Mystic is no longer
affiliated with or owned by Exelon. May 2022 Order, at ¶¶ 6–7.
In light of that development, the Commission determined that
“it would be inappropriate to continue basing [Mystic’s] capital
structure and cost of debt on those of Exelon Corporation.” Id.
at ¶ 25. The Commission therefore set aside its prior decision
to use Exelon’s capital structure and set the matter for a new
hearing. Id. at ¶¶ 25–26.

     The Commission, however, lacked jurisdiction to modify
or vacate an order under judicial review without obtaining
leave of the court. See 16 U.S.C. § 825l(b). The Commission
thus sought the requisite leave to issue the May 2022 Order
“[t]o the extent [it] constitutes a modification or vacatur of the
capital structure ruling in the initial orders.” FERC Mot. for
Leave 4. We granted the Commission’s motion. See Order
Granting Mot. for Leave.

   Now that it has been issued with our authorization, the
May 2022 Order effectively vacated the capital structure
                               27
rulings in the orders now under review. Mystic suggests that it
nonetheless remains unclear whether the May 2022 Order,
while vacating the decision to use Exelon’s capital structure as
the basis for Mystic’s ratemaking, also vacated the decision not
to use ExGen’s structure. Mystic, that is, seeks reassurance that
the Commission remains free to base Mystic’s rate on ExGen’s
structure.

     The May 2022 Order is clear on that issue: the entirety of
the capital structure rulings have been vacated, including the
Commission’s rejection of ExGen’s structure for ratemaking
purposes. The order states that “Mystic’s proposal to use the
capital structure of its immediate corporate parent . . . has not
been shown to be just and reasonable and . . . the record would
benefit from further information.” May 2022 Order, at ¶ 24.
Although the Commission noted that Mystic’s proposed capital
structure was more “equity-rich” than structures previously
accepted, the Commission simply proceeded to set the capital
structure issue for hearing without qualification. Id. at
¶¶ 25–26. And in oral argument before us, the Commission
confirmed that the option to use ExGen’s structure remains
open to the Commission in the new proceedings. Recording of
Oral Arg. 29:03–29:51. The May 2022 Order thus fully vacated
the capital structure rulings under review.

     Because the portion of the orders subject to Mystic’s
challenge to the Commission’s capital structure decision has
been vacated, we conclude that the challenge is moot. As we
have previously explained, a “case is plainly moot” when “[t]he
challenged orders of the Federal Energy Regulatory
Commission were superseded by a subsequent FERC order,
and while the challenged orders were in effect petitioners
suffered no injury this court can redress.” Freeport-McMoRan
Oil & Gas Co. v. FERC, 962 F.2d 45, 46 (D.C. Cir. 1992). In
an analogous context, we noted that a court “can do nothing to
                               28
affect [a party’s] rights relative to . . . now-withdrawn”
regulations, and we described challenges to such regulations as
“classically moot.” Friends of Animals v. Bernhardt, 961 F.3d
1197, 1203 (D.C. Cir. 2020) (quoting Akiachak Native Cmty.
v. U.S. Dep’t of the Interior, 827 F.3d 100, 106 (D.C. Cir.
2016)).

     Here, we can grant Mystic no effective relief to redress an
action that has already been vacated by the Commission itself.
And Mystic suffered no injury from the Commission’s now-
vacated ruling because a rate based on Exelon’s capital
structure never took effect. If the Commission ultimately sets a
capital structure in the new proceedings to which Mystic
objects, Mystic may file a new petition for review to challenge
that decision.

    We dismiss the petition on this issue as moot.

             V. RECOVERY OF EVERETT’S COSTS

     In the initially filed Mystic Agreement, Mystic proposed
recovery of Mystic 8 and 9’s fuel costs through a cost-of-
service rate charged by Everett. See July 2018 Order, at ¶¶ 21–
22; see also J.A. 19–20. This rate would have included Mystic
8 and 9’s variable fuel costs as well as a monthly Fuel Supply
Charge encompassing all of Everett’s operating costs and a
return on investment calculated from Everett’s rate base. See
July 2018 Order, at ¶ 22. The Fuel Supply Charge was to be
offset by 50 per cent of the profits Everett earned on third-party
sales over the course of the Agreement. Id.

    The Commission declined to approve recovery of the
proposed Fuel Supply Charge, instead adopting, then
modifying, an approach proposed by its Trial Staff. First, the
Commission reduced the recovery of Everett’s operating costs
to only those attributable to Everett’s sale of vapor natural
                               29
gas—91 per cent of Everett’s total operating costs. See
December 2018 Order, at ¶ 133. Second, regarding the return-
on-investment component of the Fuel Supply Charge, the
Commission excluded the purchase price ExGen paid to
acquire Everett from Everett’s rate base, finding that cost-
causation principles did not support its inclusion. See id. at
¶¶ 148–49. Third, the Commission adopted a sliding-scale
revenue-crediting mechanism for Everett’s third-party sales
that ultimately required greater revenue crediting than Mystic
initially proposed, see id. at ¶¶ 134–35, but later eliminated
revenue crediting, citing a lack of necessity in light of its
allocation of Everett’s costs and jurisdictional concerns, see
Second July 2020 Rehearing Order, at ¶ 66.

     The State Petitioners bring two challenges, arguing that
(1) the Commission lacked jurisdiction to regulate the rates
charged by Everett and (2) the Commission’s decision to
allocate 91 per cent of Everett’s operating costs to Mystic (and
ultimately to ratepayers) was arbitrary and capricious. Mystic
asserts that the Commission erred in excluding Everett’s
purchase price from Everett’s rate base, arguing that the
decision deviates from precedent and violates well-established
ratemaking principles.

     As detailed infra, we conclude that the Commission did
not exceed its statutory authority in reviewing and ordering
recovery of Everett’s costs as part of Mystic’s cost-of-service
rate. On the merits, we accept the State Petitioners’ challenges
but reject Mystic’s.

              A. State Petitioners’ Arguments

                               1.

    At the threshold, the State Petitioners raise an objection to
the Commission’s jurisdiction with respect to Everett’s costs
                                30
and the Fuel Supply Charge. The Commission maintains that
“[w]hether individual components of a cost-of-service rate,
including fuel-related costs, are recoverable turns on whether
they are just and reasonable, not whether the Commission has
regulatory authority over all aspects of those rate components.”
July 2018 Order, at ¶ 37; see FERC Br. 52–54. The State
Petitioners contend, however, that the Commission’s
jurisdiction of Mystic’s cost-of-service rate and incorporated
Fuel Supply Charge “does not provide a jurisdictional basis for
burdening New England ratepayers with Everett costs that are
not fairly attributable to Mystic’s use of that facility.” State
Pet’rs Br. 29. We reject their argument.

     Section 205 of the FPA delineates the Commission’s role
to ensure that “rates and charges made, demanded, or received
by any public utility for or in connection with” interstate
wholesale electric sales as well as the “rules and regulations
affecting or pertaining to such rates or charges” are just and
reasonable and not unduly discriminatory or preferential. 16
U.S.C. § 824d(a)–(b). Section 206 similarly instructs the
Commission to affirmatively remediate any “rate [or] charge”
or “any rule, regulation, practice, or contract affecting such rate
[or] charge” found to be “unjust [or] unreasonable.” Id.
§ 824e(a). The State Petitioners do not seriously dispute that
Mystic’s cost-of-service rate plainly falls within the ambit of
the Commission’s authority under section 205, see State Pet’rs
Br. 28–29 (“There is no dispute . . . that the Commission can
review Mystic’s costs before permitting their inclusion in a
jurisdictional rate.”), nor does the Commission claim authority
over the rate Everett charges Mystic for its fuel, as outlined in
the non-jurisdictional Everett Agreement, see FERC Br. 53; see
also First July 2020 Rehearing Order, at ¶ 26; Second July
2020 Rehearing Order, at ¶ 24.
                               31
     The State Petitioners instead focus on the particular inputs
of Mystic’s jurisdictional rate, arguing that the Commission
lacks authority to permit recovery of Everett-related costs “not
fairly attributable to Mystic’s use of that facility.” See State
Pet’rs Br. 29. They principally rely on the United States
Supreme Court’s decision in FERC v. Electric Power Supply
Ass’n, 577 U.S. 260 (2016), which held that the Commission’s
authority under sections 205 and 206 to regulate rules and
regulations “affecting” jurisdictional rates is limited to “rules
or practices that ‘directly affect the [wholesale] rate.’” Id. at
278 (emphasis in original) (quoting Cal. Indep. Sys. Operator
Corp. v. FERC, 372 F.3d 395, 403 (2004)). As the State
Petitioners see it, the Commission cannot approve rate inputs
that lack a sufficiently direct effect on wholesale rates, thereby
proposing a sort of threshold inquiry applicable to rate inputs.
See State Pet’rs Br. 28–29.

     But EPSA’s jurisdictional holding has little salience here.
EPSA involved a Commission rule, Order No. 745, governing
how energy market operators compensate suppliers of demand-
response resources (i.e., those that alter a consumer’s energy
consumption). See 577 U.S. at 272–75; see generally Demand
Response Compensation in Organized Wholesale Energy
Markets, 76 Fed. Reg. 16,658 (Mar. 24, 2011). Accordingly,
the Commission relied upon, and the Supreme Court
interpreted, its jurisdiction of rules and regulations “affecting”
wholesale rates. EPSA, 577 U.S. at 277–79; see also 16 U.S.C.
§§ 824d(a), 824e(a). It was precisely because of the expansive
meaning of “affecting,” which the Supreme Court observed
“could extend FERC’s power to some surprising places,” that
the Court found the need to limit its scope to those “rules or
practices that ‘directly affect the wholesale rate.’” EPSA, 577
U.S. at 277–78 (alteration accepted) (quoting Cal. Indep. Sys.
Operator, 372 F.3d at 403).
                                32
     Unlike EPSA, this case does not involve rules affecting
wholesale rates, but rather a wholesale rate itself—Mystic’s
proposed cost-of-service rate—which is not similarly qualified
by “affecting” language. Granted, section 205 references “rates
and charges . . . for or in connection with the transmission or
sale of electric energy subject to the jurisdiction of the
Commission,” 16 U.S.C. § 824d(a) (emphasis added), and the
Supreme Court in EPSA noted that phrases such as “affecting”
and “in connection with” could “assum[e] near-infinite
breadth” if unconstrained, see 577 U.S. at 278 (citing N.Y. State
Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,
514 U.S. 645, 655 (1995), and Maracich v. Spears, 570 U.S.
48, 59–60 (2013)). But Mystic’s proposed rate is plainly “for,”
not merely “in connection with,” the transmission or sale of
electricity, see J.A. 1 (“The Agreement provides cost-of-
service compensation to Mystic for continued operation of . . .
Mystic 8 and 9 . . . .”), and the State Petitioners have not given
us reason to think otherwise. Thus, there is little question of the
Commission’s jurisdiction of Mystic’s rate pursuant to section
205 of the FPA.

     Moreover, as to individual rate inputs, our case law affirms
that the reasonableness of an input is not a jurisdictional issue.
The Commission maintains, and the State Petitioners do not
appear to contest, that “[c]ost-of-service rates routinely include
costs that are outside the Commission’s regulatory authority,
such as fuel supplies, labor costs, and taxes.” FERC Br. 53; see
also First July 2020 Rehearing Order, at ¶¶ 28, 30. Our
precedent indicates that the key constraint on the
Commission’s authority to order recovery of such cost inputs
is the just-and-reasonable standard and cost-causation
principles, not a threshold jurisdictional issue. For example, in
BP West Coast Products, LLC v. FERC, 374 F.3d 1263 (D.C.
Cir. 2004) (per curiam), the Commission determined, and we
affirmed, that it would have been inequitable for a pipeline to
                                33
recover certain civil litigation costs that “lack[] the requisite
nexus to the provision of . . . service.” Id. at 1294–95; see also
id. at 1296–97 (“The salient criterion . . . for the recovery of
legal expenditures by regulated entities is whether the
underlying activity being defended in the litigation serves the
interests of ratepayers.”). Similarly, in Grand Council of Crees
(of Quebec) v. FERC, 198 F.3d 950 (D.C. Cir. 2000), we
determined that environmental costs associated with
developing and operating a generating facility whose rates
were subject to Commission jurisdiction under sections 205
and 206 of the FPA could be deemed recoverable—subject, of
course, to “the Commission’s normal rate calculation”—even
though the Commission refused to consider the underlying
environmental issues in section 205 proceedings. Id. at 957.

     In our view, the State Petitioners’ argument boils down to
a question of cost attribution and allocation, see State Pet’rs Br.
29 (“[T]he [Mystic] Agreement does not provide a
jurisdictional basis for burdening New England ratepayers
with Everett costs that are not fairly attributable to Mystic’s use
of that facility.” (emphases added)), which sounds in justness
and reasonableness, not jurisdiction. See Old Dominion Elec.
Coop. v. FERC, 898 F.3d 1254, 1255 (D.C. Cir. 2018) (“For
decades, the Commission and the courts have understood [the
FPA’s just-and-reasonable] requirement to incorporate a cost-
causation principle.” (internal quotation marks omitted)). The
cost of fuel purchased from Everett is plainly an input into
Mystic’s cost of service. See, e.g., Delmarva Power & Light
Co., 24 FERC ¶ 61,199, at 61,460 (1983) (concluding disposal
costs of spent nuclear fuel were “an appropriate cost-of-service
item”); Pub. Serv. Co. of N.H., 6 FERC ¶ 61,299, at 61,714–15
(1979) (considering effect of coal supply contract on utility’s
fuel expenses). The State Petitioners do not appear to dispute
the Commission’s reasonable conclusion that “third-party
suppliers can and do recover [operating] costs through their
                              34
sales because their business would not be sustainable if they
did not.” First July 2020 Rehearing Order, at ¶ 30. Thus, to the
extent the State Petitioners contest whether particular Everett
operating costs are properly recoverable under cost-of-service
ratemaking, that is a matter of cost causation. See infra Part
V.A.2.

     At bottom, the State Petitioners have not given us reason
to doubt the Commission’s statutory authority to review and
order recovery of discrete portions of Everett’s costs. We
therefore reject their jurisdictional argument and move to the
issue of justness and reasonableness, where we find their
arguments more persuasive.

                               2.

     The State Petitioners contend that the Commission’s
decision to allocate 91 per cent of Everett’s operating costs—
or, put another way, all operating costs associated with
Everett’s vapor gas sales—to Mystic (and, by extension,
ratepayers) runs counter to longstanding cost-causation
principles and is therefore arbitrary and capricious. We agree.

     Cost-causation principles “require[] that ‘all approved
rates reflect to some degree the costs actually caused by the
customer who must pay them.’” Black Oak Energy, LLC v.
FERC, 725 F.3d 230, 237 (D.C. Cir. 2013) (quoting E. Ky.
Power Coop., Inc. v. FERC, 489 F.3d 1299, 1303 (D.C. Cir.
2007)). The Commission accordingly set out to allocate
Everett’s operating costs pursuant to cost-causation principles.
See December 2018 Order, at ¶ 133 (“[P]rinciples of fairness
and cost causation require that New England ratepayers and
those third-party customers should share [Everett’s] costs.”).
Although we are generally “obliged to defer to [the
Commission’s] technical ratemaking expertise,” deference is
warranted only “[s]o long as its decision is reached by reasoned
                               35
decisionmaking and supported by substantial evidence.” Ala.
Power Co. v. FERC, 993 F.2d 1557, 1560 (D.C. Cir. 1993); see
also Del. Div. of Pub. Advoc., 3 F.4th at 465. Here, the
Commission failed to meet its required burden for two reasons.

     First, the Commission failed to provide an adequate
rationale for allocating all of Everett’s vapor-related operating
costs to Mystic, despite the Commission’s express
acknowledgment, based on record evidence, that at least some
portion of Everett’s vapor sales is attributable to customers
other than Mystic. See Second July 2020 Rehearing Order, at
¶ 64 (“We acknowledge that some vapor sales are made to third
parties . . . .”); FERC Br. 63 (acknowledging same); see also
J.A. 1253 (Connecticut Parties contending that “[e]ven when
Mystic is operating at full capacity . . . , Everett is able to
supply the Algonquin and Tennessee Gas pipelines an
additional 465,000 MMBtu/day or more—nearly double the
quantity consumed by Mystic”). On its face, then, allocating all
vapor-related operating costs to Mystic appears to run contrary
to rational cost causation. See Pa. Elec. Co. v. FERC, 11 F.3d
207, 211 (D.C. Cir. 1993) (“Utility customers should normally
be charged rates that fairly track the costs for which they are
responsible.”).

     The only rationale the Commission cites in support of its
allocation is that Everett’s third-party vapor sales “benefit
Mystic by helping to manage Everett’s tank,” a benefit the
Commission describes as “not trivial.” Second July 2020
Rehearing Order, at ¶ 64; see also December 2018 Order, at
¶¶ 155–56 (explaining Everett’s tank management practices).
The Commission repeats this rationale before us, albeit without
much additional elaboration. See FERC Br. 63. It makes no
attempt, however, to explain how these tank-management
benefits are sufficient to entirely offset Mystic’s apparent
subsidization of vapor-related operating costs attributable to
                               36
third parties. Further, as both the State Petitioners and
dissenting Commissioner Glick point out, any purported tank-
management benefits “work[] both ways,” as all customers
who purchase vapor gas stored in Everett’s tanks necessarily
promote tank management by allowing the unloading and
regasification of additional LNG. See State Pet’rs Br. 26
(quoting J.A. 1253); Second July 2020 Rehearing Order (Glick,
C., dissenting), at ¶ 8 n.19 (“What is never explained, however,
is why third parties do not also benefit from ‘tank management’
or why the Commission can so confidently conclude that all
tank-related benefits go to and ought to be paid for by
electricity customers.”). Ignoring such reciprocity of benefit
runs contrary to the Commission’s mandate to ensure “burden
is matched with benefit,” Old Dominion Elec. Coop., 898 F.3d
at 1255 (quoting BNP Paribas Energy Trading GP v. FERC,
743 F.3d 264, 268 (D.C. Cir. 2014)), and ignores party (as well
as Commissioner) comments highlighting the flaw in its
reasoning, see Pub. Serv. Comm’n of Ky. v. FERC, 397 F.3d
1004, 1008 (D.C. Cir. 2005) (“The Commission must . . .
respond meaningfully to the arguments raised before it.”).

      Second, and relatedly, the Commission failed to justify the
continuing validity of the 91 per cent cost allocation after
eliminating the revenue crediting mechanism for Everett’s
third-party sales. As noted previously, the Commission
eliminated the sliding-scale revenue-crediting mechanism it
had approved as part of its December 2018 Order, citing
concerns that regulating Everett’s third-party sales may exceed
its jurisdiction. See Second July 2020 Rehearing Order, at ¶ 66.
Regardless of any perceived jurisdictional hurdles—on which
we do not opine—the Commission failed to grapple with the
cost-causation implications stemming from the elimination of
revenue crediting. Despite allocating all of Everett’s vapor-
related operating costs, the Commission expressly observed
that Mystic is not the sole source causing Everett to incur those
                               37
costs, see id. at ¶ 64; see also FERC Br. 63, meaning that
revenue crediting served as the sole means of offsetting
payment of operating costs not reasonably attributable to
Mystic, see December 2018 Order, at ¶ 134 (revenue crediting
“allocates costs to third-party customers that do not benefit
Mystic 8 and 9 at all”). In fact, in initially approving revenue
crediting, the Commission explicitly noted the consequences of
over-allocating costs while simultaneously eliminating
crediting: “If costs are included but related revenue credits are
excluded, then the resulting rate results in double recovery.”
December 2018 Order, at ¶ 134 n.303; see also Minn. Mun.
Power Agency, 68 FERC ¶ 61,060, at 61,205 n.3 (1994) (“If
the utility excludes a firm customer from the cost allocation and
simply credits the firm service revenues to the cost-of-service,
other customers will subsidize the transaction if the revenues
credited are less than the cost responsibility that should be
allocated to that service.”). Yet in subsequent orders, the
Commission failed to address these over-allocation concerns, a
failure that does not evince reasoned decisionmaking.

     To make matters worse, the Connecticut Parties, in their
rehearing petition from the Second July 2020 Rehearing Order,
pointed out the problem of eliminating revenue crediting
without a corresponding adjustment to the initial cost
allocation. See J.A. 1664 (“[The Second July 2020 Rehearing
Order] wrongly set aside the December 2018 Order’s approval
of a revenue-crediting mechanism necessitated by assigning
Mystic a share of Everett costs far exceeding Mystic’s use of
Everett facilities.”). Yet the Commission’s response was
cursory at best, as it simply referred back to “the July 2020
Orders,” December 2020 Rehearing Order, at ¶ 39 & n.94
(citing Second July 2020 Rehearing Order, at ¶ 66), relying
specifically on the similarly conclusionary statement that its
“proper cost allocation based on cost-causation principles
obviate[d] the need for . . . revenue crediting,” Second July
                               38
2020 Rehearing Order, at ¶ 66. As the preceding analysis
makes clear, the Commission’s reliance on its purported
achievement of “proper cost allocation” was unwarranted.

    This is not to say that revenue crediting was necessary to
achieve a reasonable cost allocation. Rather, we find that its
elimination materially altered the existing cost-allocation
calculation, yet the Commission made no effort to address the
implications of elimination aside from citations to cost-
causation principles and sketchy assertions.

     In short, the Commission has failed to adequately justify
its decision to allocate all of Everett’s vapor-related operating
costs to Mystic (and, ultimately, ratepayers). We therefore
grant the State Petitioners’ petitions on this issue.

                   B. Mystic’s Arguments

    Mystic’s principal objection with respect to the recovery
of Everett’s costs involves the Commission’s exclusion of the
Everett purchase price from Everett’s rate base, which is used
to calculate the return-on-investment component of the Fuel
Supply Charge. As Mystic sees it, “[t]he Commission’s
decision contradicts fundamental ratemaking principles and
deviated from precedent without a principled rationale.”
Mystic Br. 50. Mystic’s arguments on this issue are
unpersuasive.

     In declining to include Everett’s acquisition price as part
of Everett’s rate base, the Commission again relied on cost-
causation principles. See December 2018 Order, at ¶¶ 148–49;
Second July 2020 Rehearing Order, at ¶¶ 113, 118–20. As
already noted, cost causation is premised upon the notion that
“all approved rates reflect to some degree the costs actually
caused by the customer who must pay them.” Black Oak
Energy, 725 F.3d at 237 (quoting E. Ky. Power, 489 F.3d at
                               39
1303). In determining whether to include Everett’s acquisition
price in the rate base calculation, the Commission relied in
large part on William Berg, an Exelon executive, who testified
that ExGen acquired Everett to satisfy pre-existing capacity
obligations arising before the Mystic Agreement was set to take
effect: “ExGen determined that acquisition of Everett was the
best and most reliable option for Mystic to meet its existing
capacity supply obligations through May 2022 without
significant risk of non-performance.” J.A. 197 (emphasis
added); see also December 2018 Order, at ¶ 148; Second July
2020 Rehearing Order, at ¶ 118. The Commission therefore
concluded that “the beneficiary of the purchase of Everett was
ExGen,” not ratepayers, and the cost of that acquisition “should
properly be recovered in the period prior to the [Mystic]
Agreement (i.e., the period for which the purchase was initially
made).” December 2018 Order, at ¶ 149; see also Second 2020
Rehearing Order, at ¶ 118 (“Exelon was aware that, absent the
Commission’s acceptance of the Mystic Agreement, Exelon
would have had to absorb the cost of its purchase of Everett
during the terms of its existing Capacity Supply Obligations.”).

     Mystic’s primary reply is that no precedent “suggest[s]
that the subjective intent of the purchaser matters, or provides
a reason to cut out the investment in the facility from a cost-of-
service rate.” Mystic Br. 52. But the Commission focused on
cost causation, not subjective intent. The Commission pointed
to the Berg testimony to support its conclusion that ExGen’s
acquisition of Everett was for the company’s—not
ratepayers’—benefit. Mystic wants the Commission to ignore
record evidence that goes directly to the question of cost
causation—matching burden with benefit. See Old Dominion
Elec. Coop., 898 F.3d at 1255. In fact, Mystic does not point to
or provide any contrary evidence indicating that ExGen’s
acquisition of Everett—as opposed to simply its continued
                               40
operation—provides ratepayers a benefit that would warrant
the proposed burden.

     Mystic also argues that “a return on and of the investment
made in purchasing a facility is part of the costs sunk to provide
service to ratepayers and is recoverable in cost of service,”
Mystic Br. 51, meaning that the Commission needed to
articulate a “principled rationale” for departing from that
established methodology, id. at 54 (quoting Williston Basin
Interstate Pipeline Co. v. FERC, 165 F.3d 54, 65 (D.C. Cir.
1999)). But in highlighting this supposed departure, Mystic
confuses the matter by characterizing Everett—not Mystic 8
and 9—as the facility providing service to ratepayers. To the
extent that Everett contributes to Mystic 8 and 9’s provision of
service, the Commission permitted recovery of “incremental
capital expenditures” and the percentage of “Everett’s fixed
operating costs . . . attributable to serving Mystic 8 and 9,”
Second July 2020 Rehearing Order, at ¶ 118, a permissible
outcome provided that the Commission hews more faithfully
to cost-causation principles, see supra Part V.A.2. Mystic has
not otherwise given a reason to find that its parent’s acquisition
of Everett is providing service to ratepayers. For this reason,
the two Commission decisions that Mystic cites in support are
inapposite, as they involve sunk costs for cost-of-service
facilities that were directly providing electric service to
customers, not those facilities’ fuel suppliers. See PSEG
Power, 110 FERC at ¶¶ 1, 30 (cost-based rates for generating
plants); Mirant Kendall, LLC, 109 FERC ¶ 61,227, at ¶¶ 1, 6
(2004) (same).

     In sum, we conclude that Mystic has not provided a
sufficient basis to conclude that the Commission’s exclusion of
Everett’s acquisition cost from Mystic’s cost-of-service rate
was arbitrary and capricious and we therefore deny its petition
on the issue.
                                41
                  VI. TRUE-UP MECHANISM

                    A. Mystic’s Arguments

      Mystic challenges the scope of the “true-up” mechanism
approved by the Commission. Cost-of-service rates are
designed to pass along only those costs actually incurred by a
utility. But with any cost-of-service rate, there is “inherent
difficulty in projecting costs in advance.” December 2018
Order, at ¶ 175 (cleaned up). A true-up mechanism allows
ratepayers to seek an adjustment if the costs charged do not
match the costs incurred. See id. at ¶ 179. Mystic proposed a
true-up mechanism that would allow interested parties to
challenge only a subset of its costs. Id. at ¶¶ 165, 178. The
Commission rejected that proposal as unduly narrow and
decided that “the true-up mechanism [shall] apply to the entire
Agreement,” with one exception not relevant here. Id. at ¶ 177.
Mystic argues that the true-up is over-broad because it would
allow interested parties to relitigate the pre-2018 costs that
inform Mystic 8 and 9’s rate base. According to Mystic, the
Commission had already approved these historic costs as just
and reasonable when it accepted Mystic’s filings.8

     The Commission, however, has not yet determined
whether the pre-2018 costs are just and reasonable. It reiterated
throughout the proceedings that it “decline[d] to make
findings” on Mystic’s historic costs, instead requiring Mystic
to “adequately support” its historic costs “in the true-up

    8
       The Commission and Intervenors argue Mystic’s challenge is
not ripe because the Commission has not determined the justness and
reasonableness of Mystic’s historic costs. But Mystic does not
challenge the Commission’s determination on the merits. Instead, it
challenges the scope of the true-up mechanism, an issue properly
before us because the Commission decided it below. See Second July
2020 Rehearing Order, at ¶ 86.
                               42
process.” Compliance Order, at ¶ 47; see also December 2018
Order, at ¶ 64; Second July 2020 Rehearing Order, at ¶ 86.
When the Commission later accepted Mystic’s filings, it again
specified that it had made no determination about whether
those rates should be approved as just and reasonable:
“acceptance . . . shall not be construed as constituting approval
of the referenced filing or of any rate” in the filing. Acceptance
of Compliance Filing, Constellation Mystic Power, LLC, Dkt.
No. ER18-1639-009 (July 29, 2021).

      Mystic’s concern that the true-up mechanism will lead to
relitigation of its historic costs is thus unfounded because those
costs have not been evaluated in the first instance. We therefore
deny Mystic’s petition on this issue.

               B. State Petitioners’ Arguments

                                1.

     The State Petitioners allege that the Commission
unreasonably failed to address the States Committee’s request
for clarification about revenue credits.

     When an agency “d[oes] not respond to . . . arguments”
that “do not appear frivolous on their face and could affect the
[agency]’s ultimate disposition,” we remand for agency
consideration. Frizelle v. Slater, 111 F.3d 172, 177 (D.C. Cir.
1997). We do so because the “failure to respond meaningfully
to objections raised by a party renders [the Commission’s]
decision arbitrary and capricious.” PSEG Energy Res. & Trade
LLC v. FERC, 665 F.3d 203, 208 (D.C. Cir. 2011) (cleaned up).

     The Commission determined that Mystic’s revenues
would not be subject to true-up because the Mystic Agreement
already contained a mechanism to “credit revenues Mystic
earns against its annual fixed revenue requirement.” Second
                                 43
July 2020 Rehearing Order, at ¶ 88. The States Committee
sought clarification or rehearing of this finding, inquiring
whether interested parties could challenge the calculation of
these revenue credits during the true-up process. See December
2020 Rehearing Order, at ¶ 25.

     The Commission does not claim that the States
Committee’s request was frivolous or irrelevant; instead, the
Commission maintains it responded to this request, pointing to
a single paragraph. That paragraph, however, addresses a
different issue, Everett’s tank congestion charges, and explains
that “these costs may be reviewed in the true-up process.” Id.
at ¶ 27 (emphasis added). In context, “these costs” refer to
Everett’s tank congestion charges, not the States Committee’s
request regarding the calculation of revenue credits. The
Commission assures us that revenue discrepancies can be
addressed during true-up proceedings. See FERC Br. 82. But
the agency’s “explanation to this court cannot substitute for
reasoned decisionmaking at the agency level.” Williams Gas
Processing-Gulf Coast Co. v. FERC, 475 F.3d 319, 329 (D.C.
Cir. 2006) (cleaned up).

     The failure to respond to the States Committee’s request
was arbitrary and capricious. We thus grant the petition on this
issue and remand for the Commission to consider the States
Committee’s request in the first instance.

                                 2.

    The State Petitioners also argue that the Commission’s
December 2020 Rehearing Order introduced an apparent
contradiction that requires remand for further clarification. We
agree. Ordinarily, “we will uphold an agency decision where
the agency’s path may be reasonably discerned, even if the
decision is of less than ideal clarity.” Epsilon Elecs., Inc. v. U.S.
Dep’t of Treasury, 857 F.3d 913, 924 (D.C. Cir. 2017) (cleaned
                              44
up). But when an agency “fail[s] to provide an intelligible
explanation” for its decision, it has “fail[ed] to engage in
reasoned decisionmaking” and we remand for further
explanation. FPL Energy Marcus Hook, L.P. v. FERC, 430
F.3d 441, 448 (D.C. Cir. 2005). An order with apparent
contradictions as to a dispositive issue is not reasoned
decisionmaking and requires remand for clarification.

     The Commission initially stated that Mystic need not file
its general methodology for calculating tank congestion
charges and that the reasonableness of those charges would be
“reviewed during the true-up process.” December 2018 Order,
at ¶ 164. In a subsequent decision, however, the Commission
decided these costs no longer needed to be reviewed during the
true-up process. Second July 2020 Rehearing Order, at ¶ 73.
The States Committee sought clarification and rehearing to
ensure that ratepayers could still challenge tank congestion
costs, and in its last rehearing order, the Commission again
changed course, granting the States Committee’s request and
allowing such charges to be “reviewed in the true-up process.”
December 2020 Rehearing Order, at ¶ 27. Immediately after
this statement in the same order, however, the Commission
explained that only ISO New England could “audit and ensure
that the tank congestion charge is properly calculated.” Id. at
¶ 28. ISO New England does not represent ratepayers, but
rather manages the grid.

     On its face, the Commission’s reasoning appears
incongruous: it agreed with the States Committee that
ratepayers could review tank congestion charges during true-
up, yet limited review to only ISO New England. To resolve
the inconsistency, we remand for clarification. See FPL Energy
Marcus Hook, 430 F.3d at 448.
                               45
                 VII. CLAWBACK PROVISION

                      A. Everett’s Costs

     We turn next to the State Petitioners’ challenge to the
clawback mechanism in the Mystic Agreement. The State
Petitioners contend that the Commission arbitrarily and
capriciously excluded Everett’s costs from the clawback
mechanism. We agree and accordingly grant the petition on this
issue.

     The Commission’s cost-of-service ratemaking typically
allows for the recovery of capital expenditures over the life of
a facility. Clawback mechanisms address the unfairness that
results if a generator switches from charging cost-of-service
rates to charging market rates. In that event, customers under
the cost-of-service regime cover capital expenditures and
repair expenses that benefit a facility for years after the cost-
of-service agreement ends. See December 2018 Order, at ¶ 210.
The Commission has explained that it would be unfair to permit
owners to recover capital expenditures and repair expenses
“that provide significant benefits beyond the term of the . . .
Agreement from . . . customers.” Midcontinent, 161 FERC at
¶ 55.

     Under the Mystic Agreement’s clawback mechanism, the
costs of certain repair and capital expenditures attributable to
Mystic 8 and/or 9 are refunded to ratepayers if the units return
to the market after termination of the Agreement. See
Compliance Order, at ¶ 25; J.A. 1506. The clawback
mechanism, however, does not impose the same refund
obligation as to Everett’s repair and capital expenditure costs.
And the Commission rejected the States Committee’s and
Connecticut Parties’ request that the clawback provision
include Everett’s costs. See supra Part I.F, at 16–17.
                                  46
     In declining to include Everett’s costs in the clawback, the
Commission reasoned that it “lack[ed] jurisdiction to require a
clawback, true-up, and/or refund of Everett’s costs” because
“the Everett Agreement is not on file with the Commission
and . . . Everett is not a jurisdictional entity” (i.e., Everett is not
subject to the Commission’s jurisdiction in relevant respects).
Second July 2020 Rehearing Order, at ¶ 43. If the Mystic
Agreement terminated but Everett remained in service, the
Commission explained, “there would be no rate within the
jurisdiction of the Commission through which to order a
refund.” Id. The Commission rested entirely on that reasoning
in rejecting subsequent requests for rehearing on this issue. See
Compliance Order, at ¶ 28; December 2020 Rehearing Order,
at ¶ 39.

    We conclude that the Commission arbitrarily and
capriciously excluded Everett’s costs from the clawback. The
Commission supported its decision solely by reference to its
lack of jurisdiction over Everett. But in the same proceeding,
the Commission also held that it could include Everett’s costs
in Mystic’s rate notwithstanding its lack of jurisdiction over
Everett. The Commission determined that “there is no bar to
the Commission’s exercising jurisdiction to allow Mystic’s
recovery of 100 percent of Everett’s fixed costs.” December
2018 Order, at ¶ 133. It reasoned that Everett’s fixed operating
costs are “a component of Mystic’s cost-of-service rate and, as
a result, [are] subject to Commission review and approval.”
Second July 2020 Rehearing Order, at ¶ 22.

    We find the Commission’s reasoning, without further
explanation, to be internally inconsistent. The Commission
acknowledges, and we agree, that it has jurisdiction to include
Everett’s costs in Mystic’s rate in accordance with cost
causation principles. See supra Part V.A.1. The Commission
cannot in the same breath contend that it lacks jurisdiction to
                              47
refund a portion of those same costs to ratepayers. To be sure,
the Commission does not claim authority over Everett itself or
over the Everett Agreement. FERC Br. 53. But as we have
already explained, that lack of jurisdiction did not prevent the
Commission from including Everett’s costs in Mystic’s rate.
See supra Part V.A.1. Lack of jurisdiction over Everett thus
cannot prevent the Commission from ordering Mystic to refund
a portion of those costs to ratepayers.

     The rest of the Commission’s reasoning does not resolve
the seeming inconsistency. The Commission reasoned that if
the clawback mechanism included Everett’s costs, the
clawback “would not apply to payments that Mystic received
under a jurisdictional rate, but rather would apply to payments
that Everett received under the non-jurisdictional Everett
Agreement.” Second July 2020 Rehearing Order, at ¶ 43. But
the fuel supply costs paid by Mystic to Everett are also
“received under the non-jurisdictional Everett Agreement,” id.,
and the Commission saw fit to include 91 per cent of those
costs in Mystic’s rate. Although we have determined that this
allocation was arbitrary and capricious, see supra Part V.A.2,
we have also concluded that the error in allocation was not a
jurisdictional one, see supra Part V.A.1.

     The Commission further reasoned that it could not include
Everett’s costs in the clawback because, once the Mystic
Agreement terminates, “there would be no rate within the
jurisdiction of the Commission through which to order a
refund.” Second July 2020 Rehearing Order, at ¶ 43. That
objection is also unpersuasive. Even as applied only to Mystic,
the clawback contemplates a refund that will take place after
expiration of the Agreement. The Mystic Agreement requires
Mystic to make a true-up filing, reconciling estimated and
actual costs, by April 1, 2025, after the expiration of the
Agreement. The Agreement thus already requires Mystic to
                               48
engage in settlement of funds without a jurisdictional rate
through which to order the refund. The Commission provides
no reason that the same sort of settlement could not be used to
refund Everett’s costs.

     We express no view on whether the Commission may
come up with alternative reasons to exclude Everett’s costs
from the clawback. But the reason the Commission did
provide—its lack of jurisdiction over Everett—does not hold
up to scrutiny. We accordingly conclude that the Commission’s
“failure to provide an intelligible explanation . . . amounts to a
failure to engage in reasoned decisionmaking,” FPL Energy
Marcus Hook, 430 F.3d at 448, rendering its decision arbitrary
and capricious.

    We grant the State Petitioners’ petition on this issue and
vacate the clawback portions of the challenged orders.

                      B. Capital Projects

     We next consider one additional argument related to the
clawback provision. The State Petitioners contend that the
Commission failed to address their argument that the Mystic
Agreement will induce Mystic to delay capital projects into the
term of the agreement. We agree and thus grant the petition on
that issue.

     Recall that during the term of the cost-of-service
agreement, Mystic will recover certain repair and capital
expenditure costs from ratepayers. As previously discussed, the
Mystic Agreement includes a clawback mechanism to refund
ratepayers for such costs if Mystic stays in service past the term
of the Agreement. In the December 2018 Order, the
Commission also ordered Mystic to contractually agree not to
“delay[] [capital expenditure] projects until the term of the
Agreement that it would otherwise have undertaken sooner
                               49
with the purpose of recovering excessive costs from ratepayers
under the Agreement.” December 2018 Order, at ¶ 174. In its
Second July 2020 Rehearing Order, however, the Commission
revised its decision. Rather than obligate Mystic to demonstrate
that it had not delayed capital expenditure projects into the term
of the Agreement, the Commission merely required Mystic to
identify whether it had delayed any such projects and its
reasons for doing so. Second July 2020 Rehearing Order, at ¶ 7.

     Seeking rehearing, the States Committee argued that the
revised Agreement would permit Mystic to recover costs for
capital projects that should have been completed before
expiration of the Mystic Agreement. The States Committee
pointed out that Mystic would have the incentive to delay those
projects because it could recover the full cost of projects
expensed during the term of the Agreement. To be sure, if
Mystic stays in service past the term of the Agreement, those
costs would be refunded through the clawback. But if Mystic
retires from the market at the end of the Agreement, ratepayers
will have covered the entire costs of delayed projects—
potentially creating perverse incentives. The State Petitioners
contend that while the Commission recited the States
Committee’s argument in the December 2020 Order, the
Commission entirely failed to respond to that argument. State
Pet’rs Br. 43–44; see December 2020 Rehearing Order, at ¶ 32.

     The Commission counters that it did respond to the States
Committee’s argument in the December 2020 Order. FERC
Br. 80. But the portion of the order cited by the Commission
mentions neither the challenged delay provision nor the
incentives created by that provision. December 2020 Rehearing
Order, at ¶¶ 30–31, 33. The Commission thus entirely failed to
address the States Committee’s argument. And the
Commission’s “‘failure to respond meaningfully’ to objections
raised by a party renders its decision arbitrary and capricious.”
                              50
PSEG Energy Res. & Trade LLC, 665 F.3d at 208 (citation
omitted).

     Accordingly, we grant the State Petitioners’ petition on
this issue and vacate the portion of the orders under review
relating to the challenged delay provision.

                     VIII. CONCLUSION

     For the foregoing reasons, we dismiss Mystic’s petition for
review in part and deny it in part, and we grant the State
Petitioners’ petitions for review.

                                                    So ordered.