N.J. Bd. of Pub. Utilities & N.J. Div. of Rate Counsel v. Fed. Energy Regulatory Comm'n

• Decision Date: 20 February 2014
• Docket Number: 11–4487,Nos. 11–4245,12–1086,11–4486,11–4405,12–1764.,12–1085,s. 11–4245
• Citation: 744 F.3d 74
• Court: U.S. Court of Appeals — Third Circuit
• Parties: NEW JERSEY BOARD OF PUBLIC UTILITIES and New Jersey Division of Rate Counsel, Petitioners in Case No. 11–4245 v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Maryland Public Service Commission, Petitioner in Case No. 11–4405 v. Federal Energy Regulatory Commission, Respondent. PJM Power Providers Group, Petitioner in Case No. 11–4486 v. Federal Energy Regulatory Commission, Respondent. PSEG Energy Resources & Trade LLC, Petitioner in Case No. 11–4487 v. Federal Energy Regulatory Commission, Respondent. Old Dominion Electric Cooperative; American Public Power Association; National Rural Electric Cooperative Association; North Carolina Electric Membership Corporation; Delaware Municipal Electric Corporation American Municipal Power, Inc.; *Southern Maryland Electric Cooperative, Inc., Petitioners in Case No. 12–1085 v. Federal Energy Regulatory Commission, Respondent. *Pursuant to Clerk Order of 2/14/12. Hess Corporation, Petitioner in Case No. 12–1086 v. Federal Energy Regulatory Commission, Respondent. Old Dominion Electric Cooperative; American Municipal Power, Inc.; North Carolina Electric Membership Corp.; American Public Power Association; Delaware Municipal Electric Corp.; and National Rural Electric Cooperative Association, Petitioners in Case No. 12–1764 v. Federal Energy Regulatory Commission, Respondent.

744 F.3d 74

NEW JERSEY BOARD OF PUBLIC UTILITIES and New Jersey Division of Rate Counsel, Petitioners in Case No. 11–4245

v.FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Maryland Public Service Commission, Petitioner in Case No. 11–4405

v.Federal Energy Regulatory Commission, Respondent.

PJM Power Providers Group, Petitioner in Case No. 11–4486

v.Federal Energy Regulatory Commission, Respondent.

PSEG Energy Resources & Trade LLC, Petitioner in Case No. 11–4487

v.Federal Energy Regulatory Commission, Respondent.

Old Dominion Electric Cooperative; American Public Power Association; National Rural Electric Cooperative Association; North Carolina Electric Membership Corporation; Delaware Municipal Electric Corporation American Municipal Power, Inc.;

*Southern Maryland Electric Cooperative, Inc., Petitioners in Case No. 12–1085

v.Federal Energy Regulatory Commission, Respondent.

*Pursuant to Clerk Order of 2/14/12.

Hess Corporation, Petitioner in Case No. 12–1086

v.Federal Energy Regulatory Commission, Respondent.

Old Dominion Electric Cooperative; American Municipal Power, Inc.; North Carolina Electric Membership Corp.; American Public Power Association; Delaware Municipal Electric Corp.; and National Rural Electric Cooperative Association, Petitioners in Case No. 12–1764

v.Federal Energy Regulatory Commission, Respondent.

Nos. 11–4245, 11–4405, 11–4486, 11–4487, 12–1085, 12–1086, 12–1764.

United States Court of Appeals,Third Circuit.

Argued Sept. 10, 2013.

Opinion filed Feb. 20, 2014.

Jennifer S. Hsia, Esquire, Office of Attorney General of New Jersey, Trenton, NJ, Alex Moreau, Esquire, Office of Attorney General of New Jersey, Newark, NJ, Counsel for New Jersey Board of Public Utilities.

Stefanie A. Brand, Esquire, Felicia Thomas–Fried, Esquire, Office of Public Defender, Trenton, NJ, Scott H. Strauss, Esquire, (Argued), Jeffrey A. Schwarz, Esquire,Spiegel & McDiarmid, Washington, D.C., Counsel for New Jersey Division of Rate Counsel.

Harvey L. Reiter, Esquire, Dennis Lane, Esquire, (Argued), Adrienne E. Clair, Esquire, Stinson Morrison & Hecker, LLP, Washington, D.C., Counsel for Old Dominion Electric Cooperative; American Public Power Association; National Rural Electric Cooperative Association, Delaware Municipal Electric Corp.; Southern Maryland Electric Cooperative Inc, American Municipal Power, Inc.

Larry F. Eisenstat, Esquire, Crowell & Moring, Washington, D.C., Counsel for CPV Power Development, Inc.

Werner L. Margard, III, Esquire, Office of Attorney General of Ohio, Columbus, OH, Counsel for Public Utilities Commission of Ohio.

Susanna Chu, Esquire, (Argued), Randall L. Speck, Esquire, Kaye Scholer, Washington, D.C., Counsel for Maryland Public Service Commission.

Regina A. Iorii, Esquire, Delaware Department of Justice, Wilmington, DE, Counsel for Delaware Public Service Commission.

Gregory T. D'Auria, I, Esquire, Office Attorney General of Connecticut, Hartford, CT, Counsel for Attorney General Connecticut.

Stuart A. Caplan, Esquire, New York, N.Y., Counsel for Hess Corp.

Gary J. Newell, Esquire, Jennings Strouss, Washington, D.C., Counsel for American Municipal Power, Inc.

Sandra E. Rizzo, Esquire, Charles H. Shoneman, Esquire, Bracewell & Guiliani, Washington, D.C., Counsel for PPL Electric Utilities Corporation; PPL Energy Plus, LLC; PPL Brunner Island; PPL Holtwood, LLC; PPL Martins Creek; PPL Montour, LLC; PPL Susquehanna, LLC; PPL New Jersey Solar, LLC; PPL New Jersey Biogas, LLC; PPL Renewable Energy, LLC; Lower Mount Bethel Energy, LLC.

Paula M. Carnody, Esquire, William F. Fields, Esquire, Maryland Peoples Counsel, Baltimore, MD, Counsel for Maryland Office of Peoples Counsel.

Christopher R. Jones, Esquire, Troutman Sanders, Washington, D.C., Counsel for Dominion Resources Services.

Denise C. Goulet, Esquire, Miller, Balis & O'Neil, Washington, D.C., Counsel for North Carolina Electric Membership Corporation.

Robert A. Weishaar, Jr., Esquire, McNees, Wallace & Nurick, Washington, D.C., Counsel for PJM Industrial Customer Coalition.

Carol Banta, Esquire, (Argued), Holly E. Cafer, Esquire, (Argued), Federal Energy Regulatory Commission, Washington, D.C., Counsel for Federal Energy Regulatory Commission.

Ashley C. Parrish, Esquire, David G. Tewksbury, Esquire, King & Spalding, Washington, D.C., Counsel for Electric Power Supply Association; Calpine Corporation.

Paul M. Flynn, Esquire, (Argued), Wright & Talisman, Washington, D.C., Counsel for PJM Interconnections.

Adam M. Conrad, Esquire, King & Spalding, Charlotte, NC, Counsel for LS Power Associates, LP.

John N. Estes, III, Esquire, (Argued), John L. Shepherd, Jr., Esquire, (Argued), Paul F. Wight, Esquire, Skadden, Arps, Slate, Meagher & Flom, Washington, DC, Counsel for PJM Power Providers Group; Exelon Corporation.

Richard P. Bress, Esquire, Andrew D. Prins, Esquire, Latham & Watkins, Washington,DC, Counsel for FirstEnergy Solutions Corporation.

Vilna W. Gaston, Esquire, Tamara L. Linde, Esquire, PSEG Corporation, Newark, NJ, Counsel for PSEG Energy Resources & Trade, LLC.

Robert C. Fallon, Esquire, Jonathan W. Gottlieb, Esquire, Washington, DC, Counsel for Commonwealth Chesapeake Corp.

Before: RENDELL, JORDAN and GREENAWAY, JR., Circuit Judges.

OPINION

RENDELL, Circuit Judge:

In what is a relatively unusual task for our court, we are asked to review a ruling of the Federal Energy Regulatory Commission (“FERC”) approving a revised tariff submitted by PJM Interconnection, LLC, that effectively changes several aspects of PJM's tariff as approved in a prior FERC order. FERC is the independent federal agency tasked under the Federal Power Act (the “FPA”) with, among other things, ensuring that rates charged by public utilities for the transmission and sale of energy in interstate commerce, and the “rules and regulations affecting or pertaining to such rates”, are “just and reasonable.” 16 U.S.C. § 824d.

In 2006, FERC issued an order (the “2006 Order”) approving a new tariff—a set of rules and policies governing the interstate sale of electricity and electric capacity—for the PJM market, a vast region covering thirteen states and the District of Columbia. The terms and policies embodied in the 2006 Order—the result of an extensively negotiated settlement between power providers, utility companies, state and local authorities and other stakeholders in the region—sought to ensure the existence of sufficient power generation facilities to meet the needs of the PJM market. To this end, the order required that load serving entities (LSEs) in the PJM market procure a certain amount of energy capacity—that is, additional generation resources that the market may access during times of peak load. The 2006 Order also contained rules designed to curb the ability of market participants to distort wholesale prices through the exercise of market power. A chief means to that end was the rule that offers for the sale of capacity in the PJM markets at artificially low prices would, with some notable exceptions, be required to be “mitigated”, or raised to a competitive level, based on their costs.

Beginning in April 2011, FERC issued three orders (the “2011 Orders”) that altered the terms of the 2006 Order in several ways, some substantial. Among other things, the 2011 Orders eliminated an exemption from mitigation for resources built pursuant to a state mandate. In addition, the 2011 Orders eliminated a provision that had guaranteed that LSEs that owned their own generation resources, or had procured capacity through bilateral contracts, would be able to use this “self-supply” to satisfy their own capacity obligations. The 2011 Orders also changed several factors used in determining whether a particular offer was subject to mitigation.

As discussed infra, multiple parties have timely filed Petitions for Review of the 2011 Orders.¹ Petitioners New Jersey and Maryland contend that the 2011 Orders amount to direct regulation of power facilities in violation of the FPA, and that FERC acted arbitrarily and capriciously in eliminating the exemption from mitigation for state-mandated resources. Similarly, several municipal and cooperative electric utilities challenge FERC's elimination of the assurance that LSEs could use their own self-supply to satisfy their capacity obligations. Finally, various energy providers take issue with new rules governing the calculation of a resource's net cost of new entry, which is used in determining whether an offer for the sale of capacity will be mitigated, and with FERC's determination that a new generation resource must clear only one capacity auction in order to avoid further mitigation. We have considered these arguments and find them without merit. Accordingly, we deny the petitions for review.

I.

At the time the FPA was passed in 1935, “most electricity was sold by vertically integrated utilities that had constructed their own power plants, transmission lines, and local delivery systems. Although there were some interconnections among utilities, most operated as separate, local monopolies subject to state or local regulation.” New York v. FERC, 535 U.S. 1, 5, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). In 1927 the Supreme Court held in Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 549 (1927), that only Congress, and not the states, could regulate the sale of electrical power in interstate commerce. To meet this charge, Congress enacted the FPA, which authorized federal regulation of the interstate sale of electricity, and created a new independent agency, the Federal Power Commission (precursor to FERC), to administer the statute. New York, 535 U.S. at 6–7, 122 S.Ct. 1012. Section 201 of the FPA defined the Commission's jurisdiction as “the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce....” 16 U.S.C. § 824(a). The statute gave the Commission regulatory power over “all facilities for such transmission or sale of...