In re NTE Conn., LLC

• Decision Date: 24 February 2022
• Docket Number: No. 22-1011,22-1011
• Citation: 26 F.4th 980
• Parties: IN RE: NTE CONNECTICUT, LLC, Petitioner ISO New England Inc., Intervenor
• Court: U.S. Court of Appeals — District of Columbia Circuit

26 F.4th 980

IN RE: NTE CONNECTICUT, LLC, Petitioner ISO New England Inc., Intervenor

No. 22-1011

United States Court of Appeals, District of Columbia Circuit.

Decided February 24, 2022

David W. DeBruin, Suedeen G. Kelly, and Zachary B. Cohen were on the petition and the reply.

Matthew R. Christiansen, General Counsel, Federal Energy Regulatory Commission, Robert H. Solomon, Solicitor, Beth G. Pacella, Deputy Solicitor, and Matthew W.S. Estes, Attorney, were on the response to the petition.

Before: Wilkins, Rao and Jackson, Circuit Judges.

Dissenting opinion filed by Circuit Judge WILKINS.

Rao, Circuit Judge:

RAO Petitioner NTE Connecticut, LLC ("NTE") acquired valuable authorization to sell electricity from its new power plant. The Federal Energy Regulatory Commission ("FERC") revoked that authorization and, in so doing, very likely fell short of its obligation under the Administrative Procedure Act ("APA") to explain the reason for its decision. See Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). Absent emergency relief from this court, FERC's order would have irreparably harmed NTE, preventing it from participating in a February 7, 2022, auction to sell future electricity capacity to New England consumers. On February 4, 2022, we granted NTE's petition for an emergency stay of FERC's order, with an opinion to follow. This is that opinion.

I.

A.

For the past seven years, NTE has been working to build a new natural gas fueled power plant in Killingly, Connecticut. In order to sell electricity on the New England grid, NTE had to work with ISO New England Inc. ("ISO-NE") to have the project "qualified." ISO-NE is the independent system operator authorized by FERC to manage the regional grid. ISO-NE oversees annual "forward capacity auctions" at which the owners of generation facilities bid for the right to sell electricity on the grid in the future. See NextEra Energy Res., LLC v. FERC , 898 F.3d 14, 17 (D.C. Cir. 2018) (describing this process). The right to provide "capacity" (i.e., the ability to produce electricity), in the quantity and at the price fixed at auction, is called a facility's "capacity supply obligation" ("CSO"). The CSO is tied to a one-year "capacity commitment period" that begins three years after the auction. In concrete terms, a generation facility awarded a CSO at the 2022 auction gains the right to sell electricity for one year beginning June 1, 2025. A facility with a CSO is automatically "qualified" to participate in future ISO-NE auctions.

After locating a suitable parcel of land, designing the facility, and preparing a timeline for the project's financing and construction, NTE applied to have the Killingly plant "qualified." ISO-NE approved the application, and in the 2019 auction NTE secured a CSO for the 2022 commitment period. Under ISO-NE's rules at the time, a newly qualified facility was permitted to "lock in" the terms of its initial CSO for six subsequent capacity commitment periods (i.e., for seven years total). See ISO New England Inc. , 173 FERC ¶ 61,198 at PP 2–4 (2020). NTE exercised this option, giving it a guaranteed income stream for the first seven years of the Killingly plant's operation, which in turn made it more attractive to potential investors. NTE thereafter participated in the 2020 and 2021 auctions, securing contract rights to supply electricity for the 2023 and 2024 commitment periods.

Initially, NTE had planned for the Killingly facility to come online in early 2022. But soon after securing its first CSO in 2019, NTE encountered a series of setbacks that prevented it from meeting its financing and construction goals. First, just after the 2019 auction, incumbent energy generators in New England asked FERC to review ISO-NE's qualification of the Killingly plant, placing NTE's CSO in jeopardy. FERC eventually upheld NTE's rights, but the results of the 2019 auction did not become final until September 2019. Second, while the incumbent competitors’ challenge was pending before FERC, several environmental groups sued in state court to block the Connecticut Siting Council's decision to approve the Killingly plant. One of them, a nonprofit called Not Another Power Plant, appealed the case to the Connecticut Supreme Court, which did not issue a decision in NTE's favor until September 2021—some thirty-one months after the 2019 auction. See Not Another Power Plant v. Conn. Siting Council , 340 Conn. 762, 265 A.3d 900 (2021). In the interim, NTE had located a potential investor for the Killingly plant. But because the project's viability depended on a favorable legal ruling, NTE was unable to finalize financing while the case was under review. Third, the arrival of the COVID-19 pandemic in early 2020 caused further complications. Disruptions to supply chains and labor markets required NTE and its potential investor to frequently recalculate the project's shifting costs, while pandemic related delays slowed NTE's ability to secure necessary construction permits. Because of these obstacles, NTE was repeatedly forced to revise its timeline for the Killingly plant's construction.

If the Killingly plant was not operational by May 31, 2024, ISO-NE had the right to request that FERC terminate NTE's existing CSO, disqualifying it from participating in future auctions. ISO-NE Tariff § III.13.3.4A.¹ By September 2021, ISO-NE was concerned that NTE was running out of time to meet that deadline. As revised, NTE's timetable required it to finalize equity financing for the Killingly plant in mid-January 2022, to finalize debt financing in early March 2022, and to begin commercial operation of the plant on May 31, 2024. NTE also planned to issue full notices to proceed to its contractors by January 1, 2022, before financing was finalized.

ISO-NE hired a consultant to assess whether these plans were feasible. After reviewing NTE's timeline and conferring with the parties, the consultant concluded that if NTE issued full notices to proceed by January 1, 2022, "commercial operation of [the Killingly plant] could occur on or about the stated proposed commercial operation date of May 31, 2024." Issuing full notices on January 1, 2022, would give NTE twenty-nine months to build the Killingly facility—"an aggressive, but achievable schedule for a project of this scope." However, according to the consultant, full notices to proceed typically cannot be issued before financing is secured. NTE's "assumption" that it would be able to issue full notices by January 1, 2022, was therefore "unlikely." Under a more "realistic scenario," the consultant concluded, NTE would be able to issue full notices only after securing financing in mid-January, resulting in a "likely commercial operation date" beyond the deadline of May 31, 2024.

On November 4, 2021, shortly after receiving the consultant's report, ISO-NE met with NTE to review its plans for the Killingly plant. At the meeting, NTE told ISO-NE that it remained confident it could complete construction on time. It also produced a letter from its equity investor, indicating that the investor would soon be ready to issue full notices to proceed to major contractors and that those notices did not depend on finalizing the project's financing details with NTE.

B.

Later that same day, ISO-NE asked FERC to terminate the Killingly plant's CSO. Such a termination would have voided NTE's rights to collect revenues for the 2022, 2023, and 2024 commitment periods. It would also have made NTE ineligible to participate in the 2022 capacity auction, depriving NTE of the "locked in" CSO for the 2025 commitment period.

ISO-NE claimed that because of NTE's timeline changes, the Killingly facility would not achieve commercial operation by the May 31, 2024, deadline. In support of this claim, ISO-NE provided FERC with NTE's most recent construction timeline, ISO-NE's consultant's report, and the letter from NTE's equity investor. NTE's timeline, ISO-NE observed, "indicates that NTE will issue full notices to proceed on January 1, 2022[,] ... [which] assumes that those notices can be issued without financing in place"—an assumption that ISO-NE, relying on its consultant, rejected. Because "it is unlikely that these notices to proceed will be executed without financing in place," ISO-NE argued, NTE "will be unable to achieve commercial operation of Killingly" by the deadline.

In response, NTE explained that the assumption on which ISO-NE and its consultant relied—that NTE would not be able to issue full notices to proceed until its equity financing was in place in mid-January—was erroneous. At the time of ISO-NE's filing, NTE's investor had expected to approve the transaction in December 2021 and was willing to issue full notices to contractors before financing was finalized, allowing NTE to meet the January 1, 2022, target. ISO-NE had failed to recognize, in other words, that NTE's project had a unique financing structure. NTE provided FERC with a declaration from the Killingly plant's lead developer, explaining that NTE and its investor had agreed to issue full notices before financing closed and that the parties had been on track to do so by January 1, 2022. NTE also submitted a declaration from the project's lead contractor, indicating that if full notices to proceed had been issued on schedule, "it would have been feasible to complete the project by May 31, 2024." NTE further argued that ISO-NE had not "met its burden ... to show that Killingly will not enter service by June 1, 2024," but had "only speculate[d] that Killingly will not meet the ... deadline, which is not the objective standard required by the Tariff." ISO New England Inc. , 178 FERC ¶ 61,001 at P 19 (2022) (describing NTE's argument).

On January 3, 2022, FERC issued an order terminating Killingly's CSO, which stripped NTE of its existing right to provide electricity generation capacity for the 2022, 2023, and 2024 commitment periods,...