Notice & Comment

D.C. Circuit Review – Reviewed: FERC Edition

The D.C. Circuit issued two admin law decisions this past week, both partial defeats for FERC.

The most significant case is Advanced Energy United, Inc. v. FERC, No. 22-1018. It involves the Southeast Energy Exchange Market (SEEM), proposed by some of the southeast’s largest utilities and approved by FERC in part by inaction. In non-technical terms, SEEM was designed to facilitate short-term energy transactions among numerous entities by matching wholesale buyers and sellers in 15-minute increments using an algorithm (as opposed to relying on the inefficient negotiation of long-term bilateral wholesale energy contracts). The algorithm sets the energy price at the midpoint between seller’s offer and the buyer’s bid, but there is no additional fee for the transmission itself, as SEEM participants must offer their unused transmission capacity for SEEM transactions at no cost. Importantly for the case, only entities that control a generation source within SEEM’s geographic footprint, or are obligated to deliver energy to customers within that area, are eligible to be SEEM participants.

The SEEM proposal went into effect when FERC deadlocked 2-2 on the issue (the “deadlock order”). SEEM participants also submitted requests to revise their tariffs to match SEEM requirements; FERC approved those by majority vote (the “tariff order”). A coalition of renewable energy trade groups and environmental groups petitioned for review. The gravamen of their objection is that, in their view, SEEM is designed to favor existing, large transmission-owning utilities and effectively excludes independent clean energy generators.

The D.C. Circuit did not resolve Petitioners’ challenge to the deadlock order on the merits, but sent it back for FERC to reconsider Petitioners’ rehearing request, because FERC erred in finding the rehearing petition untimely. Addressing the rehearing timeline after deadlock orders under Section 205 of the Federal Power Act, the court unanimously held that when FERC’s 60 days to take action (or the 30 days to request rehearing) expires on a holiday, each deadline is extended to the next business day (as under the Federal Rules of Appellate Procedure). FERC had (wrongly) not taken account of holidays when it found the rehearing request untimely.

As for the tariff order, the Court vacated it for two reasons, over a dissent by Judge Rao. First, the Court held the tariff order “is inconsistent with prior Commission regulations ‘requir[ing] jurisdictional transmission tariffs to be consistent with or superior to the pro forma open-access transmission tariff contained in its Order No. 888 rulemaking, which directed utilities to provide open access to their transmission lines in a nondiscriminatory fashion,’” because the geographic limit on SEEM membership excluded many entities that were existing bilateral trading partners with SEEM participants. Second, the court held (again, 2-1, with Judge Rao dissenting) that FERC did not adequately explain why the SEEM arrangement did not contain “discounted or special” transmission arrangements. Discounted transmission arrangements would make SEEM a loose power pool and require it to make pool transmission service available to non-members through a joint, pool-wide, open-access tariff, regardless of geographic location. Accordingly, on remand FERC must “provide a sufficient explanation for its determination that SEEM is not a loose power pool or … change course.” This part of the opinion probably has the most resonance for admin law more broadly, as there is extensive discussion of the deference owed (or not) to the agency’s interpretation of its own regulations.

In the second admin law case, XO Energy MA, LP v. FERC, No. 22-1096, the D.C. Circuit addressed FERC’s discretion over remedies for violations of the statutes it administers. For brevity, I’ll skip over the details of the regional transmission organization (RTO) rules at issue here. In broad brush terms, an RTO issued a rule requiring certain forfeitures from energy traders that FERC deemed was not just and reasonable. FERC approved the RTO’s revised rule, but declined to order the RTO to refund the forfeitures it collected under the earlier, invalid interim rule. The Court held that FERC was well within its discretion to decline to order refunds and had adequately explained its decision. The court did, however, remand one aspect of FERC’s approval of the RTO’s replacement rule, without vacatur, for FERC to supply an adequate explanation.

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