More FERC Federalism: D.C. Circuit Affirms FERC’s Jurisdiction Again – New England Power Generators Ass’n v. FERC

On July 8, 2014, the United States Court of Appeals for the District of Columbia Circuit denied the petition for review filed by New England Power Generators Association, Inc. and other market participants' over four Federal Energy Regulatory Commission orders related to the Independent System Operator-New England Forward Capacity Market.1 The D.C. Circuit held that the orders on review fell within FERC's statutory ratemaking authority conferred by the Federal Power Act because FERC's ratemaking authority extends to parameters of capacity markets related to the price of capacity.2 Additionally, the court deferred to the Commission to craft mitigation measures responsive to the needs of the ISO-NE FCM because the Commission properly balanced competing interests and based its decision on substantial evidence.3

Petitioners' Claims

Petitioners challenged the FERC orders related to buyer- and supplier-side mitigation measures to prevent the exercise of market power with the following claims: (1) FERC lacks jurisdiction under the FPA to impose mitigation requirements upon uneconomic entrants to the FCM; (2) FERC's orders imposing mitigation requirements in order to produce just and reasonable rates were not based on substantial evidence; (3) the Commission acted arbitrarily and capriciously in determining mitigation requirements; and (4) FERC acted arbitrarily and capriciously in determining whether to regulate uneconomic entrants.4

FERC's Jurisdiction

With respect to whether FERC has jurisdiction to regulate capacity where its regulation touches on which generation facilities may be used to fulfill capacity obligations, the D.C. Circuit upheld FERC's exercise of jurisdiction in maintaining just and reasonable rates.5 The court acknowledged that "states regulate facilities, while FERC regulates sale and transmission."6 It also relied on prior precedent and stated: "Out-of-market resources – whether self-supplied, state-sponsored, or otherwise – directly impact the price at which the [FCM] auction clears. As the price of capacity is indisputably a matter within the Commission's exclusive jurisdiction, FERC likewise has jurisdiction to mitigate buyer-side market power as to out-of market entrants."7 Therefore, given FERC's broad rate-making authority "to act in the public interest," the court held that FERC has jurisdiction, under Sections 201 and 206, of the FPA to regulate the parameters comprising the FCM, and that applying offer-floor...