Court: FERC Cannot Propose Major Changes to Tariff Filing
July 14, 2017
On July 7, 2017, the U.S. Court of Appeals for the D.C. Circuit (“Court”) determined that the Federal Energy Regulatory Commission’s (“FERC”) lacked the authority to make more than minor modifications to an electric utility’s tariff. The Court unanimously concluded that under the Federal Power Act (“FPA”), FERC is not permitted “to make modifications to a proposal that transform the proposal into an entirely new rate of FERC’s own making.”
The Court was reviewing a complex tariff proposal that PJM Interconnection, L.L.C. (“PJM”) had crafted with its stakeholders to address issues regarding potential exercise of market power over energy prices. The tariff language proposed to modify the so-called “Minimum Offer Price Rule” (“MOPR”) by, among other things, replacing a unit-specific review exemption with 2 categorical exemptions (a “competitive entry exemption” and a “self-supply exemption”). In addition, PJM proposed to extend the period during which the MOPR operated from 1 to 3 years. These proposals were part of a compromise between generation market participants and those that represented load serving entities. The compromise filing was supported by over 2/3 of PJM’s stakeholders. PJM filed the MOPR proposal in a 2012 FERC filing made pursuant to Section 205 of the FPA.
In May of 2013, FERC issued an order concluding that PJM’s MOPR proposal was unjust and unreasonable, in part, because it would unreasonably narrow the exemptions from the MOPR’s price floor. FERC also determined that the 3-year mitigation period for new generation facilities was too long. Instead of simply rejecting PJM’s filing, FERC accepted the MOPR changes on the condition that PJM retain the unit-specific review process and also shorten the 3-year mitigation period, among other conditions. PJM made the tariff changes requested by FERC in a compliance filing; several parties sought rehearing of FERC’s order; and FERC denied rehearing.
Several generation market participants then sought review by the Court. They argued that FERC had violated the FPA by making a “new rate” (i.e., establishing new tariff rates, terms, and conditions) instead of either accepting or rejecting PJM’s originally filed tariff language.
The Court held that FERC had “exceeded its authority” under the FPA when it imposed a “new rate scheme of its own making without the consent of the utility” that had originally filed the tariff change. The Court concluded that FERC only had the authority to propose minor modifications to a utility’s proposed tariff language and then only “if the utility consents to the modifications.” In the subject situation, however, the Court concluded that FERC had conditioned acceptance on an “entirely different rate design” than what PJM had originally proposed in its filing. This, in essence, deprived PJM’s customers of early notice of the rates, terms and conditions that were being proposed, which violated Section 205 of the FPA.
The Court objected to FERC’s actions, in part, because FERC’s conditional acceptance of the MOPR changes that it had required “undid the compromise that had been the basis for PJM’s proposal.” The Court concluded that the fact that PJM “consented” to FERC’s new rate scheme (by making a compliance filing) did not excuse FERC’s violation of the FPA, because FERC had proposed its “own original notion of a new form of rate” rather than making “minor” modifications to PJM’s tariff proposal. The Court vacated FERC’s orders with respect to “unit-specific review, the competitive entry exemption, the self-supply exemption, and the mitigation period.”
This decision is significant because it is not unusual for FERC to conditionally approve proposed tariff changes that were proposed pursuant to Section 205 of the FPA. Such conditional changes are often relatively minor and they are accepted by the filing utility through a compliance filing. This decision, however, is a reminder that FERC must reject a proposal that it finds unjust and unreasonable. FERC does not have the authority to condition acceptance of a Section 205 filing on the utility making major changes to the tariff filing. Furthermore, the utility’s consent to making significant and “entirely new” tariff changes does not prevent FERC from exceeding its jurisdiction under the FPA.
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