USCA Case #20-1194
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`Document #1846520
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`Filed: 06/09/2020
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`Page 1 of 654
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`STATESCOU
`GRIGINAL INTHEUNITED
`STATE
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`DOMINION ENERGY SERVICES
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`INC.,
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`RES ULAbUity Lit How!‘li;a
`
`FOR THE DISTRICT OF COLUMBIA CIRCUIT:
`
`Case No. 20-1194
`
`) )
`
`)
`)
`
`Petitioner,
`
`V.
`
`FEDERALENERGYREGULATORY__) L ot45
`
`COMMISSION,
`par
`»
`|
`Respondent.
`EL|o-49-000
`PETITION FOR REVIEW OF
`tr (
`DOMINION ENERGYSERVICES, INC.
`Pursuant to Section 313(b) ofthe Federal Power Act, 16 USC. § 825l(b),
`
`) )
`
`Rule 15(a) of the Federal Rules of Appellate Procedure, and Rule 15 of the United
`
`States Court of Appeals of the District of Columbia Circuit, Dominion Energy
`
`Services, Inc., on behalf of Virginia Electric and Power Companyd/b/a Dominion
`
`Energy Virginia (“Dominion”), petitions this Court for review of the following
`
`orders ofthe Federal Energy Regulatory Commission (“FERC”or “Commission”):
`
`° Calpine Corp., et al. v. PJM Interconnection, L:L.C., Docket Nos. EL16-49-
`000, ER18-1314-000, ER18-1314-001, and EL18-178-000, Order Rejecting
`Proposed Tariff Revisions, Granting in Part and Denying in Part Complaint,
`and Instituting Proceeding Under Section 206 of the Federal Power Act, 163
`FERC { 61,236 (June 29, 2018) (“June 29, 2018 Order”) (available at:
`https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=14961693).
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 556 of 654
`-1l-
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`state actions are front and center in the Commission’sjustification for acting.** To be
`sure, the Commission doffs its hat to “price suppression” throughout the orders. But
`repeating the phrase “price suppression” does not changethe fact that the Commission’s
`stated concern in the June 2018 Order, the December 2109 Order, and today’s orders is
`the states’ exercise oftheir authority under section 201(b) or the fact that the goal ofthe
`new MOPRisto “nullify” and “disregard”the effects of state resource decisionmaking.
`Similarly, the Commission’s observation thatit is not literally precluding states from
`building new resources is beside the point. As [ explained in my earlier dissent, that is
`the equivalent of saying that a grounded teenageris not being punished because he can
`still play in his room—it deliberately mischaracterizes both the intent and the effect of the
`action in question.*®
`
`The extent to which the Commission is attempting to interfere with state resource
`16.
`decisionmaking is even clearer with a little context. The MOPR wasoriginally used to
`mitigate buyer-side market power within the wholesale market‘’—a concern at the heart
`of the Commission’s responsibility to ensure that wholesale rates are just and
`unreasonable.*’ And for much of the MOPR’s history, that is what it did. Even when the
`
`38 Id.
`
`39 December 2019 Order, 169 FERC J 61,239 (Glick, Comm’r, dissenting at P 13).
`
`4 Specifically, those early MOPRs were designed to ensure that net buyers of
`capacity were not able to use market powerto drive down the capacity market price. See
`N.Y. Indep. Sys. Operator, Inc., 170 FERC 4 61,121 (2020) (Glick, Comm’r, dissenting at
`P 2); see generally Richard B. Miller, Neil H. Butterklee & Margaret Comes, “Buyer-
`Side” Mitigation in Organized Capacity Markets: Timefor a Change?, 33 Energy L.J.
`459 (2012) (discussing the history of buyer-side mitigation at the Commission).
`
`4! See, e.g., Nat'l Ass'n ofRegulatory Util. Comm'rs v. FERC, 475 F.3d 1277,
`1280 (D.C. Cir. 2007) (noting that “FERC’s authority generally rests on the public
`interest in constraining exercises of market power”); Pub. Util. Dist. No. 1 ofSnohomish
`Cty. v. Dynegy Power Mkig., Inc., 384 F.3d 756, 760 (9th Cir. 2004) (explaining that the
`absence of market power could provide a strong indicatorthat rates are just and
`reasonable); Tejas Power Corp. v. FERC, 908 F.2d 998, 1004 (D.C. Cir. 1990) (“Ina
`competitive market, where neither buyer norseller has significant market power,it is
`rational to assumethat the terms of their voluntary exchange are reasonable, and
`specifically to infer that the price is close to marginal cost, such that the seller makes only
`a normalreturn on its investment.”); see also N.Y. Indep. Sys. Operator, Inc., 170 FERC
`{| 61,121 (Glick, Comm’r, dissenting at P 2) (explaining that “the Commission’s buyer-
`side market power mitigation regime should focus only on actual market power”a
`concer that “is both more consistent with the FPA’s dual-federalist design and the
`Commission’s core responsibility as a regulator of monopoly/monopsony power”).
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Fited: 06/09/2020
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`Page 557 of 654
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`Commission eliminated the categorical exemption for resources developed pursuant to
`state public policy, the Commission limited the MOPR’s application only to natural gas-
`fired resources—i.e., those that would most likely be used as part of an effort to decrease
`capacity market prices.”
`
`How things have changed. Today, the Commission expressly admits that, for the
`17.
`first time, the MOPRis no longer about buyer-side market power.** Instead, as noted,it
`is all about and only about nullifying the effects of state public policies. That dramatic
`shift began only in 2018, more than a decade after the MOPR wasfirst employed to
`mitigate the exercise of market power.“ The intervening two years have been head-
`spinning as the Commission hasrapidly transformed a narrowly tailored anti-monopsony
`measure into a regime for blockingstate efforts to shape the generation mix.
`
`18. Atno point, however, has the Commission been able to coherently justify the
`MOPR’s changeoftarget. It first claimed that this transformation of the MOPR was
`necessary to ensure “investor confidence” andthe ability of unsubsidized resources to
`compete against resources receiving state support. A few monthslater, at the outset of
`this proceeding, the Commission abandoned “investor confidence” and asserted that the
`need to mitigate state policies in order to protect the “integrity” of the capacity market—
`another conceptthat it did not bother to explain.4* And last December, the Commission
`
`2 See N.J. Bad. ofPublic Utils. v. FERC, 744 F.3d 74, 106-07 (3d Cir. 2014)
`(NJBPU) (summarizing the Commission’s reasoning for limiting the MOPRto only
`natural gas-fired resources). The Commission asserts, without explanation, that there is a
`“clear tension” between the 2011 order eliminating the public policy exemption to then-
`limited MOPRandrecentstate efforts to shape the generation mix. December 2019
`Rehearing Order, 171 FERC { 61,035 at P 320. Nonsense. The 2011 order specifically
`exempted all non-natural-gas-fired resources from the MOPR,squarely foreclosing
`whatever tension the Commission pretends to uncover today. In any case, it is hardly fair
`to assign states the responsibility for predicting when the Commission will abandonits
`precedent and entirely reorient its approach to regulating a constructlike the PIM
`capacity market.
`
`“3 December 2019 Rehearing Order, 171 FERC 4 61,035 at P 45(stating that “the
`expanded MOPRdoesnot focus on buyer-side market power mitigation”).
`
`“4 See ISO New EnglandInc., 162 FERC 7 61,205, at PP 20-26 (2018). That order
`also cameafter every existing court case considering the legality of the Commission’s
`use of the MOPR.
`
`5 fd P21.
`
`46 June 2018 Order, 163 FERC { 61,236 at PP 150, 156, 161.
`
`

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`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 558 of 654
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`added yet another new twist: That state subsidies “reject the premise of the capacity
`market.’ But, as with investor confidence and market integrity, it is hard to know
`exactly what that premise is. Today’s orders provide more of the same,reiterating those
`buzz words without any further explanation.” If there is one thing that those inscrutable
`terms share,it is their inability to conceal, muchlessjustify, the fundamentalshift in the
`Commission’s focus.” The Commission’s effort to recast the MOPRas always having
`been aboutprice suppression at somelevel of generality™ obfuscates that point and badly
`mischaracterizes the recent shift in the MOPR’s focus.
`
`Neither of the Commission’s responses provide it much cover. First, the
`19.
`Commission asserts that the new MOPR does not intrude on states’ exclusive jurisdiction
`just becauseit “affect[s] matters within the states’ jurisdiction.”*! Of course thatis true;
`EPSA tells as much.** Butit is also beside the point. My argument—andthe arguments
`
`47 December 2019 Order, 169 FERC § 61,239 at P 17.
`
`#8 Fg., December 2019 Rehearing Order, 171 FERC { 61,035 at P 78 (asserting
`that “[t]he Commission may,as here, take action to protect the integrity of federally-
`regulated markets against state policies” without explaining what exactly integrity means
`in this context); id. P 320 (explaining that the various exemptions provided forin the
`December 2019 Orderare for “resources that accept the premise of a competitive
`capacity market” (quoting December 2019 Order, 169 FERC 4 61,239 at P 17)); id. P 337
`(asserting that “[t]he replacementrate directed in the December 2019 Order addresses
`State-Subsidized Resources, which pose a risk to the integrity of competition in the
`wholesale capacity market”).
`
`** Public Power Entities Rehearing Request at 6-7 (“The Commission did not
`justify the transformation of the MOPRfrom a limited mechanism aimed at preventing
`price suppression by subsidized new entry into a sweepingrestriction on almost all forms
`of non-federal support for generation resources.”).
`
`S¢ December 2019 Order, 169 FERC 4 61,239 at 136; see December 2019
`Rehearing Order, 171 FERC { 61,035 at P 338 (“[T]he December 2019 Order expands
`the scope of the MOPR,butnotits underlying purpose.”). As I noted in my underlying
`dissent, suggesting that the MOPR hasalways been about price suppressionis the
`equivalent of saying that speed limits have always been about keeping people from
`getting to their destination too quickly. There is a sense in whichthat is true, but it kind
`of misses the point. December 2019 Order, 169 FERC 61,239 (Glick, Comm’r,
`dissenting at n.35).
`
`*! December 2019 Rehearing Order, 171 FERC § 61,035 at PP 15-16.
`2 EPSA, 136 S. Ct. at 776 (“[A] FERC regulation does not run afoul of § 824(b)’s
`proscription just becauseit affects—even substantially—the quantity or termsofretail
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 559 of 654
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`madebyseveral parties on rehearing*’—is that the Commissionis exercising its authority
`over wholesale sales to “aim at”or “target” matters subject to exclusive state jurisdiction.
`As explained above,the “goals” of the new MOPRandthe mechanism “through which
`[it] operates” demonstrate an unmistakable focus on states’ exercise of their reserved
`authority.*4 That meansthat, unlike the rule in EPSA, today’s orders are not “all about,
`and only about, improving the wholesale market.”°5 Accordingly, the Court’s precedent
`regarding the incidental effects of a valid exercise of Commission authority are beside the
`point.
`
`In addition, the Commission appears to suggest that it can overstep its
`20.
`jurisdictional boundsonly ifit literally requires states to build certain resources or
`prevents states from doing the same.** In other words, the Commission’s theory ofthe
`case is that it exceeds its jurisdiction only if it directly regulates the construction of new
`resources. But that suggestion is inconsistent with the Supreme Court’s recent cases,
`including EPSA, that makeclear that the FPA does not permit federal or state regulators
`to use their authority in an attempt to interfere with the other’s sphere of exclusive
`jurisdiction by aimingat or targeting the matters peculiarly within that sphere.*”
`Accordingly, the Commission’s reasoning is both a misapplication of the law and
`arbitrary and capriciousinsofar as it utterly misses the point of the argument made by
`several parties on rehearing.*®
`
`Second, the Commission points to a handful of court of appeals decisions
`21.
`upholding various Commission orders addressing capacity markets. None of those cases
`sanction the Commission’s actions in this proceeding. The December 2019 Rehearing
`Order contends principally that the U.S. Court of Appeals for the Third Circuit’s (Third
`
`sales.”).
`
`53 See, e.g. Public Power Entities Rehearing Request at 13-15; Clean Energy
`Advocates Rehearing Request at 85-89.
`
`4 EPSA 136 S. Ct. at 776-77.
`
`35 Id. at 776.
`
`56 Sze December 2019 Rehearing Order, 17! FERC 4 61,035at P 17.
`
`57 See supra P 7; EPSA 136 S. Ct. at 776-77.
`
`58 See, e.g., Public Power Entities Rehearing and Clarification Request at 13-16;
`Clean Energy Associations Rehearing and Clarification Request at 10-11; Maryland
`Commission Rehearing and Clarification Request at 9-13; see also supra P 7; December
`2019 Order, 169 FERC { 61,239 (Glick, Comm’r, dissenting at PP 7-17).
`
`

`

`And eeNRE EST EIRPOTABabel I AS RRSHS tame neghee eamae bine eet Rattonwteemea al parptevta Payrescess ete pa
`
`ged
`
`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 560 of 654
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`Circuit) decision in NJPBU inoculates the Commission against any charge that it has
`exceededits jurisdiction by intruding on state authority over resource decisionmaking.
`That is not how precedent works. Just because a court upheld one order against a
`particular challenge does not mean that it would upholdail similar orders against other
`challenges.
`
` Inany case, the orders in this proceeding bear only a surface-level similarity to
`22.
`NJBPU." As the Third Circuit explained, the purpose of the MOPR onreview in that
`case waslimited to mitigating the exercise of buyer-side market power®'—a concern that,
`as noted, lies at the core of the Commission’s authority over wholesale rates and
`practices.** Consistent with that focus, that MOPRapplied only to natural gas-fired
`powerplants because they were the resources that a large net buyer of capacity could
`rationally use to suppress the capacity market clearing price.” In that case, the
`Commission eliminated an “exception” from the MOPRthat had previously allowed
`state-sponsored natural gas-fired units to skirt the MOPR.“ The Commissionjustified its
`decision by pointing to a pair of (ultimately preempted) state laws that subsidized new
`natural gas plants by effectively guaranteeing them a predetermined wholesale rate.©
`
`5° December 2019 Rehearing Order, 171 FERC § 61,035 at P 16 (“The court’s
`decision in NJBPU demonstrates that the findings from the December 2019 Order are
`within the Commission’s jurisdiction.”); June 2018 Rehearing Order, 171 FERC § 61,034
`at P 66.
`
`© See supra PP 16-18 (discussing the MOPR’s evolution).
`
`6! NJBPU, 744 F.3d at 84-85. In other words, the “aim”or “target” of the MOPR
`waslimited to the exercise of wholesale market power. Id.
`
`82 See supra note 41.
`
`6 NJBPU, 744 F.3d at 106 (“[T]he only resources subject to the MOPRare natural
`gas-fired technologies.”); id. (“FERC asserts that the characteristics of gas units make
`them mortelikely to be used as price suppression tools.” (internal quotation marks
`omitted)).
`
`4 Td. at 79.
`
`5 PJM Interconnection, L.L.C., 135 FERC § 61022, at P 139 (2011); id. PP 128-
`138 (discussing the evidence in the record). In Hughes, the Supreme Court subsequently
`held that the Maryland law, which was functionally identical to the New Jersey law, was
`preempted because it aimed at FERC’s exclusive jurisdiction over wholesales. 136 S. Ct.
`at 1928. That the Commission’s elimination of the state resource exemption was both
`focused exclusively on the exercise of buyer-side market power and in responseto a
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 561 of 654
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`The court concludedthat all the MOPR did in that case was ensure a “new resourceis
`economical—i.e., that it is needed by the market—and ensuresthat its sponsor cannot
`exercise market power by introducing a new resourceinto the auction at a price that does
`notreflect its costs and that has the effect of lowering the auction clearing price.”™ In
`addition, in reviewing those facts, the court observed that “FERC’s enumerated reasons
`for approving the elimination of the state-mandated exception relate directly to the
`wholesale price for capacity.”
`
`Today’s orders are an altogether different animal. As noted above, the December
`23.
`2019 Rehearing Order explicitly disavows the mitigation of market power as the basis for
`the new MOPR,® instead makingit “all about and only about”® “nullifying”” state
`efforts to shape the generation mix’?!—orat least those state efforts that the Commission
`
`state’s “intrusion” on FERC’s exclusivejurisdiction, id. n.t1, only underscores the
`differences between that decision and today’s orders.
`
`6 NJBPU, 744 F.3d at 97 (emphasis added).
`
`67 Td.
`
`63 See supra P 7; December 2019 Rehearing Order, 171 FERC 4 61,035 at P 45
`(“[T]he expanded MOPRdoesnot focus on buyer-side market power mitigation.”); June
`2018 Rehearing Order, 171 FERC { 61,034 at P 56.
`
` EPSA, 136 S. Ct. at 776.
`
`© As noted, this is the Commission’s own term for describing the effect that
`applying the MOPRhas ona particular policy. December 2019 Order, 169 FERC
`{ 61,239 at P 87. On rehearing, several parties identified the tension between the
`Commission’s assertions that it could not apply the MOPRto federal policies because to
`do so would “nullify” those policies and its statements that applying the MOPRtostate
`policies has no effect whatsoever. December 2019 Rehearing Order, 171 FERC 4 61,035
`at P 12. Although the Commission summarizes some of those arguments,it does not
`respond to them.
`
`| See supra P 9 (explaining how the Commission’s orders focus only on state
`efforts to regulate the generation mix and not on other state efforts that could conceivably
`have the same price suppressive effects). Even PJM, which broughtthis problem to our
`doorstep in 2018,criticizes the Commission for abandoning the MOPR’s role as
`“guardrail” and turning it into an “over-broad and over-prescriptive” rule that “needlessly
`interferes with state resource policies.” PJM Rehearing and Clarification Requestat 6-9.
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
`
`Filed: 06/09/2020
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`Page 562 of 654
`-17-
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`dislikes.”* As explained above, today’s orders—and, indeed, every order in this
`proceeding—has madeclear that the aim of the new MOPRisto “deter”states from
`taking actions of which the Commission disapproves.”? That makes today’s orders a far
`cry from NJBPU. In addition, the new MOPRmitigates indiscriminately and explicitly
`does not require that the mitigated state policy actually affect the capacity market
`clearing price or even be likely to have such an effect. That is distinctly unlike the
`targeted MOPRin NJBPUthat addressed only the resources mostlikely to be used in an
`exercise of market power.”> Simply put, the MOPR addressed in today’s orders is so
`fundamentally different from that before the court in NJBPU as to renderthe holding in
`that case next to meaningless as applied to these orders.
`
`The Commissionalso suggests that the D.C. Circuit’s decisions in Connecticut
`24.
`Department and Municipalities ofGroton support today’s outcome.” But those cases
`have even less in commonwith the facts before us than NJBPU. In both instances, the
`court upheld the Commission’s authority to require wholesale buyers to purchase
`particular quantities of capacity.””? As the Court explained in Connecticut Department,
`the Commission’s focus was squarely on market structures that would motivate utilities
`to develop or acquire the necessary capacity.”* But the Court wentoutof its way to
`explain that nothing in the Commission’s orders in any way limited thestates’ ability to
`influence or, indeed, directly select the resources that would meet those capacity
`
`72 See supra PP 11-12; infra Section I.B.1.d.
`
`® See supra P 14.
`
`™ December 2019 Rehearing Order, 171 FERC § 61,035 at P 132.
`
`5 Public Power Entities Rehearing Request at 15 (The “expansion ofthe MOPR
`fundamentally alters its purposes and impact in a way that impermissibly intrudes on
`state authority.”).
`
`7 December 2019 Rehearing Order, 171 FERC § 61,035 at P 15 & n.45(citing
`Conn. Dep’t ofPub. Util. Control v. FERC, 569 F.3d 477, 481-82 (D.C. Cir. 2009) and
`Muns. of Groton v, FERC, 587 F.2d 1296, 1301 (D.C. Cir. 1978)).
`
`7 Connecticut Dep't, 569 F.3d 481-85; id. at 482 (explaining that Municipalities
`.
`ofGroton “sustained the Commission'sjurisdiction to review the ‘deficiency charges’ . .
`charged ... when memberutilities failed to live up to their share of NEPOOL's reliability
`requirement”).
`
`78 Id. at 482.
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
`
`Filed: 06/09/2020
`
`Page 563 of 654
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`requirements.”? And that is where any superficial similarity to today’s orders ends. As
`noted, the new MOPRis expressly about limiting—“nullify[ing]”to use the
`Commission’s word®*—state efforts to shape the resources that meet those
`requirements.*! Whatis more, that nullification is the express reason for of the
`Commission’s action: The orders’ goal is to block the effects of state policies and deter
`states from exercising their authority over generation facilities.
`
`Finally, it is important to be precise about my jurisdictional argument. I do not
`25.
`believe that any MOPRis per se invalid just because it complicates state efforts to
`regulate generation facilities.™ After all, N/BPUindicatesthat the use of a MOPRthat
`addresses matters squarely within the Commission’s authority is permissible, at least in
`certain circumstances.“ Butthat is not what we have here. As explained above, today’s
`orders confirm that the Commission is deploying its new MOPRto aim at state resource
`decisionmaking and for the purpose of substituting its own policy preferences for those of
`the states. That “fatal defect” renders this particular MOPRin excessof the
`Commission’s jurisdiction.®
`
`” Id.
`
`89 December 2019 Order, 169 FERC § 61,239 at PP 10, 89.
`
`5! See supra P 10.
`
`82 December 2019 Rehearing Order, 171 FERC § 61,035 at P 319. The
`Commissionis also fond of pointing to the U.S. Court of Appeals for the Seventh
`Circuit’s statement, in resolving preemptionlitigation regarding [llinois’s zero-emissions
`credits, that the Commission has the authority to make “adjustments”to its regulations in
`light of state action. Star, 904 F.3d at 524. And indeed it does. Butit does not follow
`that the Commission can make any “adjustment”that it wants, certainly not one
`inconsistent with Supreme Court’s holdings on the limit of federal authority under the
`FPA,
`
`83 As I have elsewhere explained, the proper role for MOPRsis in combatting
`exercises of market power, not state efforts to shape the generation mix. N.Y. Indep. Sys.
`Operator, Inc., 170 FERC 4 61,121 (2020) (Glick, Comm’r, dissenting at PP 15-16).
`
`4 NUBPU,744 F.3dat 96-98.
`
`85 Cf Hughes, 136 S. Ct. at 1299.
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 564 of 654
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`I.
`
`The Commission’s Orders Are Arbitrary and Capricious
`
`Today’s orders are also arbitrary and capricious. The upshot of the majority’s
`26.
`position is that PJM’s capacity market is a just and reasonable constructon/y if the
`Commission “nullifies” the effects of state public policies. That interpretation of the FPA
`is as radical as it is wrong and finds no support in the 80-year history of the Act or in any
`Commission or court precedent.** I supposeit should be no surprise that installing such
`an unprecedented mitigation regime provesto be a difficult task. But that is no excuse
`for an order riddled with determinations that are unsupported by the record and deeply
`arbitrary and capricious. The whole purpose of the Administrative Procedure Actis to
`prevent an agency from relying on fundamentally flawed reasoning in order to imposeits
`policy preferences. If ever those protections were needed to address an action of the
`Commission,it is this one, both because of the shoddy reasoning on which the
`In
`Commission’s actions are based and the tremendous damage they mayultimately do.
`the following sections, I detail several of what I view to be the mostserious flawsin the
`Commissions reasoning, any of which should besufficient to invalidate today’s orders.
`
`A.
`
`The Commission Has Not Shownthat the Existing Rate Was Unjust
`and Unreasonable
`
`Section 206 of the FPA requires the Commission to show that the existing rate is
`27.
`unjust and unreasonable or unduly discriminatory or preferential before it can set a
`replacementrate.” The June 2018 Rehearing Orderfails to articulate a reasonedbasis
`for concluding that the pre-existing capacity market rules were unjust and unreasonable
`or unduly discriminatory or preferential. Instead, the Commission doubles down on a
`
`86 The December 2019 Order also swept beyond what was contemplated in the
`original Calpine complaint by suggesting that voluntary commercialtransactions
`involving renewable energy credits (RECs) would constitute a state-subsidized
`transaction and be subject to the MOPR. In response,several parties soughtlate
`intervention, which the Commission denies. December 2019 Rehearing Order, 171
`FERC ] 61,035 at P 4. I would have granted those interventions. The December 2019
`Order took an approach to mitigation that was far broader than any that had been
`contemplated to date in this proceeding and, indeed, in the Commission’s history. Under
`those circumstances, we would be better served by letting would-be parties have their full
`say, rather than forcing them to sit on the sidelines.
`
`87 Emera Maine v. FERC, 854 F.3d 9, 25 (D.C. Cir. 2017) (“[A]finding that an
`existing rate is unjust and unreasonableis the ‘condition precedent’ to FERC’s exercise
`of its section 206 authority to changethat rate.” (quoting FPC v. Sierra Pac. Power Co.,
`350 US. 348, 353 (1956))).
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
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`Filed: 06/09/2020
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`Page 565 of 654
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`conclusory theory of the case that does not seriously wrestle with the contrary arguments
`and evidence in the record.
`
`The June 2018 Rehearing Order does not rely on any evidence thatstate policies
`28.
`are actually distorting prices, much less that they are doing so in a way that imperils
`resource adequacy in the region. Instead, the Commission’s case rests on two
`propositions: (1) that certain state subsidies permit resources to lower their capacity
`marketoffers, which, if enough resourcesdoit, will lower the clearing price® and(2)
`that the numberofpotentially subsidized megawatts in PJM appears likely to grow in
`coming years.®? That is the entirety of the Commission’s theory. Andthat is not enough,
`on this record, to reasonably conclude that PJM’s existing tariff was unjust and
`unreasonable or unduly discriminatory or preferential.
`
`As numerous parties argued on rehearing, the idea that resource adequacy in PJM
`29.
`is currently imperiled by state subsidies is, frankly, laughable. The Base Residual
`Auction has consistently procured more resources than required to meet PJM’s reliability
`requirement and thousands of megawatts of additional resources have elected not to
`retire, even though they are not receiving any capacity market payment.” Ifstate
`policies are, in fact, a threat to resource adequacy,there is certainly no evidence ofthat in
`PJM’s current reserve margins. Instead, as discussed in some detail in another statement
`I am issuing today, if there is a problem in PJM’s capacity market, it is not that prices are
`too low, but rather that the marketis designed to produce prices that are too high, over-
`procuring capacity and dulling the price signals in the energy and ancillary service
`
`*8 Fg., June 2018 Rehearing Order, 171 FERC 4 61,034 at P 28 (“It is axiomatic
`that resources receiving out-of-market subsidies need less revenue from the market than
`they otherwise would. The rational choice for such resources, given their need to
`participate in PJM’s capacity market, is to reduce their offers commensurably to ensure
`they clear in the market.”’).
`
`8 FE.g., id. P 29 (“Rather, the June 2018 Order emphasized the significant and
`continued growth of out-of-market support. As this growth continues, more subsidized
`resources will have the ability to offer below their costs and suppress prices” (footnotes
`omitted)).
`
`” See, e.g., Joint Consumer Advocates June 2018 Order Rehearing Requestat 8
`(citing PJM 2021/2022 RPM Base Residual Action Results at 1, https:/Awww.pjm.com/-/
`media/markets-ops/rpm/rpm-auction-info/202 1 -2022/202 1 -2022-base-residual-auction-
`report.ashx (2021/2022 BRA Summary)); see also 2021/2022 BRA Summary (“The
`2021/2022 Reliability Pricing Model (RPM) Base Residual Auction (BRA) cleared
`163,627.3 MW of unforced capacity in the RTO representing a 22.0% reserve margin.”
`(emphasis added)).
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
`
`Filed: 06/09/2020
`
`Page 566 of 654
`-21-
`
`markets.”! Faced with that fact, the Commission responds with the assertion that state
`subsidies will surely cause a problem in the future.** Maybe, but there is no evidencein
`this record that suggests that state policies will cause any resource adequacy concerns
`whatsoever.
`
`Apparently recognizing that point, the Commission pivots to economic theory as
`30.
`the basis for its action.” It is true that the Commission need not prove basic economic
`principles every time that it seeks to act on them. After all, “[a]gencies do not need to
`conduct experiments in order to rely on the prediction that an unsupported stone will
`fall.”** Instead, agencies can rely on economic theory to make predictive judgments
`about how the future will play out.* But that does not mean that an agency can tum
`“economic theory”into a “talismanic phrase that does not advance reasoned decision
`making”and claim to have satisfied its obligations under the APA.”* In other words, an
`agency cannotarticulate a principle, label it “economic,” make a prediction, and move on
`without wrestling with contrary record evidence or reasonable alternative applications of
`that economic theory.
`
`But that is exactly what the June 2018 Rehearing Order does. It asserts that state
`31.
`subsidies in PJM are increasing, that subsidies reduce the costs of the resource being
`subsidized and, therefore, subsidies will cause more subsidized resources to clear the
`Capacity market. All true. From that though, the Commission concludes that PJM’s tariff
`will no longer ensure resource adequacyat rates that are just and reasonable and not
`
`9! See PJM Interconnection, L.L.C., 171 FERC { 61,040 (2020) (Glick, Comm’r.
`dissenting).
`
`% Tune 2018 Rehearing Order, 171 FERC § 61,034 at PP 29-30.
`
`3 E.g., id. PP 25, 27, 29, 34, 37.
`
`%4 Assoc. Gas Distributors v. FERC, 824 F.2d 981, 1008 (D.C. Cir. 1987). I
`cannot help but note the mild irony that the rest of that example of an assumable
`economic theory is that “competition will normally lead to lower prices,” id. at 29, while
`the Commission’s theory of the case today rests on the supposedly urgent need to raise
`prices.
`
`5 See, e.g., NextEra Energy Res., LLC v. FERC, 898 F.3d 14, 23 (D.C. Cir. 2018);
`5.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 65, 76 (D.C. Cir. 2014) (“[A]t least in
`circumstances where it would be difficult or even impossible to marshal empirical
`evidence, the Commissionis free to act based on reasonable predictions rooted in basic
`economic principles.”).
`
`%® TransCanada Power Mktg. Lid. v. FERC, 811 F.3d 1, 13 (D.C.Cir. 2015).
`
`

`

`Document #1846520
`USCA Case #20-1194
`Docket Nos. EL16-49-002 and EL18-178-002
`
`Filed: 06/09/2020
`
`Page 567 of 654
`- 22 -
`
`unduly discriminatory or preferential, which is where its reasoning getsalittle tenuous,
`as the economic principle articulated does not lead ineluctably to the regulatory
`conclusion reached. Instead, the record is replete with evidence and reasonable theories
`that could support an alternative conclusion. For one thing, the evidence in the record of
`continued high prices and entry of new resources (not to mention, retention of old ones)
`could just as easily support the conclusion that a more-than-adequate quantity of
`resources will remain in the market, state subsidies notwithstanding.”’? As numerous
`parties point out, that has been the experienceto date in PIM. Why the Commissionis
`so confident that things will change at some undefined future inflection point is never
`explained. Nor does the Commission explain whyit is confident that those assumed
`effect