`United States Court of Appeals
`FOR THE DISTRICT OF COLUMBIA CIRCUIT
`
`
`
`Argued May 5, 2022
`
`
`Decided August 23, 2022
`
`No. 20-1343
`
`CONSTELLATION MYSTIC POWER, LLC,
`PETITIONER
`
`v.
`
`FEDERAL ENERGY REGULATORY COMMISSION,
`RESPONDENT
`
`BRAINTREE ELECTRIC LIGHT DEPARTMENT, ET AL.,
`INTERVENORS
`
`
`
`Consolidated with 20-1361, 20-1362, 20-1365, 20-1368,
`21-1067, 21-1070
`
`
`On Petitions for Review of Orders
` of the Federal Energy Regulatory Commission
`
`
`
`
`
`Matthew A. Fitzgerald argued the cause for petitioner
`Constellation Mystic Power, LLC. With him on the briefs were
`Noel H. Symons and Katlyn A. Farrell.
`
`
`Jeffrey A. Schwarz argued that cause for State petitioners.
`With him on the briefs were Seth A. Hollander, Assistant
`
`
`
`
`
`2
`
`Attorney General - Special Litigation, Office of the Attorney
`General for the State of Connecticut, Scott H. Strauss, Amber
`L. Martin Stone, Kirsten S. P. Rigney, Robert Snook, Assistant
`Attorney General - Environment, Office of the Attorney
`General for the State of Connecticut, Andrew Minikowski and
`Julie Datres, Staff Attorneys, Ashley M. Bond, Maura Healy,
`Attorney General, Office of the Attorney General for the
`Commonwealth of Massachusetts, Christina Belew, Assistant
`Attorney General, Jason Marshall, and Phyllis G. Kimmel.
`
`
`Scott H. Strauss, Jeffrey A. Schwarz, Amber L. Martin
`Stone, and John P. Coyle were on the briefs for intervenors
`Braintree Electric Light Department, et al. in support of State
`petitioners.
`
`
`Robert M. Kennedy and Carol J. Banta, Senior Attorneys,
`Federal Energy Regulatory Commission, argued the causes for
`respondent. With them on the brief were Matthew R.
`Christiansen, General Counsel, and Robert H. Solomon,
`Solicitor.
`
`
`John P. Coyle argued the cause for intervenors Braintree
`Electric Light Department, et al. in support of respondent.
`With him on the brief were Scott H. Strauss, Jeffrey A.
`Schwarz, and Amber L. Martin Stone.
`
`
`Michael J. Thompson, Ryan J. Collins, and Maria Gulluni
`were on the brief for intervenor ISO New England, Inc. in
`support of respondent.
`
`
`Before: SRINIVASAN, Chief Judge, HENDERSON and RAO,
`Circuit Judges.
`
`
`Opinion for the Court filed PER CURIAM.
`
`
`
`
`
`3
`
`PER CURIAM: In March 2018, Constellation Mystic Power,
`LLC (Mystic)—a subsidiary of Exelon Generation Company,
`LLC (ExGen), which itself is a subsidiary of Exelon
`Corporation (Exelon)1—announced its intention to retire the
`Mystic Generating Station (Mystic Station), a natural gas-fired
`generator serving the greater Boston metropolitan area, after
`the facility’s existing capacity obligations expired in May
`2022. The region’s independent system operator, ISO New
`England, concluded
`that Mystic Station’s
`loss would
`exacerbate anticipated stresses on the region’s electricity
`network during winter months and increase the risk of rolling
`blackouts. ISO New England also found that Mystic Station’s
`retirement risked the closure of its sole fuel source, the Everett
`Marine Terminal (Everett)—a liquified natural gas (LNG)
`import and regasification facility currently owned and operated
`by an ExGen subsidiary—adding to the risk of blackouts in the
`region.
`
`In light of these findings, ISO New England entered into a
`cost-of-service agreement with Mystic and ExGen to keep two
`of Mystic Station’s generating units, referred to as Mystic 8 and
`9, in service between June 2022 and May 2024. The parties
`filed the proposed agreement (Mystic Agreement) with the
`Federal Energy Regulatory Commission (Commission or
`FERC). The Commission ultimately approved the terms of the
`Mystic Agreement, albeit with significant modifications.
`
`
`1 In February 2022, after the petitions for review here had been
`filed, Exelon consummated a spinoff transaction that placed
`ExGen—which was renamed Constellation Energy Generation,
`LLC—and Mystic under the corporate parentage of Constellation
`Energy Corporation. Despite this transaction, we will refer to
`Mystic’s parents as ExGen and Exelon, as the parties have done,
`unless context dictates otherwise.
`
`
`
`
`
`4
`
`At issue are six Commission orders related to its approval
`of the Mystic Agreement. See Constellation Mystic Power,
`LLC, 164 FERC ¶ 61,022 (July 13, 2018) (July 2018 Order);
`Constellation Mystic Power, LLC, 165 FERC ¶ 61,267 (Dec.
`20, 2018) (December 2018 Order); Constellation Mystic
`Power, LLC, 172 FERC ¶ 61,043 (July 17, 2020) (First July
`2020 Rehearing Order); Constellation Mystic Power, LLC, 172
`FERC ¶ 61,044 (July 17, 2020) (Second July 2020 Rehearing
`Order); Constellation Mystic Power, LLC, 172 FERC ¶ 61,045
`(July 17, 2020) (Compliance Order); Constellation Mystic
`Power, LLC, 173 FERC ¶ 61,261 (Dec. 21, 2020) (December
`2020 Rehearing Order). Two groups of petitioners now seek
`review of those orders: Mystic and a group of New England
`state regulators (State Petitioners).2 As detailed infra, we
`dismiss Mystic’s petition for review in part and deny it in part;
`we grant the State Petitioners’ petitions.
`
`I. BACKGROUND
`
`A. Statutory Background
`
`Section 201(b) of the Federal Power Act (FPA) grants the
`Commission jurisdiction of the transmission and wholesale
`sale of electric energy in interstate commerce. 16 U.S.C.
`§ 824(b); see New York v. FERC, 535 U.S. 1, 6–7 (2002). The
`FPA provides that “[a]ll rates for or in connection with
`jurisdictional sales and transmission service are subject to
`review by FERC to ensure that the rates are just and reasonable
`
`
`2 The State Petitioners include the Connecticut Public Utilities
`Regulatory Authority, the Connecticut Department of Energy and
`Environmental Protection, the Connecticut Office of Consumer
`Counsel (collectively, Connecticut Parties), the Attorney General of
`the Commonwealth of Massachusetts (Massachusetts AG) and the
`New England States Committee on Electricity, Inc. (States
`Committee).
`
`
`
`
`
`5
`
`and not unduly discriminatory or preferential.” New England
`Power Generators Ass’n v. FERC (NEPGA), 881 F.3d 202, 205
`(D.C. Cir. 2018)); see 16 U.S.C. §§ 824d(a), (e), 824e(a).
`Section 205 requires that all public utilities “file with the
`Commission . . . all rates and charges for any transmission or
`sale subject to the jurisdiction of the Commission,” 16 U.S.C.
`§ 824d(c), with the utility bearing the burden to show that its
`proposed rate is lawful, id. § 824d(e). See NEPGA, 881 F.3d at
`205. If the Commission determines that a rate is “unjust,
`unreasonable, unduly discriminatory or preferential,” it must
`set aside the rate and replace it with one that is just and
`reasonable. 16 U.S.C. § 824e(a)–(b). A negatively affected
`party may challenge a Commission-approved rate by filing a
`complaint with the Agency, and it carries the burden of
`demonstrating that the rate is unjust or unreasonable. See id.
`§ 824e(a)–(b). The reasonableness of a rate is assessed in light
`of the FPA’s goals of promoting reliable service at reasonable
`rates and developing plentiful energy supplies. See Consol.
`Edison Co. v. FERC, 510 F.3d 333, 342 (D.C. Cir. 2007); see
`also NAACP v. FPC, 425 U.S. 662, 669–70 (1976).
`
`B. The New England Electricity Market
`
`ISO New England is the independent system operator3 that
`operates the transmission facilities and administers the
`wholesale electricity markets across six states—Connecticut,
`Maine, Massachusetts, New Hampshire, Rhode Island and
`Vermont. The wholesale markets facilitate the sale of
`
`
`3 Independent system operators result from the unbundling of
`transmission and generation services—which were historically
`handled by a single, vertically integrated utility—and serve to
`coordinate, control and monitor the electricity transmission facilities
`owned by its member utilities in order to ensure nondiscriminatory
`access to all electricity generators. See Midwest Indep. Transmission
`Sys. Operator, Inc. v. FERC, 388 F.3d 903, 906 (D.C. Cir. 2004).
`
`
`
`
`
`6
`
`electricity by generators to electric utilities and electricity
`traders before its eventual sale to end-use consumers. The rates
`charged by ISO New England for access to its transmission
`system and the rules governing the wholesale markets under its
`purview are set out in a grid-wide tariff.
`
`In addition to ensuring adequate supply to meet present-
`day electricity demands, ISO New England must also ensure
`sufficient supplies to meet future needs. This is accomplished
`via a forward-capacity market, in which load serving entities—
`i.e., the utilities delivering electricity to end users—purchase
`capacity, which “is not electricity itself but the ability to
`produce it when necessary,” from generators. Pub. Citizen, Inc.
`v. FERC, 839 F.3d 1165, 1167–68 (D.C. Cir. 2016) (quoting
`Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d 477, 479
`(D.C. Cir. 2009)). The forward-capacity market is conducted
`via an auction held three years in advance of a particular
`capacity commitment period. Generators submit bids reflecting
`the lowest price they will accept before exiting the market.
`During the “descending clock” auction, the capacity price is
`steadily lowered, causing bidding generators to exit. Once the
`amount of capacity offered reaches ISO New England’s
`projected capacity requirement for the commitment period, the
`auction stops, and those generators remaining in the market are
`paid the clearing price, regardless of their initial bids. See
`generally id. (explaining forward-capacity auction).
`
`Once a generator participates in a forward-capacity
`auction, it is automatically re-entered into every subsequent
`auction unless it affirmatively seeks to remove its capacity
`from the market for that commitment period or permanently,
`with the latter option constituting “retirement.” If a generator
`seeks to retire from the market, it must submit a Retirement De-
`List Bid eleven months before the auction corresponding to the
`period for which it intends to retire, which signals the
`
`
`
`
`
`7
`
`generator’s intent to exit the market if the clearing price falls
`below its bid price and gives ISO New England an opportunity
`to determine if the generator’s proposed retirement presents a
`service risk to the region. If ISO New England so concludes, it
`may ask the generator to remain in operation; if the generator
`accepts, it can then elect to receive either its initial bid price or
`a cost-of-service rate.
`
`C. Mystic 8 and 9
`
`Mystic 8 and 9 are combined-cycle natural gas-fired
`generating units with a combined summer capacity of about
`1,400 megawatts.4 The two units run on revaporized LNG
`imported via marine terminal, making them unique among
`other natural gas-fired units in the region, which run on vapor
`natural gas imported through regional pipelines.
`
`Following the restructuring of the Massachusetts energy
`market in the 1990s, Mystic Station was acquired from the
`Boston Edison Company by Sithe Energies, Inc. in 1999. Sithe
`shortly thereafter began construction of Mystic 8 and 9, with
`the two units beginning commercial operation as merchant
`generators in 2003; according to Mystic, the two units were
`constructed at a cost of just under $1 billion. In 2002, ExGen
`acquired Sithe but subsequently ran into financial troubles in
`connection with the construction of Mystic 8 and 9. In May
`2004, ExGen reached a settlement with its lenders, transferring
`Mystic Station to a special purpose entity owned by a
`consortium of lenders in exchange for the cancellation of debts.
`
`
`4 Mystic units 1 through 6 have been decommissioned, and the
`other units still in operation, Mystic 7 and Mystic Jet, are subject to
`Retirement De-List Bids but have not been designated as units
`necessary to meet reliability needs. None of these units is at issue
`here.
`
`
`
`
`
`8
`
`According to Mystic, as a result of this transaction, Mystic 8
`and 9 were valued at approximately $547 million.
`
`In 2010, after the special purpose entity declared
`bankruptcy, subsidiaries of Constellation Energy Group, Inc.
`purchased Mystic Station, as well as a separate natural gas-
`fired facility unrelated to the proceedings at issue, for $1.1
`billion. In 2012, Constellation Energy Group merged with
`Exelon. According to Mystic, as part of the merger, Mystic 8
`and 9 were independently appraised at $925 million. As a result
`of the merger, Mystic, which traces its parentage through
`ExGen to Exelon, became the owner of Mystic 8 and 9.
`
`D. The Everett Marine Terminal
`
`Everett, located on a property near Mystic Station, is
`Mystic 8 and 9’s sole source of revaporized LNG, making the
`two units “the only natural gas-fired units in the United States
`that are directly connected to an LNG import regasification
`facility.” Joint Appendix (J.A.) 7. Everett, the longest-
`operating LNG import terminal in the United States, has a
`storage capacity of 3.4 billion cubic feet and connects to, aside
`from Mystic 8 and 9, two outbound interstate pipeline facilities
`and a local gas company’s distribution facility.
`
`When the Commission proceedings began, Everett was
`owned by Distrigas of Massachusetts, LLC, a subsidiary of
`Engie Gas & LNG Holdings LLC, although Exelon was
`already in the process of purchasing the Everett facility.
`According to William Berg, an Exelon executive, the company
`determined that acquisition of Everett “was the best and most
`reliable option for Mystic to meet its existing capacity supply
`obligations through May 2022 without significant risk of non-
`performance.” J.A. 197. In late 2018, while the Commission’s
`proceedings were ongoing, Exelon finalized its purchase of
`
`
`
`
`
`9
`
`Everett, which is now owned by Constellation LNG, LLC,
`another subsidiary of ExGen.
`
`E. The Mystic Agreement
`
`In 2018, Mystic concluded that Mystic Station was no
`longer economically viable, notified ISO New England of its
`intent to retire when its existing capacity supply obligations
`expired in May 2022 and submitted the required Retirement
`De-List Bid. Following Mystic’s announcement, ISO New
`England analyzed the impact of Mystic 8 and 9’s retirements
`on the region’s fuel security during the winter months, when
`natural gas-fired power plants have difficulties obtaining the
`necessary fuel through the region’s limited pipeline network
`due to priority demands for heating. See Belmont Mun. Light
`Dep’t v. FERC, 38 F.4th 173, 180–81 (D.C. Cir. 2022)
`(discussing ISO New England’s fuel security analysis). ISO
`New England concluded that the loss of Mystic 8 and 9, given
`their unique reliance on imported LNG rather than vapor
`natural gas distributed through regional pipelines, would likely
`result in multiple days of “load shedding”—i.e., rolling
`blackouts—during
`the 2022
`through 2024
`capacity
`commitment periods. ISO New England further determined
`that Mystic 8 and 9’s retirements could affect the financial
`viability of Everett, whose retirement could further exacerbate
`the length and severity of load shedding events.
`
`In light of these findings, ISO New England sought to
`retain Mystic 8 and 9 for two years beyond their planned
`retirements. In May 2018, Mystic, acting pursuant to section
`205 of the FPA, filed with the Commission an agreement, the
`Mystic Agreement, among itself, Exelon and ISO New
`England
`that would provide Mystic
`cost-of-service
`compensation for the continued operation of Mystic 8 and 9
`from June 1, 2022, until May 31, 2024. We go into greater
`
`
`
`
`
`10
`
`detail infra as to several of the cost inputs comprising Mystic’s
`cost-of-service rate under the agreement but, in simplified
`terms, the rate is derived from four primary cost inputs: (1) a
`return on Mystic 8 and 9’s “rate base,” meaning the value of
`the facilities used to provide service to ratepayers less
`depreciation; (2) operation and maintenance expenses;
`(3) depreciation expenses; and (4) taxes.
`
`As part of its filing, Mystic attached a separate agreement
`between Mystic and Everett, referred to as the Everett
`Agreement. Per the Everett Agreement, over which the
`Commission disclaims jurisdiction, see Second July 2020
`Rehearing Order, at ¶ 43; FERC Br. 53, Mystic agreed to pay
`Everett a cost-based rate for the fuel used by Mystic 8 and 9
`alongside a monthly charge (Fuel Supply Charge) covering 100
`per cent of Everett’s fixed operating and maintenance costs as
`well as a return on investment tied to Everett’s rate base. As
`originally proposed, the Fuel Supply Charge would be offset
`by 50 per cent of the profits Everett earned on third-party sales
`over the course of the Everett Agreement.
`
`F. The Commission Proceedings
`
`This brings us to the Commission orders underlying this
`litigation. For clarity,
`rather
`than
`take
`the orders
`chronologically, we break up the orders according to the five
`disputed components of the Commission-approved Mystic
`Agreement.
`
`Mystic’s Rate Base: Under cost-of-service ratemaking
`principles, the starting point to calculate a generator’s return on
`capital is the generating facility’s rate base, or the value of the
`assets used to serve ratepayers. See NEPCO Mun. Rate Comm.
`v. FERC, 668 F.2d 1327, 1335 (D.C. Cir. 1981). Mystic
`initially proposed to set Mystic 8 and 9’s rate base according to
`the $925 million valuation it made in connection with the 2012
`
`
`
`
`
`11
`
`Constellation Energy Group-Exelon merger, before adding
`post-acquisition
`capital
`expenditures
`and
`subtracting
`depreciation. In its December 2018 Order, however, the
`Commission rejected Mystic’s approach as inconsistent with
`the Commission’s “original cost test,” which provides that a
`utility “may only earn a return on (and recovery of) the lesser
`of the net original cost of plant or, when plant assets change
`hands in arms-length transactions, the purchase price of the
`plant,” id. at ¶ 63; see infra Part III (explaining original cost
`test), and directed Mystic to reduce its valuation of Mystic 8
`and 9 to account for past sales of the units at prices lower than
`the 2012 valuation, see id. at ¶¶ 63–66.
`
`On rehearing, the Commission rejected Mystic’s claim
`that the original cost test, as applied by the Commission, was
`inappropriate to calculate its return on Mystic 8 and 9’s rate
`base, see generally Second July 2020 Rehearing Order, at
`¶¶ 105–111, and on compliance, rejected Mystic’s proposed
`rate base calculation for failing to account for the 2004 $547
`million transfer in lieu of foreclosure, see Compliance Order,
`at ¶ 45.
`
`Mystic’s Capital Structure: Alongside its rate base, a
`generator’s return on capital under a cost-of-service model is
`derived from its overall rate of return, which is dependent upon
`its capital structure—i.e., the relative amounts of debt and
`equity. See NEPCO, 668 F.2d at 1335. Mystic initially
`proposed using the capital structure of its immediate parent,
`ExGen: 67.28 per cent equity and 32.72 per cent debt. See
`December 2018 Order, at ¶ 35. The Commission rejected this
`proposal, finding the proposed structure too equity-heavy
`relative to the industry, see id. at ¶¶ 48–51, and instead directed
`Mystic to use the capital structure of ExGen’s parent, Exelon,
`which was 52.4 per cent debt and 47.6 per cent equity, id. at
`¶ 52. After Mystic sought rehearing,
`the Commission
`
`
`
`
`
`12
`
`reaffirmed its determination, again citing the anomalous nature
`of ExGen’s capital structure relative to the industry. See
`Second July 2020 Rehearing Order, at ¶¶ 132–34.
`
`After the petitions for review had been filed but before oral
`argument, the Commission issued an additional order that,
`although not subject to review in this proceeding, is
`nevertheless relevant. In February 2022, Exelon consummated
`a spinoff transaction that placed ExGen and Mystic under the
`corporate parentage of Constellation Energy Corporation. See
`Constellation Mystic Power, LLC, 179 FERC ¶ 61,081, at ¶ 6
`(May 2, 2022) (May 2022 Order). As a result, Mystic amended
`the Mystic Agreement to reflect the changes in corporate
`structure and, as relevant here, argued that Exelon’s capital
`structure was no longer relevant—as Exelon no longer had any
`relationship with Mystic—and again requested to use ExGen’s
`capital structure. Id. at ¶ 9. The Commission “agree[d] with
`Mystic that it would be inappropriate to continue basing its
`capital structure and cost of debt on those of Exelon
`Corporation,” id. at ¶ 25, but further explained that Mystic had
`not yet shown ExGen’s capital structure to be just and
`reasonable, id. at ¶ 24. The Commission accordingly set a
`hearing to determine the appropriate capital structure. Id. at
`¶¶ 24–25.
`
`Everett’s Costs: The Commission rejected Mystic’s
`proposal to recover 100 per cent of Everett’s fixed operating
`and maintenance costs via the Fuel Supply Charge, instead
`adopting its Trial Staff’s proposal that would allocate 91 per
`cent of Everett’s costs—the historical ratio of Everett’s vapor
`sales, as opposed to its LNG sales, to its total sales—and the
`Staff’s related revenue crediting mechanism, whereby Everett
`would retain up to 50 per cent of the margin on third-party
`forward sales, meaning those made at least three months in
`
`
`
`
`
`13
`
`advance.5 See December 2018 Order, at ¶¶ 133–35. The
`Commission also rejected Mystic’s proposal to include the
`Everett acquisition cost as part of Everett’s rate base, which is
`used to calculate the return-on-investment component of the
`Fuel Supply Charge. See id. at ¶¶ 148–49.
`
`rejected Mystic’s
`the Commission
`rehearing,
`On
`arguments regarding the exclusion of Everett’s acquisition cost
`from its rate base. See Second July 2020 Rehearing Order, at
`¶¶ 113, 118–20. Further, the Commission rejected arguments
`by the Massachusetts AG, one of the State Petitioners, that the
`Commission lacked jurisdiction to review and approve the
`inclusion of Everett’s fixed operating costs as a component of
`Mystic’s proposed cost-of-service rate, asserting that “[t]he
`Fuel Supply Charge is a component of Mystic’s cost-of-service
`rate and, as a result, is subject to Commission review and
`approval.” First July 2020 Rehearing Order, at ¶¶ 16–18, 26–
`31. Despite comments from several State Petitioners objecting
`to the Commission’s allocation of Everett-related costs, see
`Second July 2020 Rehearing Order, at ¶¶ 57–60, 62, the
`Commission reaffirmed the appropriateness of its 91 per cent
`allocation, see id. at ¶¶ 64–65. In response to comments noting
`that vapor sales are made to parties other than Mystic, the
`Commission reasoned that those sales nevertheless benefit
`Mystic “by helping to manage Everett’s tank.” Id. at ¶ 64. But
`the Commission did decide to eliminate revenue crediting,
`finding that “proper cost allocation based on cost-causation
`principles obviate[d] the need” for the revenue crediting and
`
`
`5 Under the revenue crediting mechanism, “the first 10 million
`MMBtus are credited 90 percent to Mystic (i.e., back to ratepayers)
`and 10 percent to Constellation LNG, revenue from the next 30
`million MMBtus are credited 80 percent to Mystic and 20 percent to
`Constellation LNG, and so on until all deliveries above 60 million
`MMBtus are credited 50/50 as initially proposed by Mystic.”
`December 2018 Order, at ¶ 134.
`
`
`
`
`
`14
`
`questioning its own jurisdiction to approve an incentive
`mechanism that “focuses directly on Everett’s conduct rather
`than Mystic’s.” Id. at ¶ 66. The Connecticut Parties, a subset of
`the State Petitioners, sought rehearing on the elimination of
`revenue crediting, arguing that “unless or until Mystic’s share
`of Everett costs is reduced to correspond to its use of the
`facilities,” the Commission should “restore the crediting
`mechanism.” J.A. 1664. The Commission denied their request.
`
`On this issue, then-Commissioner (now Chairman) Glick
`dissented from all of the orders at issue, asserting that the
`Commission overstepped its jurisdictional boundaries by
`reviewing and approving recovery of Everett-related costs that,
`in his view, bore little relationship to Mystic’s jurisdictional
`rate. See, e.g., December 2018 Order (Glick, C., dissenting);
`First July 2020 Rehearing Order (Glick, C., dissenting).
`
`True-Up Mechanism: Recognizing that many of the
`components of Mystic’s cost-of-service rate were based, at
`least in part, on Mystic’s projections of future costs, the
`Commission directed Mystic to include a “true-up” mechanism
`in the Mystic Agreement, which would allow parties to
`reconcile cost projections with actual expenditures via
`surcharges and refunds as necessary. See July 2018 Order, at
`¶ 20. Mystic initially proposed a true-up mechanism that would
`have applied only to specific subsets of rate inputs, see
`December 2018 Order, at ¶ 165, but the Commission rejected
`this approach, instead “direct[ing] that the true-up mechanism
`apply to the entire [Mystic] Agreement, with the exception of
`the [return on equity],” id. at ¶ 177. The Commission
`emphasized that the true-up process included Mystic’s
`revenues. Id. at ¶ 179. The Commission also noted that the
`reasonableness of tank congestion charges passed along to
`ratepayers “is more appropriately reviewed during the true-up
`process,” id. at ¶ 164, but later determined that review of tank
`
`
`
`
`
`15
`
`congestion charges was “no longer required” given its
`elimination of the revenue crediting mechanism, see Second
`July 2020 Rehearing Order, at ¶ 73.
`
`Mystic sought rehearing on the breadth of the true-up
`mechanism as it applied to pre-2018 costs related to Mystic 8
`and 9 that, in Mystic’s view, had already been fully litigated.
`See Second July 2020 Rehearing Order, at ¶ 79. The
`Commission denied rehearing, finding that those historic
`numbers had not yet been fully litigated and were thus
`appropriately “subject to true-up.” Id. at ¶ 86. Mystic also
`objected to the inclusion of revenues as part of the true-up
`process. Id. at ¶ 80. The Commission agreed with this argument
`and “set aside” its earlier requirement that Mystic “true-up
`revenues.” Id. at ¶ 88.
`
`The States Committee, another of the State Petitioners,
`sought clarification, or rehearing in the alternative, as to
`whether interested parties could still challenge the calculation
`of revenue credits despite the Commission’s decision to omit
`revenues from the true-up process. See J.A. 1716. As they see
`it, the Commission acknowledged their request, see December
`2020 Rehearing Order, at ¶ 25, but failed to address it
`adequately. See infra Part VI.B.1. With regard to the tank
`congestion charges,
`the States Committee also sought
`rehearing, arguing that if the costs of third-party sales are being
`passed on to ratepayers, ratepayers should have some
`mechanism to review and challenge the reasonableness of those
`sales, see J.A. 1712–13, arguments that the Commission
`addressed in its final rehearing order, see December 2020
`Rehearing Order, at ¶¶ 26–28.
`
`Clawback Provision: In its December 2018 Order, the
`Commission determined that the Mystic Agreement was not
`just and reasonable without a “clawback” provision—which
`
`
`
`
`
`16
`
`would require Mystic to reimburse ratepayers for certain
`capital and repair expenditures made over the course of the
`Mystic Agreement if Mystic 8 and 9 were to re-enter the New
`England energy market after the Agreement expires. See
`December 2018 Order, at ¶ 208. In essence, a clawback
`provision disincentivizes a generating facility from switching
`between cost-of-service and market-based rates so that
`ratepayers finance investments during the term of a cost-of-
`service agreement that benefit the facility beyond the term of
`the agreement. Id.; see also Midcontinent Indep. Sys. Operator,
`Inc., 161 FERC ¶ 61,059, at ¶ 55 (2017). The Commission
`accordingly directed Mystic to revise the Mystic Agreement to
`include a clawback provision. See December 2018 Order, at
`¶ 208. The States Committee sought clarification as to whether
`the required clawback provision would apply to consumer-
`funded investments and repairs in connection with both Mystic
`8 and 9 and Everett. See J.A. 1374.
`
`On compliance, Mystic proposed a clawback provision
`applicable to certain repairs and capital expenditures made by
`Mystic. See J.A. 1506 (proposed clawback
`language);
`Compliance Order, at ¶ 16. The States Committee and
`Connecticut Parties protested
`the omission of Everett
`expenditures from Mystic’s proposed clawback provision,
`pointing to the affiliate relationship between Mystic and
`Everett. See J.A. 1509–11 (States Committee); J.A. 1512–15
`(Connecticut Parties).
`
`The Commission ultimately approved Mystic’s proposed
`clawback provision. See Compliance Order, at ¶ 25. In the
`Second July 2020 Rehearing Order, the Commission rejected
`the request that the provision encompass Everett’s costs, noting
`that neither Everett nor the Everett Agreement falls within the
`Commission’s jurisdiction and concluding that it “lack[ed]
`jurisdiction to require a clawback, true-up, and/or refund of
`
`
`
`
`
`17
`
`Everett’s costs.” See Second July 2020 Rehearing Order, at
`¶ 43. The Commission further explained that, if Mystic 8 and 9
`retired while Everett remained
`in service,
`the Mystic
`Agreement would terminate, leaving “no rate within the
`jurisdiction of the Commission through which to order a
`refund.” Id. In the Compliance Order, the Commission denied
`the States Committee’s and Connecticut Parties’ related
`protests, referring back to the Second July 2020 Rehearing
`Order. See Compliance Order, at ¶ 28. The Commission also
`denied the Connecticut Parties’ subsequent request for
`rehearing for the same reasons it outlined in the July 2020
`orders. See December 2020 Rehearing Order, at ¶ 39.
`
`G. Petitions for Review
`
`Mystic and the State Petitioners petitioned for review of
`the various Commission orders modifying and ultimately
`approving the Mystic Agreement. Mystic objects to the
`Commission’s application of
`the original cost
`test
`in
`determining Mystic 8 and 9’s rate base; the selection of
`Exelon’s capital structure instead of ExGen’s; the exclusion of
`Everett’s acquisition cost from the Fuel Supply Charge
`calculation; and the inclusion of Mystic 8 and 9’s rate base
`components as part of the true-up process. The State
`Petitioners, for their part, object to the Commission’s exercise
`of jurisdiction of and allocation of Everett’s costs as part of the
`Fuel Supply Charge; the exclusion of Everett’s costs from the
`clawback provision; the failure to address the request to allow
`revenue credit calculations to be reviewed during the true-up
`process; the confusion over who can review the reasonableness
`of tank congestion charges during that process; and the failure
`
`
`
`
`
`18
`
`to address the incentives created by the Mystic Agreement’s
`treatment of delayed capital projects.
`
`We dismiss Mystic’s petition for review in part and deny
`it in part, and we grant the State Petitioners’ petitions. The
`opinion proceeds as follows: In Part III, we hold that the
`Commission’s application of the original cost test to determine
`Mystic 8 and 9’s rate base was not arbitrary and capricious. In
`Part IV, we dismiss Mystic’s objection to the Commission’s
`selection of capital structure as moot in light of the
`Commission’s May 2022 Order. In Part V, we find that the
`Commission acted arbitrarily and capriciously in allocating
`Everett’s operating costs but otherwise acted lawfully in
`excluding Everett’s acquisition cost from the Fuel Supply
`Charge calculation. In Part VI, we conclude that the
`Commission properly included historical rate base components
`in the true-up mechanism but also find that the Commission
`failed to respond to the State Petitioners’ request for
`clarification as to whether interested parties may challenge the
`calculation of Mystic’s revenue credits and that the December
`2020 Rehearing Order created confusion over who can review
`the tank congestion charges during the true-up process. Finally,
`in Part VII, we hold that the Commission’s jurisdictional
`rationale for excluding costs related to Everett from the
`clawback process does not constitute reasoned decisionmaking
`and that the Commission failed to address related arguments
`raised by the State Petitioners.
`
`II. STANDARD OF REVIEW
`
`We begin by setting forth the standard of review common
`to all of the objections brought by the petitioners. This Court
`will set aside a Commission order found to be “arbitrary,
`capricious, an abuse of discretion, or otherwise not in
`accordance with law.” 5 U.S.C. § 706(2)(A); see Del. Div. of
`
`
`
`
`
`19
`
`Pub. Advoc. v. FERC, 3 F.4th 461, 465 (D.C. Cir. 2021). Our
`role is not to ascertain “whether a regulatory decision is the best
`
Accessing this document will incur an additional charge of $.
After purchase, you can access this document again without charge.
Accept $ Charge
Still Working On It
This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.
Give it another minute or two to complete, and then try the refresh button.
A few More Minutes ... Still Working
It can take up to 5 minutes for us to download a document if the court servers are running slowly.
Thank you for your continued patience.
This document could not be displayed.
We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.
Your account does not support viewing this document.
You need a Paid Account to view this document. Click here to change your account type.
Your account does not support viewing this document.
Set your membership
status to view this document.
With a Docket Alarm membership, you'll
get a whole lot more, including:
- Up-to-date information for this case.
- Email alerts whenever there is an update.
- Full text search for other cases.
- Get email alerts whenever a new case matches your search.
One Moment Please
The filing “” is large (MB) and is being downloaded.
Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.
Your document is on its way!
If you do not receive the document in five minutes, contact support at support@docketalarm.com.
Sealed Document
We are unable to display this document, it may be under a court ordered seal.
If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.
Access Government Site
