On Friday, July 7, 2017, the D.C. Circuit issued a significant opinion clarifying the limited scope of FERC’s authority to direct changes to a utility’s proposal filed under section 205 of the Federal Power Act (FPA). The court held that FERC may only direct “minor” modifications to the utility’s proposal, and may not impose changes that amount to an “entirely new rate scheme,” even if the utility consents to FERC’s revisions.

In NRG Power Mktg. v. FERC, the court granted several generators’ petitions for review of FERC’s orders on PJM’s 2012 proposal, under FPA section 205, to amend the Minimum Offer Price Rule (MOPR) for its capacity market. With “overwhelming” support from its stakeholders, PJM had proposed to eliminate the unit-specific exception and add two categorical exemptions to the MOPR. While FERC accepted PJM’s two new exemptions, it rejected PJM’s elimination of the unit-specific exception, and directed PJM to submit a compliance filing to retain the exception alongside the new exemptions. On appeal, the court found that FERC’s modifications resulted in “an entirely new rate design,” as compared both to what PJM proposed and to the rules in effect prior to PJM’s filing. Thus, the court determined, FERC approved “only half of a proposed rate.” Because FERC’s changes to PJM’s proposal went beyond “minor” modifications, the court held that FERC exceeded the bounds of its “passive and reactive role” under FPA section 205. Finally, the court held that PJM’s consent to FERC’s revisions could not cure the section 205 violation because, when FERC directs more than minor changes, the utility’s customers do not have adequate notice of, or opportunity to challenge, the changes.

The court’s decision appears to limit FERC’s ability to accept section 205 filings subject to further changes. As a result, the industry may be faced with FERC rejecting more section 205 proposals, but, one hopes, at least providing guidance on how the filing utility may reshape its proposal to be just and reasonable. Alternatively, when FERC believes a section 205 proposal must be significantly revised in order to meet the statutory “just and reasonable” standard, it would have to satisfy the more stringent requirements of FPA section 206 in order to impose such changes.

A copy of the court’s decision is available here.

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