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Court Slams "Specious" FERC Logic In Runaway Reliability Costs in Remanding ISO-NE Reliability Program Costs to Commission (Win For Retail Suppliers)

December 23, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A federal appeals court said FERC engaged in "specious" reasoning in dismissing cost concerns from the 2013-14 ISO New England winter reliability program which imposed new, unhedgeable costs on retail suppliers, and whose costs ballooned past initial estimates.

TransCanada Power Marketing Ltd. and the Retail Energy Supply Association had appealed FERC's approval of the 2013-14 winter reliability program.

While the U.S. Court of Appeals for the D.C. Circuit rejected certain of appellants' arguments (including arguments concerning cost allocation to LSEs), the Court did find compelling TransCanada's argument that FERC's order lacked support for determining that the winter reliability program rates were just and reasonable

The Court noted that, "TransCanada points out that, in approving the Program, FERC relied on a record that is devoid of any evidence regarding how much of the Program cost was attributable to profit and risk mark-up. TransCanada reasonably contends that, without this information, FERC could not properly assess whether the Program’s rates were just and reasonable."

"This is a valid concern, and one that requires further consideration by FERC," the Court said

However, FERC did not address these concerns raised by TransCanada before the Commission

Instead, the Court found that FERC engaged in, "specious," reasoning that did, "not address the valid concern raised by TransCanada."

The Court also called FERC's reasoning, "vague and evasive."

While FERC said TransCanada offered only "speculative" arguments, pointing to final program costs which exceeded estimates, the Court emphasized that, "The point made by TransCanada is not that the cost disparity rendered the rates per se unreasonable. Rather, the claim is that, considering this disparity, the Commission should have either inquired into the profit and risk mark-up or explained its decision not to do so."

The Court also noted that FERC defended its decision by citing "reliability benefits," with the Court opining that, "as if to suggest that certain suppliers should be free to command high prices because of their reliability."

"But neither ISO New England nor FERC explained this in a way that demonstrates that there would be no excess of profits. This is not reasoned decision making," the Court said

Moreover, while FERC argued that the rates were just and reasonable as they resulted from a competitive bid process, the Court stressed that, "In this case, the Program occurred outside of the usual ISO New England energy markets, and the Commission made no effort to define the relevant market or determine the participants’ market power. The Commission’s reference to a 'competitive as-bid program,' without further explanation, is simply a talismanic phrase that does not advance reasoned decision making."

"Because the Commission did not adequately explain its decision on this point, we are constrained to remand the case for further consideration," the Court said

No. 14-1103

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