Public Citizen v. FERC (2020)
In April 2015, the Midcontinent Independent System Operator (MISO) held an auction for wholesale electric capacity that resulted in raising rates for downstate Illinois by close to 1000 percent. Those rates, totaling approximately $100 million, were passed on to consumers in Illinois in the next twelve months. The rate increase was the result of Dynegy acquiring power plants that allowed it to control the auction for MISO’s Zone 4 and essentially set the price in order to maximize its own revenues. Public Citizen, together with Illinois government officials, immediately challenged the auction results before FERC, contending that they resulted in rates that were not “just and reasonable” as required by the Federal Power Act (FPA) and also violated the FPA’s prohibition of market manipulation. Later that year, FERC recognized that the way the auction was structured was not just and reasonable and allowed manipulation of prices, and it made some changes to the auction procedures to prevent companies from controlling the outcome as Dynegy had done in 2015. As a result, prices in Zone 4 fell considerably in 2016-17 and even further in 2017-18 and later years. But, after more than four years of delay, FERC eventually refused to do anything about the excessive prices resulting from the 2015-16 auction, claiming that no matter how high the auction prices were, they were “just and reasonable” as long as the auction was conducted according to the rules in place at the time (even though FERC itself had recognized that it had to change the rules going forward to protect consumers).
Public Citizen sought reconsideration by FERC and, after FERC denied reconsideration, filed a petition for review in the D.C. Circuit. Our briefs argue that FERC’s actions violated its mandate under the FPA to ensure just and reasonable rates.
On August 6, 2021, the D.C. Circuit held that FERC had acted unlawfully in concluding that the 2015 auction results were just and reasonable solely because it had previously approved the auction procedures. The court found that the agency had failed to explain why its ruling later in 2015 that the auction procedures were no longer just and reasonable did not call into question the results of the 2015 auction, and that the agency had also failed to explain its rejection of claims that the auction results were tainted by market manipulation. Although the court held that FERC can rely on market procedures to set rates, it emphasized that the agency has an ongoing obligation to ensure that those mechanisms produce just and reasonable rates, and that it had failed to do that work in this case. The court remanded the case to FERC for further consideration of the 2015 auction.