The Supreme Court could soon decide whether judges should act as tiebreakers for a deadlocked Federal Energy Regulatory Commission.
The Ohio Public Utilities Commission filed a petition earlier this year challenging a lower court ruling that upheld a 2021 FERC rule aimed at boosting renewables in the nation’s largest power market. FERC — which typically has five commissioners — had only four at the time, and they split 2-2 on approving the regulation, which meant it went into effect “by operation of law.”
“Although this is the first case in which a court was called upon to review a rule that took effect in the face of FERC’s inaction, it will not be the last,” Ohio PUC told the justices.
They continued: “The Court should address the appropriate standard of review now — before uncertainty about how to review FERC rules that are approved by operation of law, and without any supporting reasoning, spreads.”
The petition before the justices challenges the 3rd U.S. Circuit Court of Appeals’ reasoning for upholding FERC’s 2021 “minimum offer price rule,” or MOPR, which removed price restrictions for state-subsidized solar, wind and nuclear projects that participate in the annual wholesale auction for PJM Interconnection, which serves 13 states and the District of Columbia. The auction ensures that there will be adequate energy production to meet expected future electricity demand.
Supporters of the 2021 MOPR said it would help states meet their clean energy goals by boosting production from renewable energy and nuclear sources.
Ohio PUC faces tough odds of getting its case heard. The Supreme Court grants only a small fraction of the petitions it receives.
The appeal comes after Congress amended Section 205 of the Federal Power Act in 2018 to explicitly say that courts could step in when the commission is evenly divided on whether to approve a tariff modification like PJM’s MOPR. The case asks how courts should now apply federal law when reviewing a deadlocked decision and if they should give those FERC rules the same deference as they would to those that pass with majority support.
Ohio regulators claimed the 3rd Circuit should have independently determined that FERC’s tariff revisions were “just and reasonable.”
Instead, the court’s deference to the commission in its ruling last year upset “the delicate balance of power between Congress, administrative agencies, and the courts,” Ohio PUC wrote.
By yielding to FERC when deference wasn’t warranted, the state energy regulator continued, the appeals court unlawfully expanded the commission’s authority and reduced its accountability.
“Requiring an agency to offer a defensible justification for its actions, the agency-reasoning requirement provides an important check on an agency’s power,” Ohio PUC said. “The Third Circuit swept that check away.”
FERC’s rule
Ohio PUC’s Supreme Court appeal builds off one Republican FERC commissioner’s objections to the rule.
In his dissent from the deadlocked decision, James Danly said at the time that PJM’s 2021 MOPR revisions were “deliberately ineffectual” and were not a “careful or balanced attempt” to address how state subsidies for renewable energy could affect the competitiveness of coal and gas in the capacity market.
The revisions reversed course from PJM’s 2019 expanded MOPR, which aimed to give a leg up to coal and natural gas plants to allow them to fairly complete with wind, solar and nuclear plants that received state subsidies.
PJM had said that the price restrictions under the 2019 MOPR had improperly incentivized construction of new energy resources that were not needed for grid reliability and thus distorted market signals.
Danly warned that treating a tied vote at FERC as an order issued by the commission “will present a handful of novel but foreseeable issues on appeal.”
These issues springing from the 2018 amendment to the Federal Power Act should prompt judges to toss out FERC’s rule and send it back for the chance of another approval by a majority of commissioners, he said. Danley added that the amendments did not eliminate FERC’s obligation to follow procedural law.
But when the 3rd Circuit ruled last year, it took a different approach.
Senior Judge Jane Roth, writing the opinion for the court, said FERC’s decision was not arbitrary and capricious and was supported by substantial evidence of the record. The judge, a George H.W. Bush appointee, cited the commissioners’ statements as evidence of their reasoning.
Ultimately, statements from then-FERC Chair Richard Glick and Commissioner Allison Clements, both Democrats, were supported by “substantial evidence in the record,” according to the 3rd Circuit. The court was not persuaded by statements from Danly and fellow Republican Commissioner Mark Christie.
At the time, clean energy advocates lauded the 3rd Circuit’s decision as a win for expanding clean energy in PJM’s territory.
PJM Power Providers Group, which had also challenged FERC’s rule in the 3rd Circuit but opted against a Supreme Court appeal, said during oral argument last year that FERC must give “affirmative consent” to authorize PJM to issue rate changes.
The group argued that the 2019 MOPR was a way to ensure that state subsidies for certain resources did not distort the capacity market.
But PJM shifted course in 2021, as both the power market and FERC had a change in leadership.
Policy from ‘generalist courts’
Energy companies, environmental groups and PJM have deemed as “unworkable” Ohio PUC’s suggestion that a federal appeals court should assume the role of a fifth FERC commissioner.
“It would require generalist courts to set federal energy policy,” the coalition said of the state’s position in a brief to the Supreme Court. “Such an approach is inconsistent with this court’s longstanding recognition that courts may not in the first instance decide whether a utility tariff is just and reasonable.”
In her brief on behalf of FERC, Solicitor General Elizabeth Prologar said the 3rd Circuit correctly applied “ordinary standards of review” the court uses for other Federal Power Act lawsuits.
She also said that the 3rd Circuit’s decision does not conflict with rulings from other federal appeals courts — a factor the justices consider when deciding whether to hear cases. In fact, she said, the Ohio PUC petition raises an issue that has rarely come up since Congress amended the Federal Power Act in 2018, authorizing court review of deadlocked FERC decisions on tariffs.
There are just two other examples of appeals sparked by orders going into effect by operation of law, Prelogar said.
In one instance, FERC had not acted because of a lack of a three-member quorum. It later reached a majority decision, once more members joined the commission. In the other case, she wrote, the commission had deadlocked on a 2-2 ruling, but the tie was “resolved on the basis of other majority-voted orders issued in the same proceeding.”
Ohio PUC has not offered evidence that the 3rd Circuit decision has had a “dramatic effect” on the nation’s power supply, Prelogar said.
“Further review is unwarranted,” she wrote.
The Supreme Court is scheduled to discuss the petition at its Sept. 30 conference and could reach its decision on whether to grant or reject the case as soon as early October.
