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General counsel: Relief for deadlocked FERC under bill would be 'illusory'

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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General counsel: Relief for deadlocked FERC under bill would be 'illusory'

A bill working its way through Congress meant to ensure that stakeholders have a way to challenge rate changes that go into effect automatically due to the Federal Energy Regulatory Commission's failure to act may not produce the intended results, according to the agency's general counsel, James Danly.

In essence, changes that become effective by operation of law currently cannot be challenged by asking FERC to rehear the matter or filing an appeal to a federal court because the commission did not technically issue an order that would be subject to rehearing or appeal. But S. 186, the Fair Ratepayer Accountability, Transparency, and Efficiency Standards Act, or Fair RATES Act, would amend Federal Power Act Section 205 to state that any such inaction by FERC "shall be treated as an order ... for purposes of rehearing and court review."

Danly, however, told the U.S. Senate Committee on Energy and Natural Resources' energy subcommittee on Oct. 3 that the bill would provide no more than an "illusory promise of relief to the parties who are aggrieved by the rates." Noting that most such circumstances occur when FERC is deadlocked, Danly asserted that the commissioners' positions would be unlikely to change on rehearing or after the matter is sent back to FERC on remand by an appeals court.

While situations in which rates go into effect due to FERC's inaction are rare, one notable instance occurred in September 2014 when the agency was split 2-2 on whether to accept the results of an ISO New England forward capacity auction that was tainted by allegations of market manipulation and those rates subsequently became effective by operation of law.

In that case, FERC dismissed requests that it revisit the matter, explaining that rehearing "does not lie" because the challenged issuance was not an order but simply a notice acknowledging that the auction results had become effective. The U.S. Court of Appeals for the District of Columbia Circuit later refused to determine whether FERC inappropriately allowed the auction results to go into effect, finding that the agency "neither reached a collective decision nor engaged in an 'action' of any kind" that could be reviewable by the court.

Meanwhile, the U.S. House of Representatives responded to the situation by passing legislation similar to S. 186 in March 2016, but H.R. 2984 never made it through the Senate, and the measure therefore had to be reintroduced in the 115th Congress.

Testifying on that new bill before the Senate subcommittee Oct. 3, Danly warned that when a rate change goes into effect by operation of law due to a commission deadlock, "the likelihood of the aggrieved party seeking rehearing, and then getting an order on rehearing, is virtually zero."

"If you have a deadlock in the first instance, you're likely to have a deadlock in the second," Danly said.

The outlook would be similarly unfavorable for a challenge that actually made it to an appeals court, as judges considering overturning a FERC decision would have to look at the agency's stated rationale for making that decision, Danly continued. "The court of appeals would simply remand back to the agency anyway because there would be no reasoning upon which to base its review of the action," he said.

Danly also suggested that even without the bill, those aggrieved by such rate changes still can seek redress under FPA Section 206, which can be used by a third party to challenge a rate believed to be unlawful.

Yet the FERC general counsel opined more favorably on two other bills being considered by the subcommittee that would amend FPA Section 203, which addresses the need for FERC to approve financial transactions involving commission-jurisdictional assets.

The Energy Policy Act of 2005, or EPAct 2005, established different thresholds governing when FERC needs to review various kinds of transactions, and S. 1860 and H.R. 1109 together seek to reconcile that inconsistency. Specifically the companion legislation would ensure that, like other similar transactions, mergers or consolidations of FERC-jurisdictional facilities would only need the commission's approval if they are valued in excess of $10 million. For those valued at or below the $10 million threshold but above $1 million, parties would simply have to notify FERC within 30 days that the transaction has taken place.

According to Danly, the change would help relieve the administrative and regulatory burdens on FERC and its jurisdictional entities, respectively, without presenting "any problem for market power or rate prices going forward."

Many consider the legislation to be essentially administrative in nature, insisting that it eliminates a distinction Congress never meant to establish. But some disagree that the $10 million threshold should be extended to mergers and consolidations; they argue that the special review provisions for those transactions fill a regulatory void that was created when EPAct 2005 repealed the Public Utility Holding Company Act of 1935.