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Legal challenge to ISO-NE fuel security program could pose novel questions

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Legal challenge to ISO-NE fuel security program could pose novel questions

A legal challenge to an ISO New England program for winter fuel security could provide the first test for a recent Federal Power Act amendment aimed at addressing electricity rate and other tariff filings that take effect when regulators are unable to act on them.

At issue is an ISO-NE program that will pay resources such as coal- and nuclear-fired generators for maintaining enough "inventoried energy" to last three days under certain conditions.

The program, which the grid operator has framed as a bridge until it can implement a long-term solution to the region's fuel security woes, took effect Aug. 6 by operation of law. At that time, the Federal Energy Regulatory Commission took the rare step of announcing that the agency lacked the three voting members it would need to decide whether a June 6 rate filing from the ISO-NE was just and reasonable.

Under the Federal Power Act, tariff filings become effective if FERC allows 60 days to pass without issuing an order accepting or denying them. In a move that ultimately could lead to a federal appeals court challenge, the New England States Committee on Electricity, or NESCOE, and regulators representing three of the ISO-NE's six states on Sept. 4 petitioned the commission for rehearing in the proceeding.

The matter presents novel legal issues because before late 2018, parties seeking review of tariff changes that went into effect without any formal action from FERC were left with little recourse. A similar proceeding was decided by the U.S. Court of Appeals for the District of Columbia Circuit in 2016 when the court deferred to a deadlocked FERC that allowed disputed ISO-NE auction results to automatically become effective. There, the court found that FERC's inability to reach a consensus on the auction results did not constitute a reviewable agency action.

However, the U.S. Congress in September 2018 added a new section of the Federal Power Act to address that very issue. The amended statute now states that any such inaction by FERC "shall be treated as an order ... for purposes of rehearing and court review."

'A very odd case'

FERC's current 2-1 Republican majority includes Commissioner Bernard McNamee, who recused himself from the ISO-NE winter fuel security proceeding. Without another commissioner to weigh in on the matter, the odds of FERC issuing an order on rehearing are slim, said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School's Environmental and Energy Law Program.

And if opponents of the ISO-NE's inventoried energy program decide to sue in the D.C. Circuit, the case will present the court with several key questions, Peskoe said. "It's going to be a very odd case because typically the D.C. Circuit has a FERC order to review and that's not the case here," Peskoe said in a Sept. 5 interview. "The threshold question is going to be, 'What was Congress doing with this new Federal Power Act section?'"

With no FERC order to review, the D.C. Circuit could simply remand the proceeding back to the agency for a reasoned explanation. That also could have the effect of vacating the rate changes, Peskoe said.

NESCOE represents the collective perspective of the six New England states in regional electricity matters. It already argued in its Sept. 4 filing that FERC is required to do just that under the Administrative Procedure Act.

While Chairman Neil Chatterjee said in a statement that he would have voted to find the program just and reasonable, Commissioner Richard Glick panned it as an "an utter waste of ratepayers' money." But those are statements not formal orders or dissents.

"Here, the commission has failed to provide any response to arguments that the inventoried energy program represents a departure from precedent," NESCOE said. "It should grant rehearing and provide a reasoned explanation so that consumers have the opportunity to understand the commission's judgment about the justness and reasonableness of the costs consumers will pay."

The inventoried energy program will be in effect for the 2023-2024 and 2024-2025 winters, which are covered by Forward Capacity Auctions 14 and 15, respectively. With the first of those two auctions scheduled for February 2020, Peskoe added, FERC also could gain another commissioner who allows the agency to issue an order on rehearing before any D.C. Circuit litigation plays out.

Alternatively, opponents of the program could file a complaint challenging the program under Section 206 of the Federal Power Act. FERC must decide those complaints, but it has no deadline for doing so, Peskoe added. (FERC docket ER19-1428)