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- FERC failed to reasonably explain rationale of $150 per MW-day price at 2015 auction
- Panel returns case to FERC for further analysis
- Judges reject claims FERC must approve auction prices
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(Reuters) - A federal appeals court ruled on Friday that the Federal Energy Regulatory Commission acted arbitrarily under the Federal Power Act (FPA) when it determined that wholesale electricity prices at an Illinois auction that were 40 times those of neighboring states were reasonable.
A unanimous panel of the U.S. Circuit Court of Appeals for the D.C. Circuit agreed with consumer advocacy group Public Citizen that FERC failed to explain, during an administrative proceeding, why 2015 auction rules that it found were problematic and affected the auction's pricing mechanism did not disqualify its sales of power at a $150 per megawatt-day price.
FERC Chairman Richard Glick said in a statement: "There was no excuse for the Commission's failure to grapple with Public Citizen's serious allegations of manipulative conduct or the 'unusual magnitude of the rate increase'."
Richard Bress of Latham and Watkins, who represents Texas-based Dynegy, declined to comment.
Public Citizen attorney Scott Nelson told Reuters: "We're delighted that the court recognized that FERC has an obligation to ensure that rates resulting from market-based rate mechanisms are just and reasonable and that it saw that FERC had failed to fulfill that obligation here."
Public Citizen sued FERC last year after the regulator denied in 2019 and 2020 some of the group's allegations before the regulator.
Aside from the unreasonable sale prices, the group also alleged that electric power company Dynegy had manipulated the market at the auction by using its role as an indispensable, major power supplier in Illinois to artificially boost the auction's prices.
At the April 2015 auction, Illinois utilities bought so-called electrical capacity, which is typically a commitment by a power plant to provide electricity to a utility in the future. Prices at such auctions are broadly set by the price at which the last offer is taken to fulfill regional electricity needs.
The state of Illinois, which also filed a complaint before FERC over the auction's prices, calculated that average residential customers in portions of Illinois would pay an additional $131 the following year as a result of the sale, the ruling said.
FERC in a 2015 order that followed the auction found that its rules were outdated in ways that made ceiling prices for sellers no longer just and reasonable for future auctions, it said.
U.S. Circuit Judge Patricia Millett, writing for the panel, said FERC "failed to reconcile" that finding with its subsequent orders that found the flaw had not "infected" the 2015 sale.
In its 2019 order, FERC instead said that Dynegy had offered, at the auction, prices that were necessarily just and reasonable given that they were permissible under then-applicable tariff rules, the ruling said.
"That will not do," Millett wrote. FERC "was obligated" to explain why the analysis underlying its 2015 finding that the auction rules were "flawed" did not apply to the auction's results themselves, she wrote.
FERC's 2019 and 2020 orders "wholly failed to adequately address Public Citizen's allegation that Dynegy's market manipulation produced unjust and unreasonable results in the 2015 Auction," Millett wrote.
Millett, who was joined by U.S. Circuit Judges David Tatel and Cornelia Pillard, however rejected Public Citizen's claim that FERC must approve auction prices before they go into effect.
The panel returned the case to FERC for further analysis.
The case is Public Citizen, Inc. v. FERC, U.S. Circuit Court of Appeals for the Columbia Circuit, No. 20-1156.
For Public Citizen, Inc: Scott Nelson with the Public Citizen Litigation Group
For FERC: Lona Perry with FERC
For intervenor for respondent Dynegy Marketing and Trade, LLC: Richard Bress and David Schwartz of Latham & Watkins