## Facts

- A regional transmission organization ran an April 2015 annual wholesale capacity auction for multiple zones, including Zone 4 (most of Illinois).
- The auction’s zonal clearing price is set by the last accepted offer, and all cleared capacity in that zone is paid that price.
- Market power mitigation rules included a zone-specific cap tied to the cost of new entry (CONE) and an “initial reference level”; offers above a conduct threshold (reference level plus 10% of CONE) would be reset to the reference level.
- In the 2015 auction, Zone 4 cleared at $150 per megawatt-day while all other zones cleared below $3.50 per megawatt-day; Zone 4’s result was far above the prior year’s Zone 4 price.
- Public Citizen and Illinois filed complaints asserting the Zone 4 outcome was unjust and unreasonable and alleging that a major supplier could exercise market power under the existing mitigation rules.
- FERC found “numerous problems” in the auction rules and ordered prospective reforms, but declined to disturb the 2015 Zone 4 clearing price.
- FERC opened, then later closed, an investigation into possible market manipulation related to the 2015 auction.
- Public Citizen sought judicial review under the Federal Power Act.

## Issues

1. Under the Federal Power Act and FERC’s market-based rate program, must FERC pre-approve each individual auction clearing price for the rate to be lawful?
2. Did FERC act arbitrarily and capriciously by leaving the 2015 Zone 4 auction price in place despite acknowledging defects in the auction rules and ordering prospective fixes?
3. Is FERC’s decision to close its market-manipulation investigation judicially reviewable?

## Decision

- The court denied the challenge to FERC’s market-based rate framework, holding FERC need not pre-approve each individual auction price.
- The court granted the petition in part, holding FERC’s decision to uphold the 2015 Zone 4 auction result was arbitrary and capricious for lack of a reasoned explanation reconciling admitted rule defects with acceptance of the 2015 outcome.
- The court denied review of FERC’s closure of the market-manipulation investigation, holding it was a discretionary enforcement decision outside judicial review.
- The case was remanded to FERC for further proceedings consistent with the opinion regarding the 2015 auction-rate determination.

## Legal Principles

- In a market-based rate regime, the “filed rate” can be the tariff and market mechanism (including auction rules), not a set of transaction-by-transaction prices requiring prior approval.
- Under the Administrative Procedure Act, an agency must provide a coherent, reasoned explanation when it identifies serious defects in governing rules yet treats past results under those rules as lawful.
- Decisions to initiate, continue, or terminate enforcement investigations are generally committed to agency discretion and are ordinarily not subject to judicial review.

## Conclusion

The D.C. Circuit upheld FERC’s authority to rely on market-based tariffs without pre-approving each auction price, but vacated and remanded FERC’s approval of the 2015 Zone 4 capacity auction result because FERC did not adequately explain why acknowledged rule flaws did not undermine that auction’s price; the court also held FERC’s decision to close a related manipulation investigation was unreviewable.


Public Citizen, Inc. v. FERC, 7 F.4th 1177 (D.C. Cir. 2021)