On October 25, 2016, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) ruled that two Notices issued by the FERC Secretary as the result of a deadlock between the then-four sitting FERC Commissioners over whether to approve or set for hearing the rates established by ISO-New England, Inc.’s (“ISO-NE”) eighth Forward-Capacity Auction (“FCA 8”) were unreviewable. Specifically, the court concluded that: (i) the Notices did not constitute reviewable “agency action” as contemplated by the Federal Power Act (“FPA”), because, according to the court, the FPA requires a “majority” vote of the Commissioners in order for FERC to act institutionally; and (ii) the Notices were not reviewable under the Administrative Procedure Act (“APA”) by virtue of an unlawful “failure to act,” because the FPA does not mandatorily obligate FERC to either set disputed rates for hearing, or to affirmatively prevent any unjust and unreasonable rates from going into effect.

During ISO-NE’s FCA 8 in February, 2014, the auction defaulted to administrative pricing rules, resulting in increased regional capacity prices. After ISO-NE filed the auction results with FERC for review pursuant to its tariff obligations, Public Citizen, Inc. and the Attorney General of Connecticut (“Petitioners”) objected, arguing that the rates were the result of the unilateral exercise of market power. Sixty-one days later, FERC’s Secretary issued a Notice acknowledging that the FCA 8 rates had become effective by operation of law, pursuant to FPA Section 205. Individual statements released by the then-four sitting Commissioners indicated that they had deadlocked, two-to-two, on the issue of whether or not to approve the rates, or set them for hearing. When the Petitioners filed for rehearing, the Secretary issued a second Notice explaining that the first Notice was not a FERC order, and therefore was not subject to a request for rehearing. On appeal to the D.C. Circuit, the Petitioners asked the court to review the Notices as “final orders” under the FPA, or alternatively, find that the FPA compels FERC to set challenged rates for a hearing and prevents FERC from permitting unjust rates to take effect, and that FERC’s failure to perform either duty constituted action unlawfully withheld under the APA.

In its October 25 opinion, the court found that while the Petitioners had correctly noted that the court had previously defined “order” expansively to include “any agency action capable of review on the basis of the administrative record,” the Petitioners were unable to demonstrate that FERC had engaged in agency action. Specifically, the court referenced FERC’s enabling statute which provides that at least three Commissioners must be present to create a quorum, and that “[a]ctions of the Commission shall be determined by a majority vote of the members present.” The court noted that this majority requirement was also consistent with both the common-law understanding and the court’s precedent regarding institutional decision-making in the administrative law context. Accordingly, the court found that “FERC did not engage in collective, institutional action when it deadlocked on FCA 8’s rates,” and, by extension, “the Notices describing the effects of that deadlock are not reviewable orders under the FPA.”

The court also rejected the Petitioners’ alternative argument that FERC had engaged in an unlawful “failure to act,” which is reviewable under the APA. The court noted that inaction is reviewable only where the agency fails to take a “discrete” action it is legally required to take, and that action is “legally required” if the statute provides a “specific, unequivocal command” to an agency or “a precise, definite act . . . about which [an official has] no discretion whatever.” Applying this rule, the court found that the FPA’s statement concerning the unlawfulness of unjust and unreasonable rates “does not compel FERC to engage in nondiscretionary activity either by commanding FERC to set disputed rates for a hearing or by mandating FERC disapprove any unjust or unreasonable rates.” Instead, according to the court, this statement functions as “a stand-alone, declarative statement, reiterating the FPA’s overall goal of proscribing unjust and unreasonable rates.” The court also noted that FPA Section 205 states that FERC “shall have authority” to hold hearings and that it “may” suspend rates. Accordingly, the court found that the FPA does not mandatorily obligate FERC to either set disputed rates for hearing, or to affirmatively prevent any unjust and unreasonable rates from going into effect, and, by extension, that there was no “inaction” reviewable under the APA.

A copy of the court’s opinion may be found here.