California Public Utilities Commission v. FERC ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 8, 2021 Decided December 17, 2021
No. 20-1388
CALIFORNIA PUBLIC UTILITIES COMMISSION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION,
INTERVENOR
On Petition for Review of Orders
of the Federal Energy Regulatory Commission
Candace J. Morey argued the cause for petitioner. With
her on the briefs were Arocles Aguilar and Aaron R.
Jacobs-Smith.
Elizabeth E. Rylander, Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief were Matthew R. Christiansen, General
Counsel, and Robert H. Solomon, Solicitor,
Ashley C. Parrish was on the brief for amicus curiae
Calpine Corporation in support of neither party.
2
Before: HENDERSON and KATSAS, Circuit Judges, and
GINSBURG, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: The Federal
Energy Regulatory Commission (Commission) approved
California Independent System Operator Corporation’s
(CAISO) proposed revision to the compensation structure for
its Capacity Procurement Mechanism (CPM), a voluntary
program designed to provide electric capacity necessary to
maintain grid reliability within CAISO’s network. The
California Public Utilities Commission (CPUC), which
participated in the Commission’s proceeding, challenges the
Commission’s approval of CAISO’s proposal. We grant the
petition and remand with vacatur.
I. Background
The Federal Power Act, 16 U.S.C. §§ 791a et seq., governs
the transmission and wholesale marketing of electricity in
interstate commerce and grants the Commission jurisdiction to
regulate these activities in the public interest, see id. § 824(a),
(b). Section 205 of the Act requires that “[a]ll rates and charges
. . . by any public utility for or in connection with the
transmission or sale of electric energy” must be “just and
reasonable” and not “undu[ly] preferen[tial].” Id. § 824d(a),
(b). A public utility seeking to change its rate structure must
file the proposed changes with the Commission and bears “the
burden of proof to show that the increased rate or charge is just
and reasonable.” Id. § 824d(d), (e). “When acting on a public
utility’s rate filing under section 205, the Commission
undertakes ‘an essentially passive and reactive role’ and
restricts itself to evaluating the confined proposal.” Advanced
Energy Mgmt. All. v. FERC, 860 F.3d 656, 662 (D.C. Cir.
3
2017) (per curiam) (quoting City of Winnfield v. FERC, 744
F.2d 871, 875–76 (D.C. Cir. 1984)).
CAISO is the regional independent system operator that
controls (but does not own) the transmission grid in California.
See generally Sac. Mun. Util. Dist. v. FERC, 474 F.3d 797,
798–99 (D.C. Cir. 2007). In this role, CAISO has a
responsibility to ensure sufficient independent generating
resources—such as nuclear power plants, solar farms and
natural-gas-fired power plants—are in place to meet
California’s present-day and future electricity demands. This is
accomplished through the supply and purchase of electric
“capacity,” whereby a generating resource “commit[s] to
produce electricity or forgo the consumption of electricity
when required” by a load-serving entity—usually the public
utility that delivers electricity to end users—creating “a kind of
options contract” between the two parties. Advanced Energy,
860 F.3d at 659.
CAISO, working in conjunction with the CPUC,
administers a resource adequacy program designed to ensure
that there is sufficient electric generation in CAISO’s markets
to meet consumer demands under all but the most extreme
conditions. The resource adequacy program requires utilities to
procure enough capacity to meet their forecasted peak load plus
a reserve margin set by the CPUC. Resource adequacy
obligations are generally met through voluntary bilateral
agreements between utilities and generating resources.
Backstop measures come into play if voluntary
arrangements turn out to be insufficient to meet resource
adequacy obligations. When CAISO determines that there is an
unmet resource adequacy or reliability need, it may rely on its
capacity procurement authority under the CPM provisions of
its tariff to designate specific generating resources to provide
4
additional capacity. Generating resources seeking a CPM
designation can enter into a competitive solicitation process.
Entry into the CPM solicitation process is voluntary but if a
resource submits a bid, and CAISO accepts the bid, the
resource must accept the CPM designation. If CAISO
unilaterally offers a CPM designation to a resource that did not
participate in the solicitation process, that resource has the
discretion to decline. The term of a CPM designation can range
from a minimum of 30 days up to 12 months.
The central issue before us involves compensation under
the CPM. When CAISO initially proposed the CPM program
in 2010, it sought to compensate resources at a minimum price
of $55 per kilowatt-year (kW-year), which was derived from
the going-forward costs—defined as fixed operations and
maintenance costs, ad valorem taxes and administrative costs,
including insurance—of a reference resource plus a 10%
adder. 1 A resource with costs above that price would have been
permitted to submit a cost-justified bid to the Commission. The
Commission declined to approve CAISO’s proposal, citing
concerns that the use of going-forward costs alone could “deny
resources a reasonable opportunity to recover fixed costs” and
that CAISO had not sufficiently explained “how the use of
going-forward costs for CPM compensation will provide
incentives or revenue sufficiency for resources to perform
long-term maintenance or make [environmental]
improvements.” Cal. Indep. Sys. Operator Corp., 134 FERC
¶ 61,211, ¶ 57 (2011) (hereinafter 2011 CPM Order). The
Commission instructed its staff to convene a technical
conference to address the Commission’s concerns and discuss
alternative compensation methodologies. Id. at ¶¶ 55, 58–59.
In 2012, after the technical conference, CAISO proposed, and
1
For the reference resource, CAISO used a 50 megawatt (MW)
simple-cycle, gas-fired unit built by a merchant generator.
5
the Commission approved, a fixed CPM capacity price—
subject to a four-year expiration date—of $67.50 per kW-year
for two years, which increased by five per cent to $70.88 for
the remaining two years. See Cal. Indep. Sys. Operator Corp.,
138 FERC ¶ 61,112, ¶¶ 10, 18–19 (2012).
In 2015, as the 2012 order was set to expire, CAISO
proposed the now operative CPM compensation structure,
which relies on competitive bidding. Under this structure, a
resource can bid up to a “soft-offer cap” of a fixed-dollar
amount—$6.31 per kW-month (or $75.68 per kW-year). The
soft-offer cap is based on the going-forward costs of a reference
resource plus a 20% adder. 2 CAISO reasoned that the 20%
adder would allow resources with costs higher than the
reference resource to recover their going-forward costs and
additional fixed costs, as well as providing investment
incentives. In the event that the soft-offer cap does not allow a
resource to recover its going-forward costs, that resource can
submit a cost-justified filing to the Commission for a higher
rate. For these “above-cap” bids, CAISO proposed using the
compensation formula applicable to Reliability Must-Run
resources, 3 which compensates a resource for its full annual
cost of service, including a return on and of capital. A
Commission-approved, resource-specific CPM price remains
in effect for the remainder of the calendar year, and for the
subsequent two calendar years, unless superseded by a
2
For the soft-offer cap, CAISO used a mid-cost, merchant-
constructed, 550 MW combined cycle unit as the reference unit. This
unit represents the largest percentage of non-resource adequacy
resources eligible to receive CPM designations.
3
The Reliability Must-Run program is a mandatory backstop
program—characterized by CAISO as a “measure of last resort”—
that authorizes CAISO to designate a generating resource to run that
does not have a resource adequacy contract, thereby requiring it to
provide capacity to meet reliability needs.
6
subsequent Commission-approved price during that period. In
addition to their CPM compensation, all CPM resources, no
matter whether they bid below or above the soft-offer cap,
retain their market revenues. The Commission approved this
compensation structure, finding that the soft-offer cap “should
allow sufficient recovery of fixed costs plus return on capital
to facilitate incremental upgrades and improvements by
resources.” Cal. Indep. Sys. Operator Corp., 153 FERC
¶ 61,001, ¶ 29 (2015) (hereinafter 2015 CPM Order).
But in 2018, while CAISO sought approval for a related
CPM tariff amendment, several interested parties—including
the CPUC and CAISO’s Department of Market Monitoring
(DMM), its independent market monitor—raised concerns
about whether above-cap CPM resources should be
compensated for their full annual cost of service given they
retain all market revenues. Rejecting CAISO’s proposed
amendment, the Commission “strongly encourage[d] CAISO
and stakeholders” to “revisit[] the issue of the adequacy of
CPM . . . compensation.” Cal. Indep. Sys. Operator Corp., 163
FERC ¶ 61,023, ¶ 48 (2018).
In February 2020, after conducting a two-year stakeholder
review of the CPM process, CAISO filed a tariff amendment
with the Commission reflecting two mutually exclusive
proposals for compensating above-cap resources. The first
option (Option A) would allow an above-cap resource to
submit a cost-justified bid based on the resource’s
demonstrated going-forward costs plus a 20% adder. The
second option (Option B) would provide the same going-
forward cost recovery as Option A but without the adder.
Under either option, an above-cap resource would still retain
its market revenues. CAISO indicated that it favored Option A
because it aligned with how the existing soft-offer cap is
calculated and would be consistent with the Commission’s
7
guidance—namely its 2011 and 2015 CPM Orders—that the
CPM compensation scheme should include some meaningful
fixed cost recovery beyond going-forward costs and provide
incentives for resources to make upgrades and undertake long-
term maintenance. Accordingly, CAISO requested that the
Commission review Option B only if it did not accept Option
A.
Numerous parties filed comments to CAISO’s proposal,
including the CPUC, DMM and Pacific Gas and Electric
Company (PG&E). The CPUC and DMM argued that
CAISO’s proposal misapplied or misinterpreted earlier
Commission orders regarding the soft-offer cap, the 20% adder
and the need for recovery of fixed costs beyond going-forward
costs. All three parties argued that CAISO failed to explain
why a 20% adder was an appropriate level relative to the
potential costs of long-term maintenance and environmental
upgrades that would not be recovered under the rest of the CPM
payment for going-forward costs plus the resource’s market
revenues.
In May 2020, the Commission approved Option A as just
and reasonable and expressly declined to reach the merits of
Option B. See Cal. Indep. Sys. Operator Corp., 171 FERC
¶ 61,172, ¶ 35 & n.53 (2020) (hereinafter 2020 CPM Order).
The Commission determined that Option A would allow
participating resources “the opportunity for sufficient recovery
of fixed costs plus a return on capital to facilitate incremental
upgrades and improvement by the resources.” Id. It further
concluded that the inclusion of a 20% adder for above-cap,
cost-justified bids was “consistent with Commission precedent
on CPM compensation,” citing its 2015 CPM order approving
the soft-offer cap, which contained a 20% adder. Id. at ¶ 36.
Then-Commissioner (now Chairman) Glick dissented from the
Commission’s order, concluding that CAISO failed to explain
8
why, in figuring an above-cap resource’s going-forward costs,
a 20% adder in addition to retained market revenues was just
and reasonable. Id. (Glick, Comm’r, dissenting) at ¶¶ 4–5.
Further, Commissioner Glick found reliance on the
Commission’s 2015 CPM order misplaced, as the 20% adder
was included in the generic soft-offer cap to ensure that the cap
covered comparable resources’ going-forward costs, a
consideration irrelevant under either Option A or B because an
above-cap resource will recover its demonstrated going-
forward costs. Id. (Glick, Comm’r, dissenting) at ¶ 6.
The CPUC requested rehearing. On July 30, 2020, in the
absence of Commission action on the CPUC’s request, the
request was deemed denied by operation of law. See Cal.
Indep. Sys. Operator Corp., 172 FERC ¶ 62,052 (2020). The
CPUC timely petitioned this Court for review.
II. Analysis
We have jurisdiction under the Federal Power Act, 16
U.S.C. § 825l(b). We review Commission orders under the
familiar arbitrary and capricious standard and uphold the
Commission’s factual findings if they are supported by
substantial evidence. See West Deptford Energy, LLC v. FERC,
766 F.3d 10, 17 (D.C. Cir. 2014); see also 5 U.S.C. § 706(2).
To that end, the Commission “must be able to demonstrate that
it has made a reasoned decision based upon substantial
evidence in the record,” Del. Div. of Pub. Advoc. v. FERC, 3
F.4th 461, 465 (D.C. Cir. 2021) (quoting N. States Power Co.
v. FERC, 30 F.3d 177, 180 (D.C. Cir. 1994)), and “articulate a
satisfactory explanation for its action including a rational
connection between the facts found and the choice made,” Pac.
Gas & Elec. Co. v. FERC, 373 F.3d 1315, 1319 (D.C. Cir.
2004) (alteration omitted) (quoting Motor Vehicle Mfrs. Ass’n
of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
9
(1983)). Although the Commission is afforded substantial
deference in rate-related matters, as such matters “are either
fairly technical or ‘involve policy judgments that lie at the core
of the regulatory mission,’” S.C. Pub. Serv. Auth. v. FERC, 762
F.3d 41, 55 (D.C. Cir. 2014) (per curiam) (quoting Alcoa Inc.
v. FERC, 564 F.3d 1342, 1347 (D.C. Cir. 2009)), “it bears
repeating that ‘courts have never given regulators carte
blanche,’” Emera Me. v. FERC, 854 F.3d 9, 22 (D.C. Cir. 2017)
(quoting Elec. Consumers Res. Council v. FERC, 747 F.2d
1511, 1514 (D.C. Cir. 1984)).
A. Commission’s Reliance on its 2015 CPM Order
In approving Option A, the Commission relied chiefly on
its 2015 CPM Order approving the soft-offer cap, which
includes a 20% adder. The Commission inferred from its 2015
order that applying the same adder to above-cap CPM bids
would be just and reasonable:
[T]he inclusion of a 20% adder on top of
demonstrated going forward fixed costs is
consistent with Commission precedent on CPM
compensation. In 2015, the Commission
accepted CAISO’s currently effective soft offer
cap, which is based on the going-forward costs
of a reference unit plus a 20% adder, finding
that this method for calculating the soft offer
cap allowed for sufficient recovery of fixed
costs plus a return on capital to facilitate
incremental upgrades and improvement by
resources. . . . Thus, the Commission has found
that it is just and reasonable in the context of
CPM compensation to allow resources the
opportunity to recover costs beyond their going-
10
forward costs and that a 20% adder is sufficient
for this purpose.
2020 CPM Order, at ¶ 36. In the CPUC’s view, the
Commission’s reliance on the 2015 CPM Order in this manner
was not the product of reasoned decision-making. We agree.
As this Court has noted, “[t]here is no question that the
Commission may attach precedential, and even controlling
weight to principles developed in one proceeding and then
apply them under appropriate circumstances in a stare decisis
manner.” La. Intrastate Gas Corp. v. FERC, 962 F.2d 37, 44
(D.C. Cir. 1992) (alteration in original) (quoting Mich. Wis.
Pipe Line Co. v. Fed. Power Comm’n, 520 F.2d 84, 89 (D.C.
Cir. 1975)). But application of precedent is warranted only if
“the factual composition of the case to which the principle is
being applied bear[s] something more than a modicum of
similarity to the case from which the principle derives.” Id.(alteration in original) (quoting Mich. Wis. Pipe Line, 520 F.2d
at 89); see also Me. Pub. Serv. Co. v. FERC, 964 F.2d 5, 9 (D.C.
Cir. 1992) (Commission’s mere citation to an earlier order
using particular percentage in rate calculation necessarily left
Court “in the dark about why the Commission thought [that]
percentage appropriate here”).
Our recent decision in Delaware Division of Public
Advocate v. FERC, 3 F.4th 461 (D.C. Cir. 2021), is instructive.
There, the Commission approved the system operator’s
inclusion of an automatic 10% adder for energy market bids by
resources in the same category as the reference resource—a
combustion turbine plant. Id. at 464, 468–69. In approving the
automatic adder, the Commission relied almost entirely on its
earlier approval of an optional 10% adder for all bidding
resources under the same program. Id. at 468–69. As we
summarized, the Commission approved the automatic adder
11
because “the adder’s general use was already approved as just
and reasonable,” id. at 469, and because the automatic adder
made the formula for the reference resource “consistent with
existing energy market rules,” id. (quoting PJM
Interconnection, LLC, 167 FERC ¶ 61,029, ¶ 128 (2019)). In
light of substantial record evidence showing that the automatic
adder “would run counter to a combustion turbine’s economic
interest,” creating the distinct possibility that “no or few actual
combustion turbine plants [would] ever use the 10% adder,” we
concluded that the Commission’s mere citation to its earlier
order—absent further explanation or analysis—was arbitrary
and capricious. Id. at 469.
Here, as in Delaware Division, the Commission failed to
grapple with the distinction between bids submitted below or
above the soft-offer cap, resulting in the Commission’s reliance
on precedent “without recognition of the substantial
differences between the two cases.” Mich. Wis. Pipe Line, 520
F.2d at 89. Regarding the soft-offer cap, the 20% adder serves
to provide cost recovery beyond going-forward costs, thereby
allowing resources to undertake incremental improvements
and upgrades. See 2015 CPM Order, at ¶ 29. But the adder also
serves to facilitate bidding—up to the soft-offer cap—among
resources with going-forward costs different from those of the
reference resource. Id. at ¶ 13. As a result, a resource’s
recovery of additional fixed costs is necessarily constrained by
the resource’s relationship to the reference resource and the
soft-offer cap itself: While a resource with going-forward costs
at or below the reference resource can take full advantage of
the 20% adder, a resource with going-forward costs above
those of the reference resource but less than the soft-offer cap
is not guaranteed the same opportunity for cost recovery.
The adder in Option A, by contrast, allows for additional
cost recovery that is not so similarly constrained. Because a
12
resource compensated under Option A is guaranteed to recoup
its demonstrated going-forward costs, any differences in cost
recovery relative to the reference unit—a concern motivating
the inclusion of the adder for below-cap resources—are
rendered irrelevant. All above-cap resources will therefore be
permitted to use the full 20% adder to finance incremental
investments and upgrades, an opportunity not afforded to all
below-cap resources. Further, because the adder is tied directly
to a resource’s going-forward costs and not limited by an offer
cap, its inclusion effectively renders the compensation formula
uncapped; the greater a facility’s going-forward costs, the more
it stands to recover through its cost-justified bid. This uncapped
recovery stands in stark contrast to the soft-offer cap, which is
meant to cap maximum bids evenly in order to facilitate
competition among resources.
In short, the soft-offer cap produces a fixed, resource-
agnostic maximum rate meant to facilitate a competitive
bidding process among many resource classes but Option A
results in a variable, resource-specific and uncapped maximum
rate intended to compensate particular resources. Rather than
discussing these material differences in deciding whether to
approve the Option A adder, the Commission simply cited its
2015 CPM Order, invoking a sort of “consistency” rationale,
and left it at that. See 2020 CPM Order, at ¶¶ 36–37. That
simply will not do and does not evince the type of reasoned
decision-making necessary to withstand scrutiny. See Del. Div.
of Pub. Advoc., 3 F.4th at 469 (rejecting Commission’s
conclusion that adder was just and reasonable simply because
it was “consistent with existing energy market rules”) (citation
omitted); see also State Farm, 463 U.S. at 43 (finding agency
action arbitrary and capricious if agency “failed to consider an
important aspect of the problem”).
13
B. Lack of Substantial Evidence
Apart from the Commission’s misplaced reliance on its
2015 CPM Order, the record contains no evidence or findings
to support its decision. Like every agency, the Commission
“must be able to demonstrate that it has made a reasoned
decision based upon substantial evidence in the record.” Del.
Div. of Pub. Advoc., 3 F.4th at 465 (quoting N. States Power,
30 F.3d at 180); see also Emera Me., 854 F.3d at 28 (“FERC
must adequately explain how the evidence it relied on
‘support[ed] the conclusion it reached.’”) (alteration in
original) (quoting Wis. Gas Co. v. FERC, 770 F.2d 1144, 1156
(D.C. Cir. 1985)). We have construed the substantial evidence
standard to require “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion,” Butler
v. Barnhart, 353 F.3d 992, 999 (D.C. Cir. 2004) (quoting
Richardson v. Perales, 402 U.S. 389, 401 (1971)), something
“more than a scintilla” but “less than a preponderance of the
evidence,” FPL Energy Me. Hydro LLC v. FERC, 287 F.3d
1151, 1160 (D.C. Cir. 2002). Here, no matter how we formulate
the substantial evidence standard, the Commission fails to meet
its mandate.
Stripped of its citation to the 2015 CPM Order, the
Commission’s order has little else, if anything, to support it.
Neither CAISO, in proposing Option A, nor the Commission,
in approving Option A, relied on findings supporting its
conclusion that a 20% adder for above-cap resources would be
a just and reasonable mechanism to provide them “the
opportunity for sufficient recovery of fixed costs plus a return
on capital to facilitate incremental upgrades and improvement
by the resources.” 2020 CPM Order, at ¶ 35. For example, there
are no findings on which cost categories resources should have
the “opportunity” to recover, what amount of recovery for such
costs would “facilitate” the desired incremental improvements
14
and upgrades or what relationship a fixed 20% adder—as
opposed to a different adder or simply market revenues—bears
to those identified cost categories or desired improvements and
upgrades. See id. (Glick, Comm’r, dissenting), ¶ 4 (“[T]here is
nothing in the record to support the Commission’s finding that
it is just and reasonable to allow resources that bid above the
soft offer cap to recover 120 percent of the short-term fixed
costs.”); J.A. 067 (DMM arguing that “[t]he CAISO filing does
not include any explanation or analysis of how or why a 20%
adder is an appropriate level relative to potential costs of ‘long
term maintenance’ and ‘environmental upgrades’”). It is
difficult for us to ascertain “a rational connection between the
facts found and the choice made” when both the Commission
and CAISO failed to establish the basic facts. See State Farm,
463 U.S. at 43 (citation omitted).
Moreover, several parties that participated in the
Commission’s proceeding pointed out the dearth of supporting
evidence in the record but the Commission largely ignored
them. See TransCanada Power Mktg. Ltd. v. FERC, 811 F.3d
1, 12 (D.C. Cir. 2015) (“It is well established that the
Commission must ‘respond meaningfully to the arguments
raised before it.’”) (quoting Pub. Serv. Comm’n v. FERC, 397
F.3d 1004, 1008 (D.C. Cir. 2005)). The CPUC, DMM and
PG&E all noted the lack of analysis as to why market revenues
alone—which are uncapped and not netted against other CPM
compensation—would provide insufficient cost recovery for
incremental upgrades and improvements, thereby necessitating
a 20% adder. See J.A. 055–56 (CPUC Comments); J.A. 067–
68 (DMM comments); J.A. 094–98 (PG&E Comments).
Indeed, PG&E provided modeling indicating the significant
likelihood that a facility’s full cost of service would be
recovered from going-forward costs and market revenues
alone—i.e., before the inclusion of any adder. J.A. 094–95.
Yet, notwithstanding the Commission’s acknowledgment of
15
the parties’ arguments on this issue, 2020 CPM Order, at
¶¶ 12–14, it otherwise failed to address them, see
TransCanada, 811 F.3d at 12 (faulting Commission because it
“simply never addressed” petitioner’s argument). 4
Further, the CPUC and DMM raised concerns that the
inclusion of a 20% adder that bears no clear relationship to
particular cost categories or improvements could result in
compensation for costs not incurred, rendering the rate
potentially unjust or unreasonable. See J.A. 054–55 (CPUC
Comments); J.A. 067 (DMM Comments). As a practical
matter, the CPUC noted in its comments, a resource making a
cost-justified bid “should know what long-term upgrades and
maintenance and other capital investments should be expected
in the coming year,” making a fixed adder for yet uncertain
costs inappropriate and potentially excessive. J.A. 054–55. As
this Court has often noted, “rates that permit excessive profits
are not just and reasonable.” TransCanada, 811 F.3d at 12. 5 To
4
The Commission has previously indicated that compensation
in voluntary backstop programs “must at a minimum allow for the
recovery of the generator’s going-forward costs, with parties having
the flexibility to negotiate a cost-based rate up to the generator’s full
cost of service.” See New York Indep. Sys. Operator, Inc., 155 FERC
¶ 61,076, ¶ 100 (2016) (emphasis added) (quoting New York Indep.
Sys. Operator, Inc., 150 FERC ¶ 61,116, ¶ 17 (2015)). If the 20%
adder would push above-cap compensation beyond full cost of
service—as some parties argue is the case—the Commission’s lack
of engagement is troubling.
5
On appeal, the Commission argues that it will ensure that a
resource making a cost-justified filing has sufficiently demonstrated
its asserted going-forward costs and that its filing is otherwise just
and reasonable. But the Commission’s discretion is not as expansive
as it makes it seem. Under Option A, which is set out in CAISO’s
tariff, a resource is entitled to the 20% adder without any showing of
additional need. The Commission’s review is accordingly limited to
whether (1) the resource’s asserted costs fall within the three
16
the extent that the Commission discussed this argument, it
characterized the argument as “unpersuasive” because the
Commission did not deem it “strictly necessary to include an
accurate estimate of” costs beyond going-forward costs in its
2015 CPM Order. 2020 CPM Order, at ¶ 38. But this response
largely skirts the question of excessive compensation or lack of
supporting evidence as simply a quibble over accuracy. See
TransCanada, 811 F.3d at 12 (dismissing Commission
argument as “specious because it does not address the valid
concern raised by” party). Further, it misapplies the 2015 CPM
Order: The fact that the Commission did not require CAISO to
document which cost categories the adder was meant to
compensate for a resource-agnostic soft-offer cap meant to
cover many resource classes does not necessarily mean that
such a showing is not needed for individualized, cost-justified
filings.
Rather than responding to the parties’ comments and
marshalling supporting evidence, the Commission elected
instead to repeat the phrase “the opportunity for sufficient
recovery,” 2020 CPM Order, at ¶ 35, as a sort of “talismanic
phrase that does not advance reasoned decision making,”
TransCanada, 811 F.3d at 13; see also New England Power
Generators Ass’n, Inc. v. FERC, 881 F.3d 202, 211 (D.C. Cir.
2018) (Commission cannot satisfy its mandate to engage with
parties’ comments by relying on “conclusory statements that
dismissed [a party’s] concerns without providing reasoned
analysis”).
categories comprising going-forward costs and (2) the CPM price
was properly calculated using the approved formula—i.e., Option A.
The Commission therefore offers only a tautology: Its review will
ensure the generator’s offer is just and reasonable, assuming that the
above-cap formula itself is just and reasonable.
17
For the foregoing reasons, the petition for review is
granted. We therefore vacate the Commission’s order and
remand the case for proceedings consistent with this opinion.
So ordered.