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Media Alerts - Central Hudson Gas & Electric Corp. v. FERC
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April 2, 2015
  Central Hudson Gas & Electric Corp. v. FERC
Headline: Second Circuit Allows New Electrical Capacity Zone in the Lower Hudson Valley To Go Forward

Area of Law: Administrative Law

Issue(s) Presented: Whether the Federal Energy Regulatory Commission (FERC)'s orders approving a new electric power "capacity zone" in the Lower Hudson Valley, along with a new "demand curve" to set capacity prices, were arbitrary and capricious, unsupported by substantial evidence, or would result in unreasonable rates for electricity.

Brief Summary: Two groups of petitioners challenged four orders of the Federal Energy Regulatory Commission (FERC) approving the New York Independent System Operator's (NYISO) creation of a new capacity zone comprising certain areas of Southeastern New York (including the Lower Hudson Valley) and ordering the implementation of a demand curve for that capacity zone. Petitioners argued that the orders were arbitrary and capricious, unsupported by substantial evidence, and would result in unreasonable rates. The Second Circuit disagreed with petitioners on all grounds and denied the petitions for review. The full text of the opinion may be found at: http://www.ca2.uscourts.gov/de.../1/doc/14-1786_opn.pdf - xml=http://www.ca2.uscourts.gov/decisions/isysquery/c052b24f-5e53-42d2-adb5-1042655e3142/1/hilite/

Extended Summary: The orders challenged by petitioners approved a proposal by the NYISO to create a new wholesale electric power capacity zone. The orders represented the culmination of a multi-year process, and served to provide more accurate price signals in the electrical grids of the Hudson Valley. Petitioners claimed the FERC failed adequately to justify the higher prices expected to result from the creation of the new zone, particularly without a "phase-in" of the new zone and its demand curve to soften the impact. Accordingly, petitioners claimed the challenged orders are arbitrary and capricious, unsupported by substantial evidence, and disregard FERC's statutory mandate to ensure that rates are "just and reasonable."

Petitioners made five principal arguments against FERC's orders, each of which were rejected by the court: (1) FERC did not adequately justify its conclusion that consumers would benefit from the creation of the new Lower Hudson Valley Zone and the implementation of its associated demand curve; (2) FERC failed to adequately support its conclusion that implementing the new zone without a phase-in of its demand curve would result in just and reasonable rates; (3) in creating the new zone, FERC improperly ignored evidence regarding New York's transmission upgrade initiatives; (4) FERC improperly failed to set forth criteria for the potential elimination of the Lower Hudson Valley Zone after the transmission constraint no longer exists; and (5) FERC did not demonstrate that the increases in rates arising from the new zone would reflect to some degree the costs actually caused by the customer who must pay them.

The court reviewed the final FERC orders with great deference under the Administrative Procedure Act's arbitrary and capricious standard. The court found FERC adequately supported its decision to approve the creation of the Lower Hudson Valley Zone by relying on economic theory, which is a permissible basis to support conclusions so long as the theoretic principles are applied in a reasonable manner and are adequately explained. The court concluded the FERC articulated sound economic principles to support the zone creation and satisfactorily explained how those principles justified its conclusion. Accordingly, FERC's determinations were not arbitrary and capricious.

Petitioners also objected to FERC's decision to reject a phase-in of the rate increases, but the court found FERC had sufficient evidence to reject the phase-in and that FERC's reliance on reliability concerns was wholly appropriate. Given the deference that FERC is owed in such a highly technical area, the court concluded that its economic predictions about the effects of immediately implementing the Lower Hudson Valley Zone and its demand curve, combined with the evidence presented, were sufficient to support FERC's decision to reject the phase-in.
The court also rejected the argument that it was arbitrary and capricious for FERC to decide to proceed despite claims that New York's planned transmission upgrades would eliminate the transmission constraint on which the new zone was premised. Finally, the court rejected petitioners' argument that the Zone unfairly apportions charges arising from the transmission constraint because it was outside the scope of the Zone Proceeding.

The Second Circuit ultimately denied the petitions for review, ruling the FERC adequately justified its decision to authorize NYISO to create the Lower Hudson Valley Electrical Zone as well as its decision not phase in the new zone and its demand curve, notwithstanding New York's transmission upgrade initiatives.
The full text of the opinion may be found at: http://www.ca2.uscourts.gov/de.../1/doc/14-1786_opn.pdf - xml=http://www.ca2.uscourts.gov/decisions/isysquery/c052b24f-5e53-42d2-adb5-1042655e3142/1/hilite/

Panel:
Circuit Judges Livingston and Droney; District Judge Nathan

Argument Date: September 12, 2014

Date of Issued Opinion: April 2, 2015

Docket Number: No. 14-1786 (L)

Decided:
Petitions Denied

Case Alert Author: Jesse M. Kantor

Counsel: Raymond B. Wuslich, Winston & Strawn LLP, Washington, DC, for Petitioners Central Hudson Gas & Electric Corp., New York Power Authority, New York State Electric and Gas Corporation, and Rochester Gas and Electric Corporation.
Paul Colbert, Associate General Counselā€ Regulatory Affairs, Central Hudson Gas & Electric Corp., Poughkeepsie, NY, for Petitioner Central Hudson Gas & Electric Corp.
Glenn D. Haake, Principal Attorney, New York Power Authority, Albany, NY, for Petitioner New York Power Authority.
R. Scott Mahoney, General Counsel, Iberdrola USA, Inc., Binghamton, NY, for Petitioners New York State Electric and Gas Corporation, and Rochester Gas and Electric Corporation.
Jonathan D. Feinberg, Solicitor, Public Service Commission of the State of New York (Kimberly A. Harriman, General Counsel, John C. Graham, Assistant Counsel, and Nelli Doroshkin, Assistant Counsel, on the brief), for Petitioners Public Service Commission of the State of New York and People of the State of New York.
Robert H. Solomon, Solicitor, Federal Energy Regulatory Commission, Washington DC (David L. Morenoff, Acting General Counsel, Lisa B. Luftig and Karin L. Larson, Attorneys, on the brief), for Respondent Federal Energy Regulatory Commission.
John S. Moot, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC (Karis Anne Gong, on the brief), for Intervenor Entergy Nuclear Power Marketing, LLC.
David B. Johnson, Read and Laniado, LLP, Albany, NY, for Intervenor Independent Power Producers of New York, Inc.
Victoria L. Smith, Stinson Leonard Street LLP, Kansas City, MO (Abraham Silverman and Cortney Madea, NRG Energy, Inc., Princeton, NJ, on the brief), for Intervenors NRG Power Marketing LLC, GenOn Energy Management, LLC, Arthur Kill Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, NRG Bowline LLC, Huntley Power LLC, and Oswego Harbor Power LLC.

Author of Opinion: Judge Livingston

Circuit: 2nd Circuit

Case Alert Circuit Supervisor: Emily Gold Waldman

    Posted By: Emily Waldman @ 04/02/2015 04:25 PM     2nd Circuit  

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