The D.C. Circuit Court of Appeals on Friday handed Public Citizen a win in the consumer advocate’s yearslong battle against the expensive Southern Illinois capacity price produced in MISO’s 2015/16 capacity auction.

The court said FERC’s repeated decisions to uphold Zone 4’s $150/MW-day clearing price were arbitrary and capricious because they lacked explanation (20-1156).

FERC last May turned down a final rehearing bid from Public Citizen to change the price. It said clearing prices aren’t unjust simply because they are “higher than expected.” (See FERC Shelves Grievances over MISO Capacity Auction.) The D.C. Circuit blasted FERC’s logic as an “anodyne statement” and remanded the case to the commission.

The commission in 2019 closed a three-year investigation into the auction when it ruled that the RTO’s Zone 4 clearing price was just and reasonable, declining to set up an evidentiary hearing. It concluded pivotal supplier Dynegy (now Vistra by way of merger) had not withheld capacity to induce a price spike in Southern Illinois.

However, FERC didn’t make any details of its investigation public, prompting criticism from now-Chairman Richard Glick, who argued that the investigation was closed prematurely and indicated that there was evidence that Dynegy manipulated auction prices.

“Because the details of the investigation remain nonpublic, I cannot explain why I believe that [then-Chair Neil Chatterjee] erred in terminating the enforcement process. Suffice it to say that I am confident that the evidence uncovered in that investigation was more than sufficient to press ahead,” Glick wrote.

The D.C. Circuit seized on the incomplete details surrounding FERC’s analysis and investigation, agreeing with Public Citizen that commission didn’t offer a proper justification to support its decision that nothing anticompetitive occurred.

“The commission failed to adequately explain why the problems it identified in the existing auction rules affecting pricing — problems it ordered fixed going forward — did not also affect the fairness of the 2015 auction itself. That omission is particularly glaring in light of the starkly anomalous rates that the auction produced. Based on the unwonted record before the commission and the multiyear commission investigation into market manipulation that record prompted, the agency’s conclusory and unreasoned decision to sustain the 2015 auction rates does not hold up,” the court said.

Soon after the auction, FERC found MISO’s circa-2015 market power provisions flawed and ordered the RTO to reset its $155.79/MW-day maximum bid to about $25. It also directed MISO to better gauge power exports. But FERC said those new policies were to be viewed on a going-forward basis and wouldn’t impact the 2015/16 auction. (See FERC Orders MISO to Change Auction Rules.)

The court admitted it lacked the power to review FERC’s decision to close its market manipulation investigation and could not force the commission to reopen it.

“In short, under the Federal Power Act, we cannot review either the commission’s discretionary decision to close its Section 222 investigation into Dynegy or the fleeting explanation the commission gave for its action,” it said. “Public Citizen fares better with its argument that the commission failed to explain adequately its conclusion that the results of the 2015 auction for Zone 4 were just and reasonable.”

The court said FERC “fell far short of the type of reasoned explanation that the law requires” and conveyed skepticism that MISO was free to apply no-longer-valid opportunity-cost assumptions to the auction in question but not future ones.

“Most notably, the commission failed to reconcile its prospective holding that the tariff could no longer protect against anticompetitive behavior with its conclusion that the conspicuously uneven 2015 results — obtained under the same flawed tariff terms — were not similarly infected,” it said.

The court also said the “generic” assertations FERC offered in its orders were no match for the explanation that the soaring prices warranted.

“The clearing price was not just higher but was massively higher than the rates in every other zone, and substantial evidence in the record raised the question of a market failure. What this record required was nothing more and nothing less than a reasoned assessment of the evidence as a whole,“ the court wrote. “On top of that, the commission’s breezy analysis overlooks that a market participant could abide by a transmission organization’s tariff and still manipulate the market.”

While the court concurred with Public Citizen that FERC’s explanation left much to be desired, it disagreed with the group’s contention that the commission had a duty to examine capacity prices for reasonableness before they go into effect.

“That is not what the market-based rate scheme requires,” the court said.

Vistra announced last year it would close its remaining coal-fired power plants in Illinois over the decade, idling units at its Joppa, Kincaid, Baldwin and Newton plants.

Glick claimed vindication after the ruling. “As I said in my dissents from the underlying orders, 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 and its incongruity with other rates within the same auction,’” he said in a statement Friday.

“I continue to believe deeply in competitive markets, but those markets can produce just and reasonable results and deliver fair rates for customers only if they are free from manipulation. Accordingly, protecting those markets must remain one of the commission’s paramount responsibilities,” he added. “The D.C. Circuit has told the commission, on several recent occasions, that it needs to do a better job interpreting its statutory responsibilities, and I intend for the commission to follow that directive.” (See related story, DC Circuit Sends LNG Approvals Back to FERC.)