The 3rd U.S. Circuit Court of Appeals on Dec. 1 rejected three petitions seeking to overturn FERC’s approval of PJM’s tightened minimum offer price rule (MOPR) (21-3068, et al.).

The latest MOPR design eliminated a requirement that resources eligible for receiving any state subsidies be mitigated to their cost-based offers, a change the commission mandated in 2019. Later, PJM proposed limiting the application of the rule to resources with the “ability and incentive to exercise buyer-side market power” or when a resource receives state subsidies that are likely to be pre-empted by the Federal Power Act.

PJM submitted the tariff revisions in July 2021, and they went into effect automatically two months later after the commission deadlocked 2-2 (ER21-2582). (See P3 Seeks 3rd Circuit Review of PJM MOPR.)

In its ruling against the PJM Power Providers (P3) Group, the Electric Power Supply Association (EPSA), and the Ohio and Pennsylvania public utility commissions, the 3rd Circuit rejected arguments that FERC acted arbitrarily and capriciously by allowing the rule to go into effect, establishing for the first time since the enactment of the America’s Water Infrastructure Act of 2018 the courts’ authority to review the commission’s “action by inaction.”

The law was mostly focused on improving drinking water quality and financing improvements to flood-control infrastructure, but it also contained provisions pertaining to when FERC deadlocks. Previously, tariff changes that went into effect by operation of law were not reviewable by the courts because there was no action by the commission.

The law added Section 205g to the FPA to allow for such review. It also required that each FERC commissioner submit a written statement into the record explaining their vote.

The petitioners argued that in the absence of an order supported by the majority of the commission, there are “no institutional findings of fact or conclusions of law” that the courts can consider.

The court rejected that argument, saying the new section “unambiguously instructed that we construe FERC’s inaction as an affirmative order” for the purposes of review.

P3 and EPSA also argued that there was no evidence of FERC’s decision for the court to review, as required elsewhere in the FPA.

But the court said that in granting it jurisdiction over deadlocked orders, Congress intended for the commissioners’ statements to serve as evidence. Without such a record, the court wrote, it would be required to consider any orders by operation of law to be arbitrary and capricious, as it would have no way of evaluating how the commission arrived at its answer.

“The statements of the deadlocked commissioners do more than record each person’s individual rationale for affirming or rejecting the rate filing,” the court wrote. “Collectively, they illuminate the agency’s reasons for inaction, which Congress has instructed us to construe as an affirmative order.

“Because FERC must accept a Section 205 rate filing absent ‘a finding that the existing rate was unlawful,’ our thorough consideration of the entire record must ensure that the commissioners who did not find the 2021 MOPR unlawful engaged in ‘decision-making [that was] reasoned, principled and based upon the record.’”

In a joint statement after the deadlock in 2021, former FERC Chair Richard Glick and Commissioner Allison Clements argued that the previous MOPR resulted in the reliability contribution of resources receiving state subsidies potentially not being recognized, inflating the amount consumers paid by as much as $3.4 billion. Commissioners James Danly and Mark Christie opposed PJM’s proposal, arguing that it would ignore the impact of subsidies on wholesale markets and produce uncompetitive outcomes. (See ‘Good Riddance’ to Old PJM MOPR, Glick Says.)

Environmental groups applauded the court’s decision, saying the previous MOPR that FERC required in 2019 forced renewable resources to enter artificially inflated capacity offers and prevented them from being competitive with fossil-fired resources.

“The rule upheld today eliminates the anticompetitive treatment of resources supported by state and local policies in PJM,” said Caroline Reiser, senior staff attorney for the NRDC, in a statement. “With this rule in place, consumers will see the full benefits of state investments in clean power. Fossil fuel interests were trying to use the courts to do something they could not do in the market: slow the clean energy transition.”