Commissioner Richard Glick
July 16, 2020
Docket No. ER18-1639-002
Order: E-4
I dissent from today’s orders because I do not believe that the Commission can or should use its authority over wholesale sales of electricity to bail out a liquefied natural gas (LNG) import facility. In doing just that, today’s orders exceed the Commission’s authority under the Federal Power Act (FPA). The Commission’s efforts to justify that remarkable assertion of authority are arbitrary and capricious and unsupported by the record. Taking the arguments in today’s orders seriously would confer on the Commission precisely the sort of limitless, marauding jurisdiction that the Supreme Court has repeatedly rejected.
On a broader note, fuel security is a multi-faceted issue that cannot be comprehensively or effectively addressed solely through the Commission’s authority over the bulk power system.[1] Instead, fuel security demands a more holistic solution than that which the FPA alone can provide. Accordingly, I continue to believe that the Commission erred when, in 2018, it initiated a section 206 proceeding into ISO-New England’s tariff that, for all intents and purposes, shoehorned the fuel security debate into the confines of the FPA and set us on a path to today’s orders. Although that conclusion does not change the standard of review we must apply today, it underscores the extent to which the awkward situation in which the Commission now finds itself could have been avoided.
* * *
Let’s first be clear about what the Commission is doing. Faced with speculation about the potential for brief natural gas shortages in New England, the Commission is forcing consumers to pay the full cost of service for Constellation Mystic Power, LLC’s (Mystic) electric generating facility in order to bail out the Everett Marine Terminal (Everett), an LNG import facility. Because Everett does not rely on the interstate pipeline grid to acquire natural gas (instead receiving it via ship), it can provide another source of natural gas for the region when the pipeline system becomes constrained, as may happen during stretches of cold weather when heating needs cause demand for natural gas to surge.[2] But Everett apparently depends on its sales to Mystic to remain financially solvent, and letting Mystic retire could indirectly lead Everett to close.[3] Nevertheless, it is Everett, not Mystic, that, in fact, provides the purported fuel security benefit underlying this proceeding.[4] Accordingly, the Commission has chosen to use its authority under the FPA to retain Mystic in order to keep Everett from going under.
What is more, throughout this proceeding, the Commission has attempted to structure its regulation of Mystic in order to induce Everett to sell more natural gas. For example, in its December 2018 Order, the Commission expressly set the profit margin that Everett could recoup on its third-party sales of natural gas, while also providing a “sliding scale” that increased that profit margin as its sales volume increased.[5] Today’s orders back off that directive, recognizing that it “may exceed the scope of the Commission’s authority.”[6] That conclusion is undoubtedly correct, and I am pleased to see the Commission walk back the most egregious examples of its jurisdictional overreach. But that step in the right direction does not change the underlying fact that the Commission is still using its authority over Mystic for the purposes of bailing out an LNG import terminal.
The Commission has “limited” authority under the FPA. Our role is to ensure that “‘rates and charges made, demanded, or received by any public utility for or in connection with’ interstate wholesale [electric] sales” as well as the “rules and regulations affecting or pertaining to such rates or charges” are just and reasonable and not unduly discriminatory or preferential.[7] “Taken for all it is worth, that statutory grant could extend [the Commission’s] power to some surprising places,” including the “inputs” used to produce electricity, such as “steel, fuel, and labor.”[8] Indeed, it would allow the Commission to “regulate now in one industry, now in another, changing a vast array of rules and practices to implement its vision of reasonableness and justice.”[9] But that is not what Congress had in mind when it enacted the FPA.[10]
To prevent such illogical results, the Court has repeatedly interpreted the FPA to confine the Commission’s authority to the wholesale electricity sector, ensuring that it does not take advantage of that sector’s position within the larger energy economy by aiming at matters beyond its purview. For example, to limit the Commission’s jurisdiction over matters that “affect” wholesale rates, the Court has adopted a “common-sense” interpretation that permits the Commission to regulate only those rules or practices that “‘directly affect the wholesale rate.’”[11] Similarly, the Court has also observed that the Commission transgresses the FPA’s jurisdictional bounds when it exercises its jurisdiction to aim at something outside its proper bailiwick under the statute.[12] It would, after all, be bizarre for the Court to so carefully limit the Commission to regulating only those matters that directly affect wholesale rates, but then permit the Commission to use those effects as the pretext for aiming at that which inarguably falls outside its jurisdiction. Permitting that outcome would seem to sanction exactly the sort of “surprising” jurisdictional consequences that EPSA could “[]not imagine . . . Congress had in mind” when it enacted the statute.[13]
And yet, sanction such surprising jurisdictional consequences is exactly what today’s orders do. The Commission is bailing out Mystic in order to keep a separate and unquestionably non-jurisdictional entity, the Everett LNG facility, financially afloat.[14] As discussed above, the region’s real fuel security “need,” such as it is, appears to be the non-pipeline-dependent access to natural gas the Everett LNG facility provides, not the Mystic unit itself.[15] Instead, Mystic is relevant only insofar as it is necessary to keep Everett in operation and provides a not entirely implausible locus for Commission action under the FPA. I see nothing in the FPA, however, that suggests that the Commission can—much less should—wield its jurisdiction to address an issue so far upstream from the markets the Commission regulates. It may well be that the Commission lacks the means to bail out Everett directly and that its Mystic bank shot is the best option it has. But while “it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail,”[16] that temptation cannot justify the Commission acting beyond its statutory limits.
The specifics of this proceeding emphasize the extent to which the Commission is meddling in areas where it simply does not belong. Although, as noted, the Commission appears to have (rather tersely) backed off its attempt to use Mystic to regulate the profit margin on Everett’s third-party sales,[17] it continues to set Everett’s recoverable costs based on the Commission’s assessments of Everett’s operations and to define which entities are the primary beneficiaries of those operations continuing.[18] For example, the Commission determines that, although Everett makes sales of natural gas vapor to third parties—i.e., entities other than Mystic—those third-party sales somehow benefit Mystic and, therefore, the full cost of the infrastructure needed to make those sales is appropriately attributed to Mystic.[19] The only support for that conclusion is the Commission’s observation that Everett is Mystic’s sole source of fuel.[20] Although factually accurate, that statement does not explain why electricity customers should bear the full cost of infrastructure that is equally used to make sales to third parties, unless, of course, you recall that the whole purpose of this proceeding is to have electricity customers foot the bill for an LNG bailout.[21]
None of the ever-changing justifications offered by the Commission during these proceedings provides a reasoned rationale for its extra-jurisdictional escapades. Today’s orders, for example, contend that the Commission’s assertion of jurisdiction is permissible because Mystic’s costs are included in a jurisdictional rate filed pursuant to section 205 of the FPA.[22] In other words, the argument seems to go, because the relevant arrangement would be governed by a Commission-jurisdictional tariff, it must fall within the Commission’s jurisdiction.[23] That tautology, however, is not a reasoned basis for exercising jurisdiction and would permit public utilities’ decisions regarding what to put in their tariffs to override the express limitations imposed by Congress.[24]
In any case, the courts have already rejected the proposition that the Commission’s jurisdiction automatically extends to anything in a jurisdictional tariff. In Columbia Gas Transmission Corp. v. FERC, the Commission took the position that it had jurisdiction to enforce tariff provisions that governed otherwise non-jurisdictional activity.[25] The court rejected that argument out of hand, explaining that the Commission cannot use a tariff as a “jurisdictional boot-strap” to expand its authority beyond its statutory limits.[26] And just as the Commission “may not bootstrap itself into an area in which it has no jurisdiction,”[27] a private party cannot do that work for the Commission by proposing to put anything and everything into its tariff pursuant to FPA section 205.[28]
The Commission’s transparent effort to recast the jurisdictional question as being only about whether the proposal is just and reasonable fails for the same reason. It attempts to bypass the jurisdictional prerequisites of the FPA and proceed to the substantive question, which is exactly what Columbia Gas prohibits.[29] Given the facts before us, I can appreciate why the Commission is so eager to find a way to skip the jurisdictional analysis, but that desire, understandable as it may be, does not excuse cutting jurisdictional corners.
The Commission also contends that using Mystic to bail out Everett is just a run-of-the-mill example of a generator recovering its fuel costs through a cost-of-service rate.[30] That argument overlooks the fact that the typical fuel-cost recovery arrangement is not used as a pretext to bail out the source of that fuel. Here, where the record suggests that, under any reasonable set of assumptions,[31] the Everett LNG facility is the font of the supposed fuel security benefits, the Commission cannot escape the jurisdictional objections by citing to a series of distinct cases in which those objections are not presented.
Side-stepping the issue is par for the course in this proceeding. In multiple previous orders, the Commission rested its assertion of jurisdiction on a series of unprincipled theories, none of which could withstand the slightest scrutiny. For example, the crux of the Commission’s jurisdictional theory in its July 2018 and December 2018 orders was what it described as an “extremely close relationship” between Everett and Mystic.[32] The Commission, however, never defined that “extremely close relationship” standard or provided a reason to believe that it was anything more than an arbitrary and capricious “know-it-when-we-see-it” test.[33] Given the foreseeable problems that would have arisen in administering such a mushy standard, I am not surprised to see the Commission jettison it in today’s orders.[34] Nevertheless, the Commission’s failure to settle on a consistent story—not to mention its willingness to unceremoniously abandon both its prior reasoning and its prior directives—underscores the extent to which the Commission’s LNG bailout lacks firm legal footing.[35]
However you look at it, today’s orders support an untenable expansion of the Commission’s authority under the FPA. They fail to articulate coherent limits on the Commission’s jurisdiction, and the various justifications for the Commission’s actions would, if taken seriously, give the FPA the “near-infinite breadth” that the Supreme Court has flatly rejected.[36] As a result, today’s orders “constitute[] a clear error of judgment because the logical extension of the bases offered to support [them] lacks a limiting principle.”[37] That makes them not only in excess of the Commission’s jurisdiction, but also arbitrary and capricious in their failure to present a coherent jurisdictional theory in the first place.
* * *
Maintaining the reliability of the bulk power system is one of the Commission’s chief responsibilities, especially in New England where, on a cold winter day, the “consequences of not being able to generate enough electricity could be catastrophic.”[38] But high stakes cannot excuse jurisdictional overreach or arbitrary and capricious agency action. To the contrary, the best way to ensure the region’s long-term fuel security and electric reliability is through a durable approach to identifying and resolving reliability needs, not by bending the rules to put in place half-measures and regulatory Band Aids. The winter period covered by Mystic’s cost-of-service agreement will not begin for over two years, which provides plenty of time for a court to correct the Commission’s jurisdictional misadventures and nudge us back onto a path toward a sustainable approach to ensuring the reliability of ISO New England’s electric grid.
For these reasons, I respectfully dissent.
[1] See Constellation Mystic Power, LLC, 165 FERC ¶ 61,267 (2018) (Glick, Comm’r, dissenting at 1) (December 2018 Order) (explaining that the Commission’s actions “confined the fuel-security debate to options available under the [FPA], even though it was evident at the time that the FPA is an inadequate vehicle for addressing many of the factors that go into fuel security”); ISO New England Inc., 165 FERC ¶ 61,202 (2018) (Glick, Comm’r, concurring at 3) (observing that some approaches to resolving fuel security concerns directly, such as “gas demand response,” may require action under state law); Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 (2018) (Glick, Comm’r, dissenting at 1) (July 2018 Order) (concluding that the “consequence of the Commission’s action will be New England ratepayers bearing significant additional costs without even a cursory examination by the Commission of other options for addressing potential fuel security concerns more efficiently”); ISO New England Inc., 164 FERC ¶ 61,003 (2018) (Glick, Comm’r, dissenting in part at 3) (“Fuel security is a multi-faceted issue, only certain aspects of which fall under the Commission’s jurisdiction. By preliminarily determining that ISO-NE’s Tariff is unjust and unreasonable, the Commission is prematurely focusing the conversation on the wholesale rates subject to its jurisdiction, potentially cutting off other, potentially more fruitful avenues for addressing fuel security concerns.”).
[2] December 2018 Order, 165 FERC ¶ 61,267 at P 7.
[3] Id. P 8.
[4] See id. (Glick, Comm’r, dissenting at 5-6 & n.23). ISO New England Inc.’s expert witness in the proceeding that paved the way for the Commission to accept Mystic’s cost-of-service agreement suggested that the Everett LNG import facility provides the principal fuel security benefit and that, even under the conservative assumptions in ISO New England’s analysis, Everett can increase its injections of LNG into the pipeline system to avoid load shedding with or without Mystic. Id. (Glick, Comm’r, dissenting at n.23); ISO New England Petition for Waiver, Docket No. ER18-1509-000, Exhibit ISO-1 at 43 (Brandien Testimony). ISO New England’s independent market monitor concurred. Potomac Economics Comment, Docket No. ER18-1509-000 at 4-9; id. at 6 (figure comparing demand for natural gas and oil with and without the Everett LNG import facility). Although today’s orders sidestep these issues, the evidence before the Commission indicates that the real motivating factor behind all these proceedings is Mystic’s contribution to Everett’s financial solvency, not Mystic’s ability to generate and sell electricity.
[5] December 2018 Order, 165 FERC ¶ 61,267 at PP 134-135.
[6] Constellation Mystic Power, LLC, 172 FERC ¶ 61,044 at P 66 (2020) (December 2018 Rehearing Order).
[7] FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 773 (2016), as revised (Jan. 28, 2016) (EPSA) (quoting 16 U.S.C. § 824d(a) (2018)).
[8] Id. at 774.
[9] Id.
[10] Id. (“We cannot imagine that was what Congress had in mind” for the FPA.).
[11] Id. (quoting Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395, 403 (D.C. Cir. 2004)); see also id. (“As we have explained in addressing similar terms like ‘relating to’ or ‘in connection with,’ a non-hyperliteral reading is needed to prevent the statute from assuming near-infinite breadth.”).
[12] Id. at 776-77 (citing Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 383 (2015)); see Altamont Gas Transmission Co. v. FERC, 92 F.3d 1239, 1248 (D.C. Cir. 1996) (stating that FERC may not “do indirectly what it could not do directly” (citing Nw. Central Pipeline v. State Corp. Comm’n, 489 U.S. 493, 512 (1989))).
[13] EPSA, 136 S. Ct. at 774.
[14] Exelon, Mystic’s ultimate corporate parent, has now purchased Everett. See Constellation Mystic Power, LLC, 172 FERC ¶ 61,043 at n.62 (2020) (July 2018 Rehearing Order) (“As wholly-owned subsidiaries of Exelon and, ultimately, of Exelon Corporation, Mystic and Everett currently are under the common control of these companies and thus are affiliates of each other and have been since Exelon acquired Everett in October 2018.”) Nevertheless, shared corporate parentage neither changes the limitations on the Commission’s jurisdiction nor excuses the Commission’s actions today. It should go without saying that the FPA does not give the Commission jurisdiction over otherwise non-jurisdictional facilities simply because they are affiliated with a public utility.
[15] Supra PP 3-4.
[16] Abraham H. Maslow, The Psychology of Science: A Reconnaissance 15-16 (1966).
[17] See supra P 4.
[18] December 2018 Rehearing Order, 172 FERC ¶ 61,044 at PP 64-65.
[19] Id. P 64. The Commission suggests that those sales help to “manage” Everett’s tank, which, in turn, purportedly benefits Mystic. What is never explained, however, is why third parties do not also benefit from “tank management” or why the Commission can so confidently conclude that all tank-related benefits go to and ought to be paid for by electricity customers.
[20] Id.
[21] Id. While I support the Commission’s decision to abandon its extra-jurisdictional directive regarding third-party sales, that decision completely pulls the rug out from under the Commission’s determination that it is just and reasonable to allow Mystic to recover 100% of Everett’s fixed costs associated with natural gas vapor sales. Trial Staff’s proposal—which the Commission adopted in the December 2018 Order—recognized that if all of Everett’s fixed costs associated with vapor sales are allocated to Mystic, Mystic should receive a revenue credit on any third-party vapor sales Everett makes. See Trial Staff Initial Brief at 94-95 (“[I]t is reasonable to credit Mystic a portion of the incremental revenue . . . from third parties because all of Everett’s fixed costs . . . will be collected from Mystic’s rate payers including any level of return.”); December 2018 Order, 165 FERC ¶ 61,267 at P 133. Today’s orders are an unfortunate double whammy for ratepayers, who will now be responsible for paying all of Everett’s fixed costs, while receiving no credit for sales Everett is able to make to third parties using the facilities they have paid for. This is certainly not a just and reasonable result.
[22] December 2018 Rehearing Order, 172 FERC ¶ 61,044 at PP 22-24; July 2018 Rehearing Order, 172 FERC ¶ 61,043 at PP 27-28.
[23] December 2018 Rehearing Order, 172 FERC ¶ 61,044 at P 22 (“The Fuel Supply Charge is a component of Mystic’s cost-of-service rate and, as a result, is subject to Commission review and approval.”); July 2018 Rehearing Order, 172 FERC ¶ 61,043 at P 26 (same).
[24] But see Weinberger v. Bentex Pharmaceuticals, Inc., 412 U.S. 645, 652 (1973) (“Parties, of course, cannot confer jurisdiction; only Congress can do so.”).
[25] 404 F.3d 459, 462 (D.C. Cir. 2005).
[26] Id. at 462-63; see id. at 463 (“[A]s a statutory entity, the Commission cannot acquire jurisdiction merely by agreement of the parties before it.” (quoting Am. Mail Line Ltd. v. FMC, 503 F.2d 157, 170 (D.C. Cir. 1974))).
[27] Adams Fruit Co. v. Barrett, 494 U.S. 638, 650 (1990) (quoting Fed. Maritime Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 745 (1973)).
[28] Columbia Gas, 404 F.3d at 462.
[29] Id. at 463 (“FERC may neither accept the filing of a tariff provision that covers non-jurisdictional activity . . . nor assert jurisdiction over such an activity.”).
[30] December 2018 Rehearing Order, 172 FERC ¶ 61,044 at PP 24-26.
[31] Supra PP 3-4.
[32] December 2018 Order, 165 FERC ¶ 61,267, at P 106; July 2018 Order, 164 FERC ¶ 61,022 at P 36.
[33] City of Vernon, Cal. v. FERC, 845 F.2d 1042, 1048 (D.C. Cir. 1988) (explaining that the Commission’s “‘know-it-when-we-see-it’ approach . . . does not provide a reasoned explanation of an agency decision”).
[34] Today’s orders do not explain their departure from the theory on which the Commission previously relied. The only discussion of the “extremely close relationship” standard is in a single footnote, in which the Commission “clarifies” that the standard is no longer relevant because Everett and Mystic are now affiliates. December 2018 Rehearing Order, 172 FERC ¶ 61,044 at n.54; July 2018 Rehearing Order, 172 FERC ¶ 61,043 at n.62. Why that affiliate status is relevant to the jurisdictional analysis or how Exelon’s common ownership of the two facilities supports the outcome in today’s orders is never explained.
[35] In the July 2018 Order, the Commission relied on three tenuously related cases to support its assertion of jurisdiction. July 2018 Order, 164 FERC ¶ 61,022 at P 37 & n.54. Today’s orders on rehearing make no mention of those cases—wisely in my view, as they did not support the Commission’s conclusions. Constellation Mystic Power, LLC, 164 FERC ¶ 61,022 (Glick, Comm’r, dissenting at n.7). As a result, however, the Commission cannot point to even one judicial precedent supporting its theory of jurisdiction.
[36] EPSA, 136 S. Ct. at 774.
[37] United States v. Reynolds, 710 F.3d 498, 510 (3d Cir. 2013); see also Stewart v. Azar, 366 F. Supp. 3d 125, 154 (D.D.C. 2019) (explaining that a statutory interpretation is arbitrary and capricious where it is “not subject to any kind of limiting principle” such that it becomes “utterly unreasonable in its breadth”).
[38] Statement of Commissioner Glick, Docket No. ER19-1428-001 at P 3 (2019); ISO New England Inc., 164 FERC ¶ 61,003 (Glick, Comm’r, dissenting in part at 1) (“Few, if any, of the Commission’s responsibilities are more important than ensuring the reliable operation of the bulk power system. That is certainly true during the winter months in New England when the loss of electricity can have dire consequences.”).