Recently, the U.S. Court of Appeals for the Third Circuit upheld FERC’s 2011 orders accepting revisions to PJM’s Minimum Offer Price Rule (“MOPR”) that, among other things, removed the mitigation exemption for resources being developed in response to a state mandate to resolve a projected capacity deficiency.  While sharply criticizing FERC for allowing “sovereign states and private parties to be drawn into making complex and costly investments, only to later pull the rug out from under those who were persuaded that the exemption was somehow real,” the Third Circuit concluded that FERC neither exceeded its jurisdiction nor acted in an arbitrary and capricious manner.

Of particular relevance, the Third Circuit found that “FERC’s enumerated reasons for approving the elimination of the state-mandated exception relate directly to the wholesale price for capacity, which is squarely, and indeed exclusively, within FERC’s jurisdiction.”  And while sympathetic to arguments that New Jersey and Maryland “reasonably relied on the availability of the state-mandated exemption in contracting for the construction of new capacity resources,” the court found “no fault with FERC’s ability to, and reasons for, eliminating the state-mandated exemption.  Courts have repeatedly held that an agency may alter its policies despite the absence of a change in circumstances.”  As such, the court limited its review of FERC’s orders to assessing “only whether FERC’s factual conclusions were based on substantial evidence, whether, taking into account that evidence, each of the changes it made to the MOPR in its orders had a rational basis and were not arbitrary or capricious, and whether FERC adequately explained its reasoning.”

The Third Circuit’s decision in this matter may foreshadow its resolution of the pending appeal of a federal district court decision invalidating New Jersey’s capacity development initiative.

The full decision may be viewed here.