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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 16, 2003 Decided November 7, 2003
No. 01-1503
CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
NRG POWER MARKETING, INC., ET AL.,
INTERVENORS
Consolidated with
02-1004, 02-1010, 02-1187
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
William F. Young and Elias G. Farrah argued the cause
for petitioners and intervenors in support of petitioners.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
With them on the briefs were Neil H. Butterklee, Elizabeth
Ward Whittle, and J. Cathy Fogel. Arnold H. Quint entered
an appearance.
Larry D. Gasteiger, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.
Howard E. Shapiro argued the cause for intervenors.
With him on the brief were Kenneth M. Simon, Woody N.
Peterson, David P. Yaffe, Jonathan D. Simon, and Steven A.
Weiler.
Before: SENTELLE, ROGERS, and TATEL, Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: In these consolidated cases, we
consider what remedies, particularly monetary ones with
retroactive effect, are available for electric service providers
and ultimately electricity consumers who experience substan-
tial price increases when a deregulated energy market fails to
operate properly. Here, the Federal Energy Regulatory
Commission—though finding serious problems in the market
for operating reserves, imposing a prospective rate cap, and
requiring other corrective actions—held that it lacked author-
ity under the Federal Power Act to revise rates retroactively.
Although we agree with that holding, we find that FERC (1)
failed to explain adequately why certain emergency proce-
dures for rebilling were unavailable, (2) erred in concluding
that the independent operator had not violated its tariff for
pricing different types of reserves, and (3) failed to consider
other alleged tariff violations. We therefore grant the peti-
tions in part and remand for further proceedings consistent
with this opinion.
I.
The New York Independent Service Operator (NYISO), a
non-profit corporation, operates the bulk power transmission
3
system in New York. NYISO provides open access transmis-
sion service and maintains system reliability. Cent. Hudson
Gas & Elec. Corp., 83 F.E.R.C. ¶ 61,352, 62,406 (1998), order
on reh’g, 87 F.E.R.C. ¶ 61,135 (1999). It also administers
competitive, bid-based electricity markets and monitors them
for exercises of market power. N.Y. Indep. Sys. Operator,
Inc., 89 F.E.R.C. ¶ 61,196 (1999) (Market Monitoring Plan or
MMP Order). NYISO operates under tariffs filed with
FERC, including the tariff involved in this case, the Market
Administration and Control Area Services Tariff (Services
Tariff). Unlike tariffs for traditional cost-of-service rates, the
filed tariffs at issue here contain no precise prices; instead,
they set standards for NYISO’s administration of competitive
electric power markets.
Under the Services Tariff, NYISO maintains a market for
ancillary services, including operating reserves. See Services
Tariff, J.A. at 594–751. Operating reserves allow utilities to
produce electricity on short notice to meet load (the total
demand for service on a utility system). Ten-minute spinning
reserve (SR) is synchronized to the system and available
almost immediately. Ten-minute non-spinning reserve
(NSR), though not loaded, can be synchronized within ten
minutes. Certain amounts of ten-minute operating reserves
must be available every hour to maintain system reliability.
Power suppliers offer ‘‘bids’’ to sell SR and NSR at certain
prices in the NYISO market. Load-serving entities (LSEs)—
transmission facility owners that provide electric load—then
purchase reserves from NYISO.
NYISO also operates under its Market Monitoring Plan
(MMP) and Temporary Extraordinary Procedures (TEP), two
measures filed with and approved by FERC that give NYISO
authority to remedy specified problems that may arise in the
deregulated market. While the precise scope of these mea-
sures is in some dispute, they allow NYISO to take certain
actions, such as issuing letters under the MMP to request
that a participant cease behavior that suggests the exercise of
market power and recalculating the prices under TEP to the
level that would have cleared the market absent a software
malfunction.
4
The Federal Energy Regulatory Commission oversees this
market-based system pursuant to the Federal Power Act
(FPA), 16 U.S.C. § 791a et seq., several provisions of which
are at issue in this case. Under sections 205 and 206, FERC
has both the authority and duty to regulate rates for whole-
sale electric power and to prohibit utilities from charging
unreasonable rates. Id. §§ 824d, 824e (2000). Section 205(d)
requires public utilities to file new rates or proposed changes
with FERC, which typically take effect in sixty days. Id.
§ 824d(d). For ‘‘good cause shown,’’ however, FERC may
waive the sixty-day notice requirement, thus allowing rate
changes to take effect immediately. Id. Under section
206(a), FERC may investigate whether a particular rate or
charge is ‘‘just and reasonable.’’ Id. § 824e(a). If FERC
finds a rate unreasonable, it must order imposition of a just
and reasonable rate. Id. FERC may then order refunds for
any period subsequent to the ‘‘refund effective date,’’ a date
FERC establishes that must be at least sixty days after the
filing of the complaint. Id. § 824e(b). Under section 206,
however, FERC may not order refunds for any period prior
to the filing of the complaint. Id. In contrast, FPA section
309 gives FERC authority to order refunds if it finds viola-
tions of the filed tariff. See id. § 825h (vesting FERC with
authority to ‘‘perform any and all acts TTT it may find
necessary or appropriate to carry out the provisions of [the
Act]’’); Towns of Concord, Norwood, & Wellesley, Mass. v.
FERC, 955 F.2d 67, 73 (D.C. Cir. 1992) (explaining that
authority to give refunds derives from FPA section 309).
This case arises out of events that occurred approximately
two months after NYISO began operations. Between Janu-
ary 29, 2000, and late March the LSEs experienced a dramat-
ic increase in prices in the bid-based market for NSR. Prices
spiked from averages of $1.04 per megawatt per hour in
November 1999 and $1.06 the following month to an average
of $65.57 in February 2000, reaching a high of $302 that
month. At the same time, the quantity of NSR that suppliers
offered dropped dramatically. For example, NSR offered at
less than $30 declined approximately seventy-five percent,
from over 1200 megawatts prior to January 29 to a low of just
5
over 300 megawatts during that period. According to NYI-
SO, during the six weeks from January 29 to March 10, the
total cost to LSEs purchasing ten-minute reserves rose by
approximately $65 million. During that same period, NYISO
reported that the market for NSR was also highly concentrat-
ed—just three generators controlled ninety-seven percent of
NSR capacity. See N.Y. Indep. Sys. Operator, Inc., 91
F.E.R.C. ¶ 61,218, 61,794 (2000) (Initial Order).
On March 27, 2000, NYISO responded to this substantial
price increase by filing a request with FERC pursuant to
FPA section 205 to suspend immediately market-based bids
for ten-minute reserves. It also asked for authority to (1)
revise its Services Tariff to subject NSR bids to a $2.52 cap,
the highest market clearing price for NSR prior to January
29, the last day on which the market appeared to function
normally, and (2) rebill for March ‘‘pending the outcome of
[an alternative dispute resolution (ADR)] process’’ that
NYISO requested FERC to initiate. Request of NYISO for
Suspension of Market-Based Pricing for 10-Minute Reserves
and To Shorten Notice Period, J.A. at 54. Around the same
time, the LSEs filed complaints with FERC pursuant to FPA
section 206. According to the LSEs, NYISO violated its
Services Tariff and operated under several market design
flaws—such as failing to accept bids from other qualified
suppliers—that compounded the problems in the reserves
market. The LSEs asked FERC to direct NYISO to correct
the practices that allegedly violated the Tariff and to order
refunds for the alleged overcharges resulting from the viola-
tions. They also sought to compel NYISO to invoke its
Temporary Extraordinary Procedures, a set of remedial mea-
sures that FERC had previously approved. See N.Y. Indep.
Sys. Operator, Inc., 88 F.E.R.C. ¶ 61,228 (1999) (First TEP
Order), reh’g denied, 89 F.E.R.C. ¶ 61,168 (1999).
In the first of three orders, FERC found that NYISO had
‘‘presented sufficient evidence to call into question continued
reliance on market-based pricing for non-spinning reserves.’’
Initial Order, 91 F.E.R.C. at 61,798. It found that the
markets were ‘‘even more concentrated than indicated in the
6
original analysis,’’ and that the ‘‘conditions under which mar-
ket-based rate authority for ancillary services was granted do
not match the current operational realities of the New York
ISO’s reserve markets.’’ Id. at 61,799. That said, FERC
stated that it ‘‘ma[d]e no finding here that any supplier
engaged in the withholding of capacity.’’ Id.
Based on its conclusion that the market was not operating
properly, FERC granted NYISO’s request for a $2.52 bid cap
and waived the sixty-day notice requirement so that the cap
could take effect the day after the filing. Id. at 61,793.
Explaining that it had no authority to grant retroactive relief,
however, FERC rejected NYISO’s requests to rebill for
reserves in March and to initiate ADR procedures. Id.
FERC affirmed this decision in two subsequent orders. See
97 F.E.R.C. ¶ 61,155 (2001) (First Rehearing Order); 99
F.E.R.C. ¶ 61,125 (2002) (Second Rehearing Order). With
respect to the LSE complaints alleging NYISO tariff viola-
tions and market design flaws, FERC denied the request for
refunds because it found that NYISO had not violated the
Services Tariff. Initial Order, 91 F.E.R.C. at 61,806–07. It
also declined to require NYISO to implement its Temporary
Extraordinary Procedures. See id. at 61,804. Granting pro-
spective relief, however, FERC directed NYISO to make
several changes in its administration of the reserves market.
Id. at 61,800. The Commission affirmed this decision in its
First Rehearing Order. See 97 F.E.R.C. at 61,677–82.
Both NYISO and the LSEs now seek review of these three
orders. The suppliers intervene in support of FERC. Be-
fore us are three issues: whether FERC properly (1) con-
cluded that it lacked authority to provide retroactive relief
under FPA section 205, (2) found the Temporary Extraordi-
nary Procedures inapplicable and unavailable to provide re-
lief, and (3) determined that NYISO had not violated the
Services Tariff. We address each issue in turn.
II.
We begin with the question of retroactive relief under FPA
section 205. Section 205(d) provides:
7
Unless the Commission otherwise orders, no change
shall be made by any public utility in any TTT rate,
charge, TTT or TTT rule TTT, except after sixty days’
notice to the Commission and to the public. Such
notice shall be given by filing with the Commission
and keeping open for public inspection new sched-
ules stating plainly the change or changes to be
made in the schedule or schedules then in force and
the time when the change or changes will go into
effect. The Commission, for good cause shown, may
allow changes to take effect without requiring the
sixty days’ notice herein provided for by an order
specifying the changes so to be made and the time
when they shall take effect and the manner in which
they shall be filed and published.
16 U.S.C. § 824d(d). Although FERC found good cause to
waive the sixty-day notice period, thus allowing the bid cap to
become effective the day after NYISO’s filing, it concluded
that it had no authority to grant retroactive relief for the two
months prior to the filing despite the dramatic price spike.
Both NYISO and the LSEs insist that FERC may order such
retroactive relief upon a finding of good cause. We disagree.
In Columbia Gas Transmission Corp. v. FERC, 895 F.2d
791 (D.C. Cir. 1990), we interpreted a provision in the Natural
Gas Act that is virtually identical to FPA section 205, holding
that FERC’s good cause waiver authority does not permit it
to make a retroactive rate adjustment. Id. at 795–97.
Courts have applied interpretations of Natural Gas Act provi-
sions to their counterparts in the Federal Power Act because
‘‘the relevant provisions of the two statutes are in all material
respects substantially identical.’’ City of Girard, Kan. v.
FERC, 790 F.2d 919, 920 n.4 (D.C. Cir. 1986) (quoting Arkan-
sas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577 n.7 (1981)
(quoting Fed. Power Comm’n v. Sierra Pacific Power Co., 350
U.S. 348, 353 (1956))) (internal quotation marks omitted). As
FERC explains, moreover, its decision to deny NYISO retro-
active relief rested on Columbia Gas’s rationale—the filed
rate doctrine and its corollary, the rule against retroactive
ratemaking. The filed rate doctrine ‘‘forbids a regulated
8
entity to charge rates for its services other than those
properly filed with the appropriate federal regulatory authori-
ty.’’ Ark. La. Gas Co., 453 U.S. at 577. The related rule
against retroactive ratemaking ‘‘prohibits the Commission
from adjusting current rates to make up for a utility’s over-
or under-collection in prior periods.’’ Towns of Concord, 955
F.2d at 71 n.2. By authorizing only prospective rate changes,
these doctrines ensure rate predictability, see Columbia Gas,
895 F.2d at 793, and by preventing discriminatory pricing,
they promote equity, see Exxon Co., U.S.A. v. FERC, 182
F.3d 30, 49 (D.C. Cir. 1999).
Courts have recognized only two circumstances in which a
rate adjustment may take effect prior to a section 205 filing:
when parties have notice that a rate is tentative and may be
later adjusted with retroactive effect, or when they have
agreed to make a rate effective retroactively. See id. at 49
(noting that ‘‘[t]he rule against retroactive ratemaking TTT
does not extend to cases in which [customers] are on ade-
quate notice that resolution of some specific issue may cause
a later adjustment to the rate being collected at the time of
service’’ (alteration and omission in original) (internal quota-
tion marks and citations omitted)); City of Holyoke Gas &
Elec. Dep’t v. FERC, 954 F.2d 740, 744 (D.C. Cir. 1992)
(finding FERC’s decision to make the rate change effective
prior to the filing date proper because the parties had con-
tracted to make rate retroactive and a waiver was not against
the public interest). Neither of these circumstances under-
mines the twin goals of predictability and equity. See Exxon,
182 F.3d at 49 (finding that ‘‘equity and predictability are not
undermined when the Commission warns all parties involved
that a change in rates is only tentative and might be disal-
lowed’’ (quoting OXY USA, Inc. v. FERC, 64 F.3d 679, 699
(D.C. Cir. 1995) (internal quotation marks omitted)); Colum-
bia Gas, 895 F.2d at 796 (describing City of Piqua v. FERC,
610 F.2d 950, 954–55 (D.C. Cir. 1979), in which the parties
agreed to make a rate change effective on a date before the
filing, as a case that did not implicate the filed rate doctrine).
NYISO argues that this case falls under the notice excep-
tion. It points to its Market Monitoring Plan and Temporary
9
Extraordinary Procedures as sources of notice to suppliers
that rates might be adjusted retroactively. Although the
MMP authorizes NYISO to undertake remedial measures to
correct problems associated with the exercise of market
power, NYISO points to nothing in the MMP suggesting that
such measures may have retroactive effect. See MMP Order,
89 F.E.R.C. at 61,601–02. We thus see no way that the MMP
could have provided the requisite notice to market partici-
pants.
NYISO’s reliance on TEP as a source of notice also fails,
but for a different reason. TEP allows NYISO to recalculate
prices to the level they would have reached absent market
design or implementation flaws that produced non-
competitive prices. First TEP Order, 88 F.E.R.C. at 61,754.
According to NYISO, this demonstrates that suppliers had
notice that rates could be adjusted retroactively even without
a showing of market power. NYISO, however, failed to raise
this argument before the Commission, either in the initial
proceedings or in its rehearing request, so we may not
consider it now. See 16 U.S.C. § 825l(b) (‘‘No objection to
the order of the Commission shall be considered by the court
unless such objection shall have been urged before the Com-
mission in the application for rehearing unless there is rea-
sonable ground for failure so to do.’’).
NYISO offers a second, more intriguing argument for
avoiding the filed rate doctrine and the rule against retroac-
tive ratemaking. Pointing out that sellers and buyers in a
deregulated market rely not on a single published rate, but
rather on a filed tariff that provides for a competitive bid
process, NYISO argues that participants expect to transact
business pursuant to market-based prices; rebilling for past
non-market prices would therefore be neither inequitable nor
unpredictable. This argument is twice waived: NYISO never
presented it to FERC, and although NYISO hints at the
argument in its opening brief here, see Petitioners’ Br. at 54,
it failed to develop it fully until its reply brief, see Petitioners’
Reply Br. at 15–16; see also A.J. McNulty & Co. v. Sec’y of
Labor, 283 F.3d 328, 338 (D.C. Cir. 2002) (‘‘[B]ecause this
10
point appears for the first time in the company’s reply brief,
we will not consider it.’’).
III.
We next turn to the LSEs’ argument that because of the
design and implementation flaws associated with NYISO’s
administration of the electricity market, FERC should have
directed NYISO to provide a remedy under its Temporary
Extraordinary Procedures. TEP is designed to address un-
anticipated market design flaws and transitional abnormali-
ties. A ‘‘market design flaw’’ is defined as ‘‘a market struc-
ture, market design, or implementation flaw which would
result in market outcomes that would not be produced in a
workably competitive market.’’ First TEP Order, 88
F.E.R.C. at 61,752–53. ‘‘Transitional abnormalities’’ refer to
‘‘systemic equipment malfunctions, including telecommunica-
tions failures or TTT equipment outages.’’ Id. at 61,753.
The LSEs argue that FERC should have used TEP to
remedy two market flaws: NYISO’s exclusion of a qualified
supplier, the Blenheim-Gilboa facility, from bidding into the
NYISO reserves market, and NYISO’s failure to accept low-
er-priced bids from western suppliers. These flaws, the
LSEs charge, resulted in non-market-based prices. Accord-
ing to the LSEs, using the ‘‘extraordinary corrective actions’’
under TEP would have allowed NYISO, after following re-
quired procedures, to rebill the LSEs at the newly calculated
rates that would have cleared the market had no flaws
existed. This would have granted the LSEs—and presum-
ably their customers—some monetary relief from the $65
million spike.
Although FERC acknowledged that TEP allows for retro-
active recalculation, it insisted that TEP applies only in
circumstances of straightforward calculation errors. First
Rehearing Order, 97 F.E.R.C. at 61,682. ‘‘The NYISO’s TEP
authority,’’ FERC concluded, ‘‘was not designed to be used in
circumstances such as these.’’ Id. FERC went on to explain
that NRG Power Marketing, Inc. v. NYISO, 91 F.E.R.C.
¶ 61,346 (2000), in which it approved NYISO’s use of TEP,
11
was ‘‘clearly distinguishable, since it involved limited, simple,
and precise corrections to ensure that prices conformed to the
filed rate.’’ First Rehearing Order, 97 F.E.R.C. at 61,682.
FERC’s explanation suffers from two related defects.
First, FERC imposed no such limitation when it initially
approved this part of TEP. See First TEP Order, 88
F.E.R.C. at 61,754. Indeed, FERC used the same broad
language contained in TEP itself: ‘‘We will accept the ISO’s
proposal to recalculate prices to the level [they] would have [ ]
reached in the absence of a market design flaw or transitional
abnormality.’’ Id. Finding this approach reasonable, FERC
explained that ‘‘the recalculated prices are intended to reflect
the prices that would have resulted from the market design
[ ] already approved.’’ Id. To be sure, when FERC extend-
ed TEP beyond its initial ninety days it used slightly different
language, appearing to limit the procedures to correct ‘‘tech-
nical implementation errors and operational anomalies.’’ See
N.Y. Indep. Sys. Operator, Inc., 90 F.E.R.C. ¶ 61,320, 62,066
(2000) (Second TEP Order). But FERC neither defined what
it meant by ‘‘technical implementation errors’’ nor explained
whether or how such errors differ from ‘‘market design
flaws’’—the language in TEP itself and in the First TEP
Order. Hence we do not think that FERC’s past orders can
justify its narrow view of TEP in this case.
Second, we see nothing in NRG Power to suggest that
FERC’s decision there actually turned on whether the price
recalculation was simple, straightforward, or precise. Al-
though FERC described the case as involving ‘‘erroneous
calculation’’ and ‘‘computational error,’’ NRG Power, 91
F.E.R.C. at 62,166, the problem seems to have been more
complex. Indeed, NRG Power bears some resemblance to
the situation here. There, the error arose from software
problems and NYISO’s disregard of low-cost bids, resulting in
posted prices that exceeded what properly established mar-
ket-clearing prices would have been. Here, FERC squarely
found that certain aspects of NYISO’s ‘‘design and operating
protocols,’’ including its failure to accept bids from the Blen-
heim-Gilboa facility and from western suppliers, exacerbated
market concentration and the opportunity for the exercise of
12
market power. Initial Order, 91 F.E.R.C. at 61,799–800.
FERC also pointed out that the analysis submitted in support
of market-based rates contemplated that the supply market
would include these suppliers. Id. at 61,799 n.13, 61,800.
For its part, NYISO conceded both that it had failed to model
reserve bids from Blenheim-Gilboa into its software, and that
software limitations and the nature of NYISO’s market de-
sign prevented it from accepting bids from western suppliers.
NYISO Answer, J.A. at 214, 218. Given the similarities
between this case and NRG Power, we cannot accept FERC’s
claim that these two flaws fall outside the scope of a TEP-
based remedy.
Moreover, even if NRG Power had involved only an errone-
ous calculation, it still would not preclude the application of
TEP to problems beyond technical miscalculation. Although
in NRG Power, NYISO took remedial action under TEP,
FERC stated that ‘‘[u]nder these circumstances involving the
erroneous miscalculation of a formula rate, the NYISO did
not have to rely on any temporary authority or interim
procedures to correct incorrect energy clearing prices.’’ 91
F.E.R.C. at 62,166. If, as FERC found, TEP is not needed
for miscalculation errors, then we do not understand how its
scope can be limited to such errors.
In sum, given that FERC points to only one case as
precedent for limiting the scope of TEP to technical miscalcu-
lations—a case that itself expressed no such limitation—and
given the broad language of TEP and the orders approving it,
we find FERC’s summary conclusion that TEP is inapplicable
to the circumstances of this case fails its obligation of rea-
soned decisionmaking. See Motor Vehicle Mfrs. Ass’n of the
United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463
U.S. 29, 52 (1983). Accordingly, we will remand for FERC to
explain why TEP does not apply here.
IV.
We turn finally to the LSEs’ argument that NYISO violat-
ed its own Tariff. FERC’s interpretation of tariffs receive
Chevron-like deference. See Idaho Power Co. v. FERC, 312
13
F.3d 454, 461 (D.C. Cir. 2002). If the tariff language is
unambiguous, we need not defer to FERC’s interpretation; if
the language is ambiguous, we defer to FERC’s construction
so long as it is reasonable. Id. While the Commission has
discretion to determine the remedy for tariff violations—
which may include refunds, see 16 U.S.C. § 825h; Towns of
Concord, 955 F.2d at 73—it has a ‘‘general policy of granting
full refunds’’ for overcharges, id. at 76. In addition, when
deciding whether to order refunds, FERC must provide a
reasoned explanation for its decision: it must show that it has
‘‘considered relevant factors and TTT struck a reasonable
accommodation among them,’’ and that its order was ‘‘equita-
ble in the circumstancesTTTT’’ Id. (first omission in original).
The LSEs argue that FERC erred in failing to find that
NYISO had violated four requirements of its Tariff.
Pricing of Spinning and Non-spinning Reserves
The LSEs claim that NYISO violated its Services Tariff by
setting the price of ten-minute SR no lower than the price of
ten-minute NSR. According to the LSEs, this practice mag-
nified the effect of the NSR price spike—as NSR prices went
up, NYISO’s practice drove SR prices up as well. Finding
the Tariff’s language ambiguous, FERC explained that
NYISO’s pricing of NSR was ‘‘reasonable’’ because it was
needed to clear the market. First Rehearing Order, 97
F.E.R.C. at 61,679. According to FERC, NYISO feared that
if higher bids were accepted for NSR, suppliers with SR
capacity might decline to bid into the SR market and offer
NSR instead. See id. Had this occurred, NYISO might have
been unable to ensure that SR represented fifty percent of
available reserves, as the Tariff requires. See Services Tariff,
J.A. at 729.
FERC’s explanation might well be reasonable, but we
agree with the LSEs that NYISO violated the Tariff’s plain
language. Rate Schedule 4 of the Services Tariff sets forth
the rule for pricing SR: ‘‘The Day-Ahead Availability price
for Spinning Reserve for each hour shall be equal to the
highest Day-Ahead Availability Bid made by a Supplier that
14
has been scheduled Day-Ahead to provide Spinning Reserve
in that hour.’’ Id. at 736 (emphasis added). The Rate
Schedule repeats the same instruction for pricing Day-Ahead
Availability NSR, id. at 739, and gives similar instructions for
the Real-Time Availability prices for SR and NSR, id. at 736,
740. Moreover, Section 4.21 of the Tariff states that pay-
ments for each megawatt ‘‘shall be determined separately for
each of the three categories of Operating Reserves: spinning
reserve, 10-minute non-[spinning] reserve and 30-minute re-
serve.’’ Id. at 674 (emphasis added).
We see nothing ambiguous about this language. It re-
quires NYISO to price SR and NSR separately. If NYISO
believed it needed to modify its practice to ensure adequate
supplies of SR, it should have sought permission from FERC.
In its brief, FERC insists that even if it had found a tariff
violation, it would have exercised its discretion to deny re-
funds. Perhaps so, but this argument comes from agency
counsel, not FERC. Because FERC never determined that
NYISO violated the Tariff, the Commission had no opportuni-
ty to exercise its refund discretion. Accordingly, we will
remand to FERC for it either to follow its ‘‘general policy’’ of
providing refunds, or to explain, in accordance with Towns of
Concord, 955 F.2d at 76, its divergence from this policy.
Blenheim-Gilboa Facility
The LSEs argue that NYISO also violated its Services
Tariff by excluding the Blenheim-Gilboa facility from the
NSR market. Before considering the merits of this claim,
however, we must address FERC’s argument that the LSEs
waived this issue because they characterized their complaint
against NYISO not as a tariff violation, but as a market
design flaw.
Although it is true that in their initial complaint, the LSEs
did not describe their claim as one of tariff violation, they
clearly did so in their rehearing request. See Application for
Rehearing of LSE Intervenors, J.A. at 319, 335–36. FERC
expressly acknowledged the argument, stating that ‘‘LSE
15
Intervenors argue that the NYISO’s practices were contrary
to the Services Tariff’’ because ‘‘NYISO improperly excluded
the Blenheim-Gilboa pumped storage facility from competing
to supply 10-minute reserves.’’ First Rehearing Order, 97
F.E.R.C. at 61,681. But instead of addressing the argument,
FERC simply explained that its prospective remedy was
‘‘best suited’’ to remedy the problem. See id. It now claims
here—erroneously, as we discuss below—that it found a tariff
violation. Under these circumstances, FERC cannot reason-
ably argue that it lacked notice of the tariff violation claim.
See Villages of Chatham & Riverton, Ill. v. FERC, 662 F.2d
23, 30 (D.C. Cir. 1981) (‘‘[A]ny argument brought clearly to
the attention of the Commission by the party’s petition for
rehearing has been preserved for review in a court of ap-
peals.’’).
As to the merits of the Blenheim-Gilboa issue, Rate Sched-
ule 4 of NYISO’s Tariff incorporates New York State Relia-
bility Rules, see Services Tariff, J.A. at 729, which in turn
allow NSR to ‘‘be composed of [units generated by] pumped
storage hydro’’ facilities, id. at 310 n.2. The LSEs assert that
because Blenheim-Gilboa is a pumped storage hydro plant
that satisfies NYISO’s criteria for supplying operating re-
serves, NYISO had no basis under its Tariff for excluding the
facility.
FERC agreed with the LSEs that NYISO should have
included Blenheim-Gilboa and that doing so would have sig-
nificantly reduced market concentration. Initial Order, 91
F.E.R.C. at 61,800. Concluding that this error required
correction ‘‘as quickly as possible,’’ FERC directed NYISO to
model Blenheim-Gilboa into its software and to accept the
facility’s reserve bids. Id. As to the LSEs’ claim that the
exclusion of Blenheim-Gilboa amounted to a tariff violation
requiring a refund, however, FERC had only this to say:
[T]he question here is what is the fairest and most
efficient way to ensure that the participants in the
New York market receive the benefits of a well
functioning competitive market. The Commission
believes that the procedures it has chosen and the
16
determinations it has made are best suited to accom-
plish these ends within the bounds of the Federal
Power Act.
First Rehearing Order, 97 F.E.R.C. at 61,681.
We think this response entirely inadequate. Not only does
it fail to address the LSEs’ claim that NYISO violated its
Tariff, skipping instead straight to the question of remedy,
but FERC never explains why it chose a prospective remedy.
Given FERC’s findings that the market analysis underlying
approval of market-based rates anticipated the inclusion of
Blenheim-Gilboa, that NYISO had no reason to exclude the
facility, and that accepting bids from Blenheim-Gilboa would
have dramatically lowered market concentration, we will re-
mand to FERC to explain why NYISO did not violate the
Services Tariff. If the Commission finds a tariff violation but
decides against ordering a refund, then, again, it has an
obligation to explain why it is departing from its ‘‘general
policy of granting full refunds.’’ Towns of Concord, 955 F.2d
at 76.
Western Suppliers
The LSEs’ third tariff violation claim arises from NYISO’s
refusal to accept bids of cheaper reserves from western
suppliers of operating reserves. Again, FERC argues that
the LSEs characterized this claim as one of market design
flaw rather than tariff violation. This time FERC is correct.
The LSEs neither presented the argument in their complaint
nor adequately raised it in their rehearing request. The
LSEs did assert that failure to include western suppliers
violated the Services Tariff, but they failed to point to the
relevant portion of the Tariff. They identify a specific Tariff
provision in their brief here, but this comes too late. Parties
claiming a violation of a published tariff must point to the
specific provision involved and give FERC an opportunity to
address the issue. Otherwise, we lack jurisdiction to hear the
claim. See 16 U.S.C. § 825l(b).
17
Self-Supply
Last, the LSEs contend that NYISO violated its Tariff
when it refused to allow them to ‘‘self-supply’’ operating
reserves without first bidding into the NYISO market. Al-
though FERC ordered NYISO to give the LSEs the option of
self-supply without the bidding requirement, it concluded that
denying them this opportunity in the past had not violated the
Tariff. See Initial Order, 91 F.E.R.C. at 61,806; First Re-
hearing Order, 97 F.E.R.C. at 61,677.
Schedule 4 of the Services Tariff, Section 6.0, provides:
‘‘Transactions may be entered into to provide for Self-Supply
of Operating Reserves. Customers seeking to Self-Supply
Operating Reserves must place the Generator(s) supplying
any one of the Operating Reserves under ISO control. The
Generator(s) must meet ISO rules for acceptability.’’ Ser-
vices Tariff, J.A. at 745. Contrary to the LSEs’ assertion,
this language is hardly ‘‘clear and unconditional.’’ Petition-
ers’ Br. at 48. Although the language requires NYISO to
permit self-supply, it can be read in one of two ways: either
that generators must bid into the ISO market, or that they
may sell directly to the utility as long as they meet ISO rules
for acceptability. Given this ambiguity, we must defer to
FERC’s interpretation so long as it is reasonable. Since the
LSEs provide no basis for concluding that FERC’s interpre-
tation is unreasonable, we will deny the petition for review
with respect to this claim.
V.
We have considered petitioners’ remaining arguments and
found them to be without merit. The petitions for review are
denied in part and granted in part, and this case is remanded
to FERC for further proceedings consistent with this opinion.
So ordered.