Black Oak Energy, LLC v. FERC

Black Oak Energy, LLC v. FERC

Opinion

 [*232]  [**359]   Griffith, Circuit Judge: By statute, the Federal Energy Regulatory Commission (FERC) regulates trading in energy markets. This case concerns the markets operated by PJM Interconnection LLC, a Regional Transmission Organization (RTO)¹ covering the East Coast, Appalachia, and parts of the Midwest. Some PJM market participants are known as "virtual marketers." Unlike participants who actually traffic in electricity, the virtual marketers never deliver or take delivery of electricity; they trade in order to profit from price fluctuations.

The petitioners and petitioner-intervenors in this case — all virtual marketers — petition for review of two sets of FERC orders. The first orders approved PJM's method for disbursing a monetary surplus that results from the way it operates its markets. The virtual marketers do not receive any of this large pool of money, but they believe they should. To that end, they argue that FERC's orders violate the Federal Power Act (FPA) and the Administrative Procedure Act (APA). In Part I, we set forth the facts relevant to this petition for review, and in Part II, we set forth our reasons for denying it.

The second petition — also brought by a group of virtual marketers, albeit a larger  [*233]   [**360]  set of them — seeks review of FERC's orders requiring PJM to recoup money refunded to the virtual marketers in connection with the administrative dispute over the surplus. The petitioners and petitioner-intervenors  [***3] argue that these orders also violated the FPA and the APA. In Part III, we set forth the facts relevant to this petition and explain our reasons for remanding the orders in question to FERC for reconsideration.

In the mid-1990s, federal electricity policy took a competitive turn. Prior to that time, "utilities were vertically integrated monopolies; electricity generation, transmission, and distribution for a particular geographic area were generally provided by and under the control of a single regulated entity." Midwest ISO Transmission Owners v. FERC, 373 F.3d 1361, 1363-64, 362 U.S. App. D.C. 314 (D.C. Cir. 2004). Since then, those vertical monopolies have broken apart and, in many regions, systems utilizing electricity trading markets have sprung up in their place. Generators sit at one end of the regional transmission process; at the other end sit local utility companies. The markets help coordinate and allocate electricity from the generators to the local utilities. The market operator involved in this case, PJM Interconnection, LLC, is an RTO that uses markets to determine pricing and to schedule the transmission of electricity across the massive territory in which it operates. See Atl. City Elec. Co. v. PJM Interconnection, LLC, 115 FERC ¶ 61,132, 61,473 (2006).  [***4] PJM operates two markets relevant to this portion of the case: a "Day-Ahead Market" and a "Real-Time Market."

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