On June 14, 2024, the U.S. Court of Appeals for the D.C. Circuit issued its decision in New York State Public Service Commission v. Federal Energy Regulatory Commission, Nos. 23-1192, 23-1259, and 23-1286, denying the New York Public Service Commission’s (PSC) petitions for review and affirming the Federal Energy Regulatory Commission’s (FERC) approval of the New York Independent System Operator’s (NYISO) rate filing. The case centered on whether NYISO reasonably shortened the projected lifespan or “amortization period” for new gas-fired plants from twenty to seventeen years in light of New York’s Climate Leadership and Community Protection Act (CLCPA), 2019 N.Y. Sess. Laws ch. 106, which directs that by 2040, “the statewide electrical demand system will be zero emissions.” NYISO argued that this statutory deadline would lead investors to expect earlier retirement of fossil-fuel plants, thereby reducing their commercial viability horizon.
Under Section 205 of the Federal Power Act (16 U.S.C. § 824d), FERC reviews rate filings to ensure they are “just and reasonable.” NYISO’s tariff ties capacity market prices to the “cost of new entry” (CONE) for a hypothetical peaking plant, which depends on factors such as plant life and investor recovery period. FERC initially rejected NYISO’s proposal as speculative, reasoning that the CLCPA did not expressly require fossil-fuel plants to retire by 2040 and that the PSC could modify targets to preserve reliability. After the D.C. Circuit vacated that decision in 2022 and remanded for further explanation, FERC reversed course on rehearing and approved the seventeen-year period, finding NYISO’s assumption to be “one reasonable way” to account for the CLCPA’s statutory mandate and the investment risk it created. See Independent Power Producers of N.Y., Inc. v. FERC, No. 21-1166, 2022 WL 3210362, at 2–3 (D.C. Cir. Aug. 9, 2022) (per curiam); see also N.Y. Indep. Sys. Operator, Inc., 183 FERC 61,130, at PP 1, 10–12, 34 (2023).
In a 2-1 opinion authored by Senior Judge Randolph, the D.C. Circuit upheld FERC’s determination that NYISO’s amortization period fell within the “zone of reasonableness.” The court emphasized that ratemaking inherently involves forecasts and that the CLCPA’s zero-emission target is a binding statutory requirement, not a speculative future regulation. Because the PSC has not yet issued implementing rules explaining how the 2040 target will be achieved, FERC and NYISO properly treated the statute itself as a credible constraint on investor expectations. The court also remarked that the PSC, tasked with implementing the CLCPA, “has not issued so much as a proposed rule,” despite being required to do so by 2021. The majority concluded that NYISO’s assumption reasonably reflected market expectations in light of that regulatory inaction. In dissent, Judge Childs argued that FERC’s approval conflicted with its prior anti-speculation precedent, which bars reliance on assumptions about future regulatory action. She would have remanded for further explanation or consistency with that precedent.
The decision highlights a long-standing tension between FERC’s responsibility for ensuring just and reasonable rates and New York’s ongoing delays in implementing the CLCPA. For nearly five years, the PSC’s lack of progress has left regulated entities uncertain about how the state intends to meet its 2040 zero-emission mandate. However, following the court’s decision and increasing stakeholder pressure, the PSC is advancing its Future of the Grid proceeding, an initiative examining long-term system planning, reliability, and resource mix under a decarbonized framework. The proceeding marks an overdue step toward translating the CLCPA’s statutory goals into practical regulatory mechanisms. How the PSC aligns those outcomes with NYISO’s capacity market assumptions and cost-recovery structures will be closely monitored by the industry.
Hodgson Russ Take
The D.C. Circuit’s ruling reinforces that, even absent implementing regulations, statutory mandates like the CLCPA’s 2040 zero-emission goal can materially influence rate design and investment expectations. Until the PSC completes its rulemakings under the Future of the Grid and related dockets, regulated entities should anticipate continued uncertainty regarding compliance timelines, system reliability planning, and cost allocation. For utilities, developers, and investors, this decision underscores the importance of monitoring both federal ratemaking developments and New York’s evolving implementation strategy. Active participation in the PSC’s ongoing proceedings will be crucial to ensuring that future regulatory frameworks strike a balance between emissions reduction goals, grid reliability, and economic feasibility.
Disclaimer:
This blog is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this blog should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.
