Second Circuit Denies Request to Stay NYISO’s New Capacity Zone

by Akin Gump Strauss Hauer & Feld LLP

On June 4, 2014, the United States Court of Appeals for the 2nd Circuit (2nd Circuit) denied emergency stays of two Federal Energy Regulatory Commission (FERC) orders implementing a new capacity zone (NCZ) in New York (“NCZ Orders”).1 When the NCZ went into effect on May 1, 2014, FERC had not yet acted on requests for rehearing the NCZ Orders. Central Hudson Gas & Electric Corp (Central Hudson), the Public Service Commission of the State of New York (NYPSC) and the State of New York petitioned the 2nd Circuit for relief on May 12, 2014. In addition to the emergency stays, the petitioners requested a writ of mandamus compelling FERC to act on the pending requests for rehearing.  On May 27, 2014, prior to oral arguments before the 2nd Circuit, FERC issued an order largely denying rehearing on the NCZ issues (“Rehearing Order”).

The petitioners had requested a decision from the 2nd Circuit by June 6, 2014, three days before the next New York Independent System Operator, Inc. (NYISO) monthly spot market auction.  Oral arguments were held on June 3, 2014. Litigants argued over the merits of creating an NCZ and the legal standard for staying an agency order. Among other things, the parties’ arguments addressed the issue of whether the lack of a stay would cause irreparable harm to consumers. FERC argued that any harm would be purely economic and redressable, while Central Hudson and the NYPSC emphasized that it is impractical for NYISO to issue refunds.

NYISO itself took the unusual position of refusing to support either side.  It filed an amicus brief that expressly stated that NYISO supported neither party. NYISO sought to inform the court only that the issuance of a stay would require that it modify its complex auction software. NYISO stated that it would not be able to remove the NCZ from its calculations in the available time frame, though it would be able to do so before the next round of auctions begins on November 1, 2014. NYISO believed that it would be able to approximate the results of an auction without the NCZ in place if it were called upon to do so, but that it would have to request a tariff waiver from FERC to implement that solution. As an alternative, NYISO suggested that, if the court wished to order a stay, it could do so effective in November, by which point NYISO would be able to remove the NCZ from its software.

FERC’s Rehearing Order denied requests to delay or phase in the NCZ. It did grant rehearing on a narrow issue related to the ability of certain suppliers to withhold capacity, and it ordered NYISO to delete a provision in its tariff that could have been used to implement a withholding strategy. FERC declined to order NYISO to establish tariff rules for eliminating the NCZ if the deliverability issues that created it are resolved, but urged NYISO to address the issue through its stakeholders.

The 2nd Circuit’s order was extremely short.  It denied the request for a writ of mandamus as moot and denied the motions for an emergency stay by citing to the relevant standard.2 The court did not choose to explain which aspects of the standard the petitioners failed to satisfy. A longer order from the 2nd Circuit may be forthcoming, however, since the same parties have already petitioned the court for review of FERC’s Rehearing Order. They have not requested a stay.

1 New York Indep. Sys. Operator, Inc., 144 FERC ¶ 61,126 (2013); New York Indep. Sys. Operator, Inc., 146 FERC ¶ 61,043 (2014).

2 See In re World Trade Ctr. Disaster Site Litig., 503 F.3d 167, 170 (2nd Cir. 2007) (“The four factors to be considered in issuing a stay pending appeal are well known: ‘(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.’”)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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