The Subdelegation Doctrine and the Application of Reference Prices in Mitigating Market Power

I. INTRODUCTION The Federal Energy Regulatory Commission (Commission or FERC) has an exclusive statutory duty to ensure just and reasonable power rates.1 The Commission relies on competition to ensure just and reasonable rates in bidbased organized markets and has the primary responsibility to ensure that these markets operate without anti-competitive effects. The entities that operate bidbased organized markets, Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) (collectively referred to as RTOs), are tasked with operating transmission facilities pursuant to Order Nos. 888 and 2000,3 and thus are FERC-jurisdictional public utilities.4 In Order No. 2000, the Commission first proposed that RTOs monitor their markets for market power abuses and market design flaws in order to identify and react to problems in real time.5 Since the issuance of Order No. 2000, all RTOs have established market monitoring units that, inter alia, report market flaws to the Commission and implement mitigation plans to address market operations. Recently, the Commission elaborated on the tasks of market monitoring units, stating that market monitoring units are responsible for identifying ineffective market rules, notifying the Commission of potential Market Behavioral Rule violations,6 reviewing and reporting on the performance of the markets, and supporting the RTO in administering the RTO Tariff.7 In supporting the administration of the RTO tariff, market monitoring units play a major role by implementing RTO mitigation plans. In most RTOs, market monitoring units are solely responsible for calculating reference prices, a tool used both to gauge the competitiveness of the market and to correct for market distortions. In correcting for market distortions, reference prices that are substituted for supplier's bids have the potential to set the jurisdictional rate at least for the hour during which market power is mitigated. This article will focus on the discretion used by market monitoring units in calculating and negotiating reference prices in order to determine whether the use of such discretion by market monitoring units, as non-federal entities,8 is a permissible subdelegation of the Commission's exclusive authority to set just and reasonable rates. In general, delegation of decision-making authority from Congress to the Executive is permissible as long as the delegation is accompanied by an "intelligible principle."9 Although not exactly the same, the congressional delegation cases form the predicate for evaluating subdelegation, that is, Executive Branch agency delegation to a subordinate agency or a non-federal entity. A recent decision of the United States Court of Appeals for the D.C. Circuit, United States Telecom Ass'n v. FCC,10 examined the subdelegation doctrine in a situation, like that found in the Federal Power Act (FPA), in which the agency statute is silent about permissible delegations to non-federal entities. The court in U.S. Telecom held that executive agencies are prohibited from subdelegating their decision-making authority to non-federal entities when the agency's enabling statute does not specifically provide for subdelegation, except in three limited circumstances.11 The one exception to the subdelegation rule established in U.S. Telecom, as relevant here, allows for permissible delegations where agencies provide a reasonable basis for granting limited discretion to a non-federal entity. Another decision in the D.C. Circuit, Perot v. FEC,12 set the standard for evaluating agency subdelegations to regulated entities charged with implementation of agency regulations and tariffs. In Perot, the court found that agencies regularly leave some discretion to those entities regulated by the agencies and that, as long as the agency's regulations establish objective criteria for application of discretion and there is review by the agency of a regulated entity's compliance with the agency's regulation, the agency has not impermissibly subdelegated its authority. …