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Constellation Mystic Power v. FERC
Citation: Not availableDocket: 20-1343
Court: Court of Appeals for the D.C. Circuit; August 23, 2022; Federal Appellate Court
Original Court Document: View Document
Constellation Mystic Power, LLC, a subsidiary of Exelon Generation Company, announced plans to retire the Mystic Generating Station, which serves the greater Boston area, after its capacity obligations expired in May 2022. The independent system operator, ISO New England, warned that this retirement would worsen electricity network pressures during winter, increasing the risk of rolling blackouts. Additionally, the closure of Mystic Station posed a threat to the Everett Marine Terminal, the sole fuel source for the station, further heightening blackout risks. To address these issues, ISO New England entered into a cost-of-service agreement with Mystic and ExGen to keep two units of Mystic Station (Mystic 8 and 9) operational from June 2022 to May 2024. This agreement was subsequently filed with the Federal Energy Regulatory Commission (FERC), which approved it with significant modifications. In February 2022, Exelon completed a spinoff transaction that resulted in Constellation Energy Generation, LLC (formerly ExGen) and Mystic being under Constellation Energy Corporation. For clarity, references will continue to use ExGen and Exelon as the parent companies. The document addresses six orders from the Federal Energy Regulatory Commission (FERC) regarding the Mystic Agreement, including orders from July 2018, December 2018, July 2020, and December 2020. Two groups, Mystic and New England state regulators (State Petitioners), are seeking review of these orders. The review findings include a partial dismissal and denial of Mystic’s petition while granting the State Petitioners’ petitions. The legal context is grounded in Section 201(b) of the Federal Power Act (FPA), which gives FERC jurisdiction over interstate electric energy transmission and sales. The FPA mandates that rates for jurisdictional sales and transmission services be just, reasonable, and non-discriminatory. Utilities must file all rates with FERC, demonstrating their lawfulness. If a rate is deemed unjust or unreasonable, it must be replaced by a compliant rate. Affected parties can challenge FERC-approved rates by filing a complaint, with the burden of proof resting on them to show the rates' unreasonableness, supporting the FPA’s aim for reliable service and abundant energy supplies. ISO New England operates the transmission facilities and wholesale electricity markets across six states: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. It facilitates the sale of electricity from generators to electric utilities and traders, with rates and rules governed by a grid-wide tariff. To ensure adequate electricity supply for current and future demands, ISO New England employs a forward-capacity market where utilities purchase capacity from generators, which represents the ability to produce electricity rather than the electricity itself. Auctions for this capacity occur three years in advance, and generators submit bids to indicate the lowest price they will accept. A 'descending clock' auction format is used, where the price decreases until the required capacity is met, and remaining generators receive the clearing price. Once generators participate in an auction, they are automatically included in subsequent auctions unless they opt to retire, which requires a Retirement De-List Bid submitted eleven months prior to the auction. ISO New England can request generators to remain in operation if their retirement poses a service risk, offering them a choice between their bid price or a cost-of-service rate. Mystic 8 and 9 are unique combined-cycle natural gas-fired generating units with a capacity of approximately 1,400 megawatts, using imported revaporized LNG. These units were constructed after the restructuring of the Massachusetts energy market, with commercial operations starting in 2003 at a cost of nearly $1 billion. Following financial difficulties, ExGen, which acquired the units in 2002, transferred Mystic Station to a consortium of lenders in 2004 as part of a debt settlement. Mystic 8 and 9 were valued at approximately $547 million following a transaction. In 2010, after a bankruptcy declaration by a special purpose entity, Constellation Energy Group, Inc. acquired Mystic Station and an unrelated natural gas facility for $1.1 billion. In 2012, Constellation merged with Exelon, leading to an independent appraisal of Mystic 8 and 9 at $925 million. Post-merger, Mystic, linked to Exelon through ExGen, became the owner of Mystic 8 and 9. The Everett Marine Terminal, located near Mystic Station, serves as the sole revaporized LNG source for Mystic 8 and 9, making them unique as the only U.S. natural gas-fired units connected to an LNG import facility. Everett, the longest-operating LNG import terminal, has a storage capacity of 3.4 billion cubic feet and connects to two interstate pipelines and a local distribution facility. At the start of Commission proceedings, Everett was owned by Distrigas of Massachusetts, LLC, a subsidiary of Engie Gas, while Exelon was in the process of purchasing it. Exelon determined that acquiring Everett was crucial for Mystic to meet capacity obligations reliably until May 2022. In late 2018, Exelon completed the purchase of Everett, now owned by Constellation LNG, LLC. In 2018, Mystic announced its intent to retire due to economic unviability and submitted a Retirement De-List Bid, effective after existing capacity obligations expired in May 2022. ISO New England assessed the potential consequences of Mystic 8 and 9's retirements on regional fuel security, especially during winter months when fuel access is limited. Their findings indicated that the retirement would likely lead to multiple days of rolling blackouts (load shedding) from 2022 to 2024 and could jeopardize the financial viability of Everett, potentially worsening load shedding events. Consequently, ISO New England sought to extend the operations of Mystic 8 and 9 for two additional years. In May 2018, Mystic filed the Mystic Agreement with the Commission, seeking cost-of-service compensation for the operation of Mystic 8 and 9 from June 1, 2022, to May 31, 2024. The compensation rate is based on four key cost inputs: (1) a return on the rate base of Mystic 8 and 9, adjusted for depreciation; (2) operation and maintenance expenses; (3) depreciation expenses; and (4) taxes. Additionally, Mystic entered into the Everett Agreement, which involves paying Everett a cost-based rate for fuel and a Fuel Supply Charge covering Everett's fixed costs and a return on its rate base, with a provision to offset this charge by half of Everett's profits from third-party sales. The document outlines the Commission’s orders related to five disputed components of the Mystic Agreement. Regarding Mystic's rate base, Mystic initially proposed a $925 million valuation from the 2012 Constellation-Exelon merger, but the Commission rejected this approach for not adhering to the 'original cost test,' requiring adjustments to account for past sales at lower prices. On rehearing, the Commission upheld its stance on the original cost test and denied Mystic's proposed rate base calculation that failed to consider a 2004 transfer in lieu of foreclosure. For Mystic's capital structure, which influences its return on capital, Mystic proposed a structure of 67.28% equity and 32.72% debt based on ExGen, its immediate parent. The Commission found this structure too equity-heavy and directed Mystic to adopt Exelon's capital structure of 52.4% debt and 47.6% equity. After Mystic requested rehearing, the Commission reaffirmed its decision, citing the unusual nature of ExGen's capital structure compared to industry standards. After the petitions for review were filed, the Commission issued a relevant additional order concerning Exelon's corporate restructuring. In February 2022, Exelon completed a spinoff, placing ExGen and Mystic under Constellation Energy Corporation. Mystic amended its agreement, asserting that Exelon's capital structure was irrelevant due to the lack of corporate relationship and requested to adopt ExGen’s capital structure instead. The Commission agreed that basing capital structure and cost of debt on Exelon was inappropriate but noted that Mystic had not yet demonstrated that ExGen’s capital structure was just and reasonable, leading to a hearing for determination. Regarding Everett’s costs, the Commission rejected Mystic’s proposal for full recovery of Everett’s fixed operating and maintenance costs via the Fuel Supply Charge. Instead, it adopted a proposal allocating 91% of Everett’s costs based on historical vapor sales ratios. Additionally, the Commission denied Mystic's request to include the acquisition cost of Everett in the rate base for calculating the Fuel Supply Charge’s return-on-investment component. The Commission upheld its exclusion of the acquisition cost on rehearing and affirmed its jurisdiction over the Fuel Supply Charge as part of Mystic's cost-of-service rate, despite objections from the Massachusetts Attorney General and other State Petitioners. The Commission reaffirmed the 91% allocation despite comments from State Petitioners regarding its fairness, arguing that vapor sales benefited Mystic by aiding in tank management. However, it decided to eliminate revenue crediting, stating that proper cost allocation made the incentive mechanism unnecessary and questioned its jurisdiction to approve it as it pertained to Everett’s conduct rather than Mystic’s. The Connecticut Parties, part of the State Petitioners, requested a rehearing concerning the removal of revenue crediting, asserting that the Commission should reinstate this mechanism until Mystic's share of Everett costs is aligned with its actual facility usage. The Commission rejected this request. Commissioner Glick dissented, arguing that the Commission exceeded its jurisdiction by approving the recovery of Everett-related costs, which he believed were unrelated to Mystic’s jurisdictional rate. In response to Mystic's cost-of-service rate, which relied on future cost projections, the Commission mandated a 'true-up' mechanism in the Mystic Agreement to allow for adjustments based on actual expenditures. Although Mystic initially proposed a limited true-up, the Commission required it to encompass the entire Agreement, excluding the return on equity, while emphasizing that Mystic’s revenues would also be included in this process. The Commission later deemed the review of tank congestion charges unnecessary after eliminating the revenue crediting mechanism. Mystic sought rehearing on the true-up mechanism's application to pre-2018 costs, arguing these had been fully litigated; however, the Commission found they had not been fully addressed and thus were subject to true-up. Mystic also contested the inclusion of revenues in the true-up process, leading the Commission to agree and retract that requirement. The States Committee, another group of State Petitioners, requested clarification on whether parties could challenge revenue credit calculations despite the exclusion of revenues from the true-up process. They felt the Commission recognized their request but did not sufficiently respond. Additionally, the States Committee sought rehearing concerning tank congestion charges, arguing that ratepayers should have a mechanism to contest the reasonableness of the costs passed on to them, a concern the Commission addressed in its final rehearing order. The Commission determined that the Mystic Agreement was unjust without a clawback provision, requiring Mystic to reimburse ratepayers for certain capital and repair costs if Mystic 8 and 9 re-entered the New England energy market after the Agreement's expiration. This provision aims to prevent generating facilities from switching between cost-of-service and market-based rates, ensuring that ratepayers do not finance investments benefitting the facility beyond the agreement's term. Following this directive, Mystic proposed a clawback provision for specific repairs and capital expenditures, but the States Committee and Connecticut Parties protested the lack of inclusion for Everett-related expenditures, citing the affiliate relationship between Mystic and Everett. The Commission approved Mystic's proposed clawback but rejected the inclusion of Everett's costs, stating it lacked jurisdiction over Everett and its agreement. The Commission reiterated that if Mystic 8 and 9 retired while Everett remained operational, the Mystic Agreement would terminate, leaving no basis for refunds. The Commission denied related protests and subsequent rehearing requests from the States Committee and Connecticut Parties. Mystic and the State Petitioners later petitioned for review regarding various Commission orders influencing the Mystic Agreement. Mystic raised objections concerning the cost test, capital structure, and treatment of Everett's costs, while the State Petitioners contested the Commission's jurisdiction over Everett's costs and various procedural issues related to the true-up process. The review resulted in partial dismissal and denial of Mystic's petition, while the State Petitioners' petitions were granted. Part III concludes that the Commission's use of the original cost test for determining the rate base of Mystic 8 and 9 was justified and not arbitrary. In Part IV, Mystic's challenge to the Commission's capital structure selection is deemed moot due to the Commission's May 2022 Order. Part V finds that while the Commission acted unlawfully in allocating Everett's operating costs, it correctly excluded Everett's acquisition costs from the Fuel Supply Charge calculation. In Part VI, the Commission is affirmed for including historical rate base components in the true-up mechanism, but it is criticized for not addressing the State Petitioners' request regarding challenges to Mystic’s revenue credits and for the confusion stemming from the December 2020 Rehearing Order about tank congestion charge reviews. Part VII holds that the Commission's rationale for excluding Everett-related costs from the clawback process lacked reasoned decision-making, failing to consider arguments from the State Petitioners. The standard of review established dictates that the Court may invalidate a Commission order if found arbitrary, capricious, or not in line with the law, according to 5 U.S.C. § 706(2)(A). The Court’s role is limited to verifying that the Commission's decisions are backed by substantial evidence and provide a rational explanation connecting facts to decisions. The Commission must ensure electricity rates are just and reasonable, a standard that is not precisely defined, granting it considerable discretion in rate-setting. Nonetheless, this deference requires principled decision-making supported by the evidentiary record. Mystic argues that the Commission incorrectly used the original cost test to determine the rate base for Mystic 8 and 9. The rate base, essential for establishing the allowable return on capital for public utility facilities, represents the total investment in the facility. The original cost test involves starting with the facility's original construction cost, deducting accumulated depreciation to derive the net book value, which is crucial for calculating the rate base. The Commission allows for various valuation methods, provided the outcome is not unjust or unreasonable. Under this test, if a facility is sold for less than its net book value, the sale price becomes the new net book value, thereby lowering the rate base; conversely, if sold for more, the rate base usually remains unchanged. Mystic's parent company valued Mystic 8 and 9 at approximately $925 million during a 2012 merger, contending this should set the rate base. However, the Commission found this inconsistent with the original cost test, noting that Mystic 8 and 9, first devoted to public service in 2003, had a net book value reset to $547 million following a foreclosure sale in 2004. This sale price was below the original cost, thus capping the net book value under the original cost test, and the Commission ruled that subsequent higher valuations, such as the merger price, could not increase the rate base. Mystic claims that applying the original cost test was arbitrary and capricious, particularly because Mystic 8 and 9 initially operated as merchant generators. Mystic argues that the valuation for merchant generators differs from cost-of-service facilities, as the former are typically assessed based on fair market value rather than original cost. Mystic's request for a merchant-generator exception to the original cost test is inconsistent with the Federal Energy Regulatory Commission (FERC) precedent, which mandates that facilities previously operating as merchant generators must adhere to original cost principles applicable to all cost-of-service facilities. The Commission highlighted that past decisions established the original cost test as appropriate for facilities transitioning from merchant generator status, regardless of their prior rate treatment. Mystic's argument for an exemption, based on the belief that original cost principles are irrelevant during the sale of a merchant generator, is flawed; the Commission clarified that charging market rates does not preclude the application of original cost accounting. Furthermore, the original cost test was developed to prevent utilities from inflating facility purchase prices, thereby impacting the rate base and public rates. Mystic contended that, as a merchant generator, it had no motive to inflate its valuation and that the test was unnecessary. However, the Commission maintains that the original cost test is a universal rule designed to objectively value facilities without requiring evidence of potential inflation attempts. Mystic also criticized the application of the original cost test to facilities transitioning to cost-of-service status, arguing that market forces could affect fair market value. However, the Commission asserted that the test's design intentionally allows for the downward adjustment of net book value while preventing upward adjustments due to market fluctuations. This approach is aimed at safeguarding ratepayers from increased rates resulting from ownership changes that do not enhance service value. The Commission acknowledged that while a general rule may yield unfavorable outcomes in specific instances, it serves a broader protective purpose for consumers. The Commission's decision to adopt an objective original cost accounting method aims to avoid the complications associated with subjective property valuation, as established in Mont. Power Co. The Commission applied this objective test consistently, rejecting any exceptions that could lead to unequal treatment among electricity generators. It deemed it unfair for a utility's return to rely on past accounting methods, particularly since non-original cost methods do not accurately reflect a facility's actual costs, which are critical to cost-of-service rates. Mystic argued that the 2004 transfer of Mystic 8 and 9, which occurred due to financial distress, would not have happened if cost-of-service rates had been charged, thus asserting that the 2004 valuation was an inappropriate basis for calculating the rate base. The Commission dismissed this argument, finding it speculative and emphasizing that charging cost-of-service rates does not prevent financial difficulties. Regarding Mystic's challenge to the capital structure used for ratemaking, the Commission's subsequent order rendered this challenge moot, as intervening events indicated that the Commission’s decision would no longer affect the parties involved. Mystic had notified the court of a settlement with the Commission, but since the issue was deemed moot, the settlement was not relevant to the analysis. The Commission had adopted Exelon’s capital structure initially, but after a February 2022 spin-off transaction, Mystic was no longer affiliated with Exelon, prompting the Commission to revise its approach to Mystic's capital structure and cost of debt. The Commission reversed its earlier decision to use Exelon’s capital structure and scheduled a new hearing. It lacked jurisdiction to change an order under judicial review without court approval, prompting the Commission to seek and obtain leave to issue the May 2022 Order, which vacated the previous capital structure rulings. Mystic raised concerns about whether the May 2022 Order also vacated the decision not to use ExGen’s structure for ratemaking. The May 2022 Order clarified that all capital structure rulings, including the rejection of ExGen’s structure, were vacated. The Commission noted that Mystic’s proposed capital structure was more equity-rich but decided to reopen the issue for further examination. During oral arguments, the Commission confirmed that the use of ExGen’s structure remains a potential option in the new proceedings. As a result of the vacated rulings, Mystic's challenge is deemed moot; no relief can be offered since the challenged orders were superseded and did not result in any injury to Mystic. Mystic can file a new petition if it objects to a future capital structure determination. Additionally, Mystic initially proposed recovery of fuel costs for Mystic 8 and 9 through a service rate charged by Everett, which would include variable fuel costs and a Fuel Supply Charge covering Everett's operating costs and investment returns. The Fuel Supply Charge intended to offset 50% of Everett's profits from third-party sales. However, the Commission rejected this charge and instead adopted a modified approach proposed by its Trial Staff. Key changes included: 1. Reducing the recovery of Everett’s operating costs to 91% of total operating costs, specifically those related to vapor natural gas sales. 2. Excluding the purchase price ExGen paid for Everett from the rate base, as it was deemed inconsistent with cost-causation principles. 3. Initially implementing a sliding-scale revenue-crediting mechanism for Everett's third-party sales, which was later eliminated due to jurisdictional concerns and the allocation of Everett's costs. The State Petitioners challenged the Commission’s jurisdiction over Everett’s rates and argued that allocating 91% of Everett’s costs to Mystic was arbitrary. Mystic contended that the exclusion of Everett's purchase price from its rate base was a departure from precedent and traditional ratemaking principles. The conclusion reached was that the Commission acted within its statutory authority regarding the review and recovery of Everett's costs as part of Mystic's cost-of-service rate. While the challenges from the State Petitioners were accepted, Mystic's arguments were ultimately rejected. The Commission maintained that its regulatory authority is focused on ensuring rates are just and reasonable, regardless of jurisdiction over all rate components. The State Petitioners acknowledge that Mystic’s cost-of-service rate falls within the Commission's authority under section 205. They do not dispute the Commission’s ability to review Mystic's costs prior to their inclusion in a jurisdictional rate, nor do they challenge the Commission's lack of authority over the rate Everett charges Mystic for fuel as outlined in the Everett Agreement. The Petitioners argue that the Commission cannot approve recovery of Everett-related costs unless they are fairly attributable to Mystic’s use of the facility, relying on the Supreme Court's decision in FERC v. Electric Power Supply Ass’n, which limits the Commission's authority to regulate only those rules or practices that directly affect wholesale rates. They propose that a threshold inquiry should apply to rate inputs based on this precedent. However, the context of EPSA is different, as it involved a Commission rule regarding demand-response compensation rather than a specific wholesale rate like Mystic's proposed cost-of-service rate. The Supreme Court noted that terms like "affecting" can have broad interpretations, but Mystic's rate is explicitly for the transmission or sale of electricity. The Petitioners have not provided sufficient reasoning to challenge the Commission’s jurisdiction under section 205 regarding Mystic’s rate. Furthermore, the reasonableness of individual rate inputs is not a jurisdictional question, and the Commission asserts its authority in this matter without contest from the Petitioners. Cost-of-service rates often encompass expenses beyond the regulatory authority of the Commission, such as fuel, labor, and taxes. The Commission’s ability to recover these costs is primarily constrained by the just-and-reasonable standard and cost-causation principles, rather than jurisdictional issues. In BP West Coast Products, the court upheld the Commission's decision to deny recovery of litigation costs that lacked a direct connection to service provision, emphasizing that recovery is contingent on the underlying activity benefiting ratepayers. Similarly, in Grand Council of Crees, the court recognized that environmental costs related to generating facilities could be recoverable under certain conditions, despite the Commission's limited consideration of environmental issues in rate proceedings. The argument presented by State Petitioners centers on cost attribution and allocation. It is asserted that the Mystic Agreement does not justify imposing Everett costs on New England ratepayers when those costs are not fairly attributable to the use of Mystic's facility. The just-and-reasonable requirement outlined in the Federal Power Act incorporates cost-causation principles, which have been consistently recognized by the Commission and the courts. The cost of fuel from Everett is deemed an essential input in Mystic's service costs, and the Commission has reasonably concluded that third-party suppliers must recover their operational costs to remain viable. The State Petitioners dispute the allocation of 91 percent of Everett's operating costs to Mystic, arguing that this contradicts established cost-causation principles and is arbitrary. The Commission agrees with this perspective, affirming that such allocation runs counter to long-standing cost-causation principles. All approved rates must reflect the costs actually incurred by the customers responsible for them, as established in relevant case law. The Commission aimed to allocate Everett’s operating costs based on principles of cost causation and fairness, necessitating that New England ratepayers and third-party customers share these costs. However, the Commission did not satisfy its burden of proof for two reasons: 1. It failed to justify the allocation of all vapor-related operating costs to Mystic, despite recognizing that some vapor sales are made to other customers. Evidence indicated that even at full capacity, Mystic’s consumption does not account for all vapor sales, which challenges the rationale of sole allocation to Mystic. 2. The only rationale provided for this allocation was that third-party vapor sales benefit Mystic by assisting in tank management, a claim that lacks sufficient elaboration. The Commission did not explain how these benefits offset Mystic’s subsidization of costs attributed to third parties. Furthermore, it overlooked the fact that all customers purchasing vapor gas also contribute to tank management, contradicting the principle that benefits should align with burdens. The Commission's reasoning fails to address the reciprocal benefits of tank management and neglects the input from dissenting voices, which points out flaws in its logic. The overarching requirement is that costs must be allocated in a manner that reflects the benefits received, aligning with regulatory mandates. The Commission did not adequately respond to the arguments presented regarding its cost allocation methodology. Specifically, it failed to justify the continued use of a 91 percent cost allocation after removing the revenue crediting mechanism for Everett's third-party sales, a mechanism previously approved in December 2018. The Commission cited jurisdictional concerns for removing this mechanism, but did not address the cost-causation implications of its decision. The allocation of Everett's vapor-related operating costs was problematic because Mystic is not the sole contributor to these costs, and the removal of revenue crediting means that costs could be over-allocated, leading to potential double recovery. Previous orders highlighted the issues of cost allocation without revenue crediting, yet the Commission's responses were insufficient and did not reflect reasoned decision-making. The Connecticut Parties pointed out that eliminating revenue crediting without adjusting the cost allocation was problematic, but the Commission's reply was merely cursory, failing to engage with the concerns raised. Ultimately, the Commission's justification for allocating all of Everett's costs to Mystic was deemed inadequate, leading to the granting of the State Petitioners' petitions on this issue. Mystic's primary objection concerns the Commission's decision to exclude Everett’s purchase price from its rate base, crucial for calculating the return-on-investment in the Fuel Supply Charge. Mystic argues this exclusion contradicts ratemaking principles and prior precedent without adequate rationale. However, the Commission maintained its stance based on cost-causation principles, asserting that rates should reflect costs caused by the customer. The Commission referenced testimony from Exelon executive William Berg, indicating that ExGen acquired Everett to fulfill pre-existing capacity obligations, suggesting that the acquisition primarily benefited ExGen, not ratepayers. The Commission concluded that recovery for the acquisition should occur before the Mystic Agreement took effect, as Exelon would have borne these costs without the agreement. Mystic contends that the subjective intent of the purchaser is irrelevant and that costs related to the facility should be recoverable as part of the service costs. Yet, the Commission emphasized that its focus was on cost causation rather than intent, asserting that Mystic failed to provide evidence demonstrating that ExGen’s acquisition of Everett directly benefited ratepayers. Mystic's argument conflates the roles of the facility and service provider, mischaracterizing the nature of cost recovery. Everett's contributions to the service provision for Mystic 8 and 9 allow for the recovery of incremental capital expenditures and a portion of Everett's fixed operating costs associated with these services, contingent upon adherence to cost-causation principles. Mystic has not demonstrated that Everett's acquisition benefits ratepayers, rendering Mystic's references to prior Commission decisions irrelevant, as those involved sunk costs for directly serving facilities rather than fuel suppliers. Consequently, the Commission's exclusion of Everett's acquisition cost from Mystic’s cost-of-service rate is not deemed arbitrary or capricious, leading to the denial of Mystic's petition regarding this matter. Regarding the "true-up" mechanism, which adjusts rates to reflect actual costs incurred, Mystic's proposal to limit the scope of challenges to a subset of costs was rejected by the Commission, which opted for a broader application. Mystic contends that the true-up's breadth could allow for the relitigation of pre-2018 costs already deemed just and reasonable by the Commission. However, the Commission has not yet determined the reasonableness of these historic costs and has required Mystic to substantiate them within the true-up process. Mystic's concerns about potential relitigation are unfounded, as the historic costs have not been evaluated. Therefore, Mystic's petition regarding the true-up mechanism is also denied. State Petitioners argue that the Commission failed to adequately address their request for clarification regarding revenue credits, which they claim is essential for understanding the Commission's decision-making process. According to legal precedents, an agency's lack of response to non-frivolous arguments can render its decisions arbitrary and capricious. The Commission claimed that Mystic’s revenues would not undergo true-up due to an existing mechanism within the Mystic Agreement that credits revenues against annual fixed requirements. However, the States Committee sought clarity on whether parties could challenge these calculations during the true-up process, but the Commission's only response referenced a different issue related to Everett’s tank congestion charges. The Commission's assurance that revenue discrepancies could be addressed in true-up proceedings does not substitute for adequate agency-level decision-making. Therefore, the court remands the issue for the Commission to consider the States Committee's request properly. Additionally, the State Petitioners contend that the December 2020 Rehearing Order presents contradictions that require clarification. While agencies are typically upheld if their reasoning can be discerned, a lack of intelligible explanation necessitates further examination. The Commission's inconsistent statements regarding the review of tank congestion charges—first allowing, then disallowing, and ultimately permitting review in the true-up process—demonstrate a failure to engage in reasoned decision-making, prompting the court to remand for clarification. The Commission stated that only ISO New England has the authority to audit and ensure proper calculation of the tank congestion charge, despite acknowledging that ratepayers could review these charges during the true-up process. This contradiction necessitated a remand for clarification. The State Petitioners challenged the clawback mechanism of the Mystic Agreement, arguing that the Commission acted arbitrarily by excluding Everett’s costs from this mechanism. The clawback is designed to refund capital expenditures and repair costs to ratepayers if a generator shifts from cost-of-service rates to market rates, addressing fairness issues that arise from such transitions. Under the Mystic Agreement, costs related to Mystic 8 and/or 9 are subject to refund if those units return to the market, but Everett’s costs were not included. The Commission justified the exclusion by claiming a lack of jurisdiction over Everett, asserting that it could not mandate a refund since the Everett Agreement was not filed with the Commission. However, the Commission previously stated that it could include Everett’s costs in Mystic’s rate despite lacking jurisdiction over Everett. This inconsistency led to the conclusion that the Commission's exclusion of Everett’s costs from the clawback was arbitrary and capricious, as the Commission acknowledged that it could review and approve Everett’s fixed operating costs as part of Mystic’s cost-of-service rate. The Commission's reasoning is deemed internally inconsistent regarding its jurisdiction over costs associated with Everett in Mystic's rate and the ability to refund these costs to ratepayers. While the Commission acknowledges its jurisdiction to include Everett's costs in Mystic's rate, it inconsistently claims it lacks jurisdiction to refund a portion of those costs. The absence of jurisdiction over Everett does not preclude the inclusion of these costs in Mystic's rate, nor does it prevent the Commission from ordering a refund to ratepayers. The Commission argued that the clawback mechanism, which pertains to Mystic's rate, would not apply to payments received under the non-jurisdictional Everett Agreement. However, since Mystic's fuel supply costs paid to Everett are also derived from this non-jurisdictional agreement, the inclusion of 91% of those costs in Mystic’s rate raises questions about the Commission's reasoning. The Commission's assertion that it cannot include Everett's costs in the clawback because there would be no jurisdictional rate for refund post-termination of the Mystic Agreement is considered unpersuasive. The Mystic Agreement mandates a true-up filing after its expiration, suggesting that settlements could occur without a jurisdictional rate. The Commission's failure to provide a coherent explanation for excluding Everett’s costs from the clawback is characterized as a lack of reasoned decision-making, rendering the decision arbitrary and capricious. Consequently, the petition from the State Petitioners concerning this issue is granted, and the clawback provisions of the challenged orders are vacated. Additionally, the State Petitioners' concerns regarding the potential delay of capital projects by Mystic due to the terms of the Mystic Agreement are acknowledged. The Commission's failure to address this argument also supports granting the petition. Under the cost-of-service agreement, Mystic is allowed to recover certain repair and capital expenditure costs from ratepayers, with a clawback mechanism in place for refunds if Mystic remains in service beyond the agreement's term. In the December 2018 Order, the Commission mandated that Mystic must not delay capital expenditure projects to recover excessive costs from ratepayers. However, in the Second July 2020 Rehearing Order, this requirement was softened; Mystic was only required to disclose whether it delayed projects and the reasons for any delays, rather than prove it had not delayed them. The States Committee raised concerns that this change would allow Mystic to recover costs for projects that should have been completed before the Agreement's expiration, potentially incentivizing delays. They noted that if Mystic retired at the end of the Agreement, ratepayers would bear the full costs of these delayed projects, leading to undesirable incentives. Although the Commission cited the States Committee's concerns in the December 2020 Order, it failed to meaningfully address the specific arguments regarding the delay provision and its implications. As such, the Commission's inaction was deemed arbitrary and capricious. Consequently, the State Petitioners' petitions were granted, and the relevant portions of the orders concerning the delay provision were vacated. Mystic's petition for review was partially dismissed and partially denied.