 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued November 19, 2018          Decided December 28, 2018

                       No. 17-1275

                  EXELON CORPORATION,
                      PETITIONER

                             v.

       FEDERAL ENERGY REGULATORY COMMISSION,
                    RESPONDENT


          On Petition for Review of Orders of the
          Federal Energy Regulatory Commission


    Matthew E. Price argued the cause for petitioner. With
him on the briefs was William K. Dreher.

    Carol J. Banta, Senior Attorney, Federal Energy
Regulatory Commission, argued the cause for respondent.
With her on the brief was Robert H. Solomon, Solicitor. Ross
R. Fulton, Attorney, entered an appearance.

   Before: KATSAS, Circuit Judge, and SILBERMAN and
WILLIAMS, Senior Circuit Judges.

   Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
                               2

     WILLIAMS, Senior Circuit Judge: In a very very few cases,
the dispute between the parties vanishes in the course of oral
argument. This case may be a variation of that pattern. Agency
counsel seemed to contend that the correct meaning of the
challenged order was in conformity with the meaning that
petitioner ascribed to the controlling statute. Because the
parties’ dispute may be illusory, we remand the record to the
agency to sort out what it really means.

                            * * *

     Petitioner Exelon, which owns a number of electric
generation resources in New England, challenges the adoption
by the Federal Energy Regulatory Commission of changes to
the Transmission, Markets, and Services Tariff (“Tariff”)
proposed by the Independent System Operator for New
England (“ISO-NE”), the non-profit entity overseeing
organized wholesale power markets in that region. The Tariff
governs the annual Forward Capacity Auction in which energy
suppliers contract to provide capacity three years in advance as
part of the Forward Capacity Market. FERC approved the
proposed tariff changes, subject to certain conditions. ISO New
England Inc., 155 FERC ¶ 61,029 (Apr. 12, 2016) (“Final
Order”). The Commission then accepted ISO-NE’s modified
filing. 156 FERC ¶ 61,067 (Jul. 27, 2016). Exelon sought
rehearing, which FERC denied. ISO New England Inc., 161
FERC ¶ 61,115 (Oct. 30, 2017) (“Rehearing Order”). Exelon
now seeks our review.

     ISO-NE’s proposed changes to its tariff sought to tackle
the perceived risk that suppliers might exercise market power
through improper use of ISO-NE’s retirement options via
“physical” or “economic” withholding. In the first case, a
multi-plant generator prematurely withdraws a unit from
participation in the Forward Capacity Auction, thereby
dampening supply, driving up prices, and enjoying higher
                                3

returns from other plants. Though a physical withholding, the
retirement is “uneconomic” in the sense that the unit would be
expected to remain profitable if it were not retired. See Final
Order ¶ 7 n.8. In “economic” withholding, the supplier has a
unit participate in the auction but sets an artificially high
retirement “bid” when it has reason to believe that its capacity
is needed for the market to clear, thereby nudging up the
clearing price. In that case, of course, the unit would reap
undue profits rather than retire. See Prepared Testimony of
Jeffrey D. McDonald on Behalf of ISO New England Inc. (Dec.
17, 2015), Joint Appendix (“J.A.”) 62–63. Each “bid”
represents a “price below which a supplier does not wish to
provide capacity from an existing resource[.]” Final Order ¶ 2.

     Whereas before the disputed orders a unit could retire
under a Non-Price Retirement Request without submitting a bid
into the auction, see Final Order ¶ 2, all units wishing to retire
must now submit such bids, see id. ¶¶ 6–7. Under the new
rules, all retirement bids are reviewed by ISO-NE’s Internal
Market Monitor. Id. ¶ 7. The market monitor evaluates the
“appropriateness” of the proposed bid after “consult[ing]” with
the supplier as to the “reasonableness” of “cost assumptions”
underlying its retirement bid. Id. If the monitor determines that
certain cost items are unsupported, and the original bid exceeds
the monitor’s preferred price by more than 10% (the
“materiality threshold”), the monitor will substitute a
“mitigated bid” for the supplier’s original bid. Rehearing
Order ¶¶ 8, 15. All bids are submitted to FERC by ISO-NE in
a filing under § 205 of the Federal Power Act, 16 U.S.C.
§ 824d. See Tariff § III.13.8.1(a), J.A. 40. If FERC approves
the mitigated bid, then that bid will stand in—as a so-called
“proxy bid”—for the capacity of the retiring resource. If the
market clears at or above the proxy bid price, but below the
supplier’s original bid—that is, above what the market monitor
thinks reasonable, but below what the supplier is willing to
                                4

accept—the auction is re-cleared to obtain the missing capacity
from other suppliers. See Rehearing Order ¶ 6.

     A supplier may acquiesce in the mitigated bid, though it
must do so before ISO-NE’s § 205 filing—and, a fortiori,
before it knows the clearing price. See Rehearing Order ¶¶ 5,
20. In that event, presumably, the unit retires if the auction
clears below the proxy bid.

     Finally, the distinction between unconditional and
conditional retirement needs explaining. If the market monitor
decides to mitigate a bid, a supplier may opt to retire a unit no
matter what—that is—unconditionally. See Final Order ¶ 61.
If the owner of the unconditionally retiring unit owns multiple
units, the monitor must carry out a “Portfolio Benefits Test” to
assess whether “the resource owner’s portfolio, as a whole,
benefits from the retirement.” Id. ¶ 8; see Rehearing Order ¶ 5.
If a portfolio benefit exists, a proxy bid will be used,
neutralizing the effects of a possibly uneconomic retirement.

     A supplier knowing that a mitigated bid will be filed may
choose to retire the relevant unit conditionally—i.e., contingent
on the auction clearing price. If a supplier unsuccessfully
protests a mitigated bid and a proxy bid is entered into the
auction, three possibilities arise. (1) If the clearing price is
below both the original bid and mitigated bid, the unit retires.
(2) If the clearing price is at or above both bids, the supplier
takes on a capacity obligation. (3) If the clearing price is at or
above the mitigated bid but below the original bid, the unit must
retire. See Rehearing Order ¶ 6.

     Exelon protests ISO-NE’s new tariff rules, arguing (among
other things) that they trample on its § 205 rights. As Exelon
reads FERC’s orders, they mean that FERC vets the market
monitor’s mitigated bid, which will be used in the auction if it
is just and reasonable, whereas in the normal course (and as
                               5

required by law in Exelon’s view) a supplier’s bid is vetted
under that standard and would be entered in the auction if it
passes. At the core of Exelon’s objection is the apparent
elimination of FERC review of the supplier’s rate under the just
and reasonable standard and its replacement with review of the
monitor’s bid.

                            * * *

     The parties seemingly had no shortage of disagreements
before the agency and on appeal. At oral argument, however,
it emerged that these skirmishes may have little practical
import. Counsel for FERC suggested that FERC—despite
approving the tariff rules over petitioner’s objections—
interprets them in a way that, practically speaking, largely
squares with Exelon’s view of its § 205 rights (even while
FERC denies that Exelon has a right to § 205 review of the
disputed class of bids).

     Given this odd posture, here we endeavor to crystalize the
apparent dispute (or harmony!) between the parties and remand
the record. We do not resolve whether a supplier’s retirement
bids are “rates” under 16 U.S.C. § 824d(a), and therefore
entitled to assessment by FERC under the “just and reasonable”
criterion. See Exelon Br. 35–39. Nor do we pass on whether
Exelon can rightly be said to have consented to the new rules
by virtue of having participated in the 2006 Forward Capacity
Market Settlement. See, e.g., FERC Br. 29; Final Order ¶ 85.
Rather, we tee up the issues for prompt clarification by the
Commission.

                            * * *

    While FERC does not contest standing, we have an
“independent obligation to assure [ourselves] that standing
                                  6

exists.” Summers v. Earth Island Inst., 555 U.S. 488, 499
(2009). And we conclude that it does.

     To show Article III standing, a party must satisfy the
familiar three-part test: “(1) an injury in fact, (2) fairly traceable
to the challenged agency action, (3) that will likely be redressed
by a favorable decision.” Kansas Corp. Comm’n v. FERC, 881
F.3d 924, 929 (D.C. Cir. 2018) (citing Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992)). Exelon meets this
standard.

     The new rules are designed to enhance the power of the
market monitor to challenge suppliers’ bids, substituting
mitigated bids where it thinks necessary. Use of a proxy bid
under the tariff (as understood by Exelon) would generally
lower the auction clearing price more than would a process
operating under Exelon’s view of the statutory requirements,
thereby lowering the revenue of all suppliers whose capacity is
needed to meet demand (except where a proxy bid leads to
substitution of a higher-priced supplier or suppliers for the one
whose bid has been mitigated, see Exelon Br. 21–22; see also
Final Order ¶ 9). Thus, the disputed features of the new tariff
rules would seem to cause an injury in fact.

     But the harms to Exelon are even more particular. It owns
up to a dozen plants in the ISO-NE region, Oral Argument at
16:12, including “some major plants [that] are nearing the end
of their life,” Oral Argument at 16:19. The new rules place
Exelon in a vice. On the one hand, to avert a mitigated bid,
Exelon might preemptively choose to shave its retirement bids.
In that case, where its non-mitigated bid turns out to be the
marginal one in the auction (i.e., sets the market clearing price),
Exelon may receive less revenue than it would have under its
reading of the law—even in situations where it keeps a plant in
business. On the other hand, if Exelon’s preferred bid is
mitigated, it would suffer economic harm if the proxy bid
                                7

causes the auction to clear below a price at which Exelon
believes it could economically sell capacity into the market. In
such a case, FERC’s treatment of the mitigated bid as
controlling will, through the operation of FERC’s rules, force
Exelon out of a market in which it could otherwise have
participated at a normal profit. See Exelon Br. 20–22. (In light
of this injury, the fact that suppliers are “only required to
remain in the FCM [Forward Capacity Market] at a price at or
above [their] originally proposed Retirement Bid,” Final Order
¶ 61, is true but beside the point).

     Given the number and age of Exelon’s plants, and the
operation of ISO-NE’s new tariff provisions, Exelon will be
reasonably likely to suffer one of these distinct but related
harms, which this court can plainly remedy. Exelon thus clears
the bar of Article III’s standing requirements.

                              * * *

     Exelon’s principal objection to the new tariff rules, which
focuses on conditional retirement, is that they gut its § 205
rights. If retirement bids are “rates” under § 205, as Exelon
claims, its bids are entitled to approval by FERC so long as they
are just and reasonable. See 16 U.S.C. § 824d(a). Because
there is a range of prices that can meet that standard, in the
normal case even a bid towards the high end of the range will
be accepted. By Exelon’s reckoning, the new rules turn this
standard on its head. Rather than submitting retirement bids to
FERC in an informational filing as before, ISO-NE will now
submit them in a § 205 filing, see Tariff § III.13.8.1(a), J.A. 40,
so that ISO-NE’s bids, including the market monitor’s
mitigated bids, which will obviously be lower than the
supplier’s, will be evaluated under the “just and reasonable”
standard. In the case of a mitigated bid, then, the supplier is
relegated to an inferior posture of having to protest this bid
and—on Exelon’s view—its bid will be used in the auction
                               8

only if it can convince FERC that the mitigated bid is unjust or
unreasonable. This approach, on Exelon’s account, triggers the
economic harms described earlier. Exelon, alongside other
parties, expressed its worry with perfect clarity:

         ISO-NE proposes a regime wherein the rate set by
    ISO-NE would be the only rate filed pursuant to FPA
    [Federal Power Act] § 205. If the Commission finds such
    a rate just and reasonable, then it must approve that rate,
    even if it finds that other rates—including one proposed
    through a protest filed by the generator itself—are
    themselves just and reasonable. As a result, the ability of
    public utilities to protest ISO-NE’s proposed rates is cold
    comfort. Confining public utilities to protests to voice
    their views as to their own rates improperly places the
    burden on them to demonstrate that ISO-NE’s proposed
    rates are unjust and unreasonable. That is neither lawful
    nor fair.

Protest of the GEN Group (Jan. 11, 2016), J.A. 91. As FERC’s
summaries indicate, it fully grasped petitioner’s objections.
See Final Order ¶ 79; see also id. ¶ 83.

     To substantiate the above concerns, Exelon points to
Paragraph 19 of FERC’s Rehearing Order, which states in
relevant part: “[A]s the proponent of the 205 filing, ISO-NE
will bear the burden of proof to show that any proposed
mitigated bids comply with ISO-NE’s Tariff and are just and
reasonable . . . .” See Exelon Br. 38–39; see also Oral
Argument at 1:06:58. We agree with Exelon that this language
appears to be incompatible with Exelon’s understanding of its
§ 205 rights. See Oral Argument at 1:07:37 (COURT: “[Under
Paragraph 19] the market monitor is substituted for the supplier
for the operation of the 205 process.” Counsel for Exelon:
“Exactly . . . . That’s the problem in our case. If the
Commission is now suggesting otherwise, we are happy to
                               9

accept that concession . . . .”). If, under the new rules, FERC
must approve a mitigated bid if it is just and reasonable, it
presumably cannot also be the case that the supplier’s original
bid will be used in the auction if it is just and reasonable—as
§ 205 commands, according to Exelon. A choice seems
inevitable.

      Where does FERC stand? The orders and oral argument
seem to point in contrary directions. Prior to oral argument,
one might have thought the Commission, while defending the
change as lawful, tacitly conceded that the new rules shifted the
legal burdens in the way Exelon depicts. After all, despite
ample opportunities, FERC never explicitly gainsaid Exelon’s
analysis of the new rules’ operation. FERC retorted instead that
Exelon has no § 205 rights in retirement bids, either because
such bids are not “rates,” or because Exelon voluntarily ceded
its rights in keeping with Atlantic City Elec. Co. v. FERC, 295
F.3d 1, 10 (D.C. Cir. 2002) (observing that “utilities may
choose to voluntarily give up, by contract, some of their rate-
filing freedom under § 205”).

     Granted, FERC also repeatedly glossed the new rules as
extensions of existing rules for other types of bids. See
Rehearing Order ¶ 15 (remarking that “[a]s noted in the April
12 Order, the tariff changes accepted in this proceeding will
subject Retirement Bids to the same general Internal Market
Monitor review process that previously applied to Static De-
List Bids”); see also Final Order ¶ 85. But, read alongside
FERC’s failure to disabuse Exelon of the idea that the market
monitor’s mitigated bids—rather than Exelon’s bids—will now
receive § 205 treatment, we took the dispute to be a live one.

    Oral argument left us much less certain. Counsel for
FERC explicitly argued that the challenged orders—including
Paragraph 19—should be read as consistent with Exelon’s
claim of entitlement to have its bids reviewed under § 205’s just
                               10

and reasonable standard and to operate in the auction if they
pass. The dispute, we were led to believe, is much ado over
precious little.

     To bolster its “nothing to see here” approach, counsel
pointed to language arguably establishing that a mitigated bid
can come into play only in the event of a FERC finding
equivalent, even identical, to a finding that the supplier’s bid
failed the just and reasonable test. Specifically, counsel pointed
to language in the Rehearing Order to the effect that the market
monitor’s role in mitigating bids is confined to cases where a
supplier has “failed to support the reasonableness of particular
cost items” underlying its bid. Rehearing Order ¶ 18; see also
Final Order ¶ 58.

     Far from resolving matters, however, this aspect of the new
rules merely repackages the mystery.            Petitioner may
reasonably ask: If the monitor erroneously (in petitioner’s
view) deems a cost item to be unsupported and files a mitigated
bid, how will the Commission respond?

     True, suppliers have an “opportunity to protest” the market
monitor’s “determination.” Final Order ¶ 70; see also id. ¶ 85;
Rehearing Order ¶ 18. But if Exelon may successfully protest
a mitigated bid only on a showing that it is unjust or
unreasonable, this form of protest embodies, rather than
dissipates, petitioner’s concerns. The Commission will have
outsourced to the market monitor what Exelon regards as
FERC’s statutory obligation to assess the reasonableness of
retirement bids—including, presumably, discrete cost items.
So Exelon’s complaint is as firm as ever if a bid can be
mitigated just because the market monitor thinks certain of the
supplier’s bid cost items are unsupported or unreasonable. If
the Commission will only undo the monitor’s error on a
showing that the mitigated bid is unjust or unreasonable,
Exelon’s concerns will be borne out. As it argued to the
                               11

Commission, the latter will (as Exelon understood the rules)
have “no leeway at all [to use the supplier’s bid over the
monitor’s] if the IMM [Internal Market Monitor]-determined
bid is within the zone of reasonableness.” Request for
Rehearing and Clarification (May 12, 2016), J.A. 203; see also
Final Order ¶ 83. In its denial from rehearing, FERC registered
the objection but again avoided a direct response. Indeed,
Paragraph 19 of the Rehearing Order appears to allow the
market monitor’s bid to take effect in the auction if it is “just
and reasonable,” with no indication that a supplier’s bid
meeting that standard would prevail instead.

     FERC counsel’s view implicitly suggests a somewhat
different model of the ultimate process. In cases where the
market monitor disputes particular cost items, FERC might
review Exelon’s justifications for those items de novo,
accepting each item so long as it is reasonable. FERC would
then bless Exelon’s original bid if all its supported cost items,
together with other relevant factors, produce a bid within the
zone of reasonableness. This scenario would provide Exelon
with the functional equivalent of its being entitled to have its
bid prevail by satisfying the Commission under § 205. It
would, moreover, align with FERC’s terse remark that the tariff
changes do not “oblige the Commission to accept as just and
reasonable an Internal Market Monitor-mitigated bid in lieu of
a more accurate supplier-initiated bid,” raising questions about
how, exactly, “accuracy” is gauged. Rehearing Order ¶ 18; see
also FERC Br. 32.

     If something like the above approximates FERC’s view,
FERC’s actions in the orders are puzzling. Why, for example,
did the Commission not put to rest Exelon’s misunderstanding
of the new rules’ implications in the Final Order or Rehearing
Order? And what, precisely, is the point of the tariff’s styling
ISO-NE’s bid submissions as “fil[ed] . . . pursuant to Section
205,” Tariff § III.13.8.1(a), J.A. 40, if suppliers’ original bids
                                  12

in effect receive the equivalent of § 205 treatment in case of a
mitigated bid?

      Whatever the explanation, counsel for FERC seemed to
endorse a protest method of a kind outlined two paragraphs
above—which, to repeat, clashes with our reading of Paragraph
19 (though it appears consistent with the “accuracy” passage
from Paragraph 18). See Oral Argument at 54:52 (COURT:
“Suppose the market monitor identifies five cost items which it
believes have not been adequately supported. And suppose the
Commission look[ed] at all five claims . . . and . . . found one
wasn’t adequately supported and the other four were. Then
what happens?” Counsel for FERC: “[The Commission] would
go back to the supplier’s cost items that were supported and put
those back in . . . .” COURT: “So are you saying that what
happens here is the exact equivalent of what happens when a
rate is submitted and it is reviewed against various claims that
it’s not adequately supported . . . ?” Counsel for FERC: “If I’m
understanding your question right, yes.”); see also Oral
Argument at 46:33 (COURT: “[I]f [FERC] Staff says reasonable
[people] can differ as between . . . two bids[,] . . . who gets
priority?” Counsel for FERC: “Well, if reasonable minds could
differ . . . I think the supplier[’s bid gets priority], because if the
supplier is able to support the particular cost items in such a
way that the Commission says, ‘reasonable minds could differ,
but you have supported your version,’ then, yes, that’s exactly
what the Tariff says.”); Oral Argument at 54:05 (COURT:
“Where is the difference between the two of you, then? Did
you suggest that the monitor’s rate will not be accepted if the
supplier’s [bid] is just and reasonable?” Counsel for FERC: “If
it [the supplier] has supported its cost items as required in the
Tariff, yes. . . . The supplier can use their original bid if they
have supported all of the cost items as required in the Tariff.”).
Bringing the orders into line with counsel’s contentions would
seem to require modifying Paragraph 19 to say the near
opposite of what it now says.
                               13


      Counsel did not seem to disagree. See Oral Argument at
1:10:27 (COURT: “[T]his sentence in Paragraph 19 is at best
confusing and at worst mendacious, under your view, because
it ought to read: ‘But, as the proponent of a rate, the supplier
will bear the burden of proof to show that its bid is just and
reasonable.’ Period, full stop.” Counsel for FERC: “Right, but
it can only be read in conjunction with Paragraph 18 and other
parts of that order and the previous order that say the market
monitor’s bid is only compliant with the Tariff, it only is
permissible under the Tariff, if two things are true [which
counsel does not explain because of the next question]”; see
also Oral Argument at 1:11:18 (COURT: “Would you have any
objection to our ruling in your favor based on your
representation to [the Court] that the words [we] read to you
should be interpreted or rewritten to mean what [the Court] said
[i.e.], it’s not ISO’s burden to show that the mitigated bid[s]
comply with the Tariff and are just and reasonable but it’s . . .
the supplier’s burden to show that its bid is just and
reasonable[,] . . . [which is] necessary and sufficient for the
bidder to prevail . . . ?” Counsel for FERC: “I think that’s
right.”).

     We see no way to skirt the question Exelon tees up: under
ISO-NE’s new tariff rules, does a supplier’s rate enter the
auction so long as it convinces the Commission that the rate is
just and reasonable, over contrary claims of the market
monitor? If the Commission accepts the modification to
Paragraph 19 that counsel seemingly endorsed—and enters
other appropriate changes to its orders in keeping with that
modification—the dispute between the parties may dissipate,
or even vanish.

     To resolve the mystery, we remand the record to FERC. In
light of the March 2019 submission window for retirement bids
for the 2020 Forward Capacity Auction, see ISO-NE, Forward
                             14

Capacity Auction #14 Schedule (rev. Mar. 1, 2018),
https://www.iso-ne.com/static-assets/documents/2017/05/fca-
14-timeline-5-9-2017.pdf, FERC should issue its clarification
expeditiously, and in no event later than February 1, 2019.

                                                 So ordered.
