329 F.3d 700 (9th Cir. 2003), 02-70336, State of California ex rel. Lockyer v. F.E.R.C.

Docket Nº:02-70336
Citation:329 F.3d 700
Party Name:State of California ex rel. Lockyer v. F.E.R.C.
Case Date:May 15, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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329 F.3d 700 (9th Cir. 2003)

STATE OF CALIFORNIA, ex rel Bill LOCKYER, Attorney General, Petitioner,

The City of Santa Clara; Transmission Agency of Northern California (TANC); Northern California Power Agency, Petitioner-Intervenor,

United States Court of Appeals, Ninth Circuit



PG & E National Energy Group Holdings Corporation, Respondent-Intervenor.

Northern California Power Agency, Petitioner,

Transmission Agency Of Northern California, City of Santa Clara, City of Palo Alto, Modesto Irrigation District (MID), Petitioner-Intervenor,


Federal Energy Regulatory Commission, Respondent,

Pacific Gas and Electric Company, National Energy Group, Respondent-Intervenor.

Nos. 02-70336, 02-70578.

United States Court of Appeals, Ninth Circuit

May 15, 2003.

Argued and Submitted Feb. 10, 2003.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Robert C. McDiarmid, Lisa G. Dowden, and Andrea G. Lonian, Spiegel & McDiarmid, Washington, D.C., for petitioner NCPA.

Ken Alex, Supervising Deputy Attorney General, Oakland, California, for petitioner the State of California.

Robert H. Solomon, Associate Solicitor, Federal Energy Regulatory Commission, for the respondent.

Earle H. O'Donnell and Andrew B. Young, Dewey Ballantine, Washington, D.C., for the intervenor PG & E National Energy Group, LLC.

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On Petition for Review of an Order of the Federal Energy Regulatory Commission. FERC Nos. EC01-49-002, EC01-41-002.

Before: SILVERMAN and GOULD, Circuit Judges, and WEINER, [*] Senior District Judge.


GOULD, Circuit Judge:

This case involves a challenge to the Federal Energy Regulatory Commission's approval of a corporate reorganization of certain Pacific Gas & Electric Co. subsidiaries. The petitioners, the State of California and the Northern California Power Agency, contend that the restructuring was designed to shield assets worth millions of dollars from creditors. The petitioners raise procedural and substantive objections to the Commission's order approving the reorganization. The petitioners argue that the Commission provided inadequate notice of Pacific Gas & Electric's applications, provided inadequate opportunity for a hearing, and failed to conduct properly the "public interest" analysis mandated by § 230 of the Federal Power Act. We hold that (1) the Commission's Federal Register notice language adequately notified the public of the "essential attributes" of the corporate reorganization, even though the notice language did not disclose the applicant's motive in making the applications or how the applicant would benefit from the reorganization; (2) the Commission's expedited review process, in this case, did not deprive the petitioners of the opportunity to be heard within the meaning of the Federal Power Act or the Fifth Amendment's Due Process Clause; (3) even if the Commission failed to give the petitioners adequate opportunity for a hearing initially, the Commission cured any procedural defect by carefully considering all the evidence and arguments the petitioners offered in their petitions for rehearing and their motions to intervene; and (4) the Commission's decision that the corporate reorganization was consistent with the public interest was supported by substantial evidence and was not "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law" because the Commission properly exercised its discretion to balance factors it deems relevant to the public's energy needs. We deny the petitions.


In the summer of 2000, wholesale electricity prices soared in California. Electricity retailers such as Pacific Gas and Electric Company (PG & E) were unable to pass the increased wholesale power costs on to their customers because the California legislature had imposed a retail rate "freeze" as part of its attempt to restructure the California electricity market. As a result, PG & E incurred billions of dollars of debt. With a possible PG & E bankruptcy looming, three of PG & E's subsidiaries ("the NEG Companies") proposed a corporate reorganization to be consummated in two steps. First, two of the NEG Companies would reincorporate as Delaware corporations. Second, a new company--PG & E National Energy Group, LLC--would be created and interposed between PG & E Corporation and the NEG Companies. This second feature of the reorganization, which PG & E later described as "ring fencing" in its required Securities Exchange Commission disclosures,

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was intended to improve PG & E's credit rating. Petitioners claim that this was to be accomplished by shielding PG & E assets from creditors in any future bankruptcy proceeding. It was imperative that the reorganization be consummated as soon as possible, according to PG & E, or lenders would stop financing some PG & E entities. If lenders balked, it would threaten PG & E's plan to build new power plants in California and elsewhere--plants that were needed to increase the electricity supply.

Because the need was urgent, the NEG Companies sought expedited approval for the reorganization in two applications filed with the Federal Energy Regulatory Commission (FERC) in December 2000. 1 The NEG companies filed a first application on December 11, 2000. The Commission published notice of it in the Federal Register on December 19, 2000. The notice stated:

Take notice that on December 4, 2000, PG & E National Energy Group, Inc., PG & E Enterprises and PG & E Share holdings, Inc. tendered for filing, on behalf of themselves and their public utility subsidiaries, an application under Section 203 of the Federal Power Act seeking authorization for certain changes to the upstream ownership of their public utility subsidiaries following a proposed intra-corporate reorganization.

Comments on the first application were due on or before December 26, 2000--seven days after notice was published.

The NEG Companies filed a second application on December 28, 2000. The Commission mailed notice of it to the California Governor's Office the same day. The Commission published notice of the application in the Federal Register on January 4, 2001. The notice stated:

Take notice that on December 28, 2000, PG & E National Energy Group, LLC (NEG LLC) and PG & E National Energy Group, Inc. (NEG) tendered for filing on behalf of themselves and their public utility subsidiaries, an application under Section 203 of the Federal Power Act seeking authorization for the transfer of all outstanding stock of NEG from PG & E Corporation to NEG LLC.

Comments were due on or before January 8, 2001--four days after notice was published.

Having received no comments or motions to intervene, the Commission approved the NEG Companies' applications in two January 12, 2001, orders. The orders analyzed the proposed reorganization's effects on competition, rates, and regulation and concluded, over a dissent, "that the proposed transactions [are] consistent

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with the public interest." Hours after the Commission approved the applications, the proposed reorganization was consummated.

After learning of the Commission's approval, the State of California on January 19, 2001, filed a motion for late intervention and requested a hearing. The State urged that it had "very substantial interests in all aspects of the current energy issues involving the State, and with respect to any possible utility bankruptcy." The Northern California Power Agency (NCPA), a public agency that generates and transmits electricity, filed a motion for late intervention and requested a rehearing on February 7, 2001. NCPA stated that it was a creditor of PG & E affected by the transactions. Several other entities, not parties to this appeal, also sought late intervention.

The Commission on February 21, 2001, denied the requests for late intervention and rehearing, holding that it gave adequate notice and opportunity for hearing to members of the public, in light of the urgency of the NEG companies' request. In its February 21, 2001, order, the Commission considered, and rejected, the evidence and arguments offered by the State, NCPA, and other intervenors.

The State, NCPA, and other entities filed for rehearing of the Commission's February 21, 2001, order. The Commission on January 30, 2002, granted rehearing and permitted all the parties to intervene in the proceeding involving the change in upstream ownership (the second application). But the Commission denied the requests to intervene in the proceeding involving the Delaware reincorporations (the first application). The Commission stated:

For the reasons discussed in the February 21 Order, we find that all interested persons were provided reasonable notice and opportunity to comment in both the Docket Nos. EC01-41 and the EC01-49 proceedings. Nonetheless, in recognition of the special circumstances of the Docket No. EC01-49 proceeding, e.g., the shortened notice period that included a holiday weekend and claims from certain entities that they did not receive notice as required under section 203 of the [Federal Power Act], we will grant the late interventions ... in Docket No. EC01-49-000. We deny intervention in Docket No. EC01-41 because there has been no showing that reasonable notice was not provided in that proceeding.

The Commission also rejected the intervenors' substantive arguments:

With regard to the petitioners' substantive concerns on rehearing, the pleadings do not raise any new arguments. Therefore, we deny the requests for rehearing of our prior orders, and the request for vacatur of the EC01-49 Order, for the same reasons articulated in the February 21...

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