Pac. Gas & Elec. Co. v. United States

• Decision Date: 03 October 2016
• Docket Number: 2015–5082
• Citation: 838 F.3d 1341
• Parties: Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, People of the State of California ex rel. Edmund G. Brown Jr., Attorney General of the State of California, California Department of Water Resources, by and through its California Energy Resources Scheduling Division, Plaintiffs–Appellants v. United States, Defendant–Appellee
• Court: U.S. Court of Appeals — Federal Circuit

838 F.3d 1341

Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, People of the State of California ex rel. Edmund G. Brown Jr., Attorney General of the State of California, California Department of Water Resources, by and through its California Energy Resources Scheduling Division, Plaintiffs–Appellants

v.United States, Defendant–Appellee

2015–5082

United States Court of Appeals, Federal Circuit.

October 3, 2016

Carter Glasgow Phillips , Sidley Austin LLP, Washington, DC, argued for plaintiffs-appellants. Also represented by Tobias Samuel Loss–Eaton , Quin M. Sorenson ; Marie L. Fiala , San Francisco, CA; STAN BERMAN , Seattle, WA.

Jane Irene Ryan , Steptoe & Johnson, LLP, Washington, DC, for plaintiff-appellant Southern California Edison Company. Also represented by Heather Horne .

Mark Fogelman , Friedman & Springwater, LLP, San Francisco, CA, for plaintiff-appellant San Diego Gas & Electric Company. Also represented by Ruth Stoner Muzzin .

Gary Alexander , Office of the Attorney General, California Department of Justice, San Francisco, CA, for plaintiffs-appellants People of the State of California Ex Rel. Edmund G. Brown, Jr., Attorney General of the State of California, California Department of Water Resources.

James R. Sweet , Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Benjamin C. Mizer , Robert E. Kirschman, Jr. , Martin F. Hockey, Jr. ; Mark William Pennak , Appellate Staff, Civil Division, United States Department of Justice, Washington, DC.

Candace J. Morey , California Public Utilities Commission, San Francisco, CA, for amicus curiae Public Utilities Commission of the State of California. Also represented by Arocles Aguilar .

James Bradford Ramsay , National Association of Regulatory Utility Commissioners, Washington, DC, for amicus curiae National Association of Regulatory Utility Commissioners.

Before Newman, Dyk, and Wallach, Circuit Judges.

Dissenting opinion filed by Circuit Judge Newman

.

Dyk

, Circuit Judge.

Pacific Gas and Electric Company, Southern California Edison Company, San Diego Gas & Electric Company, and the state of California (collectively, “appellants”), brought suit against the United States claiming that two federal government agencies selling electricity (the Western Area Power Administration and the Bonneville Power Administration) (collectively, “the government”) overcharged appellants for electricity.

The United States Court of Federal Claims (the “Claims Court”) dismissed their breach of contract action for lack of standing. Appellants appeal. We conclude that appellants lack privity of contract or any other relationship with the government that would confer standing. Because appellants lack standing, we affirm. This does not, however, suggest that appellants were without a remedy for the alleged overcharges against the parties with whom they are in contractual privity—two California electricity exchanges—or that the exchanges lacked a breach of contract remedy for overcharges against the government agencies that sold them electric power.

BACKGROUND

I

Under the Tucker Act, the Claims Court has jurisdiction over contract cases in which the government is a party. See 28 U.S.C. § 1491(a)(1)

; Gonzales & Gonzales Bonds & Ins. Agency v. Dept. of Homeland Sec. , 490 F.3d 940, 943 (Fed. Cir. 2007). Normally, a contract between the plaintiff and the United States is required to establish standing to sue the government on a contract claim. S. Cal. Fed. Sav. & Loan Ass'n v. United States , 422 F.3d 1319, 1328 (Fed. Cir. 2005) (“A plaintiff must be in privity with the United States to have standing to sue the sovereign on a contract claim.”).

This case involves the purchase and sale of electricity in the California market. Appellants contend that they were overcharged for electricity during the period from October 2, 2000, to June 20, 2001 (“the 2000–2001 period”), and seek to recover the overcharges from the United States based on sales by two federal government agencies—the Western Area Power Administration (“WAPA”) and the Bonneville Power Administration (“BPA”). Two exchanges were involved in these transactions—the California Power Exchange (“Cal–PX”) and the California Independent System Operator (“Cal–ISO”). These exchanges were responsible for acquiring and distributing electricity between producers and consumers in California and setting prices for the electricity. The basic question is whether purchase and sale contracts existed between the exchanges, on the one hand, and the appellants and defendant government agencies, on the other, or whether the contracts were between the appellants and the government agencies—the consumers and producers of electric power. If the contracts were between the exchanges and market participants individually, appellants' remedy is against the exchanges. If the contracts were between the consumers and producers of electricity, appellants' remedy is against the government producers.

Appellants contend that a contract existed between two groups—one group consisting of all consumers of electricity (including appellants) and the other group consisting of all producers of electricity (including the government agencies) in California. Under appellants' theory, appellants and all other power consumers are in privity of contract with all producers in the California markets, including the government sellers. The government, on the other hand, contends that the contracts were only between the middleman entities that facilitated and operated the California electricity markets—Cal–PX and Cal–ISO—and the consumers and producers individually. Under the government's theory, appellants are in privity of contract with Cal–PX and Cal–ISO, and the government is also in privity of contract with Cal–PX and Cal–ISO, but appellants are not in privity with the government.

II

On the face of it, the only contracts here were between the exchanges—Cal–PX and Cal–ISO—and individual market participants (the consumers and producers). Both of these exchanges entered into individual contracts with each of the consumers and producers of electricity. The basis for appellants' alternative theory requires some understanding of the background.

In the late 1990s, California restructured and deregulated its energy market. In 1996, California established two non-profit organizations to acquire and distribute electricity and to otherwise organize and supervise all of the wholesale energy transactions in the state. One nonprofit, Cal–PX, was designed to facilitate and conduct all wholesale electric power transactions for the state of California. Cal–PX's responsibilities included, inter alia , collecting supply and demand bids from sellers and buyers of wholesale electricity respectively, processing those bids to develop aggregate supply and demand curves from the total pool of bids received, setting a market clearing price based on the intersection point of the aggregate supply and demand curves, preparing financial settlements by issuing statements to all market participants, establishing a calendar for payment, and settling payment individually with each market participant by debiting or crediting its Cal–PX account. Cal–PX was also responsible for determining the proper distribution of funds in the event of an overpayment, collecting the overpaid funds from the overpaid participants, and remitting those funds to the market participants who overpaid.

The other exchange, Cal–ISO, was established to assume operational control over all of California's electric transmission facilities and ensure supply and demand on a real-time basis. Cal–ISO was responsible for, inter alia , operating the transmission grid, ensuring the necessary supply of energy, maintaining nondiscriminatory access to the grid, purchasing and providing ancillary services, and maintaining a real-time spot market for electricity to balance out any last-minute disparities between supply and demand in the Cal–PX market. In this regard, Cal–ISO operated as a back-up to the primary Cal–PX market for wholesale energy.

Cal–PX and Cal–ISO filed tariffs with the Federal Energy Regulatory Commission (“FERC”), the independent federal agency with regulatory authority over the interstate sale of all wholesale electricity and transmission service. The tariffs (“Cal–PX Tariff” and “Cal–ISO Tariff,” respectively) established the terms and conditions of service and rates for the California markets. The Cal–PX Tariff and the Cal–ISO Tariff both contained clauses known in the industry as Memphis clauses, which preserved the ability of consumers and producers in the California markets to exercise their rights under the Federal Power Act (“FPA”) to petition FERC for a change in the terms or rates of the tariffs.

All consumers and producers of wholesale energy in the California markets entered into individual agreements with Cal–PX and Cal–ISO, known as participation agreements. Every Cal–PX participation agreement incorporated the Cal–PX Tariff, and every Cal–ISO participation agreement incorporated the Cal–ISO Tariff. None of the consumers and producers of wholesale energy purported to contract directly with one another; rather, all participants in the California markets executed separate participation agreements with Cal–PX and Cal–ISO only. Indeed, individual contracts between consumers and producers were not feasible since electricity is fungible, and purchases and sales of electricity could not be traced to particular consumers and producers in the California markets.

Appellants entered into participation agreements with Cal–PX and Cal–ISO shortly after California deregulated the market to purchase electricity. WAPA and BPA, the defendant federal power-producing administrations, also executed participation agreements with Cal–PX and Cal–ISO. No agreements were executed between appellants...