Auto. Power Exchange v. Fed. Energy Comm'n.

• Decision Date: 07 March 2000
• Docket Number: No. 98-1415,98-1415
• Citation: 204 F.3d 1144
• Parties: (D.C. Cir. 2000) Automated Power Exchange, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent Pacific Gas and Electric Company, et al., Intervenors
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1144

204 F.3d 1144 (D.C. Cir. 2000)

Automated Power Exchange, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent

Pacific Gas and Electric Company, et al., Intervenors

No. 98-1415

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 3, 1999

Decided March 7, 2000

[Copyrighted Material Omitted]

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

Martin V. Kirkwood argued the cause for petitioner. With him on the briefs was Clark Evans Downs.

Andrew K. Soto, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Jay L. Witkin, Solicitor, and John H. Conway, Deputy Solicitor.

Before: Ginsburg, Rogers and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge:

Automated Power Exchange, Inc. ("APX") petitions for review of two orders of the Federal Energy Regulatory Commission ("FERC") asserting jurisdiction over APX as a public utility within the meaning of the Federal Power Act and requiring APX to file certain information about itself. APX operates a computerized marketplace in which buyers and sellers of electric energy enter into short-term power supply contracts at prices displayed by the APX computer, subject to the buy and sell limits established by market participants. FERC concluded that because the APX computer plays a role in setting market price, APX is a public utility subject to regulation under the Federal Power Act. See 16 U.S.C. 824(b) (1994).

APX contends that FERC has impermissibly expanded its limited jurisdiction to include, for the first time, entities that neither sell nor transmit power in interstate commerce but only facilitate trades. Viewing itself as no more than a "high tech power broker," APX maintains that FERC's orders rely on a faulty understanding of APX's marketplace and are contrary to long-standing agency precedent defining the characteristics of a public utility. APX contends, alternatively, that assuming FERC's jurisdiction, FERC has arbitrarily imposed different filing requirements on it than have been imposed on similarly situated entities.¹ Because FERC's interpretation of the Federal Power Act is entitled to deference and FERC has distinguished APX from the entities over which it previously has declined to assert jurisdiction and has explained why its decision here is in harmony with its relevant precedent, we deny the petition for review.

I.

The instant case began when APX filed an application requesting that FERC disclaim jurisdiction over its operation, or, alternatively, grant APX market-based rate authority, accept for filing its rate schedule to become effective January 1, 1998, and waive prior notice and other filing requirements and annual charges. The Federal Power Act ("FPA" or "the Act") applies to the transmission or sale at wholesale of electric energy in interstate commerce, see FPA 201(b)(1), 16 U.S.C. 824(b)(1) (1994), and FERC's jurisdiction extends over all facilities for such transmission or sale of electric energy. See id. As a result, FERC has jurisdiction over any "public utility," which the Act defines as any person who owns or operates facilities subject to FERC's jurisdiction. FPA 201(e), 16 U.S.C. 824(e) (1994).

In its application, APX asserted that it will not be a public utility under the FPA because it will not make sales for resale of electric power in interstate commerce or transmit electric energy therein, and will not own or operate any facilities subject to FERC's jurisdiction. Furthermore, APX stated that it will not take title to the electricity which is sold, will not exercise control over decisions by any market participant to purchase or sell electricity, and will not dictate prices at which a buyer or seller must transact. Rather, APX claimed, it will serve as an information management agent for buyers and sellers of electricity that choose to voluntarily trade using APX's services. Thus, APX's application put before FERC the question whether a new market institution that will operate as an electric power exchange is a public utility as defined in the Federal Power Act and is therefore subject to FERC's jurisdiction.

In the orders under review, FERC acknowledged that the archetypal "facilities" under the Act are power generating plants and transmission lines, but also recognized that the phrase "facilities ... for sale" has long been read broadly to include, among other intangibles, contracts used by resellers. See Automated Power Exchange, Inc., 82 FERC p 61,287 at p. 62,106 (1998) ("Hearing Order"); see also Hartford Elec. Light Co. v. FPC, 131 F.2d 953, 961 (2d Cir. 1942); Citizens Energy Corp., 35 FERC p 61,198 at p. 61,453 (1986). FERC recognized that APX does not own or operate either traditional physical facilities used to transmit power or paper facilities used to resell power. However, FERC had recognized a new kind of public utility in recent decisions concerning the California Power Exchange ("CalPX"), a state-created marketplace that operates in the geographic area in which APX seeks to compete. In its CalPX orders, FERC had construed the FPA's provision covering facilities for wholesale sale of electricity to include the operators of a power exchange if the operator exercises "effective control" over sales in the marketplace, Pacific Gas and Elec. Co. et al, 77 FERC p 61,204 at p. 61,805 (1996) ("First CalPX Order") or, alternatively, if the operator is an "integral part of the transactional chain."Southern Cal. Edison Co., 80 FERC p 61,262 at p. 61,946 (1997) ("Second CalPX Order").² FERC thus concluded that, like CalPX, APX also exercised "effective control" over sales in its market and was an "integral part of the transactional chain" because "APX will determine the market price at which energy will be sold, and [ ] it will take the combined actions of the seller and buyer participants as well as APX to effectuate wholesale sales." Hearing Order, 82 FERC at p. 62,108; see also Automated Power Exchange, Inc., 84 FERC p 61,020 at p. 61,085-86 (1998) ("Rehearing Order"). FERC rejected the argument that APX was more like the computerized bulletin board system over which FERC had disclaimed jurisdiction in Continental Power Exchange, 68 FERC p 61,235 (1994), noting that unlike APX's market, participants in Continental's system determined price through direct negotiation. See Hearing Order, 82 FERC at p. 62,108-09.Upon denying the petition for rehearing, FERC ordered APX to file a "detailed description and explanation of its services, including the calculation of market price, fees, and all relevant terms" as described in its order. Rehearing Order, 84 FERC at p. 61,089-91.

II.

To appreciate the substance of APX's challenges to the orders under review and FERC's reasoning, some background concerning changes in the electric power industry and how the APX market operates is needed.

At the end of the twentieth century, the wholesale electric power industry was undergoing a significant transformation. Beginning with Congress' decision to mandate that certain power generators be allowed to "wheel" power,³ the traditional monopoly structure of the power industry began breaking down, see Campaign for a Prosperous Georgia v. SEC, 149 F.3d 1282, 1284 (11th Cir. 1998), so that by the mid-1990s a wholesale market for low-cost power generated by a variety of power sellers had emerged and traditional vertically integrated utilities were competing for sales of power at wholesale. FERC, in response to enactment of the Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776, 290521 (1992), codified at 42 U.S.C. 13201-13556 (1994), promulgated Order No. 888, Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities, 61 Fed. Reg. 21,540 (1996), codified as revised at 18 C.F.R. Pts. 35 & 385 (1999),⁴ which "transformed the competitive environment." Louisiana Energy and Power Auth. v. FERC, 141 F.3d 364, 370 (D.C. Cir. 1998). As a result, FERC notes in it brief, the industry now consists of a variety of electric power sellers and power marketers, which purchase and resell power generated by others. APX seeks to market its services to participants in the electric power market in the western United States, of which California is the hub, consuming nearly half of the power generated in the entire region. As of 1997, approximately 100 entities traded power in the western market; furthermore, according to FERC, 650 entities in addition to the owners and operators of physical facilities have applied to act as middlemen (resellers) of power nationwide.⁵

Prior to the emergence of power exchanges, the industry had developed standardized power contracts covering five periods of time, ranging from power for the following month to power in the next hour.⁶ Of these, the most prevalent have been contracts formed in the spot market for next-day and hour-ahead power. According to APX's brief, beginning in the mid-1980s, buyers and sellers in both the long-term and spot markets found each other through power brokers or power marketers,⁷ a practice that made sense when the universe of potential buyers and sellers was small, and considerations other than price were at issue. The arrival of market-based rate authority, and open access tariffs has sparked an interest among industry participants to eschew brokers and marketers in favor of trading power in a marketplace, particularly in the spot market where transaction costs have come to be perceived as too high.

To spur development of such a marketplace, the California Public Utilities Commission ("CPUC") created the California Power Exchange. Buyers and sellers submit bids to CalPX, which ranks, evaluates, and matches the bids. Bids are phrased in terms of megawatt hours whereby participants offer to contract, for example, for power to be delivered during...