California ex rel. Harris v. Fed. Energy Regulatory Comm'n
| Decision Date | 29 April 2015 |
| Docket Number | No. 12–71958.,12–71958. |
| Citation | 784 F.3d 1267 |
| Parties | The People of the State of CALIFORNIA, ex rel. Kamala D. HARRIS, Attorney General; Public Utilities Commission of the State of California; Pacific Gas & Electric Company; Southern California Edison, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Shell Energy North America (US), L.P.; TransCanada Energy Ltd.; MPS Merchant Services, Inc. ; MIECO, Inc.; Hafslund Energy Trading LLC ; Merrill Lynch Capital Services, Inc.; Koch Energy Trading, Inc. ; Illinova Corporation; Commerce Energy Inc.; Allegheny Energy Supply Company LLC, Respondents–Intervenors. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Kevin J. McKeon (argued), Judith D. Cassel, and Whitney E. Snyder, Hawke McKeon & Sniscak LLP, Harrisburg, PA; Kamala D. Harris, Attorney General of California, Mark Breckler, Chief Assistant Attorney General, and Martin Goyette, Senior Assistant Attorney General, San Francisco, CA; David M. Gustafson, Deputy Attorney General, Oakland, CA, for Petitioner.
Frank R. Lindh, Sarah R. Thomas, Christopher E. Clay, Candace J. Morey, and Charlyn A. Hook, Public Utilities Commission of the State of California, San Francisco, CA, for Petitioner Public Utilities Commission of the State of California.
Richard L. Roberts and Catherine M. Giovannoni, Steptoe & Johnson LLP, Washington, D.C.; Russell C. Swartz, J. Eric Isken, and Russell Archer, Southern California Edison Co., Rosemead, CA, for Petitioner Southern California Edison Company.
Stan Berman, Eric Todderud, and Heather Curlee, Sidley Austin LLP, Seattle, WA; Mark D. Patrizio and Joshua Levenberg, Pacific Gas and Electric Co., San Francisco, CA, for Petitioner Pacific Gas and Electric Company.
Beth G. Pacella (argued), Senior Attorney, David L. Morenoff, Acting General Counsel, and Robert H. Solomon, Solicitor, Federal Energy Regulatory Commission, Washington, D.C., for Respondent.
David C. Frederick (argued), Scott H. Angstreich, and Brendan J. Crimmins, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Respondents–Intervenors Shell Energy
North America (US), L.P., TransCanada Energy Ltd., MPS Merchant Services, Inc., MIECO, Inc., Hafslund Energy Trading LLC, Merrill Lynch Capital Services, Inc., Koch Energy Trading, Inc., Illinova Corporation, Commerce Energy Inc., and Allegheny Energy Supply Company LLC.
Jeffrey D. Watkiss, McDermott Will & Emery LLP, Washington, D.C., for Respondent–Intervenor Shell Energy North America (US), L.P.
Kenneth L. Wiseman, Mark F. Sundback, William M. Rappolt, and Allison E. Hellreich, Andrews Kurth LLP, Washington, D.C., for Respondent–Intervenor TransCanada Energy Ltd.
John N. Estes III and Karis Anne Gong, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, D.C., for Respondents–Intervenors MPS Merchant Services, Inc. and Illinova Corporation.
Steven A. Weiler and Robert C. Fallon, Stinson Leonard Street LLP, Washington, D.C., for Respondent–Intervenor MIECO, Inc.
Stephen Angle and Damien R. Lyster, Vinson & Elkins L.L.P., Washington, D.C., for Respondent–Intervenor Hafslund Energy Trading LLC.
Catherine M. Krupka and Alexandra D. Konieczny, Sutherland Asbill & Brennan LLP, Washington, D.C., for Respondents–Intervenors Merrill Lynch Capital Services, Inc. and Commerce Energy Inc.
William E. Schroeder and Aliya M. McLendon, Sullivan & Cromwell, LLP, New York, N.Y., for Respondent–Intervenor Koch Energy Trading, Inc.
Gordon A. Coffee and Steffen N. Johnson, Winston & Strawn LLP, Washington, D.C., for Respondent–Intervenor Allegheny Energy Supply Company LLC.
On Petition for Review of an Order of the Federal Energy Regulatory Commission. FERC No. EL02–71–036.
Before: SIDNEY R. THOMAS, Chief Judge and M. MARGARET McKEOWN and RICHARD R. CLIFTON, Circuit Judges.
Petitioners, the people of the state of California through their Attorney General Kamala D. Harris, the California Public Utilities Commission, Pacific Gas & Electric Company, and Southern California Edison (“the California Parties”), seek review of a series of orders issued by the Federal Energy Regulatory Commission (“FERC” or “the Commission”) on remand following our decision in California ex rel. Lockyer v. FERC (“Lockyer ”), 383 F.3d 1006 (9th Cir.2004). There, we held that FERC may authorize market-based energy tariffs, so long as that regulatory framework incorporates both an ex ante market power analysis and enforceable post-approval transaction reporting. Id. at 1014. We remanded the case because FERC had not appropriately implemented the market-based tariff. Id. at 1015.
In this case, the California Parties petition for review of FERC's actions after our remand, claiming that FERC failed to follow Lockyer and violated the Federal Power Act (“FPA”) by requiring proof of excessive market share as a necessary condition for relief for transaction reporting violations.
We conclude that FERC structured the remand proceedings in a manner contrary to the terms of our Lockyer decision. Enforceable transaction reporting is a necessary ingredient of a lawful market-based tariff. Id. By insisting on proof of market concentration under its hub-and-spoke test as a precondition to any relief for reporting deficiencies, FERC omitted a necessary component of the market-based tariff approved in Lockyer. Reliance on the hub-and-spoke market share measure alone immunizes sellers from any consequence for failure to report market transactions and ignores the agency's statutory charge under § 205 of the FPA: to determine whether sellers charged a “just and reasonable” rate. 16 U.S.C. § 824d(a). We therefore grant the petition for judicial review and remand to the agency for further proceedings.
The essence of the California Parties' complaint is presented in some detail at the outset of our Lockyer decision. See 383 F.3d at 1008–11. A summary of our Lockyer decision and an exposition of events that transpired before FERC on remand follows.
In Lockyer, we denied the California Parties' facial challenge to market-based ratemaking. Id. at 1013. We held that the agency's segmented approach, which requires an ex ante finding of an absence of market power coupled with regular transaction reports, does not per se violate the FPA. Id. at 1012–13. However, we granted the California Parties' as-applied challenge, holding that FERC's enforcement and review of market-based rates during the 2000–01 California energy crisis was unlawful. Id. at 1014. We held that FERC abdicated its regulatory responsibility by summarily dismissing electricity wholesalers' failure to comply with reporting requirements. Id. at 1014–15. “[B]ecause the reporting requirements [are] an integral part of a market-based tariff that ... pass[es] legal muster, FERC cannot dismiss the requirements as mere punctilio.” Id. at 1015. We remanded to FERC to reconsider the California Parties' claim for a refund of the amount sellers charged in excess of just and reasonable rates during the crisis. Id. at 1018.
California ex rel. Lockyer v. B.C. Power Exch. Corp.1 (“Mar. 21, 2008 Order”), 122 FERC ¶ 61,260, 62,504–05 (Mar. 21, 2008). FERC defined the threshold issue for the ALJ proceeding as whether sellers accumulated market power and set parameters for the ALJ to use in conducting that inquiry. Id. at 62,505–06. Specifically, FERC limited the market power assessment to whether a seller, under the hub-and-spoke test, “did or did not gain an increased generation market share sufficient to give it the ability to exercise market power and cause market-based rates to be unjust and unreasonable as a result.”2
Id. at 62,505. Other claims of tariff violations, such as gaming and anomalous bidding behavior, were off the table. Id. at 62,505 n. 65. The Commission reserved determination of the remedy for violations by each particular seller, if any. Id. at 62,505.
The California Parties urged FERC to reconsider its definition of the objective of the ALJ proceeding, claiming that the Commission's decision to focus on identifying sellers' market power based on market share levels stood contrary to the FPA, our remand instructions in Lockyer, and agency precedent. See Oct. 6, 2008 Order, 125 FERC ¶ 61,016, 61,040. The state claimed that FERC's initial order on remand unjustifiably collapsed the two-tiered approach approved in Lockyer by conflating the ex ante market power determination and the ex post reporting requirement. Id. It identified FERC decisions holding that the purpose of market-based rate quarterly transaction reporting is to meet the filed rate requirements of the FPA, evaluate the reasonableness of rates, and monitor sellers' market power on an ongoing basis. Id. Furthermore, the California Parties argued that the hub-and-spoke test prescribed by the agency was an inadequate screen for market power. Id.
FERC denied rehearing. Id. The Commission declared the state's claims an impermissible collateral attack on the market power analysis FERC used at the time of the transactions and explained that the purpose of market-based quarterly reports “is not to re-run the Commission's market power screens, but rather ... to monitor and evaluate market concentration on an ongoing basis.” Id. at 61,040–41. FERC rejected the state's suggestion that the hub-and-spoke test was an inappropriate screen for market power, claiming that it must use only those standards in effect at the time of the reviewed transactions. Id. at 61,041–42.
The California Parties also argued that FERC erred in its March 21, 2008 Order by excluding evidence of other tariff...
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