California ex rel. Lockyer v. F.E.R.C., No. 02-73093.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtThomas
Citation383 F.3d 1006
PartiesState of CALIFORNIA, ex rel. Bill Lockyer, Attorney General, Petitioner, Coral Power, LLC; Duke Energy North America, LLC; Duke Energy Trading And Marketing, LLC; Transcanada Energy Ltd.; City of Tacoma, Washington; Portland General Electric Company; Dynegy Power Marketing, Inc.; El Segundo Power LLC, Long Beach Generation LLC; Cabrillo Power I LLC; Cabrillo Power II LLC; Mirant Americas Energy Marketing LP; Mirant California, LLC; Mirant Delta, LLC; Mirant Potrero, LLC; Public Service Company of New Mexico; El Paso Merchant Energy LP; BP Energy Co.; Public Service Company of Colorado; Pinnacle West Capital Corporation; Arizona Public Service Co.; Pacificorp; Pacificorp Power Marketing, Inc.; Strategic Energy LLC, Intervenors, Morgan Stanley Capital Group, Inc., Respondent-Intervenor, AES Companies; Reliant Energy Services, Inc.; Enron Power Marketing, Inc.; Enron Energy Services, Inc., Intervenors, Powerex Corp.; Puget Sound Energy; Avista Energy, Inc.; Sempra Energy Trading Corp., Sempra Energy Solutions; Sempra Energy Resources, Respondents-Intervenors, California Public Utilities Commission, Petitioner-Intervenor, Williams Energy Marketing & Trading Company, Intervenor, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Avista Corporation, Intervenor, Long Beach Generation LLC, Respondent-Intervenor.
Docket NumberNo. 02-73093.
Decision Date09 September 2004
383 F.3d 1006
State of CALIFORNIA, ex rel. Bill Lockyer, Attorney General, Petitioner,
Coral Power, LLC; Duke Energy North America, LLC; Duke Energy Trading And Marketing, LLC; Transcanada Energy Ltd.; City of Tacoma, Washington; Portland General Electric Company; Dynegy Power Marketing, Inc.; El Segundo Power LLC, Long Beach Generation LLC; Cabrillo Power I LLC; Cabrillo Power II LLC; Mirant Americas Energy Marketing LP; Mirant California, LLC; Mirant Delta, LLC; Mirant Potrero, LLC; Public Service Company of New Mexico; El Paso Merchant Energy LP; BP Energy Co.; Public Service Company of Colorado; Pinnacle West Capital Corporation; Arizona Public Service Co.; Pacificorp; Pacificorp Power Marketing, Inc.; Strategic Energy LLC, Intervenors,
Morgan Stanley Capital Group, Inc., Respondent-Intervenor,
AES Companies; Reliant Energy Services, Inc.; Enron Power Marketing, Inc.; Enron Energy Services, Inc., Intervenors,
Powerex Corp.; Puget Sound Energy; Avista Energy, Inc.; Sempra Energy Trading Corp., Sempra Energy Solutions; Sempra Energy Resources, Respondents-Intervenors,
California Public Utilities Commission, Petitioner-Intervenor,
Williams Energy Marketing & Trading Company, Intervenor,
v.
FEDERAL ENERGY REGULATORY COMMISSION, Respondent,
Avista Corporation, Intervenor,

Page 1007

Long Beach Generation LLC, Respondent-Intervenor.
No. 02-73093.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted October 9, 2003.
Filed September 9, 2004.

Page 1008

Paul Stein, Ken Alex, Tom Greene, Richard Frank, Deputy Attorneys General, San Francisco and Sacramento, CA, for petitioner Bill Lockyer.

Beth G. Pacella, Dennis Lane, Cynthia A. Marlette, Federal Energy Regulatory Commission, Washington, D.C., for respondent Federal Energy Regulatory Commission.

Howard E. Shapiro, Gary D. Bachman, Cheryl Feik Ryan, Van Ness Feldman, P.C., and Kenneth W. Irvin, Beth S. Brinkmann, Lois K. Perrin, Morrison & Foerster, LLP, Washington, D.C., for intervenor Wholesale Power Suppliers.

Gary Cohen, Arocles Aguilar, Harvy Y. Morris, Elizabeth McQuillan, Michael Edson, San Francisco, CA, for amicus curiae California Public Utilities Commission.

On Petition for Review of an Order of the Federal Energy Regulatory Commission. No. FERC-EL02-71-000.

Before: THOMAS, McKEOWN, and CLIFTON, Circuit Judges.*

THOMAS, Circuit Judge:


This case presents the question, inter alia, of whether the Federal Energy Regulatory Commission ("FERC") properly authorized and administered market-based energy tariffs. The State of California ("California"), through its Attorney General, claims that it did not, and that California energy consumers are entitled to as much as $2.8 billion in refunds. We conclude that FERC's authorization of market-based tariffs in this case complied with the Federal Power Act, but that FERC abused its administrative discretion by declining to order refunds for violations of its reporting requirements. We therefore grant California's petition in part and remand this case to FERC for refund proceedings.

I

California's energy crisis in 1995 prompted the California Public Utilities Commission1 and the California legislature to restructure the electric energy industry. The resulting legislation, Assembly Bill 1890 ("AB 1890"), was designed to dismantle the investor-owned, government-regulated utility model and create a deregulated market in which price would be established by competition. Act of September 23, 1996, 1996 Cal. Legis. Serv. 854, codified in Cal. Pub. Util.Code §§ 330-398.5. Under AB 1890, the major investor-owned, vertically-integrated2 utilities

Page 1009

were required to divest a substantial portion of their power generation plants, to sell the output of their remaining generation capacity to a newly created wholesale clearinghouse known as the California Power Exchange Corporation ("CalPX"). CalPX, which was created by AB 1890, was to provide a centralized auction market for the trading of electricity. It was thus deemed a public utility pursuant to the Federal Power Act, see 16 U.S.C. § 824(e), and thus subject to regulation by FERC, see 16 U.S.C. § 824(b), (d).3

AB 1890 created another non-profit entity, the Independent System Operator ("ISO"), also subject to FERC jurisdiction, which was to be responsible for managing California's electricity transmission grid and balancing electrical supply and demand. Its operations were to be governed by a tariff and protocols filed with FERC. Under AB 1890, purchases and sales of wholesale power by investor-owned utilities were now subject to FERC jurisdiction. So. Cal. Edison, 307 F.3d at 801.

Thereafter, three major investor-owned utilities filed applications with FERC seeking approval of the establishment of CalPX and the ISO, authority to convey operational control of the transmission facilities to the ISO, and authority to sell electrical energy at market based rates. See Pacific Gas and Electric Co., 77 FERC ¶ 61,265 (1996); Pacific Gas and Electric Co., 77 FERC ¶ 61,204 (1996); Pacific Gas and Electric Co., 77 FERC ¶ 61,077 (1996).

A condition of FERC's approval of an entity's market-based rate authority was a FERC determination that the entity lacked, or had adequately mitigated market power in the California markets. FERC conducted these inquiries as a means of carrying out its statutory mandate under the Federal Power Act to ensure "just and reasonable" wholesale rates for electricity. 16 U.S.C. § 824d(a). FERC approved the utilities' requests, and granted permission for the utilities to sell electricity at market-based rates in California. FERC also approved the establishment of the ISO and CalPX, which then commenced operations in late March 1998. See generally Pacific Gas and Electric Co., 81 FERC ¶ 61,122 (1997).

In June 2000, wholesale electricity prices increased dramatically. In August, San Diego Gas & Electric Company filed a complaint under § 206 of the Federal Power Act ("FPA"), 16 U.S.C. § 824e(a), against all sellers of energy and ancillary services into the CalPX and ISO markets. In response, FERC instituted hearing procedures under FPA § 206 to investigate the justness and reasonableness of the rates of sellers that were subject to FERC jurisdiction into the ISO and CalPX markets.

Electricity prices remained at high levels in the winter of 2001, and California's largest utility, Pacific Gas and Electric Company, filed a voluntary petition in bankruptcy under Chapter 11 of the United

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States Bankruptcy Code. In January of 2001, the Governor of the State of California declared a state of emergency. Pursuant to that order, and in light of rolling blackouts, the Governor directed the State Department of Water Resources ("DWR") to purchase wholesale power on the spot market. By October of 2001, California Energy Resources Scheduler ("CERS"), a division of DWR, had spent approximately $10 billion buying energy on the spot market.

In November of 2000, having reviewed San Diego Gas & Electric's complaint, FERC adopted several reform measures. FERC found that the "California market structure provide[d] the opportunity for sellers to exercise market power" in times of tight supply and that such market power could result in "unjust and unreasonable rates." San Diego Gas & Electric Co. v. Sellers of Energy and Ancillary Services into Markets Operated by the California Independent System Operator and the California Power Exchange, 93 FERC ¶ 61,121 (2000). In addition to ordering structural and rule changes, FERC ordered an evidentiary hearing to determine the appropriate refund. However, FERC limited the refund to ISO and CalPX spot market transactions during the period from October 2, 2000 through June 20, 2001.

A year later, the State of California filed the instant complaint against all sellers of power and ancillary services subject to FERC jurisdiction in markets operated by the ISO and CalPX and sellers of power to CERS (collectively, "California Wholesalers"), alleging that FERC's market-based rate filing requirements violated the FPA and that, even if valid, the reports filed by electricity sellers did not contain the transaction-specific information the FPA requires. California claimed that FERC's improper decision to limit the refund period reduced the refunds owed to California purchasers by as much as $2.8 billion.

In order to remedy the alleged violations, California urged FERC to:

1) require the California Wholesalers to comply, on a prospective basis, with Section 205 rate-filing requirements;

2) to the extent the information [was] not already being provided... require the California Wholesalers to provide transaction-specific information to FERC on all of their short-term sales to the ISO, CalPX and CERS for the calendar years 2000-2001;

3) to the extent that any rates for short-term power sold to the ISO, CalPX, or CERS are found to exceed just and reasonable levels, require the California Wholesalers to refund the difference between the rate charged and a just and reasonable rate, plus interest;

4) issue a declaration specifying that the rates for short-term power sold to the ISO, CalPX, and CERS are not subject to the filed rate doctrine; and

5) institute proceedings to determine whether any other further relief is necessary or appropriate, up to and including the revocation of the California Wholesalers' market based rate authority.

The California Wholesalers contended, and FERC ultimately concluded, that California's complaint amounted to an impermissible collateral attack on prior Commission orders pertaining to FERC's market-based rate authority and procedures, on prior FERC determinations regarding refund liability, and as to FERC's decisions to grant the various defendants their respective market-based rate authority. FERC granted the complaint in part, holding that where the California Wholesalers had reported aggregated rather than transaction-specific data, the reports failed to comply...

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59 practice notes
  • Part II
    • United States
    • Federal Register May 07, 2008
    • May 7, 2008
    ...data reflecting conditions after the contracts expire.\167\ \165\ NRECA Rehearing Request at 3, 21 (citing Cal. ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004) (Lockyer); 5 U.S.C. 706(2)(A), \166\ Id. at 21 (citing Mo. Pub. Serv. Comm'n v. FERC, 337 F.3d 1066, 1075 (D.C. Cir. 2003) (......
  • Burns v. City of Seattle, No. 78449-3.
    • United States
    • United States State Supreme Court of Washington
    • August 2, 2007
    ...industry: the generation, transmission, and distribution of electrical energy. See Cal. ex rel. Lockyer v. Fed. Energy Regulatory Comm'n, 383 F.3d 1006 (9th Cir.2004) (explaining principles in context of California's deregulation of the power industry) (cert. denied sub nom. Coral Power, L.......
  • In re Wholesale Elec. Anttrust Cases, No. D047697.
    • United States
    • California Court of Appeals
    • February 26, 2007
    ...is central to FERC's operations, we may nevertheless discuss them separately. (California ex rel. Lockyer v. F.E.R.C. (9th Cir.2004) 383 F.3d 1006, 1011 (Lockyer).) The reason is that the historic filed rate doctrine is undergoing fast-paced evolution in the context of energy deregulation, ......
  • Sierra Club v. Bosworth, No. 05-16989.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • December 5, 2007
    ...Council v. Nat'l Marine Fisheries Serv., 421 F.3d 872, 877-78 (9th Cir. 2005); Cal. ex. rel. Lockyer v. Fed. Energy Regulatory Comm'n, 383 F.3d 1006, 1011-13 (9th Cir.2004); Envtl. Def. Ctr., Inc. v. U.S. Envtl. Prot. Agency, 344 F.3d 832, 854-55 (9th Cir.2003); see also Babbitt v. Sweet Ho......
  • Request a trial to view additional results
57 cases
  • Burns v. City of Seattle, No. 78449-3.
    • United States
    • United States State Supreme Court of Washington
    • August 2, 2007
    ...industry: the generation, transmission, and distribution of electrical energy. See Cal. ex rel. Lockyer v. Fed. Energy Regulatory Comm'n, 383 F.3d 1006 (9th Cir.2004) (explaining principles in context of California's deregulation of the power industry) (cert. denied sub nom. Coral Power, L.......
  • In re Wholesale Elec. Anttrust Cases, No. D047697.
    • United States
    • California Court of Appeals
    • February 26, 2007
    ...is central to FERC's operations, we may nevertheless discuss them separately. (California ex rel. Lockyer v. F.E.R.C. (9th Cir.2004) 383 F.3d 1006, 1011 (Lockyer).) The reason is that the historic filed rate doctrine is undergoing fast-paced evolution in the context of energy deregulation, ......
  • Sierra Club v. Bosworth, No. 05-16989.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • December 5, 2007
    ...Council v. Nat'l Marine Fisheries Serv., 421 F.3d 872, 877-78 (9th Cir. 2005); Cal. ex. rel. Lockyer v. Fed. Energy Regulatory Comm'n, 383 F.3d 1006, 1011-13 (9th Cir.2004); Envtl. Def. Ctr., Inc. v. U.S. Envtl. Prot. Agency, 344 F.3d 832, 854-55 (9th Cir.2003); see also Babbitt v. Sweet Ho......
  • California Dept. of Water v. Powerex Corp., No. 06-15285.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • July 22, 2008
    ...v. FERC, 464 F.3d 861 (9th Cir.2006); Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir.2005); California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2. From mid-January 2001 until February 1, 2001, DWR was authorized to purchase power under statutorily-granted emergency authority......
  • Request a trial to view additional results

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