In Re: CA. Power Exchange Corp.
| Decision Date | 11 April 2001 |
| Docket Number | Nos. 00-71701,s. 00-71701 |
| Citation | 245 F.3d 1110 |
| Parties | (9th Cir. 2001) In re: CALIFORNIA POWER EXCHANGE CORPORATION CALIFORNIA POWER EXCHANGE CORPORATION, Petitioner, PACIFIC GAS AND ELECTRIC COMPANY; WESTERN POWER TRADING FORUM; NEW YORK MERCANTILE EXCHANGE; AUTOMATED POWER EXCHANGE, INC.; SOUTHERN ENERGY CALIFORNIA, LLC; SOUTHERN ENERGY POTRERO, LLC; SOUTHERN ENERGY DELTA, LLC; SAN DIEGO GAS AND ELECTRIC COMPANY; INDUSTRIAL CUSTOMERS OF NORTHWEST UTILITIES, Intervenors, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. CITY OF SAN DIEGO, Petitioner, SOUTHERN ENERGY CALIFORNIA, LLC; SOUTHERN ENERGY POTRERO, LLC; MODESTO IRRIGATION DISTRICT (MID); CITY OF REDDING, California; CITY OF SANTA CLARA, California; SOUTHERN ENERGY DELTA, LLC; COUNTY OF SAN DIEGO, Intervenors, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. <A HREF="#fr1-*" name="fn1-*">* , 01-70031, |
| Court | U.S. Court of Appeals — Ninth Circuit |
[Copyrighted Material Omitted] Carmen L. Gentile (argued) and James H. McGrew, Bruder, Gentile & Marcoux, LLP, for Petitioner California Power Exchange Corporation. Randolph Lee Elliott, Miller, Balis & O'Neil, P.C., Washington, D.C., for Petitioner City of San Diego. Dennis Lane (argued), Federal Energy Regulatory Commission, Washington, D.C., for Respondent.
Petitions for Writs of Mandamus to the Federal Energy Regulatory Commission
Before: Diarmuid F. O'Scannlain, Andrew J. Kleinfeld and Richard C. Tallman, Circuit Judges
We must decide whether a California municipality and a California public utility which operates an auction for trading electricity are entitled to extraordinary relief from nonfinal orders of the Federal Energy Regulatory Commission addressing the crisis surrounding California's restructuring of its electricity market.
In 1996, the California legislature embarked upon a major restructuring of the California power industry with the passage of Assembly Bill 1890 ("AB 1890" or "Electricity Restructuring Act"). Act of September 23, 1996, 1996 Cal. Legis. Serv. 854 (A.B. 1890) (West). Several features of this complex legislation and the decisions of the California Public Utilities Commission ("CPUC") implementing the restructuring are relevant to the petitions before us.
First, AB 1890 provided for the creation of the California Power Exchange ("CalPX"), a nonprofit entity that would provide an auction market for the trading of electricity. Electricity Restructuring Act § 1(c). CalPX commenced operations in March 1998. Initially, it operated only a single-price auction for day-ahead and day-of electricity trading (the "CalPX spot markets" or the "CalPX Core markets"). CalPX would determine, on an hourly basis, a single market clearing price which all electricity suppliers would be paid based on short term demand and supply bids submitted by CalPX participants. In the summer of 1999, CalPX opened its CalPX Trading Services ("CTS") division to operate a block forward market by matching supply and demand bids for long term electricity contracts ("CTS forwards market"). The CalPX is deemed a public utility under the Federal Power Act ("FPA"); hence, it is subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") and operates pursuant to a FERC-approved tariff and FERC wholesale rate schedules.1 Pacific Gas & Electric Co., 77 FERC ¶ 61,204, at 61,803-05 (November 26, 1996), reh'g denied, 81 FERC ¶ 61,122 (1997).
California's restructuring plan called for the electricity generation assets of the state's three main investor-owned utilities ("IOUs"), San Diego Gas and Electric Company ("SDG&E"), Southern California Edison ("SCE"), and Pacific Gas and Electric Company ("PG&E"), to undergo a process of market valuation, which resulted in the IOUs' divestiture of a substantial portion of their electricity generation facilities. Order Instituting Rulemaking on Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation (Cal. Pub. Util. Comm'n Decision 95-12-063), 1995 WL 792086, at *49 et seq., 64 Cal. P.U.C. 2d 1 (Dec 20, 1995). In turn, for a transition period, the IOUs were required to sell all of their remaining generation capacity into, and to purchase all of their required electricity supply from, the CalPX spot markets, and such purchases were deemed to be "prudent per se" by the CPUC. Id., 1995 WL 792086, at *26-*27; Pacific Gas & Elec. Co., 77 FERC ¶ 61,204, at 61,804; San Diego Gas & Elec. Co., 93 FERC ¶ 61,294, at 62,000-01 (Dec. 15, 2000), reh'g pending (the "December 15 Order"). (We henceforth refer to this obligation as the "buy/sell requirement.")
In 1999, the CPUC permitted the IOUs to purchase a limited percentage of their combined load in the CTS forward contract market; the balance of their load was to be purchased in the CalPX spot market. But CalPX was to continue to operate as the exclusive market for the IOUs' electricity needs and its spot markets would continue to provide the benchmark for the CPUC's prudence review. See Act of July 10, 2000, 2000 Cal. Legis. Serv. 127 (A.B. 2866) (West), codified at Cal. Pub. Util. Code § 355.1, repealed by Act of February 1, 2001, 2001 Cal. Legis. Serv. 1st Ex. Sess. 4 (A.B. 1) (West); Opinion Regarding Bilateral Contracts (Cal. Pub. Util. Comm'n Decision 00-09-075), 2000 WL 1914013, at *3-*4 (Sept. 21, 2000).
AB 1890 also called for the creation of the California Independent System Operator ("Cal-ISO"), a nonprofit entity charged with managing the state's electricity transmission grid. Electricity Restructuring Act § 1(c). As manager of the grid, the Cal-ISO also operates a real time imbalance energy market to ensure that electricity supply meets demand at the time of delivery.
Finally, AB 1890 provided that the deregulation of the California power industry would proceed in several phases. The deregulation of the wholesale market-or, more properly, the partial deregulation of the wholesale market, considering that the IOUs' wholesale purchases were constrained by the buy/sell requirement, the CPUC's limitations on forward contracting, and the CalPX monopolywas the first phase of the scheme. Deregulation of the retail market was to come later. AB 1890 provided for a ten percent retail rate reduction for certain customers and a retail rate cap through 2002, or until the IOUs recovered their stranded costs, whichever came first. Electricity Restructuring Act § 1(b)(2), (e).
The summer of 2000 witnessed significant increases in the wholesale price of electricity. Prices in the CalPX spot markets spiked particularly sharply.2 San Diego Gas & Electric Co., 93 FERC ¶ 61,121, at 61,353 (Nov. 1, 2000) (the "November 1 Order"). Retail rates for SDG&E customers rose 200 to 300 percent, while PG&E and SCE, which were still subject to the AB 1890 rate freeze, incurred billions of dollars of debt because they were unable to pass their wholesale power costs onto their customers.3 See id. In addition, the Cal-ISO declared 39 system emergencies during the course of the summer. See id.
A series of FERC proceedings followed, culminating in several orders directly relevant to the petitions before us. In its November 1 Order, FERC specifically found that, under certain conditions, short-term wholesale power rates in the California market were "unjust and unreasonable" within the meaning of § 206(a) of the FPA, 16 U.S.C. § 824e(a). 93 FERC ¶ 61,121, at 61,349, 61,366, 61,370. While observing that certain external factors, such as an increase in natural gas costs and a general electricity supply shortage, contributed to the summer 2000 wholesale electricity price spikes, id. at 61,366, n.79, FERC concluded that the electricity market structure and market rules devised by California's restructuring plan were "seriously flawed" and a significant cause of the unjust and unreasonable short-term rates in California, id. at 61,349. Further, FERC found "clear evidence" that California's market rules and structures provided electricity wholesale sellers the opportunity to exercise market power during periods of tight supply, although there was insufficient evidence at the time for FERC to come to definitive conclusions concerning the actions of individual sellers. Id. at 61,350.
The central structural flaw of the California restructuring plan, according to FERC, was its over-reliance on the spot market. The CPUC's mandatory buy/sell requirement, which forced the IOUs to sell all of their generation capacity into, and to purchase all of their electricity supply needs from, CalPX, coupled with the CPUC's limitations on the IOUs' forward contracting, exposed the IOUs to volatile spot market price spikes and prevented them from managing their risks more effectively through long-term contracting. Id. at 61,359-62. Over-reliance on the spot market also exposed the IOUs to the possible exercise of market power in the CalPX by wholesale sellers during periods of short supply. Finally, CPUC limitations on long-term contracting in favor of the CalPX day-ahead and day-of markets produced a chronic underscheduling of electricity supplies, turning the Cal-ISO's real time imbalance energy market, the market of last resort, into a significant market participant by forcing the Cal-ISO to make last minute purchases for up to 15 percent of total statewide electricity needsfar in excess of the maximum five percent total statewide load which the Cal-ISO's imbalance market was originally intended to handle. 93 FERC ¶ 61,294, at 61,995.
In its December 15 Order, FERC adopted a number of remedies to address these flaws in the California electricity market rules and structures. First, and most importantly, it eliminated the CalPX buy/sell requirement. FERC stated that "eliminating any mandated reliance on the spot market represents the single most important aspect of wholesale market reform and is one of the most critical...
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