Public Utility v. Dynegy Power Marketing, No. 03-55191.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Schroeder
• Citation: 384 F.3d 756
• Parties: PUBLIC UTILITY DISTRICT NO. 1 OF SNOHOMISH COUNTY, a municipal corporation in the State of Washington, Plaintiff-Appellant, v. DYNEGY POWER MARKETING, INC.; Reliant Energy Services, Inc.; Sempra Energy Trading Corp.; Sempra Energy Resources; Mirant Corporation; William Energy Marketing & Trading Company; Powerex Corporation; XCEL Energy, Inc.; NRG Energy, Inc.; Cabrillo Power I, LLC; Cabrillo Power II, LLC; El Segundo Power LLC; Long Beach Generation, LLC; PG & E Energy Trading Holding Corporation; Duke Energy Trading and Marketing LLC, Defendants-Appellees.
• Docket Number: No. 03-55191.
• Decision Date: 10 September 2004

384 F.3d 756 PUBLIC UTILITY DISTRICT NO. 1 OF SNOHOMISH COUNTY, a municipal corporation in the State of Washington, Plaintiff-Appellant,
v.
DYNEGY POWER MARKETING, INC.; Reliant Energy Services, Inc.; Sempra Energy Trading Corp.; Sempra Energy Resources; Mirant Corporation; William Energy Marketing & Trading Company; Powerex Corporation; XCEL Energy, Inc.; NRG Energy,

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Inc.; Cabrillo Power I, LLC; Cabrillo Power II, LLC; El Segundo Power LLC; Long Beach Generation, LLC; PG & E Energy Trading Holding Corporation; Duke Energy Trading and Marketing LLC, Defendants-Appellees. No. 03-55191. United States Court of Appeals, Ninth Circuit. Argued and Submitted June 14, 2004. Filed September 10, 2004.

Steve W. Berman and Sean R. Matt, Hagens Berman LLP, Seattle, WA, for the plaintiff-appellant.

Terry J. Houlihan and Nora Cregan, Bingham McCutchen LLP, San Francisco, CA, Joel B. Kleinman, Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C., John M. Grenfell, Pillsbury Winthrop LLP, Peter H. Benzian, Latham & Watkins LLP, Jeffrey M. Shohet, Gray, Cary, Ware & Freidenrich, LLP, San Diego, CA, Theodore Spanos, Morgan, Lewis & Bockius, LLP, Bryan A. Merryman, White & Case LLP, Los Angeles, CA, J. Clifford Gunter, III, and Andrew Edison, Bracewell & Patterson LLP, Houston, TX, Douglas M. Butz, Butz Dunn Desantis & Bingham, San Diego, CA, Carlton A. Varner,

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Timothy B. Taylor, Sheppard, Mullin, Richter & Hampton LLP, San Diego, CA, for the defendants-appellees.

Colin A. Yost, Asssistant Attorney General — Oregon, Salem, OR, and Ken Alex, Deputy Attorney General — California, San Francisco, CA, for Amici Curiae.

Appeal from the United States District Court for the Southern District of California, Robert H. Whaley, District Judge, Presiding. D.C. No. CV-02-01993-RHW.

Before: SCHROEDER, Chief Judge, CANBY, and TALLMAN, Circuit Judges.

SCHROEDER, Chief Judge:

This litigation arises out of the California Energy Crisis of 2000-01, when shortages of power and high electricity prices caused blackouts and general turmoil in the electricity markets of the west coast. In this case, Public Utility District No. 1 of Snohomish County, Washington ("Snohomish"), a utility providing electricity to consumers in Washington state, has sued various generators and traders of wholesale electricity for violations of California state antitrust and consumer protection laws. Snohomish charges that the defendants manipulated the market and restricted electricity supplies in order to cause artificially high prices in the market from which Snohomish purchased power. Snohomish seeks treble damages and injunctive relief.

The district court held that the claims were preempted by federal law, which authorizes the Federal Energy Regulatory Commission ("FERC") to set wholesale electricity rates. Snohomish appeals, contending that FERC's policy of setting rates in accordance with market forces amounts to an abdication of rate making. Because FERC has exclusive jurisdiction over interstate sales of wholesale electricity, and continues to engage in regulatory activity, we affirm. See California v. Dynegy, Inc., 375 F.3d 831, 850-853 (9th Cir.2004); Pub. Utility Dist. No. 1 of Grays Harbor County Washington v. Idacorp, Inc., ___ F.3d ___, ___ (9th Cir. Aug. 10, 2004), Slip Op. at 10911-10919.

BACKGROUND

Before 1996, FERC reviewed electricity rates that were cost-based. The primary factor in setting the rate was the cost of producing and transmitting the electricity. Power suppliers proposed rates by adding up their costs and accounting for an expected rate of return. FERC reviewed and approved tariffs that contained detailed breakdowns of costs and specified rates of return. See 18 C.F.R. § 35.1(a) (requiring utilities to file "rate schedules"); 18 C.F.R. § 35.2(b) (defining what information must be included in a "rate schedule"); 18 C.F.R. § 35.13(h)(22) (requiring utilities to state their expected rate of return). Utilities were also required to give a thorough explanation of "how the proposed rate or charge was derived." 18 C.F.R. § 35.12(b)(2)(i). These rate schedules had to be filed at least 60 days before the utility could charge the requested rate, and the rate could be implemented only after FERC approved it. See 18 C.F.R. §§ 35.2(e), 35.3(a). After a rate was approved, a utility could charge only the filed rate until a request to change the rate was submitted and approved by FERC. 16 U.S.C. § 824d(d); 18 C.F.R. § 35.13.

In 1996, California changed this cost-based system of setting wholesale electricity rates to a market-based system, where the rate was determined in a structured market. The California legislature passed Assembly Bill 1890, Cal. Pub. Util.Code § 330 et seq., in an effort to reduce the price of electricity by replacing cost-based rate regulation with rates that were determined

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by competitive forces. See California v. Dynegy, Inc., 375 F.3d at 835; Duke Energy Trading & Mktg., L.L.C. v. Davis, 267 F.3d 1042, 1045 (9th Cir.2001). The legislation created two non-governmental entities to operate markets and otherwise manage the sale of electricity: the California Power Exchange ("PX") and the California Independent System Operator ("ISO"). These entities were subject to FERC's regulation. Dynegy, Slip Op. at 8836.

The PX operated a market for the purchase and sale of electricity in the "day-ahead" and "day-of" markets. The price in these markets was set by evaluating bids submitted by market participants. A seller could submit a series of bids that consisted of price-quantity pairs representing offers to sell (e.g. 5 units at $50 each, but 10 units if the price is $100 each). Similarly, a buyer could submit a series of bids that consisted of price-quantity pairs representing offers to buy. The PX would then establish aggregate supply and demand curves and set the "market clearing price" at the intersection of the two curves. Then every exchange would take place at the market clearing price, even though some buyers had been willing to pay more and some sellers had been willing to sell for less.

The ISO managed the transmission network, managing imbalances between supply and demand and maintaining the reliability of the transmission grid. As part of these responsibilities, it operated a...