The opinion
Notice: This opinion is subject to formal revision before publication in the
Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify
the Clerk of any formal errors in order that corrections may be made
before the bound volumes go to press.
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 17, 2004 Decided June 22, 2004
No. 02-1287
CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION,
PETITIONER
v.
FEDERAL ENERGY REGULATORY COMMISSION,
RESPONDENT
DUKE ENERGY NORTH AMERICA, LLC, ET AL.,
INTERVENORS
Consolidated with
02-1318, 02-1333, 02-1345, 02-1350
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Louis R. Cohen argued the cause for petitioner California
Independent System Operator Corporation. With him on the
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
briefs were Jonathan J. Frankel, IJay Palansky, and Antho-
ny J. Ivancovich. Michael F. Ruggio, Sheila S. Hollis,
Stephen L. Teichler, and William R. Mapes, Jr. entered
appearances.
Sean H. Gallagher argued the cause for petitioners Public
Utilities Commission of the State of California, et al. With
him on the briefs were Arocles Aguilar, Elizabeth M.
McQuillan, Erik N. Saltmarsh, and Erin R. Koch–Goodman.
Dennis Lane, Solicitor, Federal Energy Regulatory Com-
mission, argued the cause for respondent. With him on the
brief were Cynthia A. Marlette, General Counsel, and Lona
T. Perry, Attorney. Robert H. Solomon, Attorney, entered
an appearance.
Randolph Q. McManus, Melissa E. Maxwell, Debra Rag-
gio Bolton, Mark L. Perlis, John N. Estes III, Robert Camp-
bell McDiarmid, and Lisa G. Dowden. Daniel I. Davidson,
Donna M. Sauter and Michael A. Yuffee entered appear-
ances.
Before: EDWARDS, SENTELLE and ROGERS, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: California Independent System
Operator Corporation (‘‘CAISO’’), a ‘‘public benefit corpora-
tion,’’ along with two state agencies of California, petition this
court for review of a final order of the Federal Energy
Regulatory Commission (‘‘FERC’’) purporting to replace the
governing board of CAISO, chosen according to a method
dictated by California statute, with a new board chosen
through a method dictated by FERC. Because we agree
with the petitioners that FERC has no authority to make or
enforce such an order, we grant the petition and vacate the
order under review.
BACKGROUND
Until very recently, vertically integrated electric utilities
sold generation, transmission, and distribution services as a
3
single bundled package. Changes in regulatory laws and
technological advances have led to increased entry into the
wholesale electric power generation markets. Because the
transmission market has remained restricted and difficult to
enter, utilities owning or controlling transmission facilities
have enjoyed a natural monopoly which they could exploit to
favor their own generation and exclude or burden their
competitors. See Transmission Access Policy Study Group,
et al. v. FERC, 225 F.3d 667, 683–84 (D.C. Cir. 2000) (per
curiam) (‘‘TAPS’’), aff’d sub nom., New York v. FERC, 535
U.S. 1 (2002). In the orders under review in TAPS, FERC
found that the vertically integrated utilities were using their
monopoly control over interstate transmission facilities to
disadvantage potential competitors and thus thwart competi-
tion, to the detriment of the public interest. In FERC Order
No. 888,1 FERC sought to remedy this market burden by
requiring jurisdictional electric utilities to unbundle wholesale
electric power services and to file open-access nondiscrimina-
tory transmission tariffs. See TAPS, 225 F.3d at 683. As
one means of compliance with FERC’s remedial orders, pub-
lic utilities could, and were, encouraged by FERC to partici-
pate in Independent System Operators (‘‘ISOs’’). An ISO
conducts the transmission services and ancillary services for
all users of such a system, replacing the conduct of such
services by the system owners–that is, the integrated electric
utilities whose market power FERC was attempting to con-
1 Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recov-
ery of Stranded Costs by Public Utilities and Transmitting Utili-
ties, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996) (‘‘Order
No. 888’’), clarified, 76 FERC ¶ 61,009 and 76 FERC ¶ 61,347
(1996), on reh’g, Order No. 888–A, FERC Stats. & Regs. ¶ 31,048,
clarified, 79 FERC ¶ 61,182 (1997), on reh’g, Order No. 888–B, 81
FERC ¶ 61,248 (1997), on reh’g, Order No. 888–C, 82 FERC ¶ 61,
046 (1998); Open Access Same–Time Information System and
Standards of Conduct, Order No. 889, FERC Stats. & Regs.
¶ 31,049 (1997), on reh’g, Order No. 889–B, 81 FERC ¶ 61,253
(1997), aff’d in part, remanded in part, Transmission Access Policy
Study Group, et al. v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d
sub nom., New York v. FERC, 535 U.S. 1 (2002).
4
trol by encouraging the creation and operation of the ISOs.
In order to accomplish that purpose, FERC deems it crucial
that an ISO be independent of the market participants so that
decisions of policy, operation, and dispute resolution be free
of the discriminatory impetus inherent in the old system.
Order No. 888 at 31,731.
CAISO is an entity created by the state of California
pursuant to statutes of that state, AB 1890, Cal. Elec. Re-
structuring Law, Stats. 1996, ch. 854 § 1,345, and Senate Bill
96, Stats. 1999, ch. 510. The original 1996 legislation leading
to the creation of CAISO created a California Electricity
Oversight Board (‘‘CEOB’’) and directed it to incorporate
CAISO as a non-profit ‘‘public benefit corporation’’ to operate
electric grid facilities in California for the purpose of ‘‘en-
sur[ing] efficient use and reliable operation of the transmis-
sion gridTTTT’’ AB 1890. That statute directed the CEOB to
put in place procedures for selecting a board of directors for
the new public benefit corporation composed exclusively of
California residents and including representatives of eleven
‘‘stakeholder’’ classes. AB 1890 § 337. The same legislation
mandated the creation of a Power Exchange (‘‘PX’’). To
implement this restructuring, in April of 1996 California’s
three largest investor-owned electric utilities filed a joint
application with FERC to transfer control of transmission
facilities to CAISO and to sell electricity to the PX. FERC
conditionally granted the applications, including generally
approving the proposed governance structure as consistent
with the principles of ISOs under Order No. 888, but ruled
that the proposed California residency requirement was un-
duly discriminatory. Pacific Gas & Electric Co., 77 FERC
¶ 61,204 (1996).2
2 FERC also rejected a permanent role in the governance or
operations of CAISO by the Oversight Board as being inconsistent
with FERC’s exclusive jurisdiction and because its governance
structure conflicted with the independence principles contemplated
in the open-access provisions of Order No. 888. In 1999, the
Oversight Board petitioned FERC for advance approval of a pend-
ing bill in the California legislature, SB 96, which, among other
changes, changed the California residency requirement for board
5
In the summer and fall of 2000, California underwent a
period of much publicized turmoil in its electricity market.
FERC, the legislature and governor of the state of California,
and CAISO all concluded separately that a new board struc-
ture was needed for CAISO in light of that turmoil. On
November 1, 2000, FERC ‘‘proposed’’ a new seven-member
board selected from candidates identified by an independent
search firm. 93 FERC ¶ 61,121, 61,362–64. On December
15, 2000, FERC ordered that if ‘‘no consensus is reached’’ as
to an acceptable means of selecting new ISO board members,
then the method ‘‘proposed’’ in the November 1 order would
be carried out. On January 18, 2001, also in response to the
electricity crisis, the California legislature passed a statute
that replaced the current ISO board with a five-member
board appointed by the governor. Pursuant to those proce-
dures, a board was appointed. Also in January 2001, the
governor authorized the California Department of Water
Resources (‘‘DWR’’) to purchase energy. Shortly thereafter,
the DWR became a major market participant in the Califor-
nia wholesale energy markets.
Thereafter, in response to a FERC directive, CAISO filed a
comprehensive market redesign proposal to improve the Cali-
fornia energy markets. In an order issued July 17, 2002,
FERC, in response to this filing, ordered that the procedures
it had proposed in November and December 2000 to replace
CAISO’s board be implemented. See Order Concerning Gov-
ernance of the California Independent System Operator, 100
FERC ¶ 61,059 (2002). FERC’s primary concern with the
board’s composition was that having CAISO run by a state-
appointed board conflicted with the principles, as expressed in
Order No. 888 and in FERC’s November and December 2000
orders, that ISOs should be independent of market partici-
pants. Because the California governor appointed the board
and because California, through its DWR, had been a major
members to a requirement that the board members be electricity
customers in the area served by the ISO or the PX. FERC
approved the changes proposed. California Electricity Oversight
Board, 88 FERC ¶ 61,172 (1999), reh’g denied, 89 FERC ¶ 61,134
(1999).
6
market participant in the electricity market administered by
CAISO, the composition of the board, FERC reasoned, violat-
ed those principles of independence. Id. at 61,227.
CAISO, the Public Utility Commission of the State of
California, and the CEOB all seek review of FERC’s order.
Because FERC has no authority to replace the selection
method or membership of the governing board of an ISO, let
alone to compel a corporation created by state law to employ
a governing board chosen in violation of that law, we grant
the petitions.
ANALYSIS
First, lest there be any mistake, FERC has done nothing
less than order a public utility subject to its regulation to
replace its governing board. We offer no citation to any
comparable order by FERC, or any other similar federal
regulatory body, because to the best of our knowledge, there
is none. FERC has claimed the authority of no such prece-
dent, the petitioners have found none, nor has our indepen-
dent research disclosed any. While the petitioners offer
several grounds for setting aside that action, chief among
those grounds is the argument by petitioners that FERC
simply has no authority to do such a thing. Because we
agree with petitioners on that basis, and because that basis
alone is sufficient to set aside FERC’s order, we need consid-
er no other argument by petitioners.
In seeking to answer the question of FERC’s authority, we
start with a fundamental proposition of federal law. ‘‘As a
federal agency, FERC is a ‘creature of statute,’ having ‘no
constitutional or common law existence or authority, but only
those authorities conferred upon it by Congress.’ ’’ Atlantic
City Elec. Co. v. FERC, 295 F.3d 1, 8 (D.C. Cir. 2002)
(quoting Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir.
2001) (emphasis in Atlantic City Elec. Co.). Therefore, ‘‘if
there is no statute conferring authority, FERC has none.’’
Id. As the Supreme Court has recognized, ‘‘an agency
7
literally has no power to act TTT unless and until Congress
confers power upon it.’’ La. Pub. Serv. Comm’n v. FCC, 476
U.S. 355, 374 (1986). It is therefore incumbent upon FERC
to demonstrate that some statute confers upon it the power it
purported to exercise in its replacement of the governing
board of the regulated utility. FERC’s best, indeed only,
answer, is that it possesses the authority under Federal
Power Act sections 205 and 206, respectively codified as 16
U.S.C. § 824d and § 824e. Upon review of those sections, it
is not immediately apparent that either has anything to do
with the authority claimed by FERC to discharge and replace
the governing board of a utility with governors chosen by a
process of its own choice.
The title lines of the codified versions denominate section
205 as concerning ‘‘rates and charges; schedules; suspension
of new rates; automatic adjustment clauses,’’ and section 206
as ‘‘power of commission to fix rates and charges; determina-
tion of cost of production or transmission.’’ We recognize
that the section title of a statute is not dispositive of its
meaning, but it is not too much to expect that it has some-
thing to do with the subject matter of the statute. In this
case, review of the statutory text reveals that it has every-
thing to do with the subject matter. Congress in those
sections did precisely what the titles suggest it was doing. It
set forth the power of the Commission with respect to rates
and charges, and entered certain legislative directions con-
cerning determination of cost of production or transmission.
It therefore remains FERC’s task to show how those provi-
sions somehow empower it to make the unprecedented inva-
sion of internal corporate governance it has undertaken in the
orders under review.
FERC points specifically to the language of section 206,
which states:
Whenever the Commission, after a hearing had upon
its own motion or upon complaint, shall find that any
rate, charge, or classification, demanded, observed,
charged, or collected by any public utility for any trans-
mission or sale subject to the jurisdiction of the Commis-
8
sion, or that any rule, regulation, practice, or contract
affecting such rate, charge, or classification is unjust,
unreasonable, unduly discriminatory or preferential, the
Commission shall determine the just and reasonable rate,
charge, classification, rule, regulation, practice, or con-
tract to be thereafter observed and in force, and shall fix
the same by order.
16 U.S.C. § 824e(a).
Still more specifically, FERC claims that the composition of
the governing board of a utility and the method of its
selection is a ‘‘practice TTT affecting [a] rate’’ and that be-
cause FERC has found that the selection method is discrimi-
natory or preferential, the Commission has the authority to
determine a just and reasonable practice and to place such
practice in force and ‘‘fix the same by order.’’ Needless to
say, petitioners disagree.
In reviewing FERC’s construction of the word ‘‘practices’’
in the context of section 206(a), we apply the familiar formula
of Chevron U.S.A., Inc. v. Natural Resources Defense Coun-
cil, Inc., 467 U.S. 837 (1984), and its progeny. Under that
regime, we first employ the traditional tools of statutory
construction to determine whether Congress has spoken to
the precise question at issue. Id. at 842–43 & n.9. ‘‘If the
intent of Congress is clear, that is the end of the matter; for
the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.’’ Id. at 842–43.
However, if the statute is ambiguous and the agency has
acted within its delegated authority, we will defer to the
agency’s interpretation if it is reasonable. Motion Picture
Ass’n of Am., Inc. v. FCC, 309 F.3d 796, 801 (D.C. Cir. 2002)
(citing Chevron, 467 U.S. at 843–44).3 Therefore, it is our
task to determine whether Congress, when it used the word
‘‘practices’’ in section 206, was intending to empower FERC
3 This deference is appropriate where the agency acts pursuant to
an express or implied congressional delegation of authority to
regulate an area at issue and the agency’s action has the ‘‘force of
law.’’ Id. (citing United States v. Mead Corp., 533 U.S. 218, 226–27
(2001)).
9
to re-make the corporate governance of regulated utilities, or,
if Congress did not plainly so intend, if it was reasonable of
FERC to so interpret the words of the statute as to vest it
with such power.
In considering clarity and specificity of congressional intent
expressed in the word ‘‘practice,’’ we recall that ‘‘[a]mbiguity
is a creature not of definitional possibilities but of statutory
context.’’ Brown v. Gardiner, 513 U.S. 115, 118 (1994). The
issue is not so much whether the word ‘‘practice’’ is, in some
abstract sense, ambiguous, but rather whether, read in con-
text and using the traditional tools of statutory construction,
the term ‘‘practice’’ encompasses the procedures used to
select CAISO’s board, that is, in the words of Chevron,
‘‘whether Congress has directly spoken to the precise ques-
tion at issue.’’ 467 U.S. at 842. On this point, Congress’s
intent is crystal clear, and we therefore need not reach
Chevron step two.
At the first step we begin with a ‘‘plain language’’ analysis
of the statutory text. That is, we assume ‘‘that the legislative
purpose is expressed by the ordinary meaning of the words
used.’’ Sec. Indus. Ass’n v. Bd. of Governors, 468 U.S. 137,
149 (1984). The word ‘‘practices’’ is a word of sufficiently
diverse definitions that the only realistic approach to deter-
mining Congress’s ‘‘plain meaning,’’ if any, is to regard the
word in its context. The canon of statutory construction
‘‘noscitur a sociis, i.e., a word is known by the company it
keeps TTT is ‘often wisely applied where a word is capable of
many meanings in order to avoid giving unintended breadth
to the Acts of Congress.’ ’’ Amgen, Inc. v. Smith, 357 F.3d
103, 112 (D.C. Cir. 2004) (quoting Jarecki v. G.D. Searle &
Co., 367 U.S. 303, 307 (1961)) (other citations omitted).
Petitioners argue, with considerable convincing force, that
the intent of Congress in section 206 is actually quite plain:
the grant of authority to regulate rates, charges, classifica-
tions, and closely related matters. Therefore, petitioners
argue, FERC’s interpretation of the section should fall at the
first stage of Chevron review, as the statute is not ambiguous
on the point at issue. Certainly, petitioners accurately de-
10
scribe the context. None of the words surrounding the word
‘‘practice’’ in the statutory section suggest a congressional
concern with corporate governance or structure. By its
terms, the section only comes into play when the Commission
has had a hearing and finds that a ‘‘rate, charge, or classifica-
tion’’ employed by a regulated utility in its jurisdictional
transactions is ‘‘unjust, unreasonable, unduly discriminatory
or preferential.’’ Granted, the alternative formulation for the
Commission’s use of power under the section incorporates
‘‘rule, regulation, practice, or contract affect[ing] such rate,
charge or classification.’’ It is quite a leap to move as FERC
has from that context of transactional terms to an implication
that by the word ‘‘practice,’’ Congress empowered the Com-
mission not merely to effect a reformation of some ‘‘practice’’
in a more traditional sense of actions habitually being taken
by a utility in connection with a rate found to be unjust or
unreasonable, but also to empower the Commission to reform
completely the governing structure of the utility on the
Commission’s assertion that it ‘‘is obligated not only to reme-
dy past discrimination but also to take all reasonable steps to
prevent possible undue discrimination from occurringTTTT’’
100 FERC at 61,271.
FPA section 305 bolsters this reading of section 206. Sec-
tion 305 delegates to FERC limited authority to regulate
conflicts of interest among the directors of public utilities and
market actors who deal with such utilities. 16 U.S.C. § 825d.
Were FERC’s reading of section 206(a) correct, section 305
would be superfluous, as 206(a) would already give FERC
plenary authority to resolve such conflicts by altering the
corporate governance structure of public utilities, so long as
FERC concluded that the change would remedy unjust dis-
crimination of some kind. Traditional principles of statutory
construction counsel against reading acts of Congress to be
superfluous. See, e.g., Am. Nat’l Red Cross v. S.G., 505 U.S.
247, 263 (1992). Congress’s specific and limited enumeration
of FERC’s power over corporate governance in section 305 is
strong evidence that section 206(a) confers no such authority
on FERC.
11
FERC’s construction of ‘‘practice’’ in this context is there-
fore a sufficiently poor fit with the apparent meaning of the
statute that the statute is not ambiguous on the very question
before us. In Brown v. Gardiner, the Supreme Court opined
that the ‘‘poor fit’’ of statutory language with a construction
urged by the agency charged with administering the statute
made the agency’s reading ‘‘unreasonable.’’ 513 U.S. at 120.
While this discussion of reasonableness may sound like Chev-
ron step two, the Brown Court reminded us that where ‘‘the
text and reasonable inferences from it give a clear answer
against the government TTT that TTT is ‘the end of the
matter.’ ’’ Id. (quoting Good Samaritan Hospital v. Shalala,
508 U.S. 402, 409 (1993)) (emphasis supplied); see also Chev-
ron, 437 U.S. at 842. As the Supreme Court did in Brown,
we are prepared to strike the agency interpretation down at
Chevron step one, as ‘‘this clear textually grounded conclusion
in [petitioner’s] favor is fatal to the remaining principal
arguments advanced against it.’’ Id.
In support of the breathtaking scope which FERC con-
strues the statute as conferring upon it, the Commission cites
City of Cleveland v. FERC, 773 F.2d 1368, 1376 (D.C. Cir.
1985), for the proposition that ‘‘there is an infinitude of
practices affecting rates and service.’’ FERC apparently
would have us hold that the existence of an ‘‘infinitude’’ of
practices supposes that there is also an infinitude of accept-
able definitions for what constitutes a ‘‘practice’’ to give it the
authority to regulate anything done by or connected with a
regulated utility, as any act or aspect of such an entity’s
corporate existence could affect, in some sense, the rates.
We are not biting. The language taken out of the context of
City of Cleveland by FERC occurred in a discussion of a
petitioner’s challenge to features of a specific schedule for the
provision of electrical service to specified customers. The use
of the word ‘‘practices’’ by the City of Cleveland court was
from 205(c) of the FPA, 16 U.S.C. § 824d(c). That section
required rate filings to recite ‘‘the TTT practices TTT affecting
such rates and charges.’’ The petitioner in that case argued
that FERC had accepted filings that were too vague in the
recitation of practices. This court, per then-Judge Scalia,
12
held that the statutory requirement for the setting forth of
practices ‘‘must reasonably be read to require the recitation
of only those practices that affect rates and services signifi-
cantly, that are realistically susceptible of specification, and
that are not so generally understood in any contractual
arrangement as to render recitation superfluous.’’ 773 F.2d
at 1376. The discussion of the infinitude of practices was
then in terms of pointing out how absurd it would have been
for FERC to go beyond a reasonable construction of ‘‘prac-
tices’’ in applying the text of the statute. FERC did not
commit such an absurdity in the City of Cleveland case. In
this case it has.
Nor does FERC’s argument find support either in this
court’s affirmance of its Order No. 888 ruling in TAPS or in
Central Iowa Power Cooperative v. FERC, 606 F.2d 1156
(D.C. Cir. 1979), both of which FERC cites. TAPS is inappo-
site because it involved FERC’s authority to regulate the
‘‘rates’’ that utilities were charging. Its open-access remedy
required jurisdictional utilities simply to file tariffs, not to
require the utilities to change any ‘‘practice’’ thought to
‘‘affect’’ rates. 225 F.3d at 686. This case, in contrast,
concerns FERC’s authority to order changes in the ‘‘prac-
tices’’ of regulated entities.
FERC’s citation to Central Iowa is equally unavailing. In
that case, several electric utility companies banded together
to form a regional power pool, a voluntary association whose
purpose was to promote a reliable and economic transmission
grid. 606 F.2d at 1160. As the pool agreement was a rate
that FPA section 205(a) required the utilities to file with
FERC, the utilities applied to FERC for approval of the
arrangement. In response, FERC ‘‘condition[ed] its approval
of [the] power-pooling agreement upon removal of member-
ship criteria which denied certain privileges to some but not
all participants.’’ TAPS, 225 F.3d at 686 (describing the
holding of Central Iowa).
Central Iowa actually illustrates FERC’s overreaching in
this case well. In Central Iowa, FERC conditioned the
approval of the power pool on removal of the membership
13
criteria, rather than ordering the power pool to change those
criteria directly. Here FERC has taken a much more ex-
treme step. Rather than merely threatening to revoke CAI-
SO’s ISO status if it did not remove its board, similar to what
it did in Central Iowa, FERC has instead decided to order
CAISO directly to change its board. This court never once
hinted in Central Iowa that such an extreme measure was
within FERC’s section 206(a) authority.
Our firm conviction that FERC’s stretching of the authori-
ty granted it by the statute’s use of the word ‘‘practice’’ when
it extends its authority to the structuring of the corporate
governance and the choosing and appointment of corporate
directors is supported both by the history of the application of
this and similar statutes and by the implications of FERC’s
amorphous defining of the term. As to precedent, the Su-
preme Court has been instructive on this issue at least as far
back as 1916. FPA section 206 was derived from section 15
of the Interstate Commerce Act, 49 U.S.C. § 15(1) (repealed).
It is another traditional tool of statutory construction that
‘‘where provisions of one statute have been adopted by anoth-
er, the interpretation which has been authoritatively placed
upon the former applies to the latter also.’’ Hope Natural
Gas Co. v. FPC, 196 F.2d 803, 807 (4th Cir. 1952). We look,
then, to the Supreme Court’s consideration of the meaning of
the word ‘‘practices’’ in the earlier statute. In United States
v. Pennsylvania Railroad Co., 242 U.S. 208 (1916), the Court
interpreted § 15’s use of the word ‘‘practices’’ to refer only to
a railroad’s terms of service and rejected a broader construc-
tion in which ‘‘it could be contended TTT that every detail of
railroad operation is a practice within the meaning of the
Act.’’ Id. at 228–33. Likewise, in Missouri Pacific Railroad
Co. v. Norwood, 283 U.S. 249 (1931), the Supreme Court
considered whether the Interstate Commerce Act, by empow-
ering the Interstate Commerce Commission to regulate the
‘‘practice’’ of carriers, conferred upon the Commission the
authority to regulate the number of men to be employed in
crews. The High Court, reasoning that ‘‘[t]he Act uses the
word ‘practice’ in connection with the fixing of rates to be
charged and prescribing of service to be rendered by the
14
carriers,’’ rejected that proposition. Id. at 257. Employing
the same sort of contextual reasoning we have already dis-
cussed, the Court declared that ‘‘[t]hat word is deemed to
apply only to acts or things belonging to the same class as
those meant by the words of the law that are associated with
it.’’ Id.
Indeed, FERC and its predecessor, the Federal Power
Commission, has repeatedly defined the statutory term ‘‘prac-
tice TTT affecting [a] rate’’ as a ‘‘consistent and predicable
course of conduct of the supplier that affects [the utilities’]
financial relationship with the consumer.’’ Mich. Wisc. Pipe-
line Co., 34 F.P.C. 621, 626 (Aug. 30, 1965). See also Tran-
swestern Pipeline Co., 26 FERC ¶ 63,008 (Jan. 20, 1984)
(describing the Michigan Wisconsin Pipeline Co. construc-
tion as the Commission’s ‘‘full[ ] articulat[ion]’’ of the meaning
of the statutory language.’’). In American Gas Ass’n v.
FERC, 912 F.2d 1496 (D.C. Cir. 1990) (‘‘AGA’’), we consid-
ered the phrase ‘‘contract TTT affecting [a] rate’’ which ap-
pears in both FPA section 206 and its companion statute,
Natural Gas Act section 5, a question obviously paralleling
the one before us today. In AGA, it was the petitioners who
argued for an expansive definition of contracts with reasoning
analogous to that advanced by the Commission for its current
expansive definition of ‘‘practice.’’ The AGA petitioners took
out of context the words ‘‘contract affecting such rate’’ and
argued that the Commission could adjudicate the justness and
reasonableness of any contract financially affecting a regulat-
ed utility since that could certainly influence the utility’s
ultimate charges. The Commission rejected any such
breadth of its own authority. We held that FERC was
correct in ‘‘read[ing] ‘contracts affecting such rate’ as limited
to contracts TTT which directly govern[ ] the rate in a jurisdic-
tional sale–providing for the rate in whole or in part, or
specifying or embodying it, or setting forth rules by which it
is to be calculatedTTTT’’ Id. at 1506. We further stated that
‘‘[c]ontracts that ‘affect’ a rate indirectly TTT are beyond § 5’s
reach.’’ Id. By the same reasoning, we hold today that
section 206’s empowering of the Commission to assess the
justness and reasonableness of practices affecting rates of
15
electric utilities is limited to those methods or ways of doing
things on the part of the utility that directly affect the rate or
are closely related to the rate, not all those remote things
beyond the rate structure that might in some sense indirectly
or ultimately do so.
We turn to the implications of FERC’s claimed authority to
regulate all actions or activities of public utilities including the
personnel and structure of its corporate governance under
the rubric of ‘‘practices.’’ Were we to uphold this theory, the
implications would be staggering. As we noted in AGA in
rejecting a similarly broadened concept of ‘‘contracts’’ from a
parallel statutory section, ‘‘[w]eighing against petitioners’ the-
ory is that logically it reaches pipelines’ contracts for every
other possible factor of production–even legal services.’’ 912
F.2d at 1507. Just so here. If FERC can remove a board of
directors and dictate the method of choosing a new one
because the method of selecting the old one might have made
it appear discriminatory, or have even given cause to fear
future discrimination, then it would seem that FERC could
also dictate the choice of CEO, COO, and the method of
contracting for services, labor, office space, or whatever one
might imagine, assuming FERC made the appropriate find-
ing. However, we really need no such parade of horribles.
The very act attempted by FERC in this case is quite enough
to reveal the drastic implications of its overreaching. The
same statutory terms that apply to FERC’s regulation of
CAISO apply to its regulation of all other jurisdictional
utilities. If FERC can today remove, replace, and reform a
state-created ISO, it can tomorrow without any further prece-
dent or any further claim of expanded power, remove and
replace the board of directors of, for example, Duke Energy,
Reliant Resources, Inc., or Dynegy Power Marketing, Inc.
Congress has created in Title 15 of the United States Code a
Securities and Exchange Commission with extensive powers
over corporate regulation. Every state has statutes affecting
corporate governance. Presumably the members of the fed-
eral and state commissions charged with securities and corpo-
rate regulation are chosen with an eye to their expertise in
matters corporate. Certainly the legislative bodies have giv-
16
en them powers with a view to that subject matter. The
same cannot be said of the legislative empowerment of
FERC, nor presumably are its members chosen principally
for their expertise in corporate structure.
If FERC concludes that CAISO lacks the independence or
other necessary attributes to constitute an ISO for purposes
of Order No. 888, then it need not approve CAISO as an ISO.
ISO membership is not an end in itself; it is merely a method
jurisdictional entities can use to comply with Order No. 888’s
mandate for those entities to file nondiscriminatory open-
access tariffs. Neither Order No. 888 nor the Commission
decision we reviewed in TAPS requires participation in ISOs.
We reminded FERC in an earlier case concerning ISOs that
no matter how important the principle of ISO independence is
to the Commission, ‘‘Order No. 888 is merely a regulation,’’
and cannot be the basis to override the limitations of ‘‘stat-
ute[s] enacted by both houses of Congress and signed into
law by the president.’’ Atlantic City Elec. Co., 295 F.3d at
11. If California stubbornly refuses to make CAISO conform
to FERC’s requirements for ISOs, then FERC can declare
that CAISO is not an ISO, or threaten to do so. Confronted
with that possibility at oral argument, FERC’s counsel as-
serted that the Commission did not think such a drastic
remedy was warranted. This illustrates the fundamental flaw
of the Commission’s reasoning. The Commission, in Order
No. 888 and other rulings made pursuant thereto, has defined
ISOs according to the terms it wishes. FERC has the
authority not to accept something which it does not deem an
ISO. It does not have the authority to reform and regulate
the governing body of a public utility under the theory that
corporate governance constitutes a ‘‘practice’’ for ratemaking
authority purposes.
CONCLUSION
For the reasons set forth above, we vacate and remand the
rulings under review.