The People of the State of California Ex Rel. Edmund G. Brown Jr., Attorney General of the State of California v. United States

In the United States Court of Federal Claims

Case No. 07-184C

FOR PUBLICATION

Filed: April 2, 2013

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THE PEOPLE OF THE STATE OF *

CALIFORNIA EX REL. EDMUND G. *

BROWN JR., ATTORNEY GENERAL OF *

THE STATE OF CALIFORNIA, and the *

CALIFORNIA DEPARTMENT OF WATER * Motion to Reconsider; City of Redding

RESOURCES BY AND THROUGH ITS * v. FERC, 693 F.3d 828 (9th Cir. 2012)

CALIFORNIA ENERGY RESOURCES * Bonneville Power Administration v.

SCHEDULING DIVISION, * FERC, 422 F.3d 908 (9th Cir. 2005)

*

Plaintiffs, *

v. *

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THE UNITED STATES, *

*

Defendant. *

*

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Marie L. Fiala, Sidley Austin L.L.P, San Francisco, CA, for Plaintiff, Pacific Gas &

Electric Company. Jane I. Ryan, Steptoe & Johnson L.L.P., Washington, D.C., for Plaintiff,

Southern California Edison Company. Mark Fogelman, Friedman Dumas & Springwater L.L.P.,

San Francisco, CA, for Plaintiff, San Diego Gas & Electric Company. Gary Alexander, Deputy

Attorney General, for Plaintiff The People, Office of the Attorney General, San Francisco, CA.

Timothy P. McIlmail, Senior Litigation Counsel, with whom were Stuart F. Delery,

Principal Deputy Assistant Attorney General, Jeanne E. Davidson, Director, Martin F. Hockey,

Jr., Assistant Director, Commercial Litigation Branch, Civil Division, Department of Justice,

Washington, D.C., for Defendant.

OPINION AND ORDER

Smith, Judge.

Before the Court is Defendant’s Motion to Reconsider this Court’s Opinion and Order

dated May 2, 2012. Plaintiffs have not responded directly to this Motion nor has the Court

requested a response to this particular Motion. However, Defendant has raised the same

arguments in prior motions before this Court to which the Plaintiffs have responded. The parties

were heard on those on September 7, 2012. Additionally, supplemental briefs were filed with

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regard to these issues. For the reasons set forth below and after careful consideration, the Court

DENIES Defendant’s Motion to Reconsider.

INTRODUCTION

In its Opinion and Order, PG&E v. United States, 105 Fed. Cl. 420 (2012), this Court found

that Defendant breached its contractual duty to pay refunds owed to certain participants in the

California Power Exchange (PX) and California Independent System Operator (ISO) markets.

Id. at 440. Defendant now asks this Court to reconsider its Opinion and Order based upon the

Ninth Circuit’s decision in City of Redding v. FERC, 693 F.3d 828 (9th Cir. 2012) and to find that

Defendant did not breach any contracts with Plaintiffs with respect to the refund period claims and,

as such, enter judgment dismissing Plaintiffs’ refund period claims altogether. To this end,

Defendant argues that the Court interpreted Section 206 of the Federal Power Act (FPA), 16

U.S.C. § 824e, in a manner inconsistent with the Ninth Circuit’s decision in City of Redding.

Specifically, Defendant argues that this Court found that § 206 of the FPA permitted FERC to

retroactively adjust rates, contrary to the City of Redding decision. Defendant argues that in the

City of Redding decision, the Ninth Circuit held that § 206(a) permits FERC to adjust rates only

prospectively and that § 206(b) permits FERC only to determine just and reasonable rates to order

refunds from jurisdictional sellers. Therefore, Defendant argues, because FERC may not

retroactively reset rates for non-jurisdictional sellers, this Court erred in finding that the PX and

ISO tariffs bind the government to FERC’s determination of just and reasonable rates for the

whole market.

DISCUSSION

The City of Redding Decision

To determine whether this Court’s Opinion and Order is inconsistent with City of Redding,

the Ninth Circuit’s decision must be reviewed. In City of Redding, the Ninth Circuit had to

determine if specific FERC orders related to the PX and ISO electricity market rate adjustments

exceeded FERC’s authority. City of Redding, 693 F.3d at 831. This series of orders begins with a

November 2000 order stating that FERC planned to investigate the rates being charged in the

PX/ISO markets. Id. at 832. FERC then determined the PX/ISO rates to be unreasonable in its

March 9, 2001 Order and established a “market clearing price” that would have been in effect if

“[there] had . . . been competitive forces at work . . . .” Id. (quoting the March 9, 2001 Order, 94

FERC ¶ 61,245, at 61862). A subsequent order, the July 2001 Order, stated that FERC had the

authority to retroactively reset rates and require refunds from jurisdictional and non-jurisdictional

entities. City of Redding, 693 F.3d at 832-833. The non-jurisdictional entities affected by the

order brought suit disputing FERC’s authority to order the non-jurisdictional refund, Id. at 833,

and the Ninth Circuit in Bonneville Power Administration v. FERC, 422 F.3d 908 (9th Cir. 2005),

held that “FERC does not have refund authority over . . . sales made by governmental entities and

non public utilities.” Id. at 911.

After Bonneville, FERC issued a series of orders amending the July Order, culminating

with the May 2009 Order that stated FERC’s actions in regard to the PX/ISO market rates were not

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a retroactive resetting of rates, but instead a determination of a just and reasonable rate for the

purposes of ordering refunds from jurisdictional sellers. City of Redding, 693 F.3d at 834. The

court in City of Redding reviewed whether FERC exceeded its authority in the post-Bonneville

orders. Id. at 831. First, the Ninth Circuit found that § 206 of the FPA does not give FERC the

power to retroactively reset rates for all market participants. Id. at 838 (noting that the FPA gives

FERC the authority under § 206(a) to set rates prospectively and under § 206(b) the authority to

order refunds from jurisdictional sellers). In finding this, the City of Redding court dismissed

FERC’s argument that the ability to set rates retrospectively was necessary in determining the

refund amounts for jurisdictional entities. Id. at 839. Instead, the court said that under § 206(b),

FERC may only determine a just and reasonable rate for the purpose of calculating the

jurisdictional sellers’ refund amount. Id. at 841. The court also found that in reviewing the

post-Bonneville orders, FERC acknowledged that it lacked the authority to order refunds from

non-jurisdictional entities, and because of this, the court found that FERC did not exceed its

authority in issuing the those orders. Id. at 842.

While the Ninth Circuit in Bonneville and City of Redding forbid FERC from ordering

non-jurisdictional entities to pay refunds, neither case forecloses other remedy possibilities for

injured market participants. In fact, the court in Bonneville left open the possibility that the

remedy for injured market participants could be contract claims. Bonneville, 422 F.3d at 925

(“[T]he remedy, if any, may rest in a contract claim, not a refund action.”). The Bonneville court

confirmed that the non-jurisdictional entities entered into agreements with the PX and ISO that

obligated the market participants to follow the tariffs, which are subject to FERC regulation. Id.

(“FERC…emphasize[s] that the Public Entities entered into agreements with the ISO and CalPX

that obligated them to abide by the ISO and CalPX tariffs…All of this is true.”). While

mentioning the possibility of a contract claim, the Bonneville court avoided making any

determination as to remedies other than refund actions. Id. at 926 (“[W]e take no position on

remedies available outside of the FPA.”). The City of Redding decision reestablished the

Bonneville opinion as to contract claims. City of Redding at 834. (“[Contract] actions loom large

on the outskirts of this appeal and explain the motivation of most of the parties, but they are not

before this court and we do not consider the contract-related arguments.”). Even so, the City of

Redding decision goes somewhat further than Bonneville as to what the just and reasonable prices

established by FERC mean to non-jurisdictional entities:

We are not blind to the potential impact of FERC’s determination of the just and

reasonable prices. In the contract actions brought in other forums, it is claimed

that the Petitioners before us are liable for charges collected by them in excess of

the just and reasonable prices subsequently calculated by FERC. Petitioners seek

to protect themselves against those claims by preventing FERC from recalculating

the market rates. But FERC’s recalculation was not an empty exercise, because it

had to determine just and reasonable market clearing prices in order to calculate

the refunds to be ordered from sellers from which it could order refunds. What

impact this calculation might have on the contract actions pending in other courts is

not for us to say.

Id. (emphasis added). As the Ninth Circuit decision in City of Redding avoids making a

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determination as to what the just and reasonable rates mean to non-jurisdictional contract claims, it

allows the courts hearing the contract claims, the California state courts and the United States

Court of Federal Claims, to make the decision as to what that effect is.

Defendant’s Contractual Obligation Argument

In the Motion to Reconsider, Defendant states that Plaintiffs are foreclosed from relying on

the PX and ISO tariffs for a contractual remedy because having FERC effect a contractual remedy

on non-jurisdictional entities is outside of FERC’s § 206 authority. But that is not what is

happening. The contract was determined by the parties, the FPA, and the PX and ISO, not FERC.

FERC is merely and permissibly determining what a just and reasonable rate for the subject period

is. The contract determines the consequence of this price with respect to the contractual rights of

the parties. It also seems clear from the Ninth Circuit decision that this is a necessary FERC

action in order to assess refunds for jurisdictional sellers. The Defendant’s argument also ignores

the fact that City of Redding and Bonneville both provide the possibility of the contractual remedy

as an alternative to the disallowed FERC refund order. See Bonneville, 422 F.3d at 925, 926; see

also City of Redding, 693 F.3d at 834. Further, in City of Redding, the Ninth Circuit states its

understanding as to why the non-jurisdictional entities would want the court to find the FERC

orders outside of FERC’s authority since doing so would prevent a recalculated rate for the market

to be determined. Id. at 842. (“Petitioners seek to protect themselves against [the contract]

claims by preventing FERC from recalculating the market rates.”).

The Bonneville decision describes how the Eighth Circuit permitted the contractual remedy

in the Mid-Continent Area Power Pool (MAPP) proceedings in Alliant Energy v. Nebraska Public

Power District, 347 F.3d 1046 (8th Cir. 2003). Like the PX and ISO markets, MAPP is a power

pool that includes both government utilities (outside of FERC’s refund authority) and

non-government utilities (within FERC’s refund authority). Id. at 1048. The Eighth Circuit

found that while FERC could not order the government entities to pay a refund, the terms of the

contractual agreement into which MAPP participants entered subjected all participants to FERC’s

regulatory authority. Id. at 1050. This permitted the court to enforce the agreement and order

the government entity to pay the refund. Id. Bonneville’s discussion of the contractual remedy

used in the Alliant decision shows the Ninth Circuit’s understanding that the Alliant decision

remedy and a valid contract claim, based upon a FERC determination of the just and reasonable

rate for the whole market, is not inconsistent with its decision at issue here, contrary to the

Defendant’s arguments. In addition, the Ninth Circuit’s City of Redding decision does nothing to

dispute the potential of a contractual claim remedy. It leaves in place Bonneville’s discussion of

the remedy process from the Alliant decision, only mentioning Alliant when looking for cases

discussing whether FERC had the authority to retroactively reset tariff rates. City of Redding, 693

F.3d at 839-840. The discussion of the contract remedy availability in Bonneville and City of

Redding shows that the Ninth Circuit leaves available the potential to bring a contract claim

against the non-jurisdictional parties.

Finally, the contracts into which the non-jurisdictional entities entered to participate in the

PX and ISO markets clearly state that the markets were subject to FERC’s regulation. Bonneville,

422 F.3d at 925. The question remains as to whether the tariff language permitting a market

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participant to “exercise its rights under Section 206 of the FPA,” PG&E, 105 Fed. Cl. at 434

(quoting the language of PX Tariff Section 13, which substantively identical to ISO Tariff Section

19), permits injured market participants to rely on FERC’s determination of just and reasonable

rates in their contract claims. Section 206 permits FERC to determine a just and reasonable rate

for the purpose of calculating a refund obligation for jurisdictional sellers. City of Redding, 693

F.3d at 834. City of Redding leaves open how the recalculated rates may be used in determining

the non-jurisdictional entities’ contractual obligation. Id. at 842. Thus, Defendant’s main

argument in the Motion to Reconsider is defeated by the fact that the Ninth Circuit avoids making

a determination on the merits of the contract claims cases and leaves finding how the just and

reasonable rates may be used to the United States Court of Federal Claims. Furthermore, because

these issues have not been decided but have been left open by the Ninth Circuit, Defendant’s

argument with regard to issue preclusion and collateral estoppel is without merit.

CONCLUSION

It is clear to this Court that its Opinion and Order is consistent with the decision in City of

Redding. In light of this, the Court hereby DENIES Defendant’s Motion to Reconsider.

IT IS SO ORDERED.

s/Loren A. Smith

LOREN A. SMITH

Senior Judge

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