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 *

RESOURCES BY AND THROUGH ITS *

CALIFORNIA ENERGY RESOURCES *

SCHEDULING DIVISION, *

*

Plaintiffs, *

v. *

*

THE UNITED STATES, * Declaratory Judgment; California

* Power Crisis

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, Senior Judge.

Plaintiffs brought this action to determine whether the Defendant is contractually bound

to retain no more than the just and reasonable prices the Federal Energy Regulatory Commission

(FERC) set for electric power sales by Bonneville Power Administration (BPA) and Western

Area Power Administration (WAPA) during the California Energy Crisis. The requested refunds

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fall into three categories: Refund Period sales, Excluded Transactions, and Summer Period sales.

The Court held a trial on Plaintiffs’ claims and, thereafter, issued an opinion, PG&E v.

United States, 105 Fed. Cl. 420 (2012). The opinion addressed the Refund Period sales for

which Plaintiffs sought liability rulings. Although evidence was presented at trial for sales

involving Excluded Transactions and Summer Period sales, the opinion did not address those

claims. Thus, Plaintiffs have filed a Motion for Entry of Findings of Fact and Conclusions of

Law seeking declarations that Defendant is contractually obligated to refund any overcharges for

Excluded Transactions and Summer Period sales, if and when, FERC resets prices for those

sales.

For the reasons set forth below and after careful consideration, the Court hereby

GRANTS Plaintiffs’ Motion for Entry of Findings of Fact and Conclusions of Law finding that

when FERC corrects the prices to just and reasonable prices for the Excluded Transactions and

Summer Period Sales, Defendant will be contractually obligated to abide by the reset prices and

refund any overcharges that the Agencies collected.

BACKGROUND

This issue stems from the BPA’s and WAPA’s participation in the California Power

Exchange (PX) and California Independent System Operation Corporation (ISO), two FERC-

regulated California electric energy markets. After market participants asked FERC to look into

the pricing in the PX and ISO markets, FERC took action under their Federal Power Act (FPA)

authority to establish a refund period that put sellers on notice that during their investigation if

any prices charged during that time were found to be unjust and unreasonable, the sellers may be

subject to a refund liability. FERC found the prices to be unfair and reset them. The recalculated

prices established the refund obligation of market participants under FERC’s enforcement

authority (jurisdictional entities). Jurisdictional entities did not include Federal government

market participants, like BPA and WAPA, but participation in the PX and ISO markets required

all participants to sign an agreement consenting to FERC’s oversight of the markets.

In July 2001, FERC issued an order that it had the authority to retroactively reset rates

and require refunds from jurisdictional and non-jurisdictional entities. City of Redding v. FERC,

693 F.3d 828, 832-833 (9th Cir. 2012). 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 2001 Order, culminating with the May 2009 Order that stated FERC’s actions in regard

to the PX/ISO market rates were not 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.

Initially, FERC issued orders stating that it did not have the authority to correct the prices

for the period between May 1, 2000 and October 1, 2000 (Summer Period) and for Refund

Period energy exchanges and multi-day sales (Excluded Transactions). PG&E v. United States,

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105 Fed. Cl. at 430. However, in CPUC v. FERC, 462 F.3d 1027 (9th Cir. 2006), the Ninth

Circuit reversed FERC’s denial of relief during the Summer Period and Excluded Transactions

and remanded the case to FERC to reconsider. Id. at 1035. From April 11, 2012 until July 19,

2012, the FERC administrative law judge held trial to determine the refund requirements for the

Excluded Transactions and the Summer Period transactions. Declaratory J. Oral. Arg. at 15.

The FERC administrative law judge had until February 15, 2013 to rule on the case. Id. at 16.

On February 15, 2013, FERC issued its decision. San Diego Gas & Elec. Co., 142 FERC

¶ 63,011, FERC Docket No. EL00-95-248 (Feb. 15, 2013). In its decision, FERC found that the

Agencies engaged in Excluded Transactions are subject to mitigation, and per FERC’s

instruction are “to calculate the refunds.” Id. at ¶ 131. The ALJ also found that the Agencies

collectively owed refund for those transactions in the amount of $60,213,705 (before interest).

Id. at 127, 147, 149, 151. With regard to the Summer Period sales, the ALJ found that the

Agencies engaged in anomalous bidding that violated the tariffs, and that over the Summer

Period there were over 20,000 total tariff violations that distorted the market prices. Id. at ¶¶14,

34-35. The impact of this decision is that now FERC can make a ruling on whether and to what

extent the Agencies’ prices for the Excluded Transactions and Summer Period sales are not just

and reasonable.

DISCUSSION

Plaintiffs’ complaint in this matter involves seven claims for relief. This opinion will

address Plaintiffs’ Fourth and Fifth Claims seeking declaratory relief. Specifically, the Fourth

Claim seeks a declaration that when FERC resets prices for the Agencies’ Excluded

Transactions, Defendant will be contractually bound to refund the value that the Agencies

received in excess of the mitigated prices. The Excluded Transactions include the Refund

Period energy exchanges and multi-day sales. The Fifth Claim similarly seeks a declaration that

when FERC resets prices for the Agencies’ Summer Period, transactions that took place from

May 1, 2000 through October 1, 2000, Defendant will be contractually bound to refund value

the Agencies received in excess of the mitigated prices. 1

During the liability trial, evidence was presented regarding the Excluded Transactions

and Summer Period sales. Specifically, evidence was given by Gary Stern, Stephen Oliver, Sean

Sanderson and Jeffrey Ackerman. 2

In its May 2, 2012, Opinion and Order, the Court found that BPA and WAPA breached

their contractual obligation to refund overcharges incurred during the Refund Period. PG&E v.

United States, 105 Fed. Cl. at 440. The Court did not make any findings as to the disposition of

the Excluded Transactions and the Summer Period transactions because that issue was with

FERC for reconsideration. Id. at 430.

1

The People’s case is a related case in this matter, 07-184C. As such, some of the People’s claims for relief are

numbered differently from the IOUs’ claims. The People’s Fifth and Sixth Claims correspond to the IOUs’ Fourth

claim, and the People have no claim corresponding to the IOUs’ Fifth Claim. This opinion addresses the IOUs’

Fourth and Fifth claim as well as the People’s Fifth and Sixth claims which shall be collectively referred to as

“Plaintiffs’ claims.”

2

For a complete list of witnesses and titles see PG&E v. United States, 105 Fed. Cl. 420, 431(2012).

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A. Jurisdiction

Though created in 1855, United States Court of Federal Claims jurisdiction received

much of its present day reach from the Tucker Act of 1887, 28 U.S.C. § 1491. The Act gave the

court the jurisdiction to “render judgment upon any claim against the United States, founded

upon the Constitution, [Congressional Act], [federal regulation], or upon any express or implied

contract with the United States, or for liquidated or unliquidated damages in cases not sounding

in tort.” 28 U.S.C. § 1491(a)(1) (2011). In interpreting what “claim” means as within the

Tucker Act, the United States Supreme Court held that for a claim to be within the Unites States

Court of Federal Claims’ jurisdiction, the claim must be for “actual, presently due money

damages from the United States.” United States v. King, 395 U.S. 1, 3 (1969).

Congress expanded the Court of Federal Claims’ authority when it amended the Tucker

Act to provide for “equitable relief ancillary to claims for monetary relief over which it has

jurisdiction,” National Air Traffic Controllers Ass’n v. United States, 160 F.3d 714, 716 (Fed.

Cir. 1998), the Court does have the authority to hear or decline to hear or to dismiss declaratory

judgment proceedings. Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1271 (Fed.

Cir. 1999).

In reviewing whether declaratory relief is proper in a matter before the Court of Federal

Claims, the Court has the discretion to “consider the appropriateness of declaratory relief,

including whether the claim involves a live dispute between the parties, whether a declaration

will resolve that dispute, and whether the legal remedies available to the parties would be

adequate to protect the parties’ interests.” Id. In addition, the court may consider declaratory

relief, even when there is the potential for damage claims in the future. Emery Worldwide

Airlines, Inc. v. United States, 47 Fed. Cl. 461, 472 (2000) (“The court rejects defendant's

position that we should dismiss [the declaratory relief claim] because plaintiff may, at some

point, have a claim for damages.”). In making its determination on declaratory relief, the court

may take into consideration whether present monetary damages would be sufficient. Alliant

Techsystems, 178 F.3d at 1271.

B. Arguments

At trial, as well as through their motions and arguments during hearings, the Plaintiffs

and Defendant have set out their evidence and arguments as to whether the Court should grant

declaratory relief to the Plaintiffs.

Plaintiffs argue that the Court should grant a declaratory judgment. In support, Plaintiffs

argue BPA and WAPA breached their contractual duty to refund overcharges for the Excluded

Transactions and the transactions that occurred during the Summer Period. In making their

argument, Plaintiffs set out two main reasons supporting their request. First, Plaintiffs make the

argument for judicial efficiency. Plaintiffs argue that the Court has already heard the claims and

the facts on which the claims rely, and as such, it would be time-consuming and inefficient to

have to retry each set of transactions individually, especially since they are all connected by the

fact that the BPA and WAPA entered into a contract that allowed participants to request that

FERC adjust unjust and unreasonable market rates. Second, Plaintiffs argue that if the Court

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enters a declaratory judgment it could facilitate settlement discussions. The parties have acted in

good faith throughout the process and only disagree as to the refund obligation.

Defendant argues that City of Redding precludes Plaintiffs’ arguments. The Court

addressed these arguments in its Opinion and Order dated April 2, 2013, denying Defendant’s

Motion for Reconsideration. As such, Defendant’s arguments with regard to City of Redding

precluding Plaintiffs’ claims are moot. Additionally, as Defendant reads City of Redding, FERC

cannot reset prices. But, City of Redding found that FERC could determine what a just and

reasonable rate was. This Court’s earlier decision found that this allows Plaintiffs to assert the

amount over “just and reasonable rates” as a valid contract claim. As its decision clearly states,

the ALJ has found that the Excluded Transactions are subject to mitigation, and per FERC’s

instruction are due refunds. The ALJ similarly found various tariff violations that distorted the

market prices during the Summer Period sales. Hence, Defendant’s argument is without merit.

The Court will, therefore, turn its attention to the facts presented at trial.

C. Findings of Fact

It is true that the contractual basis for the Agencies’ refund obligations on the Excluded

Transactions and Summer Period sales arises from the same legal principles and many of the

same facts as those for the Agencies’ Refund Period sales that this Court has already ruled upon

in its May 2, 2012 Opinion and Order. For instance, in that Opinion and Order the Court has

already found the existence of a contract between the Agencies and Plaintiffs incorporating the

PX and ISO Tariffs; that the Agencies are contractually bound by FERC’s correction of tariff

prices; that the Tariffs require repayment of overcharges; and that Plaintiffs have standing to

bring these claims against the Agencies as direct parties.

At trial, Plaintiffs also presented facts relevant to the Excluded Transactions and Summer

Period sales. Mr. Stern testified that the Excluded Transactions included “multi-day” and

“exchange” transactions. He testified that these were transactions where the ISO arranged for

delivery of power over more than a 24-hour period. Exchange transactions involved sales in

kind through the ISO, where the selling party was repaid by the delivery of electric energy at a

later date, rather than in cash and that both BPA and WAPA engaged in such transactions.

With regard to the Summer Period, May 1 to October 1, 2000, both Mr. Oliver and Mr.

Sanderson testified that each of the Agencies also made sales through the PX and ISO during the

Summer Period. Mr. Stern testified that the only difference between the Refund Period

Transactions and the Summer Period and Excluded Transactions was that they were at different

stages at FERC. As the only difference is the timing of the claims at FERC, the Court finds that

the same legal principles that were found in its May 2, 2012 Opinion and Order with regard to

the Refund Period apply to the Excluded Transactions and Summer Period sales as well.

Specifically, the Court finds that existence of a contract between the Agencies and Plaintiffs

incorporating the PX and ISO Tariffs; that the Agencies are contractually bound by FERC’s

correction of tariff prices; that the Tariffs require repayment of overcharges; and that Plaintiffs

have standing to bring these claims against the Agencies as direct parties.

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D. Declaratory Relief

As this Court has been granted the power to order declaratory relief, it is within this

Court’s discretion to make a determination as to the parties’ contract rights upon the future

occurrence of FERC’s correction of prices for the Excluded Transaction and Summer Period

sales. In making its determination, the Court must consider the appropriateness of declaratory

relief. As stated earlier, in order to determine the appropriateness, the Court must determine

whether “the claim involves a live dispute between the parties, whether a declaration will resolve

that dispute, and whether the legal remedies available to the parties would be adequate to protect

the parties’ interests.” Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1271 (Fed. Cir.

1999).

Here, it is clear, all three parts are satisfied. First there is a “live” dispute between the

parties. Specifically, there is a live dispute regarding Defendant’s obligation to refund

overcharges with regard to the parties’ contract rights if and when FERC makes a correction of

prices. This Court notes that other courts have held such relief proper even where the future

events were much less imminent. In CW Government Travel, Inc. v. United States, 63 Fed. Cl.

369, 389-90 (2004), the plaintiff sought a declaratory judgment that its contract made it the

exclusive provider of certain commercial travel services. The United States argued there was no

“live dispute” because there was no imminent decision by the Army to reduce plaintiff’s

provision of services under the contract, so that plaintiff was seeking an “advisory opinion”

about the consequences of “a possible future event.” Id. at 389. The court disagreed, holding that

while the contract had not yet been breached, the facts “sufficiently evidence[d]” the

government’s intent to breach the contract in the future to allow the court to grant declaratory

judgment relief. Id. at 390. Here, Defendant argues that in essence this opinion is also just an

advisory opinion. That is not so. Like CW, the facts and law sufficiently show the Defendant’s

obligation to refund overcharges if, and when, FERC makes a correction of prices.

Second, in making a declaration, the dispute will be resolved. And third, the legal

remedies available in the future will not adequately protect the Plaintiffs’ rights since trial might

have to be repeated, all the evidence has been presented, and in the future live witnesses’

testimony may be lost. This is particularly true in light of the length of some of the necessary

FERC investigations and calculations. And, of course, only if FERC orders a reset of prices will

any refund for overcharges be allowed.

CONCLUSION

For the reasons set forth above the Court hereby GRANTS Plaintiffs’ Motion.

IT IS SO ORDERED.

s/Loren A. Smith

LOREN A. SMITH

Senior Judge

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