Appendix — Puget Sound Sound Energy Energy, Inc. v. California (No. 09-288)
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Supreme Court, U.S.
FILED
No. __-_ 09-2 8 8 SEP 4- 2009
IN THE
OFFICE OF THE CLERK
Whiiam K. Suter, Clerk
Supreme Court of the Gnited States
PUGET SOUND ENERGY, INC., AVISTA CORPORATION,
AVISTA ENERGY, INC., CONSTELLATION ENERGY
COMMODITIES GROUP, INC., IDACORP ENERGY L.P.,
MORGAN STANLEY CAPITAL GROUP INC., PORTLAND
GENERAL ELECTRIC COMPANY, POWEREX CORP.,
SEMPRA ENERGY TRADING LLC, SHELL ENERGY NORTH
AMERICA (US), L.P., AND 'TRANSCANADA ENERGY LTD.,
V.
Petitioners,
PEOPLE OF THE STATE OF CALIFORNIA, ET AL..,
Respondents.
On Petition for a Writ of Certiorari
to the United States Court of Appeals
for the Ninth Circuit
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
GARY DD). BACHMAN
CHERYL FEIK RYAN
HOWARD E. SHAPIRO
VAN NESS FELDMAN, P.C.
1050 Thomas Jefferson St., N.W.
Seventh Floor
Washington, D.C. 20007
(202) 298-1800
Counsel for Puget Sound
Energy, Inc., Avista Corporation,
and Avista Energy, Inc.
September 4, 2009
DAVID C. FREDERICK
Counsel of Record
ScoTT H. ANGSTREICH
KELLOGG, HUBER, HANSEN,
TODD, EVANS & FIGEL,
‘igh Pu Fe On
1615 M Street, N.W.
Suite 400
Washington, D.C. 20036
(202) 326 7900
Counsel for Powerex Corp.
(Additional Counsel Listed Inside)
RONALD N. CARROLL
FOLEY & LARDNER LLP
3000 K Street, N.W.
Sixth Floor
Washington, D.C. 20007
(202) 295-4091
Counsel for Constellation
Energy Commodities Group,
Inc.
LAWRENCE G. ACKER
BRETT A. SNYDER
DEWEY & LEBOEUF LLP
1101 New York Avenue, N.W.
Suite i100
Washington, D.C. 20005
{202) 346-8000
Counsel for IDACORP Energy
|
PAULJ. PANTANO, JR.
MICHAEL A. YUFFEE
McDERMOTT WILL & EMERY
LLP
600 13th Street, N.W.
Washington, D.C. 20005
(202) 756-8000
Counsel for Morgan Stanley
Capital Group Inc.
CHERYL M. FOLEY
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
1440 New York Avenue, N.W
Washington, D.C. 20005
(202) 371-7300
Counsel for Portland General
Electric Company
PAUL W. Fox
DEANNA E. KING
BRACEWELL & GIULIANI LLP
111 Congress Avenue
Suite 2300
Austin, Texas 78701-4061
(512) 472-7800
Counsel for Powerex Corp.
MARGARET A. MOORE
HOWARD E. SHAPIRO
VINCENZO FRANCO
VAN NESS FELDMAN, P.C.
1050 ‘Thomas Jefferson St., N.W.
Seventh Floor
Washington, D.C. 20007
(202) 298-1800
ALAN Z. YUDKOWSKY
LUCAS A. MESSENGER
STROOCK & STROOCK
& LAVAN LLP
2029 Century Park East
Suite 1600
Los Angeles, California 90067
(310) 556-5800
Counsel for Sempra Energy
Trading LLC
JEFFREY D. WATKISS
BRACEWELL & GIULIANI I.LP
2000 K Street, N.W.
Suite 500
Washington, D.C. 20006-18
(202) 828-5851
Counsel for Shell Energy
North America (US), L.P.
to
KENNETH L. WISEMAN
MARK F. SUNDBACK
JENNIFER L. SPINA
ANDREWS KURTH LLP
1350 I] Street, N.W.
Suite 1100
Washington, D.C. 20005
(202) 662-2790
Counsel for TransCanada Energy Ltd.
TABLE OF CONTENTS
Page
Opinion of the United States Court of Appeals
for the Ninth Circuit, Port of Seattle, et al. v.
FERC, Nos. 03-74139, et al. (Aug. 24, 2007) ............ la
Order Establishing Evidentiary Hearing Prcoce-
dures, Granting Rehearing in Part, and Deny-
ing Rehearing in Part, San Diego Gas & Electric
Co. v. Sellers of Energy and Ancillary Service
Into Markets Operated by the California Inde-
pendent System Operator Corporation and the
California Power Exchange, Docket Nos. ELOO-
95-004 et al., 96 FERC § 61,120 (July 25, 2001)....38a
Recommendations and Proposed Findings of Fact,
Puget Sound Energy, Inc. v. All Jurisdictional
Sellers of Energy and/or Capacity at Wholesale
Into Electric Energy and/or Capacity Markets in
the Pacific Northwest, Including Parties to the
Western Systems Power Pool Agreement, Docket
Nos. ELO1-10-000 et al... 96 FERC 4| 63,044
CE EG Be oon pa so acnaenssceasauiencsnine ee ee llia
Order Granting Rehearing, Denying Request to
Withdraw Complaint and Terminating Proceed
ing, Puget Sound Energy, Inc. v. All Jurisdic-
tional Sellers of Energy and/or Capacity at
Whelesale Into Electric Energy and/or Capacity
Markets in the Pacific Northwest, Includ:ng
Parties to the Western Systems Power Pool
Agreement, Docket Nos. ELO1-10-000 et al., 103
FERC 4 61,348 (June 25, 20038) ............ ep SO nee 378a
Order Denying Rehearing, Puget Sound Energy,
Inc. v. All Jurisdictional Sellers of Energy and/
or Capacity at Wholesale Into Electric Energy
and/or Capacity Markets in the Pacific North-
west, Including Parties to the Western Systems
Power Pool Agreement, Docket No. ELO1-10-011,
105 FERC 9 61,183 (Nov. 10, 20038). ...ccccccicccccccsess AOYa
Order Denying Request for Rehearing, Puget
Sound Energy, Inc. v. All Jurisdictional Sellers
of iinergy and/or Capacity at Wholesale Into
Electric Energy and/or Capacity Markets in the
Pacijic Northwest. Including Parties to the West-
ern Systems Power Pool Agreement, Docket Nos.
IXL01-10-000 et al., 106 FERC 4 61,109 (Feb. 9,
Order Denying Rehearing of the United States
Court of Appeals for the Ninth Circuit, Port of
Seattle, et al. v. FERC, Nos. 038-74139, et al.
SN MS I 55 5s cascades copays vasyeiueiessasaceavuencsaueuansecas 454a
Statutory Provisions Involved:
Federal Power Act, 16 U.S.C. §$§ 791a et seg.:
© Pe, Fe FB OG vi oviscsiccecsesnsvasececsenss ..455a
OE Fie Wie ae Bicker secncessvsarcceviciencds 460a
Be a BOR he 2... errr 463a
Letter from Supreme Court Clerk regarding
grant of extension of time for filing a petition for
a writ of certiorari (June 29, 2009)..................ceee 465a
la
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 0383-74139
PORT OF SEATTLE, WASHINGTON,
Petitioner.
IDACORP ENERGY; WILLIAMS POWER COMPANY INC.:
CITY OF TACOMA, WASHINGTON; SOUTHERN CALIFORNIA
EDISON COMPANY; CONSTELLATION POWER SOURCE INC.;
XL PASO MERCHANT ENERGY L.P.; MORGAN STANLEY
CAPITAL GROUP, INC.; TRACTEBEL ENERGY
MARKETING INC.; BP ENERGY Co.,
Intervenors,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
M-S-R PUBLIC POWER AGENCY; DUKE ENERGY
'“RADING AND MARKETING, LLC; PUGET SOUND ENERGY;
CiTy OF LOS ANGELES DEPARTMENT OF WATER AND
POWER; SEMPRA ENERGY TRADING CORP.; ENERGY PLUS
LLC; NORTHERN CALIFORNIA POWER AGENCY,
Intervenors,
PORT OF SEATTLE,
Applicant-Intervenor.
‘
2a
No. 03-74472
CITY OF SEATTLE,
Petitioner.
IDACORP ENERGY L.P.; PEOPLE OF THE STATE OF
CALIFORNIA; PORT OF SEATTLE; DUKE ENERGY
NORTH AMERICA, LLC, DUKE ENERGY ‘TRADING AND
MARKETING, LLC (COLLECTIVELY, “DUKE ENERGY’);
City OF TACOMA,
Intervenors,
BENTON COUNTY, FRANKLIN COUNTY, GRANT COUNTY;
TRANSCANADA ENERGY; PUBLIC SERVICE COMPANY
OF COLORADO; POWEREX CORP.; CALIFORNIA
INDEPENDENT SYSTEM OPERATOR CORPORATION:
ALCOA INC.; COLUMBIA FALLS ALUMINUM COMPANY, LLC;
WILLIAMS POWER COMPANY INC.; CALIFORNIA ELECTRICITY
OVERSIGHT BOARD; PORTLAND GENERAL ELECTRIC
COMPANY; NORTHERN CALIFORNIA POWER AGENCY;
EL PASO MERCHANT ENERGY L.P.,
Intervenors.,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
AVISTA CORPORATION; AVISTA ENERGY; THE CITY OF
LOS ANGELES DEPARTMENT OF WATER AND POWER;
SEMPRA ENERGY; PUGET SOUND ENERGY; PINNACLE
WEST COS.; CONSTELLATION ENERGY COMMODITIES
GROUP, INC.; BP ENERGY Co.; TRACTEBEL ENERGY
MARKETING INC.; M-S-R PUBLIC POWER AGENCY;
MODESTO IRRIGATION DISTRiCT (MID); THE CITY OF
SANTA CLARA; CITY OF REDDING; CORAL POWER;
PPL ENERGYPLUS, LLC; PPL MONTANA,
Intervenors.
,
va
No. 0383-74769
CITY OF TACOMA, WASHINGTON,
Petttioner,
DUKE ENERGY NORTH AMERICA, LLC, DUKE ENERGY
TRADING AND MARKETING, LLC (COLLECTIVELY,
“DUKE ENERGY”); CALIFORNIA ATTORNEY GENERAL:
PORT OF SEATTLE,
Intervenors,
FEDERAL ENERGY REGULATORY COMMISSION.
Respondent,
[IDACORP ENERGY L.P.; PINNACLE WEST CAPITAL
CORPORATION; NORTHERN CALIFORNIA POWER
AGENCY; AVISTA ENERGY INC.; AVISTA CORPORATION;
M-S-R PUBLIC POWER AGENCY; PUBLIC SERVICE
COMPANY OF COLORADO; CITY OF LOS ANGELES
DEPARTMENT OF WATER AND POWER: SEMPRA ENERGY
TRADING CoORP.; PUBLIC SERVICE COMPANY OF NEW
MeExIco; PPL ENERGYPLUS; PPL MONTANA;
CORAL POWER, LLC,
Intervenors.
4a
No. 04-70110
PUGET SOUND ENERGY,
Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION.
Respondent,
DUKE ENERGY NORTH AMERICA, LLC, DUKE ENERGY
TRADING AND MARKETING, LLC (COLLECTIVELY,
“DUKE ENERGY”); CITY OF TACOMA, WASHINGTON;
CALIFORNIA INDEPENDENT SYSTEM OPERATOR
CORPORATION; PUBLIC SERVICE COMPANY OF
COLORADO; SEMPRA ENERGY TRADING CORP.; CITY OF
LOS ANGELES DEPARTMENT OF WATER AND POWER;
PINNACLE WEST CAPITAL CORPORATION, (PNW);
CORAL POWER, LLC; TRANSCANADA ENERGY LTD.;
WILLIAMS POWER COMPANY INC.; NORTHERN
CALIFORNIA POWER AGENCY (NCPA); PORT OF
SEATTLE WASHINGTON; M-S-R PUBLIC POWER
AGENCY; THE MODESTO IRRIGATION DISTRICT (“MID”),
THE CITY OF SANTA CLARA, CALIFORNIA (“SANTA
CLARA”) AND THE CITY OF REDDING, CALIFORNIA
(“REDDING”); CALIFORNIA ELECTRICITY OVERSIGHT
BOARD; ALCOA INC.; COLUMBIA FALLS ALUMINUM
COMPANY, LLC (“CFAC”); MORGAN STANLEY CAPITAL
GROUP, INC.; PACIFICCORP: PEOPLE OF THE STATE
OF CALIFORNIA, EX REL. BILL LOCKYER,
ATTORNEY GENERAL,
Applicants-Intervenors.
No. 04-7G185
PEOPLE OF THE STATE OF CALIFORNIA:
BILL LOCKYER, ATTORNEY GENERAL,
Petitioners.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
MORGAN STANLEY CAPITAL GROUP, INC..
Applicant-Intervenor
6a
No. 04-70703
PEOPLE OF THE STATE OF CALIFORNIA.
Petitioner.
CITY OF TACOMA, WASHINGTON:
PORT OF SEATTLE, WASHINGTON,
Intervenors.,
IDACORP ENERGY L.P.: CALIFORNIA ELECTRICITY
OVERSIGHT BOARD; TRANSCANADA ENERGY LTD.:
BENTON, FRANKLIN AND GRANT COUNTY, WASHINGTON
PUBLIC UTILITY DISTRICTS; THE CALIFORNIA
INDEPENDENT SYSTEM OPERATOR CORPORATION;
COLUMBIA FALLS ALUMINUM COMPANY, LLC:
ALCOA, INC.; PORTLAND GENERAL ELECTRIC COMPANY:
BONNEVILLE POWER ADMINISTRATION; POWEREX
CORP.; BENTON COUNTY; FRANKLIN COUNTY;
GRANT COUNTY, WASHINGTON,
Intervenors.
FEDERAL ENERGY REGULATORY COMMISSION.
Respondent,
BP ENERGY COMPANY: CONSTELLATION ENERGY
COMMODITIES GROUP, INC.; CITY OF LOS ANGELES
DEPARTMENT OF WATER AND POWER; SEMPRA ENERGY
TRADING CORP.; PUGET SOUND ENERGY, INC.; AVISTA
ENERGY, INC.; CORAL POWER, L.L.C.; NORTHERN
CALIFORNIA POWER AGENCY; THE M-S-R PUBLIC
POWER AGENCY; MODESTO IRRIGATION DISTRICT (MID):
CITY OF SANTA CLARA, CALIFORNIA; CITY OF REDDING,
CALIFORNIA; PINNACLE WEST COMPANIES; PUBLIC
SERVICE COMPANY OF COLORADO; PPL ENERGYPLUS,
LLC: PPL MONTANA, LLC; AVISTA CORPORATION,
Intervenors
No. 04-71189
CALIFORNIA PUBLIC UTILITIES COMMISSION,
Petitioner.
FEDERAL ENERGY REGULATORY COMMISSION.
Respondent.
Argued and Submitted Jan. 8. 2007
Filed Aug. 24, 2007
On Petition for Review otf an Order of the Federal
Energy Regulatory Commission.
KERC No. Federal Power Act, FERC No. EL-01-10.
Before: SIDNEY R. THOMAS, M. MARGARET
McKEOWN, and RICHARD R. CLIFTON, Circuit
Judges.
Opinion by Judge THOMAS: Concurrence by Judge
McKEOWN
THOMAS, Circuit Judge:
This 1s another in a series of cases arising out
of the energy crisis that occurred in California and
other western states in 2000 and 2001. We are asked
to review the decision by the Federal Energy Regula
tory Commission (“FERC” or “Commission”) to deny
refunds to wholesale buyers of electricity that pur
chased energy in the short-term supply market at
unusually high prices in the Pacific Northwest. We
are also asked to review FIERC’s decision to exclude
from any potential refund those transactions involv
ing energy purchased in the Pacific Northwest for
Ra
consumption in California. We conclude that we
have jurisdiction over IFERC’s decision to deny
refunds, and that FERC abused its discretion in
denying potential relief for transactions involving
energy that was ultimately consumed in California.
We also conclude that in determining whether re-
funds were warranted, FERC should have considered
new evidence of intentional market manipulation
submitted by the parties with FERC’s approval. At
this time, we decline to reach all other issues raised
by the parties. We grant the petitions for review
in part and remand this case to FERC to address
the market manipulation evidence, to include the
California-consumed energy in its analysis, and to
further consider its refund decision in lght of
related, intervening opinions of this court.
|
The California energy crisis serves as the backdrop
of this” litigation That crisis has been well.
documented, see, e.g., Pub. Utils. Comm'n of State of
Cal. v. FERC, 462 F.3d 1027, 1036-44 (9th Cir.2006)
(“Pub. Utils. Comm'n”); Bonneville Power Admin. v
FERC, 422 F.3d 908, 910-14 (9th Cir.2005) (“BPA”);
Cal. ex rel. Lockyer v. FERC, 383 F.3d 1006, 1008-11
(9th Cir.2004) (“Lockyer’), and a full recitation of its
history is unnecessary here.
In the mid-1990's, the California legislature de-
regulated the electricity market, ostensibly to reduce
energy prices for consumers. Act of September 23,
1996, 1996 Cal. Legis. Serv. 854 (codified at Cal,
Pub. Util.Code §§ 330-398.5). Shortly thereafter, for
a variety of reasons related to the deregulation and
other market factors, wholesale electricity prices
skyrocketed. In May 2000, for instance, average
prices in the California short-term supply market,
also known as the “spot market,” were twice as high
9a
as average prices in May 1999. Pub. Utils. Comm'n,
462 F.3d at 1040. In June 2000, the first in a series
of power blackouts occurred in Northern California,
potentially as the result of market manipulation. 7d.
The effects of this crisis were felt in other areas of
the western energy market as well, as “dysfunctions
in the spot markcts operated by the [California Indc-
pendent System Operator] and California Power
Exchange (PX) affected the prices in the Pacific
Northwest,” due to the “integrated nature of the
Western markets.” Puget Sound Energy, Inc., et al.,
103 FERC § 61,348 at 62,366-67 (2003) (“June 25,
2003 Order”). The Pacific Northwest is defined as
Idaho, Oregon, and Washington, as well as parts
of Montana, Nevada, Utah, and Wyoming. 16 U.S.C.
§ 839a(14). |
Prices in the Pacific Northwest spot market sky-
rocketed during the energy crisis. Other factors,
such as an extreme reduction in energy supply due to
drought, also contributed to the crisis in the Pacific
Northwest, a region that relies heavily on water flow
through hydroelectric dams to generate electricity.
Puget Sound Energy, Inc., et al., 96 FERC 4 63,044 at
65,385 (2001) (“September 24, 2001 ALJ Report’).
Unhke the California spot market, which operated
through a centralized power exchange using a central
clearing price, the Pacific Northwest spot market
operated through bilateral contracts negotiated in-
dependently between buyers and sellers, without a
central clearing price. June 25, 2003 Order, 103
FERC § 61,348 at 62,367. Most of these contracts
were entered into under the terms of the Western
Systems Power Pool (“WSPP”) Agreement, a stan-
dard form contract for electricity sales. September
24, 2001 ALJ Report. 96 FERC {| 63,044 at 65,386.
10a
Under the Federal Power Act (“FPA”), all rates
charged by a public utility — defined, confusingly, as
a nongovernmer .} entity, BPA, 422 F.3d at 917 —
must be “just and reasonable, and any such rate
or charge that is not just and reasonable is hereby
declared to be unlawful,” 16 U.S.C. § 824d(a). Under
§ 206 of the FPA, FERC has the authority to investi-
gate, on its own initiative or at the request of a com-
plaining party, whether a particular rate is “just and
reasonable.” Pub. Utils. Comm’n, 462 F.3d at 1045.
If FERC finds a rate “unjust, unreasonable, unduly
discriminatory or preferential,” it must determine a
just and reasonable rate and order that rate to be
“observed and in force.” 16 U.S.C. § 824e(a) (2004);
Pub. Utils. Comm’n, 462 F.3d at 1045. FERC may
also order sellers to pay refunds to those who bought
energy at the unjust or unreasonable rate. 16 U.S.C.
§ 824e(b) (2004); Pub. Utils. Comm’n, 462 F.3d at
1045. Such refunds are limited to a fifteen-month
period following the “refund effective date,” which is
a date FERC establishes that may be no earlier than
sixty days after the filing of the complaint or, in
the case of a § 206 proceeding instituted by FERC of
its own accord, sixty days after FERC publishes notice
of its intention to initiate the proceeding. 16 U.S.C.
§ 824e(b) (2004). FERC may not order any refunds
for the period before the filing of the complaint or the
sixty-day period immediately following that filing.
Id.; Pub. Utils. Comm’n, 462 F.3d at 1045.
Pursuant to the FPA, San Diego Gas & Electric
(SDG & E”) filed a complaint with FERC regarding
the skyrocketing energy prices in California. See
BPA, 422 F.3d at 912-13. Shortly thereafter, on
October 26, 2000, Puget Sound Energy (“Puget”) —
one of the parties now supporting FERC’s decision —
filed a complaint with FERC requesting price caps
lla
for sales of capacity or energy inte Pacific Northwest
wholesale power markets. Puget requested a pro-
spective price cap equal to the lowest cap established
by FERC in the California markets. Puget’s com-
plaint alleged that the California and Pacific North-
west markets were part of the same _ integrated
market of the Western Interconnection, and that
market conditions in California influenced market
conditions in the Pacific Northwest. The complaint
also requested that FERC set a refund effective date,
to the extent refunds were necessary, sixty days after
the filing of the complaint, or December 25, 2000, the
earliest possible refund effective date pursuant to
16 U.S.C. § 824e(b). FERC’s notice of the Puget
complaint was published in the Federal Register on
November 8, 2000, stating that “[t]he Complaint
seeks a refund effective date, to the extent any
refund is called for, of sixty days after the filing of
the Complaint.” Puget Sound Energy, Inc., et al.;
Electric Rate and Corporate Regulation Filings, 65
Fed.Reg. 66,986 (Nov. 8, 2000).
On December 15, 2000, shortly after finding that
prices in the California spot markets were unjust and
unreasonable, Pub. Utils. Comm'n, 462 F.3d at 1041;
San Diego Gas & Elec. Co., et al., 93 FERC 4 61,121
at 61,349 (2000), FERC dismissed Puget’s complaint,
San Diego Gas & Elec. Co., et al., 928 FERC 4 61,294
at 62,019 (2200) (“December 15, 2000 Order”). Puget
filed a timely request for rehearing on January 12.
2001. Or April 26, 2001, in response to the SDG & E
complaint, FERC imposed price caps on sales in the
California spot markets and instituted a “West-Wide
206 Investigation” into rates in spot markets outside
of California, believing that such rates might be un-
just and unreasonable. San Diego Gas & Elec. Co., et
al., 95 FERC § 61,115 at 61,365 (2001) (“April 26,
12a
2001 Order’). Then, on June 19, 2001, acknowledg-
ing that “the California market is integrated with
those of other states in the [West],” FERC adopted “a
market monitoring and mitigation plan for the [west-
ern] spot markets.” San Diego Gas & Elec. Co., et
al., 95 FERC 4 61,418 at 62,567-68 (2001) (“June
19, 2001 Order”). The “need for uniform pricing
throughout the Western region” made this plan nec-
essary. Id. at 62,568. FERC also ordered market
participants to engage in settlement discussions,
with the goal of settling past accounts. Jd. at 62,570.
Three days later, FERC clarified that the settlement
proceeding was not hmited to “California-related
matters” but could also focus on “setthng past
accounts related to sales in the Pacific Northwest.”
San Diego Gas & Elec. Co., et al., 95 FERC ¢ 61,425
at 62,583 (2001) (“June 22, 2001 Order’).
Also on June 22, 2001, Puget filed a motion to
dismiss and a notice that it was withdrawing its
complaint, explaining that the June 19, 2001 Order
instituting price mitigation in the Pacific Northwest
satisfied its complaint. On July 9, 2001, the Port of
Seattle and the City of Tacoma filed an answer
opposing Puget’s motion, explaining that a dismissal
would prejudice other entities in the Facific North-
west that relied on Puget’s complaint. On the same
day, the City of Seattle and the Attorney General of
Washington filed late motions to intervene as well
as answers in opposition to Puget’s notice of with-
drawal. Although it does not normally grant late
interventions, FERC granted the late motions to in-
tervene filed by the City of Seattle and the Attorney
General of Washington because “over the course of
the SDG & E proceeding, [FERC] has expanded the
scope of its focus from just California to include the
entire Western interconnect and also to implicate
13a
wholesale spot market transactions of non-public
utilities.” San Diego Gas & Elec. Co., et al., 96 FERC
161,120 at 61,504 (2001) (“July 25, 2001 Order’).
The next day, July 26, 2001, the Port of Seattle and
the City of Tacoma also filed late motions to inter-
vene in the Puget proceeding. FERC granted those
motions as well.
In its July 25, 2001 Order, FERC noted that there
had been little time during the California settlement
discussions to address issues raised by the Pacific
Northwest parties. Jd. at 61,520. Asa result, FERC
directed “all parties to the Puget Sound complaint
proceeding to participate in [a separate preliminary
evidentiary procecding] and to focus on settling past
accounts related to spot market sales in the Pacific
Northwest. Interested parties to the SDG & E pro-
ceeding may participate at their discretion.” Jd. at
61,520-21. The purpose of the “separate preliminary
evidentiary proceeding,” FERC explained, would be
to “facilitate development of a factual record on
whether there may have been unjust and unreason-
able charges for spot market bilateral sales in the
Pacific Northwest for the period beginning December
25, 2000 through June 20, 2001.” /d. at 61,520.
The preliminary evidentiary proceeding took place
from August 1, 2001, to September 17, 2001. The
administrative law judge (“ALJ”) expedited the pro-
ceeding by lmiting discovery responses to four busi-
ness days, prohibiiing depositions, and conducting a
three-day hearing in which cross-examination was
frequently waived. September 24, 2001 ALJ Report,
96 FERC 4 63,044 at 65,300. The AI.J found that
although prices in the Californ's energy markets
affected prices in the Pacific Northwest, “this was
not the only thing driving up the prices” there. Id.
at 65,370. The ALJ also found no evidence of the
14a
exercise of market power in the Pacific Northwest,
id. at 65,369, and found that the Pacific Northwest
spot market “performed as a competitive market”
during the relevant period, id. at 65,386. As a result,
the ALJ determined that prices were not unjust or
unreasonable and that refunds were unwarranted.
Id. at 65,3585. Toe ALJ also determined that transac-
tions wn the Pae:ic Northwest spot market involving
energy that was consumed in California could not
be refunded in the Pacitic Northwest proceeding be-
cause such transactions were beyond the scope of the
Puget complaint. Jd. at 65,331.
On May 6, 2002, FERC released on its website
documents relating to Enron’s manipulation of the
California energy markets. According to the parties
seeking refunds, this new evidence also reflected
on market manipulation in the Pacific Northwest
because some of Enron’s tactics relied on the import
and export of electricity to and from California and
the Pacific Northwest. The parties seeking refunds
also allege that Enron relied on counterpart energy
sellers in the Pacific Northwest to carry out its ma-
nipulative strategies.
In response to this newly-released evidence of
Enron’s intentional market manipulation, some of
the parties filed motions to reopen the evidentiary
record in the Puget complaint. On December 19,
2002, FERC agreed to reopen the evidentiary record,
giving the parties until February 28, 2003, to subrnit
“additional evidence concerning potential refunds for
spot market bilateral sales transactions in the Pacific
Northwest for the period January 1, 2000 through
June 20, 2001 and proposed new and/or modified
findings of fact.” Puget Sound Energy, Inc., et al.,
101 FERC 4 61,304 at 62,221 (2002) (“December 19,
2002 Order”). FERC latex extended the deadline for
lba
submitting additional evidence to March 17, 2003.
Puget Sound Energy, Inc., et al., 102 FERC 4 61,163
at 61,444 (2002).
After receiving the new evidence and holding oral
argument, FERC ruled on the ALJ’s findings. A
divided three-commissioner panel agreed with the
ALJ, denying the request for refunds for energy
purchases in the Pacific Northwest spot market.
June 25, 2003 Order, 103 FERC 4 61,348 at 62,367;
Puget Sound Energy, Inc., et al., 105 FERC 4 61,183
(2003) (“November 10, 2003 Order’). FERC did not,
however, respond to or take into account the new
evidence of Enron’s market manipulation submitted
with FERC’s approval. FERC also declined to make
an explicit finding as to whether spot market prices
in the Pacific Northwest were unjust or unreason-
able, instead concluding that even if prices were
unreasonable, the balance of factors tipped against
ordering refunds. June 25, 2003 Order, 103 FERC
“ 61,348 at 62,367. ‘These equitable tactors included,
inter alia, (1) the presence in the Pacific Norvnawest
market of governmental entities not subject to
FERC’s jurisdiction and thus not liable for refunds,
(2) the unfairness of awarding refunds to parties that
imprudently relied on the spot market for their
energy needs, (3) the adverse consequences refunds
might have on the market, and (4) the time and effort
required to calculate refunds in the Pacific North-
west bilateral spot market. /d. at 62,367-69. FERC
also affirmed the recommendation of the ALJ to
exclude from the refund proceeding transactions
involving energy that was ultimately consumed in
California. November 10, 2003 Order, 105 FERC
€ 61,183 at 61,964 n. 43; Puget Sound Energy, Inc., et
al., 106 FERC 4) 61,109 at 61,368 (2004) (“Febru: ~v
9, 2004 Order’). Commissioner Massey dissent:
16a
stating that he would order refunds from the refund
effective date, December 25, 2000, through June 20,
2001. June 25, 2003 Order, 103 FERC 4 61,348 at
62,370.
In this appeal, governmental entities from the
Pacific Northwest — the City of Seattle, the Port of
Seattle, and the City of Tacoma, all of which pur-
chased, on the whole, more electricity during the
energy crisis than they sold — petition for review of
FERC’s decision to deny refunds. The State of Cali-
fornia, the Public Utilities Commission of California,
and the California Electricity Oversight Board (“the
California Parties”), petition for review of FERC’s
decision to exclude from the refund proceeding
transactions involving energy that was ultimately
consumed in California, as well as FERC’s decision
to deny refunds. These parties will be referred to,
collectively, as the “Refund Proponents.” Supporting
FERC’s decision to deny refunds are the Bonneville
Power Administration, Puget — the public utility that
filed the initial complaint in this proceeding but
which now opposes refunds — and many other public
utility intervenors. These parties will be referred to,
collectively, as the “Refund Opponents.”
I]
We review FERC orders to determine whether they
are “arbitrary, capricious, an abuse of discretion, un-
supported by substantial evidence, or not in accor-
dance with law.” Cal. Dept of Water Res. v. FERC,
341 F.3d 906, 910 (9th Cir.2003). We defer to
FERC’s factual findings if those findings are sup-
ported by substantial evidence. 16 U.S.C. § 825/(b);
Bear Lake Watch, Inc. v. FERC, 324 F.3d 1071, 1076
(9th Cir.2003). Substantial evidence “‘means such
relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.” Bear Lake
l7a
Watch, 324 F.3d at 1076 (quoting Kichler v. SEC, 757
I 2d 1066, 1069 (9th Cir.1985)). “‘If the evidence is
susceptible of more than one rational interpretation,
we must uphold [FERC’s] findings.’” Jd. (quoting
Kichler, 757 F.2d at 1069) (alteration in original).
We review questions of law de novo. Am. Rivers v.
FERC, 201 F.3d 1186, 1194 (9th Cir.1999). FERC’s
interpretation of the FPA is reviewed under the
analysis established in Chevron U.S.A. Inc. v. Natu-
ral es. Def. Council, 467 U.S. 837, 842, 104 S.Ct.
2778, 81 L.Ed.2d 694 (1984), and its progeny, BPA,
422 F.3d at 914.
As a threshold matter, we must determine whether
we have jurisdiction to review FERC’s decision to
deny refunds for energy transactions in the Pacific
Northwest. FERC contends that we lack jurisdiction
to review its denial of refunds because this decision is
committed to agency discretion by law.
We lack jurisdiction to review “an agency’s decision
not to prosecute or enforce, whether through civil or
criminal process.” Heckler v. Chaney, 470 U.S. 821,
831, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985); 5 U.S.C.
§ 701(a)(2). This is because “an agency decision not
to enforce often involves a complicated balancing of
a number of factors which are peculiarly within its
expertise,’ such as questions about the best use of
the agency’s resources. Heckler, 470 U.S. at 831, 105
S.Ct. 1649. The Supreme Court has cautioned,
however, that this exception to judicial review is a
narrow one, id. at 838, 105 S.Ct. 1649; Citizens to
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402,
410, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), overruled
on other grounds by Califano v. Sanders, 430 U.S. 99.
97 S.Ct. 980, 51 L.Ed.2d 192 (1977), limited to those
situations in which there is no meaningful standard
against which to judge an agencys decision not to
l&a
act, Heckler, 470 U.S. at 830, 105 S.Ct. 1649. In
those situations, the concern is that courts should
not intrude upon an agency's prerogative to pick
and choose its priorities, and allocate its resources
accordingly, by demanding that an agency prosecute
or enforce. Thus, Heckler hmited the presumption
of unreview ability to “agency refusals to institute
investigative or enforcement proceedings.” Id. at 838,
105 S.Ct. 1649 (emphasis added). When an agency
has instituted proceedings, meaningful standards
exist to review what the agency has done: “when an
agency does act to enforce, that action itself provides
a focus for judicial review, inasmuch as the agency
must have exercised its power in some manner. The
action at least can be reviewed to determine whether
the agency exceeded its statutery powers.” /d. at
832, 105 S.Ct. 1649 (emphasis in original). See also
MCI Telecomms. Corp. v. FCC, 917 F.2d 30, 41-42
(D.C.Cir.1990) (“It is one thing for the FCC to decline
to investigate a tariff in the first place; that decision
is entrusted to its unreviewable discretion. It is quite
another for it to note the importance of a question
concerning a tariff, request and take evidence from
the parties, and hold a hearing on the matter... .”).
Accordingly, where FERC has made a determination
to adjudicate a dispute or take steps towards enforc-
ing a violation of the law, the outcome it chooses
is subject to judicial review under the standards of
review set forth in the Administrative Procedure Act
(“APA”). 5 U.S.C. § 706; Cal. Dep't of Water Res., 341
I.3d at 919,
That is the case here. FERC has already made a
decision to commit resources to an examination of
whether refunds are warranted for certain energy
transactions in the Pacific Northwest for a period of
time in 2000 and 2001. In response to the filing of a
19a
complaint, FERC has held hearings and taken evi
dence to adjudicate a dispute between the parties as
to whether refunds should be awarded, Although the
steps FERC has taken do not require FERC to find
that refunds are appropriate, FERC’s decision re.
garding the propriety of awarding refunds is review-
able by this court. Indeed, we regularly exercise
judicial review over FERC’s decision to grant or deny
refunds, Pub. Utils. Comm'n, 462 F.3d 1027 (review-
ing decision to grant refunds); Lockyer, 383 F.3d 1006
(reviewing decision to deny refunds); Consol. Edison
Co. of N.Y., Inc. v. FERC, 347 F.3d 964 (D.C.Cir.
2003) (reviewing decision to deny refunds), and we do
so here.
III
We also must decide whether FERC erred in find-
ing that Puget’s original complaint, which launched
the Pacific Northwest refund proceeding, was not
withdrawn as a matter of law in July 2001. If FERC
erred and the opinion was withdrawn, the entire
Pacific Northwest evidentiary proceeding before the
ALi, as well as FERC’s subsequent decision to deny
refunds, would be procedurally barred. If, on the
other hand, we determine that Puget’s complaint was
not withdrawn, we must decide whether the Puget
complaint failed to set a refund effective date, which
is a statutory requirement for seeking refunds. In
other words, Puget and the Refund Opponents ask us
to affirm the outcome below on procedural grounds,
rather than reach the merits. This we decline to do.
‘A
As a threshold matter, we conclude that Puget has
standing to assert this challenge, even though it was
the prevailing party before the agency. The FPA lim-
its judicial review to those parties who have been
“aggrieved by an order issued by the Commission.”
20a
16 U.S.C. § 825/(b). In addition, “[l]ike all parties
seeking access to the federal courts, [Puget is] held to
the constitutional requirement of standing.” Shell
Oil Co. v. FERC, 47 F.3d 1186, 1200 (D.C.Cir. 1995).
The D.C. Cireuit has held that both aggrievement
and standing require “that petitioners establish, at a
minimum, ‘injury in fact’ to a protected interest.” Jd
(interpreting the similar aggrievement requirement
of 28 U.S.C. § 2344).
“(Mjere disagreement with an agency's rationale
for a substantively favorable decision, even where
such disagreement focuses on an interpretation of
law to which a party objects, does not constitute the
sort of injury necessary for purposes of Article III
standing....” Jd. at 1202 (internal quotation marks
omitted). The general rule is that a party may not
appeal from a decree in its favor. Lindheimer uv.
Illinois Bell Tel. Co., 292 U.S. 151, 176, 54 S.Ct. 658,
78 L.Ed. 1182 (1934). There are, however, exceptions
to the general rule, one of which we find applicable
here. This is the exception for cross-appellants who
“might become aggrieved upon reversal on the direct
appeal.” Hilton v. Mumaw, 522 F.2d 588, 603 (9th
Cir.1975). In such a case, “the risk that Ja cross-
appellant] might become aggrieved upon reversal on
the direct appeal is sufficient” to confer standing,
even when “the final order from which the direct
appeal was taken was entirely favorable to cross-
appellants.” dd.
Puget undoubtedly prevailed before the agency:
indeed, it argues that FERC reached the correct
result in not granting refunds. Puget has standing,
however, because, while not technically bringing a
cross-appeal, it essentially finds itself in the position
of a cross-appellant who lost a collateral issue below
but ultimately prevailed. With the Refund Propo-
Mla
nents appealing FERC’s denial of refunds, FERC’s
collateral refusal to let Puget withdraw its complaint
would expose Puget to greater refund lability should
we reverse. Accordingly, under Hilton, the risk that
Puget “might become aggrieved upon reversal” allows
it to bring this appeal
B
Although it has standing to raise them, Puget’s
procedural arguments are unavailing. On June 19,
2001, FERC extended price mitigation beyond Cali-
fornia to the rest of the western states, including the
Pacific Northwest. June 19, 2001 Order, 95 FERC
{61,418 at 62,568. The June 19, 2001 Order also
required public utility sellers and buyers to engage in
settlement discussions to determine the amount of
refunds owed. /d. at 62.570. Three days later, on
June 22, 2001, FERC clarified that the settlement
discussions should not be limited to California enti-
tics but “may also focus on settling past accounts
related to sales in the Pacific Northwest.” June 22,
2001 Order, 95 FERC 4 61,425 at 62,583. On the
same day, Puget filed a motion to dismiss its com
plaint and notice of withdrawal
Puget contends that its notice of withdrawal of the
complaint upon which the Pacific Northwest refund
proceeding is based became effective as a matter of
law fifteen days after Puget filed the notice, nullify-
ing the entire refund proceeding at issue in this case
Puget’s argument is that although some Refund Pro-
ponents filed motions in opposition to Puget’s notice,
these motions 1n opposition could not have prevented
Puyet’s withdrawal from going into effect because the
Refund Proponents were not, at that time, parties to
the proceeding. Because we must defer to FERC’s
interpretation of its own regulation “so long as [the
interpretation] is not »lainly erroneous or inconsis
22a
tent with the regulation,” Entergy Servs., Inc. v.
FERC, 375 F.8d 1204, 1209 (D.C.Cir.2004) (internal
quotation marks omitted), we disagree.
FERC’s regulations provide that a withdrawal “of
any pleading is effective at the end of 15 days from
the date of filing ... if no motion in opposition to
the notice of withdrawal is filed within that period
and the decisional authority does not issue an order
disallowing the withdrawal within that period.” 18
C.F.R. § 385.216(b)(1). If, on the other hand, “a
motion in opposition to a notice of withdrawal is filed
within the 15 day period, the withdrawal is not effec
tive until the decisional authority issues an order
accepting the withdrawal.” Id. § 385.216(b)(2).
Puget contends that although the Refund Proponents
opposed Fuget’s notice, this opposition was not effec-
tive because another regulation states that motions
may be filed only by “a participant or a person who
has filed a timely motion to intervene which has not
been demied.”! Jd. § 385.212(a)(2). The regulations
in turn define “participant” as “any party” or any
employee of the Commission. /d. § 385.102(b). A
“party” is one who has filed the complaint, is a
respondent to the proceeding, or who has effectively
intervened. /d. § 385.102(c). The process of inter-
vening, not particularly relevant here, 1s laid out at
8 C.F.R. § 385.214.
FERC has interpreted 18 C.F.R. § 385.216(b)(1) as
placing no limitation on who may oppose a party’s
notice ot withdrawal June 25, 2003 Order, 103
\Ithough the lanvuayve permitting “a person who has filed a
timely motion to intervene which has not been denied.”i8 C.F.R
§ 385.212(a)(2) (emphasis added), might apply to someone not
yet officially a “participant” or “party,” none of the Refund Pro
ponents would fall into this category Secause their motiotis to
intervene were filed out of tim:
23a
FERC 4 61,348 at 62,365 n. 19. In the alternative,
FERC also interpreted the regulations as permitting
a non-party to oppose the withdrawal of a complaint
by simultaneously filing a motion in opposition to
withdrawal as well as a motion to intervene. /d.:
November 10, 2003 Order, 105 FERC 4 61,183 at
61,958-59. In that situation, according to FERC,
even if FERC did not grant the motion to intervene
until a later date, it could have granted the motion to
intervene on the day both motions were filed, thus
making the non-party an intervening party capable
of filing a motion in opposition under 18 C.F.R.
§ 385.212(a)(2). June 25, 2003 Order, 103 FERC
* 61,348 at 62,365 n. 19: November 10, 2003 Order,
105 FERC {4 61,183 at 61.958-59. Accordingly, be-
cause the Attorney General of Washington and the
City of Seattle filed, on July 9, 2001, simultaneous
motions to intervene and motions in opposition to the
withdrawal, November 10, 2003 Order, 105 FERC
{| 61,183 at 61,958 n. 13, FERC rejected Puget’s ar-
sument that its complaint had been withdrawn as a
matter of law fifteen days after Puget filed its notice
of withdrawal, id. at 61,958-59.”
We see no error in FERC’s interpretation of its own
regulations. The regulation addressing notices of
withdrawal does not explicitly state that opposition
to such notices may be made only by formal parties
to the proceeding. 18 C.F.R. § 385.216(b)(1). FERC
did not err 1n treating the Attorney General of Wash-
ington and the City of Seattle as intervenors for pur-
« The City of Tacoma and the Port of Seattle did not file their
motions to intervene in the Pacific Northwest proceeding until
July 26, 2001, nearly three wecks after filing their motions in
opposition to the withdrawal. ‘They had, however, intervened in
the California refund proceeding at the time they opposed
Puget's notice of withdrawal
24a
poses of opposing Puget’s notice of withdrawal. We
also find support for FERC’s decision in the fact that
FERC granted the City of Tacoma and the Port of
Seattle party status in the California refund proceed-
ing on July 9, 2001. See Domtar Maine Corp. uv.
TERC, 347 F.3d 304, 809 (D.C.Cir.2003) (permitting
retroactive grant of intervention). Given the extremely
close ties between the California proceeding and the
Pacific Northwest proceeding, and FERC’s frequent
treatment of the two refund proceedings as one and
the same, see, e.g., June 22, 2001 Order, 95 FERC
§, 61,425 at 62,583 (using the SDG & E heading and
clarifying that “all parties to the SDG & E complaint
proceeding ... may also focus on settling past accounts
related to sales in the Pacific Northwest’), FERC
could also have accepted the opposition motions of
Tacoma and the Port of Seattle as filed by parties to
the proceeding. For these reasons, we hold that the
withdrawal of Pugcet’s complaint did not become effec-
tive as a matter of law, and FERC may use the com-
plaint as a basis for awarding refunds in the Pacific
Northwest.
C
The Refund Opponents supporting Puget further
argue the Pacific Northwest proceeding was proce-
durally doomed because Puget’s complaint did not
request a required “refund effective date,” thus strip-
ping FERC of any authority to order refunds for elec-
tricity purchases in the Pacific Northwest. We reject
this argument as well.
Congress has provided that “[w]henever [FERC]
institutes a proceeding under this section, [FERC]
shall establish a refund effective date.” 16 U.S.C.
§ 824e(b) (2004). This refund effective date may
not be earlher than sixty days after the filing of a
complaint or the filing of a notice by FERC that it
25a
intends to investigate rates sua sponte.’ Jd. The re-
fund effective date is important because any refunds
ordered by FERC are limited to the fifteen-month pe-
riod following the refund effective date. 7d. Without
a refund effective date, the entire Pacific Northwest
proceeding would have been moot because FERC
would have been powerless to order refunds for the
period sought by the Refund Proponents.
The Refund Opponents argue that Puget’s com-
plaint never requested refunds or the setting of a
refund effective date. To the contrary, Puget’s com-
plaint clearly stated that “|Puget] requests that any
refunds ordered by the Commission reflect the pro-
spective nature of the relief sought. If and to the ex-
tent any refund is called for in response to {Puget’s|
petition, |Puget] respectfully requests that the refund
effective date be sct ... sixty (60) days after the date
of filang of this Complaint.”
In the alternative, the Refund Opponents argue
that because FERC dismissed Puget’s complaint on
December 15, 2000, December 15, 2000 Order, 93
FERC § 61,294 at 62,019-20, FERC prevented the
establishment of a refund effective date even though
Puget filed a petition for rehearing on January 12.
2001. In other words, they argue that buyers and
sellers in the Pacific Northwest spot market could
not have been on notice that December 25, 2000, may
serve as the effective date for refunds because the
complaint requesting that date was dismissed prior
to December 25, 2000. This argument fails for two
reasons. First, market participants in the Pacific
* Amendments effective August 8, 2005. removed the sixty-
day waiting period, permitting the refund effective date to be
set as early as the date the complaint is filed or the date the
Commission files notice of its investigation. 16 U.S.C. § 824e(b)
(2006).
26a
Northwest were notified prior to FERC’s dismissal of
the complaint that Puget had requested a refund
effective date of December 25, 2000. FERC itself
created a “Notice of Complaint,” which stated that
Puget’s complaint “seeks a refund effective date, to
the extent any refund is called for, of sixty days after
the filing of the Complaint.” FERC’s notice also ex-
plained that “[clopies of this filing were served upon
parties to the WSPP, and transmitted electronically
to the WSPP for posting on its website (www.wspp.
org) and for electronic distribution to all parties to
the WSPP Agreement.” In addition, this notice was
published in the Federal Register on November 8,
2000. 65 Fed. Reg. 66,986.
Second, the FPA does not support the contention of
the Refund Opponents. On the one hand, the FPA
provides that if FERC does not respond to an apphi-
cation for rehearing within thirty days after filing,
the application “may be deemed to have been denied.”
16 U.S.C. § 825l/(a) (emphasis added). FERC’s regu-
lations make this denial automatic, stating that
“lujnless [FERC] acts upon a request for rehearing
within 380 days after the request is filed, the request
is denied.” 18 C.F.R. § 385.713(f). On the other
hand, the statute also states that until the record is
filed with the court of appeals, FERC may at any
time, with reasonable notice, modify or set aside any
finding or order it has made. 16 U.S.C. § 825l/(a).
Thus, even if Puget’s rehearing request was denied
as a matter of law thirty days after it was filed, this
denial did not strip FERC of its ability to change its
mind and modify its decision in the June 25, 2003
Order.
Moreover, we have already explained that petitions
for rehearing keep market participants on notice that
an alternative refund effective date, once rejected by
27a
FERC, might in the future be made the refund effec-
tive date. Pub. Utils. Comm’n, 462 F.3d at 1047
(“Further, some of the California Parties promptly
sought rehearing of FERC’s initial determination of
the refund effective date in its August 23, 2000
Order. In short, market participants were quickly
apprised that the original refund effective date might
be subject to revision.”). Here, Puget filed a petition
for rehearing challenging FERC’s order dismissing
its complaint. Thus, sellers in the Pacific Northwest
— who were already on notice of Puget’s complaint
requesting a refund effective date — were sufficiently
on notice that Puget’s complaint and its attendant
refund effective date were still potentially viable be-
cause Puget filed a petition for rehearing. Any rell-
ance by sellers on the lack of a refund effective date
““prior to the issuance of a final order was at their
own risk.” /d. (quoting December 19, 2001 Order, 97
FERC 461,275 at 62,198).
Finally, the Refund Opponents argue that FERC
was required to set a refund effective date, if at all,
before instituting a § 206 refund proceeding. FERC
acknowledges in its brief that “[t]he Commission
never established an FPA § 206(b) refund effective
date for this matter ....” However, the plain lan-
guage of the FPA does not place any restriction on
when FERC may set the refund effective date.
Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076,
1081 (9th Cir.1999) (“Where the meaning of a statute
is clear from the text, we need look no further.”).
Rather, the statute states that “[wJhenever the
Commission institutes a proceeding under this sec-
tion, the Commission shall establish a refund effec-
tive date.” 16 U.S.C. § 824e(b). The statute man-
dates the establishment of an effective date, but it
does not mandate when FERC must establish it. To
28a
the extent the word “institutes” 1s ambiguous, con-
noting both «hat the date shall be established at the
time the proceeding begins and that the date shall be
established anytime FERC is involved in such a pro-
ceeding, we owe deference to FERC’s interpretation
of the ambiguous language. Chevron, 467 U.S. at
842-43, 104 S.Ct. 2778. FERC made clear its inter-
pretation when it announced that the statute would
permit FERC to set the refund effective date at De-
cember 25, 2000. June 25, 2003 Order, 103 FERC
{| 61,348 at 62,366 n. 25.
FERC’s interpretation, which would permit it to set
the refund effective date at any time, Is consistent
with the overall framework of the statute, which in-
dicates the primary concern of Congress was to afford
notice to market participants of the period of time
during which they may be lable for refunds. ‘The
sixty-day rule provides notice to the market that if
FERC ever decides to order refunds based on a given
complaint, those refunds could cover a period begin-
ning sixty days after the filing of that complaint, and
no earlier. This is a permissible construction of the
statute, and is supported by our prior decision re-
garding the California proceeding, in which we found
that the “key question is whether the SDG & E com-
plaint afforded sufficient notice to alert market par-
ticipants that sales and purchases might be subject
to refund.” Pub. Utils. Comm'n, 462 F.3d at 1046.
That opinion made clear that FERC has some discre-
tion in setting “‘the earliest refund effective date
allowed in order to give maximum protection to con-
sumers,” id. (quoting December 19, 2001 Order, 97
FERC 4 61,275 at 62,198), as long as that protection
is balanced against fairness to market participants
by providing them with the notice necessary to
29a
change their practices prior to the date refunds
might start to accrue.
In sum, we reject the procedural challenges raised
by the Refund Opponents and hold that Puget’s com-
plaint requested a refund effective date, FERC’s dis-
missal of Puget’s complaint did not disturb FERC’s
ability to set the refund effective date, and FERC
was not required to formally set the refund effective
date prior to instituting a § 206 refund proceeding.
We also hold that Puget’s complaint was not with-
drawn as a matter of law because the Refund Propo-
nents timely opposed Puget’s notice of withdrawal.
Accordingly, FERC had the authority to order re-
funds for transactions in the Pacific Northwest spot
market during the permissible time period, although
it declined to do so on the merits.
IV
The California Parties challenge FERC’s decision
to exclude from the Pacific Northwest refund pro-
ceeding purchases of energy made by the California
“nergy Resources Scheduling (““CERS”) division in
the Pacific Northwest spot market. CERS, a division
of the California Department of Water Resources,
began purchasing wholesale power on behalf of Calli-
fornia consumers in the California and Pacific North-
west spot markets during the energy crisis. See Pub.
Utils. Comm'n, 462 F.3d at 1042. FERC ruled that
the CERS transactions were outside the scope of the
Pacific Northwest refund proceeding because the
Puget complaint, on which the proceeding was based,
focused on sales of energy “into” the Pacific North-
west, whereas purchases made by CERS were actu-
ally purchases “into” California, where the energy
was consumed. November 10, 2003 Order, 105 FERC
4} 61,183 at 61,964 n. 43. In addition, FERC adopted
the ALJ’s finding that the CERS deliveries of energy
i tl te —— es
30a
took place in California, not in the Pacific Northwest.
Id. FERC reaffirmed this decision when it denied the
California Parties’ request for rehearing. February 9,
2004 Order, 106 FERC {| 61,109 at 61,368 (“Clearly,
Puget’s complaint focus was on transactions into the
Pacific Northwest, and as the ALJ explained, the bi-
lateral transactions involving CERS were sales into
California and not into the Pacific Northwest.”). The
February 9, 2004 Order also claimed that the ALJ
had found that a witness for CERS testified that
deliveries actually occurred in California, not in the
Pacific Northwest. Jd.
We cannot accept such a constrained reading of the
Puget complaint. First, FERC’s factual finding that
the energy purchased by CERS was delivered in Call-
fornia is not supported by substantial evidence. The
ALJ never explicitly found that a CERS witness ad-
mitted that the energy deliveries took place in Cali-
fornia. The section in which the Al«J discusses the
CERS witness is actually a recitation of arguments
made by the Refund Opponents. September 24, 2001
AL] Report, 96 FERC 4 63,044 at 65,312. By con-
trast, the ALJ’s recommendations focus solely on the
scope of the Puget complaint. /d. at 65,331. The
ALJ's proposed findings of fact state that deliveries
took place in California without mentioning the
CERS witness and without clarifying the basis for
this proposed finding. Jd. at 65,385-86 (Proposed
Findings of Fact 2 and 28). FERC, on the other
hand, cites to pages in the transcript of the ALJ
evidentiary proceeding where a CERS employee
confirmed that physical delivery is taken within the
control area of the Los Angeles Department of Water
and Power. The record shows, however, that even if
physical delivery of the energy took place in Califor-
nia, the legal change of ownership of the energy
31a
occurred, pursuant to the Confirmation Agreement,
at interconnections located within the Pacific North-
west. There is no evidence in the record suggesting
that the change of ownership occurred in California,
rather than in the Pacific Northwest.
Furthermore, FERC’s attempt to distinguish be-
tween the location where a change of ownership of
electricity occurs and the location where that electric-
ity physically changes hands is not supported by e1-
ther the law or the governing contractual agreements
between CERS and energy sellers in the Pacific
Northwest.
Having established that FERC could not have
found, on this record, that the CERS purchases
occurred in California, we must determine whether
sales to.CERS were outside the scope of the Pacific
Northwest refund proceeding even if the legal change
of ownership occurred in the Pacific Northwest. In
so doing, we are mindful that we owe deference to
FERC’s interpretation of the scope of Puget’s com-
plaint. Amerada Hess Pipeline Corp. v. FERC, 117
F.3d 596, 604 (D.C.Cir.1997); Burlington N. R.R. Co.
v. ICC, 985 F.2d 589, 595 (D.C.Cir.1993).
We conclude that FERC’s interpretation of the
scope of Puget’s complaint is arbitrary, capricious,
and an abuse of discretion. On its face, Puget’s com-
plaint provides no indication of an intent to exclude
refunds for energy purchased in the Pacific North
west spot markct for consumption outside the geo-
graphical area. The complaint petitioned FERC to
cap prices at which sellers subject to FERC’s jurisdic-
tion “may sell capacity or energy into the Pacific
Northwest's wholesale power markets. [Puget] seeks
an order that prospectively caps the prices for whole-
sale sales of energy or capacity into the Pacific
Northwest ”" This language indicates that the
32a
complaint was concerned with (1) sellers who were
(2) selling energy in the Pacific Northwest market.
The complaint is silent as to any constraint on the
would be consumed.
FERC’s interpretation of Puget’s complaint is also
inconsistent with its prior interpretation of the com-
plaint filed by SUG & E in the California proceeding.
That complaint similarly petitioned FERC “for an
emergency order capping ... the prices at which sell-
ers subject to its jurisdiction may bid energy or ancil-
lary services into California’s two large bulk-power
markets ....” (Emphasis added.) In contrast to
its interpretation of the Puget complaint, FERC did
not interpret the California complaint as limiting
refunds to entities that purchased energy for ulti-
mate consumption in California, and in fact some
parties who benefitted from refunds in the California
proceeding did not consume the fruits of their pur-
chases in Cahfornia. FERC’s interpretation of the
California complaint is the better one, and one upon
which we relied, and its conflicting interpretation of
a similar complaint in a similar refund proceeding
renders its subsequent interpretation unworthy of
deference. Koch Gateway Pipeline Co. v. FERC, 136
F.3d 810, 815-16 (D.C.Cir.1998) (“[W]here an agency
treats similar situations differently without reasoned
explanation, its decision will be vacated as arbitrary
and capricivuus.”’). Both complaints served to notify
all sellers of energy in the respective markets that
they may be lable for refunds for sales of energy in
those markets, regardless of where the energy would
be consumed.
In addition, FERC argued in the SDG & E case
that the CERS transactions were the subject of other
regulatory proceedings. Pub. Utils. Comm'n, 462
38a
F.3d at 1064. Other entities pointed to the Pacific
Northwest proceeding to argue that the CERS trans-
actions were outside the scope of the California pro-
ceeding. We accepted these arguments and excluded
the CERS transactions from that case. Jd. at 1063
64. It would be inconsistent with our reasoning to
exclude the transactions from the California proceed-
ing based in substantial part on the existence of this
proceeding involving the Pacific Northwest market.
and then to exclude the transactions from this pro-
ceeding based on the argument that the transactions
were conducted in the California market.
We therefore conclude that FERC must, on remand,
include the CERS transactions when it determines
whether refunds are warranted for sales in the
Pacific Northwest spot market.
V
Finally, we must determine whether FERC was
required to take into account evidence of market
manipulation filed by the parties after the ALJ hear-
ing. FERC permitted the Refund Proponents to
submit new evidence of market manipulation that
emerged after the AlLJ’s evidentiary proceeding.
December 19, 2002 Order, 101 FERC 4 61,304 at
62,221 (“We will allow the movants and other parties
In this proceeding to conduct additional discovery for
the period January 1, 2000 to June 20, 2001.”). The
Refund Proponents argued that new evidence had
emerged as a result of various investigations into the
practices of Enron. /d. at 62,219. See Lockyer, 383
F.3d at 1015 (explaining many of Enron’s manipulat-
ive tactics). Despite a great deal of new evidence
submitted to FERC in the spring of 2003, however,
FERC failed to take any of it into account, relying
instead on the Al.J’s factual findings from September
2001, which were made prior to the Enron revela-
34a
tions. See June 25, 2003 Order, 103 FERC 4 61,348
at 62,366-70. Regarding the new evidence, FERC’s
subsequent order denying rehearing stated merely:
“In reaching its decision to terminate the proceeding,
the Commission considered the complete record,
including the material submitted in the March 2003
filings.” November 10, 2003 Order, 105 FERC
*_ 61,183 at 61,960.
In order for an agency to avoid making an arbi
trary and capricious determination, it must “examine
the relevant data and articulate a satisfactory expla-
nation for its action including a ‘rational connection
between the facts found and the choice made.’”
Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 48, 103 S.Ct. 2856, 77
L.Ed.2d 443 (1983) (quoting Burlington Truck Lines,
Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239,
9 L.Ed.2d 207 (1962)). An agency’s ruling will be
deemed arbitrary and capricious where the agency
“entirely failed to consider an important aspect of the
problem |or] offered an explanation for its decision
that runs counter to the evidence before the agency.”
ld. See also La. Pub. Serv. Comm'n v. FERC, 184
F.3d 892, 898 (D.C.Cir.1999) (requiring FERC to
examine submitted data); Laclede Gas Co. v. FERC,
997 F.2d 936, 948 (D.C.Cir.1993) (requiring FERC to
provide adequate explanation). Moreover, an agency
must account for evidence in the record that may
dispute the agency’s findings. Universal Camera
Corp. v. Natl Labor Relations Bd., 340 U.S. 474, 488,
71 S.Ct. 456, 95 L.Ed. 456 (1951) (“The substantiality
of evidence must take into account whatever in the
record fairly detracts from its weight.”).
Given these requirements, FERC’s failure to con-
sider or examine the new evidence showing inten-
tional market manipulation in California and its
85a
potential ties to the Pacific Northwest was arbitrary
and capricious. The Refund Proponents argue that
the new evidence suggests, among other things, that:
sellers of electricity in the Pacific Northwest were
involved in schemes to withhold energy and to assist
Kknron in creating false congestion; Enron used
markets outside of California in order to advance its
tactics in California; Enron may have implemented
fraudulent schemes outside California markets; and
utilities in the Pacific Northwest violated posting
requirements in transactions with Enron. Even
assuming all of these transactions occurred in the
California spot market, the fact that Pacific North-
west seilers were apparently involved in Enron’s
manipulation indicates that FERC must at least
consider the possibility that the Pacific Northwest
spot market was not, as the Al.J found, functional
and competitive. June 25, 2003 Order, 103 FERC
{ 61,348 at 62,366-67. FERC’s findings, based on the
record established by the ALJ in 2001, “that other
factors related to supply and demand fundamentals
contributed to the dramatic prices in the region,” id.
at 62,367, and that “no evidence of such ‘lawlessness'
has been shown with regard to any specific transac-
tion in the Pacific Northwest spot market,” Novem-
ber 10, 2003 Order, 105 FERC 4 61,183 at 61,966,
must be reevaluated in light of this evidence.
Moreover, we reject the contention by the Refund
Opponents that FERC need not consider the new
evidence because FERC already is addressing market
manipulation in separate proceedings focusing on
misconduct. Not only did FERC fail to rely on this
reasoning below, see Laclede Gas Co., 997 F.2d at 945
(FERC order “must stand or fall on the grounds
articulated by the agency in that order”) (internal
quotation marks omitted), but we have already held
36a
that FERC’s’ prosecutorial investigations cannot
justify the denial of relief in contested adjudications
before the Commission, Pub. Utils. Comm'n, 462 F.3d
at 1048-51. Accordingly, we remand to permit FERC
to examine this new evidence of market manipula-
tion in detail and account for it in any future orders
regarding the award or denial of refunds in the
Pacific Northwest proceeding. FI3RC may also find
it necessary to call for additional fact-finding if the
record evidence of market manipulation is not suffi-
cient to enable FERC to make a reasoned decision.
In view of this remand, we offer no opinion on FERC’s
findings based on the record established by the ALJ.
Vi
At this juncture we find it preferable to reserve
judgment on other issues raised by the parties. As
such, we decline to reach the merits of FERC’s ulti-
mate decision to deny refunds but urge the Commis-
sion to further consider its decision, on remand,
in light of the related decisions of this court that
followed FERC’s final orders in the Pacific Northwest
proceeding.
PETITION GRANTED IN PART; DENIED IN
PART; REMANDED. Each party shall pay its own
costs on appeal.
McKEOWN, Circuit Judge, concurring:
I concur in the opinion and the result, with the
exception of the question of whether Puget Sound
Energy is an “aggrieved party.” Puget lacks standing
because it was granted all the relhef it sought (e.,
FERC granted price mitigation in the Pacific North-
west proceeding), and thus Puget is not “aggrieved”
within the meaning of 16 U.S.C. § 825l(b). On this
point, | agree with FERC’s position. A party seeking
‘
a
appeal must establish, at a minimum, “Injury 1n fact”
to a protected interest. Shell Oil Co. v. FERC, 47
F.3d 1186, 1200 (D.C.Cir.1995). Puget has not done
SO.
38a
FEDERAL ENERGY REGULATORY COMMISSION
San Diego Gas & Electric Company (Complainant)
v. Sellers of Energy and Ancillary Service Into
Markets Operated by the California Independent
System Operator Corporation and the California
Power Exchange (Respondents), Docket Nos. ELOO-
95-004, ELOO-95-005, ELOO-95-019 and ELOO-95-
031
Investigation of Practices of the California Independ-
ent System Operator and the California Power
Exchange, Docket Nos. ELO0-98-004, ELOO-98-005,
ELOO-98-018 and ELO0-98-030
Puget Sound Energy, Inc. (Complainant) v. All Juris-
dictional Sellers of Energy and/or Capacity at
Wholesale Into Electric Energy and/or Capacity
Markets in the Pacific Northwest, Including
Parties to the Western Systems Power Pool] Agree-
ment (Respondents), Docket Nos. ELO1-10-000 and
ELO1-10-001
Order Establishing Evidentiary Hearing Procedures,
Granting Rehearing in Part, and
Denying Rehearing in Part
(Issued July 25, 2001)
Before Commissioners: Curt Hebert, Jr., Chairman:
William L. Massey, Linda Breathitt, Pat Wood, III
and Nora Mead Brownell.
This order establishes the scope of and methodol-
ogy for calculating refunds related to transactions 10
the spot markets operated by the California Inde-
pendent System Operator Corporation (ISO) and the
39a
California Power Exchange Corporation (PX) during
the period October 2, 2000 through June 20, 2001.
The Commission makes clear that transactions sub-
ject to refund are limited to spot transactions in the
organized markets operated by the ISO and PX dur-
ing the period October 2, 2000, through June 20,
2001, and include sates by public and non-public
utilities into these markets. The order also estab-.
lhshes an evidentiary hearing proceeding in order to
further develop the factual record in Docket No.
ELOO-95-031, et al., so that refunds may be calcu-
lated. The order grants rehearing in part and denies
rehearing in part of limited portions of earlier orders
issued in this proceeding. In addition, the Commis-
sion establishes another proceeding before an Admin-
istrative Law Judge to explore whether there may
have been unjust and unreasonable charges for spot
market sales in the Pacific Northwest from December
25, 2000 through June 20, 2001, and the calculation
of any refunds associated with such charges.
Background
In an order issued August 23, 2000,' the Commis-
sion instituted formal hearing proceedings under Sec-
tion 206 of the Federal Power Act (FPA) to investi-
gate the justness and reasonableness of the rates for
energy and ancillary services of public utility sellers
into the ISO and PX spot markets, and also to inves-
tigate whether the tariffs, contracts, institutional
structures, and bylaws of the ISO and PX were ad-
versely affecting the wholesale power markets in
California. In instituting an investigation into the
reasonableness of the rates charged, however, the
| San Diego Gas & Electric Company, et al., 92 FERC
4 61.172 (2000), rehg pending (August 23 Order)
40a
Commission denied a request by San Diego Gas and
Electric Company (SDG&E) contained in SDG&E’s
complaint against all seliers of energy and ancillary
services into the ISO and PX markets subject to the
Commission's jurisdiction, that the Commission im-
pose a $250 price cap for sales into those markets.
The Commission denied this request in the August
23 Order, on the grounds that SDG&E had not pro-
vided sufficient evidence to support an immediate
seller’s price cap.2. The Commission established a
refund effective date of 60 days after publication of
notice in the Federal Register of the Commission’s
intent to institute a proceeding.*
The Commission issued an order on November 1,
2000 finding that the “electric market structure and
market rules for wholesale sales of electric energy
in California were seriously flawed and that these
structures and rules, in conjunction with an im-
balance of supply and demand in California, have
caused, and continue to have the potential to cause,
unjust and unreasonable rates for short-term energy
. under certain conditions.”* The order noted that,
[(w]hile this record does not support findings of spe-
cific exercises of market power, and while we are not
able to reach definite conclusions about the actions of
individual sellers, there is clear evidence that the
Cahfornia market structure and rules provide the
opportunity for sellers to exercise market power
“
“92 FERC at p. 61,606.
> Id. at p. 61,608.
41 San Diego Gas & Electric Company, et al., 93 FERC
"161,121, at pp. 61,349-50 (2000), reh'g pending (November |
Order)
4la
when supply is tight, and can result in unjust and
unreasonable rates under the FPA.”
To deal with these flaws, the November 1 Order
proposed remedies intended to reduce over-reliance
on spot markets in California, and attempted “to
balance, on the one hand, holding overall rates to
ievels that approximate competitive market levels
for the benefit of consumers, with, on the other hand,
inducing sufficient investment in capacity to ensure
adequate service for the benefit of consumers.”6 The
November 1 Order changed the refund effective date
contemplated in the August 23 Order from 60 days
after publication of notice in the Federal Register,
October 29, 2000, to 60 days after the date of
SDG&E’s complaint, October 2, 2000. The order also
contained extensive discussion of the Commission's
authority to direct refunds, for the periods both before
and after the refund effective date, and concluded
that the Commission is not authorized by the FPA to
order refunds prior to the October 2 refund effective
date. Several parties sought rehearing of this aspect
of the November 1 Order.’
The Commission adopted many of the proposed
remedies presented in the November 1 Order in an
order issued December 15, 2000.8 The December 15
° Id. at p. 61,350.
6 Jd.
’ See, e.g., requests for rehearing of the California Electricity
Oversight Board (Oversight Buard), the Public Utilities Com-
mission of the State of California (California Commission),
PG&E, SoCal Edison, and the City of San Diego. Other deter-
minations in the November 1 Order are also pendiny rehearing;
these issues will be addressed in a future order.
8 San Diego Gas & Electric Co., et al., 93 FERC 4 61,294
(2000), reh’g pending (December 15 Order).
42a
Order reiterated the earher findings that the market
structures and rules for wholesale sales of electric
energy in California were seriously flawed and that
these structures and rules, in conjunction with an
imbalance of supply and demand in California, had
caused, and continued to have the potential to cause,
unjust and unreasonable rates for short-term energy
under certain conditions. The Commission, therefore,
established a variety of remedies for the California
wholesale electric markets, including, in part: (1)
eliminating the requirement that the IOUs sell all of
their generation into and buy all their energy needs
from the PX so as to terminate the overreliance on
spot markets; (2) adopting an advisory benchmark
for assessing prices of long-term electric supply
contracts in order to provide guidance for market
participants to evaluate the reasonableness of long-
term prices; (3) requiring market participants to
preschedule 95 percent of their load prior to real time
and penalizing those who do not, so as to eliminate
market participants’ chronic underscheduling with
the ISO; and (4) requiring an independent governing
board for the ISO.
As an interim measure, the Commission also estab-
lished a $150/MWh breakpoint under which public
utility sellers bidding above the breakpoint receive
their actual bids, but are subject to monitoring and
reporting requirements to ensure that rates remain
just and reasonable, including the potential for
having to pay refunds for prices charged above the
breakpoint. The December 15 Order also required
the development of a longer term mitigation plan to
replace the interim breakpoint methodology by May
1, 2001. In a separate order, the Commission estab-
lished a settlement conference to facilitate forward
A3a
contracting by California investor owned utilities.’
The Chief Administrative Law Judge convened dis-
cussions over five days in December 2000 and Janu-
ary 2001.
On January 23, 2001, the Director of the Division
of Energy Markets in the Office of Markets, Tariffs
and Rates convened a technical conference to develop
a plan to replace the interim $150/MWh break-point
price. Comments and reply comments on how to
replace the interim break-point were filed with the
Commission. In March 2001, Commission Staff
issued a recommendation for prospective market
monitoring and mitigation for the real-time electric
market, and comments were filed on this proposal.
On March 9, 2001, the Commission issued an order
addressing above-breakpoint transactions that oc-
curred in January.!2 The March 9 Refund Order
directed refunds from sellers for transactions occur-
ring during Stage 3 Emergencies (when ISO reserves
fell below 2.5 percent) above a proxy market clearing
price ($273/MWh for that month), or alternatively,
required sellers to submit additional cost or other
justification for those transactions.'! Parties re-
quested rehearing of the March 9 Refund Order on
many grounds. Among those were PG&E, SDG&E,
and SoCal Edison’s objections to the Commission’s
conclusion that it has no authority to order non-
% Forward Contracting by California Utilities, 93 FERC
§] 61,295 (2000).
10 San Diego Gas & Electric Co., et al., 94 FERC 4 61,245
(2001), reh'g pending (March 9 Refund Order).
'! The Director of the Office of Markets, Tariffs and Rates
issued notices announcing the proxy market clearing prices for
the months of February, March, April, and May 2001 on March
16, April 16, May 14, and June 15, respectively.
44a
public utility sellers to make refunds.!? Additionally,
numerous parties argued that price mitigation
should apply during all hours.!
On April 26, 2001, the Commission issued its order
adopting a prospective monitoring and mitigation
plan for wholesale sales through the organized real-
time markets operated by the 1SO.44 The Commis-
sion’s plan, in pertinent part, enhanced the I[SO’s
ability to coordinate and control planned outages
during all hours; required certain sellers to offer
the ISO all their available power in real time during
all hours; established conditions, including refund
liability, on public utility sellers’ market-based rate
authority to prevent anti-competitive bidding behav-
ior in the real-time ISO markets during all hours;
and established a mechanism for price mitigation for
all sellers (excluding out-of-state generators) bidding
into the ISO’s organized markets for real-time sales
during system emergencies. In the April 26 Order,
the Commission also established an inquiry into
whether a price mitigation plan similar to the one for
the California ISO’s organized spot markets should
be implemented in the Western Systems Coordinat-
ing Council (WSCC) and invited comment on how
such a plan should be structured.
On June 19, 2001, the Commission expanded the
price mitigation plan on rehearing, imposing curbs
l2 See March 9 Refund Order, 94 FERC at p. 61,864.
13 See, e.g., Rehearings of California Commission, ISO,
SDG&E, City of San Diego, County of San Diego, and PG&E
Other determinations in the March 9 Order are also pending
rehearing; these issues will be addressed in a future order.
-
I4 San Diego Gas & Electric Company, et al., 95 FERC
* 61,116 (2001), reh'g pending (April 26 Order).
Ada
not only on California ISO organized spot market
sales during all hours, but also constraining prices
for bilateral spot market sales throughout the WSCC
for the period June 20, 2001 through September 30,
2002.'° The order retained the use of a single price
auction and must-offer and marginal cost bidding re-
quirements when reserves are below 7 percent in the
California ISO spot markets. Under the plan, the
ISO market clearing price will also serve as a limit
on prices in all other spot market sales in the WSCC
during reserve deficiencies in California. Sellers in
all spot markets in the WSCC will receive up to the
clearing price without further justification. Sellers
other than marketers will have the opportunity to
justify prices above the market clearing price during
reserve deficiency hours.
In the June 19 Order, the ISO market clearing
price for reserve deficiency hours was also adapted
for use in all Western spot markets when reserves
are above 7 percent. Prices during non-reserve defi-
ciency hours cannot, absent justification, exceed 85
percent of the highest hourly clearing price that was
in effect during the most recent Stage 1 reserve defi-
ciency period (i.e., when reserves are below 7 percent)
called by the ISO. These measures were applied to
non-public utility sellers as well as public utilities to
the extent they voluntarily sell power in the ISO or
other WSCC spot markets or voluntarily use the
iSO’s or other Commission-jurisdictional interstate
transmission facilities elsewhere in the WSCC.
In addition, the Commission announced that it
would hold a settlement conference before an admin-
lo San Diego Gas & Electric Company, et al.. 95 FERC
4] 61,418 (2001), reh'g pending (June 19 Order)
46a
istrative law judge in order to resolve refund issues
for past periods, among other things. The Commis-
sion’s Chief Judge convened the conference from
June 25 through July 9, 2001.
Chief Judge’s Report and Recommendation
On July 12, 2001, the Chief Judge issued a report
detailing his efforts to forge a settlement among the
parties.'® He explains that, while a global settlement
agreement was not achieved, he believes that the
negotiations were constructive. The Report finds that
refunds owed to purchasers of electricity “amount to
hundreds of millions of dollars, probably more than
a billion dollars in aggregate sum,” although not
the $8.9 billion claimed by the State of California.!’
The Report mentions offers made by several sellers
into the California market totaling $703.6 million,
contingent upon reaching a global settlement of all
issues.
According to the Report, efforts were hampered by
incomplete data. The Chief Judge had requested the
parties to provide, among other things: (1) the terms
and prices of all forward contracts; (2) the amounts
that California Department of Water Resources
(DWR), the [OUs, and the ISO believe they owe to
sellers; and (3) system load figures broken down by
component. These data were not made available in
their entirety. The Report also notes that the Pacific
Northwest Parties did not have data on the amount
of refunds duc them nor balances past due from
purchasers. For these and other reasons, the Chief
Judge was not able to determine the total volume of
16 San Diego Gas & Electric Company, et al., 96 FERC
*! 63,007 (2001) (Report).
1% Td., slip op. at 3.
A7a
the spot market, nor were parties able to agree about
the size of the market subject to the June 19 Order.
The Report concludes that the differences between
what the State and the sellers believe should be
refunded raise material issues of fact. Further, the
Report states, “|t}he appropriate numbers to calcu-
late potential refunds invoive factual disputes.”!5
Thus, the Chief Judge recommends that the Com-
mission order a trial-type evidentiary hearing limited
to developing a factual record against which to apply
a refund methodology.
The Chief Judge’s recommended refund methodol-
ogy would begin with the price mitigation approach
set forth in the June 19 order, with severa! modifica-
tions for dealing with past, as opposed to future,
transactions. Key differences include: (1) using
actual, rather than hypothetical, heat rates; (2) using
daily spot gas prices rather than monthly bid-week
prices; (3) separating the state’s gas market into
northern and southern zones; (4) excluding emission
costs from the market clearing price and treating
them as an additional expense that may be sub-
tracted from refund calculations; and (5) not using
the 85 percent price ceiling for non-emergency hours,
and instead recalculating cach hour to determine the
amount by which actual prices exceeded the mit
gated price. The Chief Judge recommends retaining
the 10 percent credit adder for sales after January 5,
2001, and not including interest unless the refund
amount exceeds payments that are past due to the
seller.
15 Jd., slip op. at 5.
48a
Docket No. ELO1-10-000
On October 26, 2000, Puget Sound filed a com-
plaint in Docket No. ELO1-10-000 petitioning the
Commission for an order capping the prices at which
sellers subject to Commission jurisdiction, including
sellers of energy and capacity under the Western
Systems Power Pool Agreement, may sell energy or
capacity in the Pacific Northwest's!’ wholesale power
markets. Specifically, Puget Sound sought an order
that prospectively capped the prices for wholesale
sales of energy or capacity into the Pacific Northwest
at a level equal to the lowest cap on prices estab-
lished, ordered, or permitted by the Commission for
wholesale purchases in, or wholesale sales of energy
or capacity to or through the markets operated by the
ISO or the PX. The December 15 Order declined to
implement a region-wide price cap because it found
that such a pricing methodology was impracticable
given the market structure in the Pacific Northwest
and because complainant had not met its burden of
proof to justify such an action.“° Puget Sound and
others timely sought rehearing of the December 15
Order’s determination not to impose a regional price
cap or other mitigation.
On June 22, 2001, Puget Sound filed a motion to
dismiss its complaint and a notice of withdrawal of
its complaint and its subsequent rehearing request.
Puget Sound explains that the June 19 Order satis-
fies its complaint because it implements price miti
'Y Puget Sound indicated that, as used in its complaint, the
term “Pacific Northwest” has the meaniny set forth in the
Pacific Northwest Electric Power Planning and Conservation
Act, 16 U.S.C. § 839a(14) (1994)
“) December 15 Order. 98 FERC at p 62,019
49a
gation measures throughout WSCC. Several parties
filed answers to the motion. Bonneville Power Ad-
ministration (Bonneville) states that the Commission
must fully resolve the issues raised in the complaint
regardless of whether it grants Puget Sound’s motion,
arguing that the focus on spot markets in the June
19 Order is not appropriate outside of California,
where utilities rely on forward contracts. The City of
Tacoma and Port of Seattle jointly filed an answer
opposing the motion on the basis that dismissal
would unduly prejudice parties outside of California
that relied on the existence of the complaint, and ar-
suing that the issues raised in the complaint are an
integral part of market issues that the Commission 1s
addressing in the SOG&E proceeding.
The City of Seattle (Seattle) filed an answer and
a motion to intervene out-of-time in Docket No.
KLO1-10-000. Seattle contends that, although the
June 19 Order satisfied Puget Sound’s complaint,
the Commission should keep the proceeding open be
cause non-California market participants have paid
prices that are unjust and unreasonable, and because
retaining the proceeding would permit the Commis-
sion greater flexibility in determining the scope and
effective date for refunds.
The Washington Commission and the Attorney
General of Washington state several principles that
they believe should guide the Commission's determ}-
nation of whether and how to order refunds for and
by the utilities in the Pacific Northwest, U.e., that
refunds should be symmetrical as to all purchases
and sales, and unbiased with respect to acquisition
strategies. In addition, the Attorney General of
Washington moves to intervene out-of-time.
5Oa
On June 22, 2001, unaware of Puget Sound’s mo-
tion filed on the same day, the Commission issued an
order clarifying the June 19 Order to indicate that
parties in the settlement proceeding were not limited
to settling only California-related matters, but could
also discuss settling past accounts related to sales
in the Pacific Northwest. The Chief Judge’s Report
stated that there was little time to address the issues
raised by the parties in Puget Sound's proceeding and
noted that they did not have data on unpaid balances
nor on refunds due them.
Discussion
A. Procedural Matters
A number of entities filed late motions to intervene
in this proceeding, as described below. On December
28, 2000, the Southern California Water Company
(SoCal Water) filed an intervention in Docket No.
ELO0-95-000, et al.2!' On January 30, 2001, the
New Mexico Regulation Commission (New Mexico
Commission) filed a motion to intervene out-of-time in
Docket No. ELOO-95-000, et al., raising no substan-
tive issues. On February 9, 2001, the Public Utilities
Commission of Nevada (Nevada Commission) filed
a motion to intervene out-of-time with comments
encouraging recognition of the regional scope of the
crisis. On April 9, 2001, the American Publhe Power
Association (APPA) filed a motion to intervene and
request for rehearing of the March 9 Refund Order.
On July 12, 2001, the Washington Utilities and
Transportation Commission (Washington Commis-
sion) filed a motion for clarification of its intervenor
status, or, in the alternative, a motion to intervene
“! SoCal Water subsequently requested rehearing of the
December 15 Order
5la
out-of-time in Docket No. ELOO-95-031, et al. Finally,
on July 17, 2001, the People of the State of Calhfor-
nia, ex rel. Bill Lockyer (Attorney General of Califor-
nia) moved to intervene out-of-time in Docket No.
ELO0-95-031, et al.
In addition, on December 26, 2000, the Oregon
Public Utilities Commission (Oregon Commission)
filed a late motion to intervene in Docket No. ELOO-
10-000, stating that it had not yet developed a
position on Puget Sound’s complaint. On January
16, 2001, the Washington Commission also filed a
late motion to intervene in that proceeding with
comments in support of Puget Sound’s request for
rehearing. The City of Seattle (Seattle) and the
Attorney General of Washington filed motions to
intervene out-of-time in Docket No. ELO1-10-000 on
July 9, 2001.
The Commission ordinarily does not permit late
interventions after an order has been issued, particu-
larly for the purpose of requesting rehearinyg.2° How-
ever, over the course of the SDG&E proceeding, the
Commission has expanded the scope of its focus from
just California to include the entire Western inter-
connect and also to implicate wholesale spot market
transactions of non-public utilities. We find good
cause, therefore, to grant the untimely, unopposed
motions to intervene in Docket No. ELOO-95-000 filed
by the entities described above.*"
Oo
See, e.g., Southern Company Services, Inc., 92 FERC
*| 61.167 (2000); Consolidated Edison, Inc. and Northeast Utili-
tres, 92 FERC 461,014 (2000), order denying reh'g, 94 FERC
"61.079 (2001).
“3 In the May QF Order, we intended, but inadvertently
failed, to grant the timely, unopposed motion to intervene of
Carson Cogeneration Company, LP, Mojave Cogeneration Com-
o2a
These intervenors must accept the record as it had
developed as of the date of their intervention, and
their participation in this proceeding is limited to the
issues that arose after the date each requested to
participate in these proceedings. Thus, the request
for rehearing of the December 15 Order filed by
SoCal Water will be dismissed because it was not a
party as of the date that order was issued. Similarly,
APPA’s request for rehearing of the March 9 Refund
Order will be dismissed because it was not a party as
of the date that order was issued.
In view of the interest of the Oregon Commission,
the Washington Commission, the Attorney General
of Washington, and Seattle, and the absence of any
undue prejudice or delay, we will grant their un-
timely, unopposed motions to intervene. We also
clarify that the companies hsted individually in the
caption of the March 9 Refund Order are respon-
dents, and thus, under Rule 102 of the Commission’s
Rules of Practice and Procedure,” are parties in the
SDG&E proceeding.
B. Scope of Refunds
1. The Commission’s Reiroactive Refund Authority
a. Introduction and Summary
In the Commission’s November 1 Order, we con-
cluded that the FPA and the weight of court prece-
dent strongly suggest that refunds prior to October
2, 2000 are impermissible under the circumstances of
pany, LP, O.L.S. Energy-Camarillo, O.L.S. Energy-Chino, and
PE Berkeley, Inc. (collectively, QF Petitioners) filed in Docket
No. EL00-98-000, and the untimely, unopposed motion to inter-
vene of Berry Petroleum Company in Docket No. ELOO-95-020.
We do so in this order.
“4 18C.F.R. § 385.102(c)(2) (2001).
53a
this case, which arose in a Section 206 complaint con-
text. In the December 15 Order, we addressed pro-
spective remedies necessary to correct market dys-
functions and to assure just and reasonable rates,
but did not address the comments on retroactive re-
fund authority. We do so here to clarify our statutory
refund authority and the scope of refunds subject to
the hearing being ordered below.
We have again examined the statute, its legislative
history and the case law, and have analyzed the
arguments raised on this issue in comments on and
requests for rehearing of the November 1 Order.
We conclude that FPA Section 206 does not permit
the Commission to require refunds of unjust and un-
reasonable rates charged prior to a date 60 days after
the filing of a complaint or 60 days after the initia-
tion of a Commission investigation on its own motion.
To order such refunds would contravene explicit
refund limitations that Congress put in FPA Section
206. While that refund authority can be expanded in
limited circumstances (e.g., where sellers have
charged a rate other than the filed rate or where an
appellate court has found that the Commission com-
mitted legal error), as discussed below, none of those
circumstances is present here. Thus, in the specific
situation present here, we cannot order refunds of
unjust and unreasonable rates charged prior to Octo-
ber 2, 2000, the start of the refund effective period.?°
Accordingly, we will deny the requests for rehearing
of the November 1 Order challenging the order's find-
25 The FPA, with one exception, permits refunds only for a
period of 15 months after the refund effective date. The excep-
tion is that if a public utility engages in dilatory behavior in a
Section 206 proceeding, the Commission can extend the refund
period beyond 15 months from the refund effective date.
Ada
ings about the Commission’s retroactive refund au-
thority, t.e., refund authority prior to October 2,
2000.26
b. The Commission's Retroactive Refund Authority
Several parties argue that the Commission’s statu-
tory duty to protect consumers and its broad legal
and equitable authority to do so requires that the
Commission remedy unjust and unreasonable rates
for the period prior to October 2 by ordering refunds.?2?
Other parties agree with the November 1 Order’s
conclusion that the Commission has no legal author-
ity to grant refunds for overcharges prior to October
2.28 As discussed below, we conclude that the Com-
mission lacks the authority to order retroactive re-
funds of unjust and unreasonable rates charged prior
to October 2.
1. Sections 205 and 206 of the FPA
Comments
Several parties argue that because Sections 205
and 206 of the FPA require that the Commission
ensure just and reasonable rates, the Commission,
having found the pre-October 2 rates to be unjust
ne
“© To the extent parties raise the same arguments on rehear-
ing of the December 15 Order, we similarly deny rehearing.
“’ E.g.. Comments filed November 22, 2000, by Southern
Califoraia Edison Company (SoCal Edison), Pacific Gas and
Electric Company (PG&E), SDG&E, City of San Diego, County
of San Diego. California Commission, TURN/UCAN, California
State Senator Morrow, Oversight Board, California Leyislature,
San Diego Association of Governments.
“S E.g.. Comments of DOE, Enron, Calpine, Dynegy, PPL
EnergyPlus, Rehant, Duke Energy, Williams, IEP, WPTF, Xce!
Energy. DOE also comments that Congress should examine
whether to amend the FPA to provide the Commission with
authority to require retroactive refunds in the future.
and unreasonable, is obligated to order refunds for
that period. They further argue that the Commission
is not prohibited from ordering retroactive refunds of
market-based rates.
Other parties argue that neither Section 205 nor
206, on its face, grants the Commission authority to
order retroactive refunds. Thus, they maintain that
the Commission may not order refunds for the pre-
October 2 period.
Commission Determination
A number of parties confuse the just and reason-
able standard with the authority to order retroactive
refunds of unjust and unreasonable rates. Whether
rates are unjust and unreasonable ts a separate issue
from whether the Commission is authorized under
the statute to order refunds retroactively. Under
FPA Section 206, if the Commission finds that rates
no longer meet the just and reasonable standard, the
Commission has a statutory obligation to fix a new
rate or to fix practices “to be thereafter observed.”29
In amending FPA Section 206, Congress did not give
the Commission authority to modify unjust and un-
reasonable rates retroactively. As discussed in the
Appendix to the November 1 Order, when Congress
passed the FPA in 1935, it excluded a provision from
the original bill that would have authorized the
Commission to retroactively order reparations for
charges found to be excessive or unreasonable if a
complaint were filed within two vears from the date
of payment. Courts later concluded that this exclu-
sion showed that Congress intended that the Com-
mission have authority to only grant relief in a Sec-
tion 206 proceeding prospectively from the date of its
29 16 U.S.C. § 824e(a) (1994).
56a
order. See, ey., City of Bethany v. FERC, 727 F.2d
1131 (D.C. Cir. 1984), cert. denied, 469 U.S. 917
(1984).
As a result, Congress added limited refund author-
ity to Section 206 in the Regulatory Fairness Act of
1988 (RFA). S. Rep. No. 491, 100th Cong., 2d Sess.
3-4 (1988), reprinted in 1988 U.S.C.C.A.N. 2685. As
amended, FPA Section 206 restricts the Commission’s
authority to establish a refund effective date to no
earlier than 60 days after the date that a complaint
is filed or the Commission initiates an investigation.
Therefore, Section 206 does not permit retroactive
refund relicf for rates covering periods prior to the
filing of a complaint or the initiation of a Commission
investigation, even if the Commission determines
that such past rates were unjust and unreasonable.
ll. The Filed Rate Doctrine and the Rule Against
Retroactive Ratemaking
Parties urging retroactive refunds make several
arguments concerning the filed rate doctrine and its
corollary, the rule against retroactive ratemaking.
Taken together, the doctrine and its corollary stand
for the propositions that a utility may charge only
those rates that are on file with and approved by the
Commission, and conversely that the Commission
may not alter those filed rates retrospectively. The
arguments against the application of the doctrine
and its corollary can be condensed to the following:
the filed rate doctrine does not apply to market-based
rates; the Commission’s past market-based rate au-
thorizations in California markets constituted legal
error; and the rates charged were inconsistent with
sellers’ filed rates. According to these parties, the
filed rate doctrine does not preclude retroactive refunds
in these specific circumstances.
(a) Whether the Filed Rated Doctrine Applies to
Market-Based Rates
Comments
Oversight Board and County of San Diego argue
that the filed rate doctrine does not apply to market-
based rates because the actual rates have not been
filed with the Commission, and because prices fluc-
tuate with the market. Accordingly, they assert that
there is no fixed rate on file on which buyers and
sellers could rely, and which would prohibit retroac-
tive refunds.
County of San Diego contends that several princi-
ples underlying the filed rate doctrine and the rule
against retroactive ratemaking do not apply to market-
based rates and, thus, are not dispositive in this case.
Specifically, it contends that: the principle that regu-
lated companies can charge only those rates of which
the agency is cognizant does not apply to these facts,
because the Commission no longer receives prior no-
tice of actual market-based rates; the nondiscrimina-
tion principle does not apply, because market-based
pricing allows utilities to sell at different rates to dif-
ferent customers; and the principle of predictability
is not applicable, because the market, not a fixed rate
or published formula, determines prices. Instead,
County of San Diego asserts that another principle
underlying the filed rate doctrine — the principle of
reasonable expectations — is dispositive. It contends
that market participants and the Commission clearly
expected that competitive forces would be adequate
to restrain prices in the California markets to just
and reasonable levels, whereas sellers had no legiti-
mate or reasonable expectation of being able to demand
unjust and unreasonable prices due to ar absence of
competition. ‘Thus, it argues that the reasonable
58a
expectations rationale underlying the filed rate doc-
trine supports a requirement for refunds in this
case.”
Commission Determination
Under the FPA, Sections 205 and 206 are the
statutory foundation for the filed rate doctrine and
the rule against retroactive ratemaking. FPA Section
205(c) states: “Under such rules and regulations as
the Commission may prescribe, every public utility
shall file with the Commission, within such time and
in such form as the Commission may designate
schedules showing all rates and charges subject to
the jurisdiction of the Commission ....” This provi-
sion does not distinguish between cost-based and
market-based rates. Nor does the provision require
that the Commission receive prior notice of market-
based rates, as San Diego contends.”!
As the Court of Appeals for the District of Colum-
bia Circuit recently recognized, “[t]he Commission
has held that traditional utilities and power market-
‘O Comments of County of San Diego at 11-13.
31 Contrary to County of San Diego, the rationales underlying
the filed rate doctrine apply to market-based rates. First, San
Diego is incorrect that Section 205(c) requires prior notice of the
actual market-based, numerical rates. In addition, the fact that
a market-based tariff or rate schedule is on file instead of
a specific, quantified rate is not dispositive, so long as buyers
know (or can know by examining the Commission's public files)
the type of rates authorized for each seller. The principle of
predictability requires that the parties know the type of rate
being used, not necessarily the exact numerical rate. When a
buver knows market-based rates are being used, the buyer can
predict that rates will fluctuate with differing conditions, and
can plan accordingly. That is all that is required. Thus, the
filed rate doctrine and its corollary, the rule against retroactive
ratemaking, apply to market-based rates.
59a
ers who engage in market-based rate transactions
are required to file quarterly reports summarizing
transactions and that these reports satisfy the filing
requirements of § 205(c),"32 and the court did not
question the Commission’s judgment in this regard.
Consequently, the Commission’s current procedures
for quarterly filing of market-based transactions sat-
isfy the Section 205(c) filing requirements for market-
based rates. The market-based rates at issue here
were on file with and approved by the Commission.
Second, in response to Section 206 complaints and
our own investigation, the December 15 Order
implemented a number of structural changes to the
existing California market mechanisms to eliminate
those features that were creating the possibility of
unjust and unreasonable rates. ‘The structural changes
satisfied our Section 206(a) obligation to determine
the just and reasonable provisions to be thereafter in
force.
We find San Diego’s reasonable expectation princi-
ple not to be a tenet of the filed rate doctrine, but
merely a restatement of our statutory duty to set just
and reasonable rates. San Diego’s effort to enyraft
this principle into the filed rate doctrine seeks to
evade the distinction, noted above, between our dele-
yated authority under Section 206 to find that exist-
ing rates are unjust and unreasonable and the statu-
tory restriction on refunds in such cases. The filed
rate doctrine cannot give us greater refund authority
than that allowed in the FPA, and therefore we reject
San Diego’s claim that its reasonable expectation
3“ Power Co. of America, L.P. v. FERC, 245 F.3d 839, 846
(D.C. Cir. 2001).
60a
rationale supports a requirement for refunds in this
case.%
To conclude, the filed rate doctrine applies to the
market-based rates at issue here, and the statutory
limitations on our refund authority prohibit retroac-
tive refunds.
(b) Legal Error
Comments
Some parties argue that the Commission’s market-
based rate authorizations relied on determinations
that the markets were competitive, but that the
markets have now been shown not to be competitive.
They argue that, by allowing market-based rates
in markets that were not workably competitive, the
Commission committed legal error, which constitutes
a basis for the Commission to order retroactive refunds
to correct its mistakes.
Commission Determination
The parties’ reliance on a “legal error” theory is
flawed. First, we disagree that the Commission
committed legal error by allowing market-based
rates to remain in effect in California. Rather than
eliminate market-based rates entirely, as these par-
ties seem to advocate, the Commission reasonably
sought to correct the flaws that could cause unjust
and unreasonable rates in certain conditions. The
December 15 Order contained a number of remedial
33° See Towns of Concord, Norwood and Wellesley v. FERC,
955 F.2d 67, 73 (D.C. Cir 1992) (rejecting argument that
assumes a “‘right’ ceases to exist unless it is backed up by a
remedy, that the Commission's denying refunds equals the
Commission’s authorizing the utility to violate the filed rate
doctrine .... This is good advocacy but the case cannot be de-
cided on any such theory.”).
6la
measures designed to correct those flaws. As found
by the Ninth Circuit, “FERC’s actions, taken together,
appear to be fully consistent with § 206(a).""4 Thus,
we disagree that the Commission's approach can be
considered to constitute legal error.
Second, while we recognize that retroactive refunds
can be ordered where a court reverses a non-final
Commission decision on the merits,*> the parties
have challenged the Commission’s original decisions
to grant market-based pricing authority to various
applicants. Those orders have, however, become final
and non-appealable under FPA Section 313, and thus
courts would lack jurisdiction to review those deci-
sions. Third, to the extent that the parties are rais-
ing questions about the operation of specific sellers’
exercise, of market-based pricing, those cases must
proceed-under Section 206, as, in fact, this case docs.
In a Section 206 complaint, our refund authority is
confined by the statutory language to commence 60
days after the complaint was filed, or October 2, 2000
in the instant case. We do not see how a court could
34 In re: California Power Exchange Corp., 245 F.3d 1110,
1121 (9th Cir. 2001).
3 See United Gas v. Callery Properties, 382 U.S. 223, 229
(1965) (while the Commission has no power to make reparation
orders, its power to fix rates being prospective only, it is not so
restricted where its order, which never became final, has been
overturned by a reviewing court); Reynolds Metals Co. v. FERC,
777 F.2d 760, 763 (D.C. Cir. 1985) (same). See also Tennessee
Valley Mun. Gas Assn. v. FPC, 470 F.2d 446, 453 (D.C. Cir
1972) (granting of refunds did not violate anti-reparations
language in the statute which was designed to protect estab
lished expectations under legally established rate schedules
One “cannot claim justifiable reliance or proteectable expecta
tions based on |Commission] action which was illegal”).
62a
find legal error in our decision to follow the statutory
requirement.
(c) Whether the Rates Charged Were Inconsistent
with a Competitive Market Rate
Comments
Several parties argue that market-based rates are
just and reasonable only if the market is sufficiently
efficient and sufficiently free from the ability of mar-
ket participants to exercise market power so that
actual prices charged in the marketplace approximate
the “true” market price, i.e., the price that would
obtain in a hypothetically “fully competitive” and eff)-
cient market. The parties argue that there was an
implied condition in the seller authorizations,*® or
that the market power conditions of market-based
rate authorizations are analogous to an implied con-
tract between seller and buyer,*’ such that if a seller
were found, after-the-fact, to have exercised market
power, this would be deemed a violation of the seller’s
market rate tariffs and subject the seller to retroac-
tive refund hability. They contend that the exercise
of market power resulted in prices well above what
would prevail in a workably competitive market,
and, accordingly, prices charged by sellers during
the summer of 2000 are contrary to the filed rate
authorizations, and refunds should be ordered.*®
The parties further argue that the Commission
may order retroactive refunds where the rates
charged exceed the filed rate or for violations of the
% EF og., Comments of PG&E; Rehearing of PG&E
’ Comments of City of San Diego
’ These parties do not define a “fully competitive” or “work
ably competitive” market
63a
conditions of sellers’ market-based rate authority. In
support, they cite cases in which the Commission
ordered: disgorgement of profits for a period prior
to the initiation of the Commission's complaint as a
sanction against a public utility that violated the
standards of conduct that were contained in its
market-based tariff; refunds for monies illegally re-
covered through a fuel adjustment clause; refunds
when the utility charges impermissible costs through
a filed formula rate; and disgorgement of some reve-
nues resulting from a transaction that lacked neces-
sary Commission authorization.
Other parties assert that the rates charged this
summer comport with the filed rate doctrine, that
there is no evidence that sellers charged rates that
were not in compliance with the tariffs on file, and
that sellers. must be able to rely on the finality of
filed rates.
Commission Determination
We agree that the Commission may take retroac-
tive action to address circumstances where a seller
did not charge the filed rate or violated statutory or
regulatory requirements or rules in applicable rate
tariffs.4° However, it has not been demonstrated that
39 K.g., Comments of PG&E, Oversight Board, City of San
Diego, California Commission, SUG&E, County of San Diego;
Rehearings of SDG&E, PG&E, Oversight Board.
' For example, in Washington Water Power Co., 83 FERC
| 61,282 (1998), the Commission imposed sanctions for viola
tions by Washington Water Power Company (WWP) and its
power marketer affiliate Avista Energy, Inc. (Avista), of Avista’s
market-based rate order, specifically the affiliate conduct,
OASIS and Standards of Conduct requirements. Avista was
required to disgorge its profits from the power sale at issue, and
Avista’s market-based rate authority was suspended prospec
64a
any conditions or limitations of sellers’ market-based
rate tariffs have been violated. The conditions hy-
pothesized by the parties are not evident from the
market-based rate schedules or our orders. ‘Thus,
there is no basis for finding that the sellers acted
inconsistently with Commission-filed tariffs or with
specific requirements in their filed rate authoriza-
tions. To the extent the Commission found that
changed conditions in California created the oppor-
tunity for unjust and unreasonable rates, it remedied
those problems prospectively. If it finds that refunds
are appropriate, it can order refunds in accordance
with the RFA refund effective date.
il. Whether Sellers’ Market-Based Rate Authort
zations Were Provisional, Making the Rates Being
Charged Subject to Retroactive Adjustment
Comments
The California Commission argues that the Com-
mission may order refunds without violating the filed
rate doctrine or the corollary rule against retroactive
ratemaking if buyers and sellers were on notice that
the rates being charged were “provisional,” and
might be subject to adjustment in the future. It
argues that the Commission's early California elec-
tric restructuring orders contained qualifications
that indicate that these decisions were provisional,
and which warn that the structure and dynamics of
the markets and their resulting rates were subject to
adjustment or revision. It cites the November 1996
order (authorizing the establishment of the PX and
the ISO) as characterizing the Commission's deter-
mination as “conditional” and “preliminary.’ See
tively for six months with respect to any power sale requiring
the use of WWP’s transmission system
65a
PG&E, et al., 77 FERC 4 61,204, at p. 61,793 (1996).
It also cites the October 1997 order authorizing the
PX and the ISO to commence operations, PG&E, et
al., 81 FERC 4 61,122, at p. 61,435 (describing such
authorization as “interim” and “conditional”); the De-
cember 1997 order authorizing the transfer of opera-
tional control of jurisdictional facilities, PG&E, et al.,
81 FERC 4 62,210, at p. 64,473 (expressly reserving
the right to “place further conditions on the transfer
for good cause shown”). Thus, according to the Cali-
fornia Commission, there was nothing certain on which
buyers and sellers could have justifiably relied.
Accordingly, there was no predictability as to what
rates were being protected by the filed rate doctrine
and rule against retroactive ratemaking.1!
Oversight Board argues that the controversy over
the high prices during the spring and summer of
2000 effectively put sellers on notice that their rates
would be challenged, t.e., no reasonable seller would
beheve that their rates would go unchallenged.
Commission Determination
While it 1s correct that the Commission issued con-
ditional orders on the restructuring and indicated
that future changes might be made, the conditions
went to the restructuring and the market rules,
which were at that time not entirely finalized and
were being implemented in phases. The Commission
did not make changes to the individual] sellers’ mar-
ket rate authorizations. The individual market-based
rate applications were not made subject to a retroac-
tive refund obligation when accepted, and the apph-
cants had no reasonable expectation of such an obhi-
1l See also Comments of PG&E. SDG&E
66a
gation.42 ‘lhe orders give no indication that the Com-
mission would consider retroactively changing rates.
The conditions in tne authorizations were very ex-
plicit, and indicated only that the Commission would
revoke market rates if the seller acquired market
power, not that it would retroactively change the
rates.14° Further, nothing in the restructuring or
market rule orders indicates that the Commission
was placing such a condition on sales into the ISO or
PX.
Moreover, the mere existence of uncertainty or
expectation of future controversy concerning sellers’
rates would not serve to establish a de facto refund
effective date for purposes of retroactive refunds. As
discussed above, the establishment of a refund effec-
tive period is governed by the statute. As the instant
matter arose from a complaint under Section 206,
we must look to that provision. Its terms specifically
provide that the refund effective date is triggered by
the filing of a complaint or the initiation of an inves-
tigation by the Commission. Section 206 does not
provide for constructive notice. The refund effective
date of October 2, 2VU00 is consistent with the statu-
tory framework.
iv. Section 309 Authority
Comments
Several parties argue that there is substantial evi-
dence that sellers were unjustly enriched by ISO and
'“ By comparison, with respect to costs collected through fuel
adjustment clauses, acceptance of Commission authority to ad-
just such charges after-the-fact 1s a condition of acceptance of
the fuel adjustment clause filings
1S keg., Louisville Gas and Electric Company, 62 FERC
$61,016, at p. 61,148 n.15 (1993)
67a
PX prices above competitive levels because sellers
exercised or benefitted from the exercise of market
power. They cite the Staff Report and the market
monitoring reports prepared by California’s inde-
pendent market monitors.44 They argue that the
Commission has broad authority under Section 309 of
the FPA to restore the status quo and prevent unjust
enrichment. In effect, they argue that Section 309
gives the Commission retroactive refund authority
for past unjust and unreasonable rates. They cite
Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153,
158 (D.C. Cir. 1967) (upholding decision to hackdate
a hydro license, and thus require back payments
from a licensee who had failed to obtain its license
prior to constructing hydro facilities); Mesa Petroleum
Co. v. FPC, 441 F.2d 182 (5th Cir. 1971) (requiring
a gas supplier to pay a purchaser the difference
between what the purchaser would have paid under
its contract with the supplier and the amounts it
actually had to pay for replacement gas when the
supplier abandoned the contract-without Commission
approval); and Louisiana Public Serv. Comm’n v.
FERC, 174 F.3d 218, 224 n.6 (D.C. Cir. 1999) (“[t]he
Commission's authority to order refunds of amounts
improperly collected in violation of the filed rate de-
rives from FPA § 309.”). These parties urge the Com-
mission to use FPA Section 309 to order equitable re-
hef that requires sellers to repay buyers the profits
it See, e.g., Comments of SoCal Edison, citing the study at-
tached as Exh. A to its comments (Paul Joskow and Edward
Kahn, “A Quantitative Analysis of Pricing Behavior in Cali-
fornia’s Wholesale Electricity Market During Summer 2000”
(November 21, 2000)).
68a
above competitive levels that the sellers received as a
result of the exercise of market power.‘
Oversight Board further asserts that Section 4(i) of
the Communications Act is analogous to Section 309
o. the FPA and that a court interpreted Section 4(1)
as conferring upon the Federal Communications
Commission (FCC) authority to order retroactive
refunds, even though Sections 204 and 205 of the
Communications Act, which it states are analogous
to Sections 205 and 206 of the FPA, do not authorize
the FCC to order retroactive refunds.
SDG&E argues that the imposition of sanctions by
the Commission may provide the only means to rem
edy abuses of market power by sellers. It expresses
concern that courts may rule that antitrust claims
and state law claims alleging injury due to unlaw-
fully high prices — even if those prices are shown to
have resulted from price-fixing collusion by sellers —
would be preempted by the filed rate doctrine. It
asserts that the Commission should investigate
whether, and which, sellers have engaged in manipu-
lative conduct including, but not limited to, the sub-
'> Comments of PG&E, SoCal Edison; Rehearings of SDG&E,
PG&E. SoCal Edison cites Order No. 637-A, in which the
Commission expressly did not make natural gas transportation
rates subject to refund because it could rely on its authority
to afford relief pursuant to Section 16 of the Natural Gas Act
(NGA), which is analogous to Section 309 of the FPA. See Regu-
lation of Natural Gas Transmission Services and Regulation of
Interstate Natural Gas Transportation Services, FERC Statutes
and Regulations, Regulations Preambles July 1996-December
YOOO F 31,091 (2000), order on rehg, 91 FERC 4 61,191 (2000),
appeal pending sub nom. Process Gas Consumers v. FERC, No.
00-1217 (D.C. Cir. filed May 26, 2000). SoCal Edison argues
that the Commission could apply Section 309 similarly in this
Case.
69a
mission of phantom schedules to create apparent
transmission congestion, the export and later re-
importation of power to evade PX and ISO price caps,
and the aggregation of significant amounts of supply
from multiple sources by one scheduling coordinator
for composite bidding in the wholesale markets.
According to SDG&E, seilers who engage in such
market abuse should be sanctioned by disgorgement
of profits that resulted from such abuse.
Oversight Board argues that the Commission’s fail-
ure to address the legal issue of refund authority for
the period prior to October 2, 2000 creates uncer-
tainty and prevents resolution of the issue on appel-
late review.
Commission Determination
The remedial authority under Section 309% is
designed to fill in gaps where the FPA is silent, not
to rewrite the explicit Congressional delegations of
authority and explicit limitations on that authority.
Section 309 and similar provisions “authorize an
agency to use means of regulation not spelled out in
detail, provided the agency’s action conforms with
the purposes and policies of Congress and does not
contravene any terms of the Act.” Niagara Mohawk,
379 F.2d at 158. Here, as we have reiterated, Con-
gress explicitly delincated the extent of our refund
authority under FPA sections 205 and 206. We do
not read Section 309 to permit us to go beyond that
delegation.
46 FPA Section 309 states in pertinent part: “Che Commission
shall have power to perform any and all acts, and to prescribe,
issue, make, amend, and rescind such orders, rules, and regula
tions as it may .ind necessary or appropriate to carry out the
provisions of this Act.”
70a
Courts interpreting FPA Section 309, and its coun-
terpart NGA Section 16, have indicated that “|b]oth
sections are of an implementary rather than sub-
stantive character.... These sections merely aug-
ment existing powers conferred upon the agency by
Congress, they do not confer independent authority
to act.” New England Power Co. v. FPC, 467 F.2d
425, 430-31 (D.C. Cir. 1972), aff'd, 415 U.S. 345
(1974).47, Contrary to what the parties here seem to
suggest, Section 309 is not an independent source of
authority that allows the Commission to expand its
authority beyond that allowed in its governing stat-
utes:
The substantive provisions of the [NGA] contem-
plate certain procedures, as incident to the func-
tions provided. ‘The range of permissible proce-
dures must be derived from these sections, sections
like Section 4 and 5 of the [NGA], and the functions
they describe. Section 16, which uses a broad gen-
erality of “necessary and appropriate” that is not
rooted in a function, cannot enlarge the choice of
permissible procedures beyond those that may
fairly be implied from the substantive sections and
the functions there defined.
Mobil Oil Corp. v. FPC, 483 F.2d 1288, 1257 (D.C.
Cir. 1973). The parties here seek not to introduce
new procedures under FPA Section 309, but to enlarge
the substantive refund limitations in Section 206 by
expanding the refund period. If Section 309 cannot
be used to enlarge the permissible procedures under
4% Accord, e.g., McCombs v. FERC, 705 F.2d 1177, 1184-85
(10th Cir. 1980); Murphy Ot! Corp. v. FPC, 431 F.2d 805, 810
(8th Cir. 1970).
Jla
the FPA, as Mobil found, then it surely cannot be
used to expand the substantive provisions of the Act.
Oversight Board’s reliance on New England Tele
phone & Telegraph Co. v. FCC4 is misplaced.
Although the Communications Act (“CA”) contains
similar provisions to PA Sections 205, 206, and 309,
the statutory language differs in several respects as
does the underlying regulatory approaches of the two.
Acts. The FCC in that case addressed different cir-
cumstances from those we face, in particular in that
case the FCC used its powers to “prescribe rates of
return,” rather than to prescribe overall rates.‘9
That prescription was upheld under CA Section 4(i),
analogous to FPA Section 309, despite a finding that
“{CAj Section 205 does not authorize the Commission
to prescribe rates of return,” Nader, 520 F.2d at 203,
as being consistent with the purposes of CA Section
205. Id. at 204-05.
Importantly for this question, at the same time it
prescribed a rate of return, the FCC stated that “the
filing of a tariff designed to produce a rate of return
in excess of [the allowed amount] is prima facie
unlawful.” Jd. at 205 n.25. This, the Court stated,
meant “the Commission retains full latitude to order
refunds on all other grounds,” except that the al-
lowed rate of return was too high. Jd. Subsequently,
when the FCC found that AT&T had earned a rate of
return in excess of the allowed amount and ordered
refunds, the court upheld this determination as “a
straightforward and legitimate means for the Com-
48 296 F.2d 1101 (D.C. Cir. 1987), cert. denied, 490 U.S. 1039
(1989).
19 896 F.2d at 1109-10 and 1104-05: Nader v. FCC. 520 F.2d
182, 204 (D.C. Cir. 1975).
mission to enforce its 1976 rate-of-return prescrip-
tion.”5° The Court found that this did not represent
retroactive ratemaking “because the carriers’ obliga-
tions were set prospectively in 1976, when the Com-
mission forbade AT&T from earning more than 10%,”
the allowed rate of return.®' As the FCC had set the
1976 rate of return prescription under its CA Section
4(i) authority, it “properly exercised its authority
under Section 4(i) to remedy the violation by ordering
rate reductions in the amount of AT&T's excessive
earnings in 1978.” Jd. at 1109.
There is no parallel in the instant case. The Com-
mission did not use its FPA Section 309 power to
establish individual market pricing authorizations.
Nor did it set an objective standard against which
market pricing standards would be measured or
indicate that any price above that standard would be
considered prima facie excessive. Thus, none of the
elements that allowed the FCC to use its CA Section
4(1) power to order refunds are presented here. Con-
sequently, use of FPA Section 309 as a means now to
order retroactive refunds cannot be justified in face
of the statutory limitations found in Section 206.
c. Equitable Relief
PG&E proposes that, as an equitable alternative to
price adjustments and refunds for the past period,
the overcharges occurring prior to October 2 be quan-
tified and amortized over a period of time, with the
costs to be recovered from power sellers in California
through an adjustment to their future bids in the
ISO and PX markets. PG&E maintains there are
precedents in the gas and electric industry for doing
” See 826 F.2d at 1111.
21 Td. at 1108
so. PG&E notes that the Commission’s restructuring
of the natural gas pipeline and electric industries
permitted recovery of costs resulting from a funda-
mental change in market rules and regulatory poli-
cies. According to PG&E, a finding that the over-
charges of the summer relate to flawed market rules
and regulatory policies rather than tariff violations
makes it equally appropriate that there be recovery
of the unjustly incurred costs for buyers of power in
California. Jt asserts that the profound changes in
industry rules, brought on by the fundamental shift
in regulatory policy in California and at the Commis-
sion, required that the California IOUs buy power on
the volatile spot market. They were required to par-
ticipate in the new industry structure, and they have
incurred unprecedented costs as a result, according
to PG&E.
IEP contends that market participants cannot
manage or hedge the risks associated with the No-
vember 1 Order’s equitable solutions proposal and
that the proposal only invites litigation and exacer-
bates uncertainty that will harm California. If the
Commission retains the equitable solutions proposal,
IEP argues that the Commission must clarify that it
is a temporary transition device only and that it will
end on a date certain and not be subject to reopening.
Commission Determination
The electric and gas restructuring cases cited by
PG&E are different from this case. They involved
a change in regulatory scheme and allowed utilities
to recover costs incurred under the pre-existing regu-
latory scheme. Order No. 637-A, cited by SoCal
Edison, is also different from this case, because the
equitable rehef provided for in the rule under Section
16 of the Natural Gas Act pertains to remedies for
74a
specific violations. Similarly, other cases cited by the
parties involved sanctions for violations of explicit
statutory commands.*?
2. Refund Liability Should Apply to all Sellers of
Energy in California
The Commission has determined that all sellers of
energy in the California ISO and PX spot markets
should be subject to refund liability for tne period be-
ginning October 2, 2000.53 We have decided to ex-
tend refund lability to public and non-pubhic utility
sellers based on our review of the controlling law, the
involvement of both types of sellers in the California
centralized ISO and PX spot markets, and the equi-
ties of the situation. Non-public utility sellers as
well as public utility sellers of electric energy in
those California markets contributed to and benefit-
ted from the dysfunctions that offered the possibili-
ties for the market abuse under certain conditions,
on which the call for refunds are based. In these
circumstances, as discussed below, we conclude that
although we do not have direct regulatory rate au-
thority over power sales by non-public utilities, we do
have authority to order them to abide by the markct
52 Niagara Mohawk (constructing a hydro facility without a
license), Mesa Petroleum (abandonment without prior Commis
sion approval), and Louisiana Public Serv. Comm'n (collections
in violation of filed rates)
°3 While the Commission in other orders and in other con
texts has stated that it does not have jurisdiction over non-
public utilities under Sections 205 and 206 of the FPA, we have
re-examined our authority in the particular circumstances pre-
sented here: a centralized single clearing price auction that sets
wholesale prices for both public utilities and non-public utili-
ties, pursuant to market rules set by this Commission and ad-
ministered by public utilities subject to this Commission’s juris-
diction (the California ISO and PX).
rules we have established and to make refunds of
unjust and unreasonable rates for sales pursuant to
those market rules. Accordingly, PG&E's, SoCal Edi-
son’s, and SDG&F’s requests for rehearing of the
March 9 Refund Order seeking refund liability for
non-public utilities will be granted.
a. Statutory Framework
Analysis of the Commission's authority begins, as it
must, with the FPA statutory language. The refund
obligations at issue relate to the sale of electricity for
resale in the California ISO’s and PX’s interstate
spot markets. The Commission’s authority, under
FPA Section 201(b), encompasses “the sale of electric
energy at wholesale in interstate commerce.” In the
restructured California market, all sales into the PX
or ISO meet this definition. See also FPA § 201(b)(2)
(defining wholesale sales). The wholesale sales of
electricity here thus fall within the subject matter of
the Commission’s statutory authority.
The question at issue involves the interplay be-
tween that subject matter jurisdiction and the ex-
press limitations on FPA jurisdiction to public utili-
ties. The Commission’s authority under FPA Section
206(a) is limited to rates “collected by any public util-
ity for any ... sale subject to the jurisdiction of the
Commission.” FPA Section 201(d)(2)(f) provides that,
except where specifically stated otherwise, no provi-
sion of Part Il of the FPA applies to “the United
States, a state or any political subdivision of a state,
or any agency, authority or instrumentality of any
one or more of the foregoing”).
76a
b. FERC Has Jurisdiction Over the Subject Mat-
ter of the Sales at Issue
At issue is whether the Commission can assert ju-
risdiction over the California ISO and PX wholesale
electricity markets in a manner that encompasses
non-public utility sellers that are not subject to our
direct jurisdiction under FPA Section 206. Under the
specific circumstances presented, we conclude that
such jurisdiction may properly be asserted over non-
public utility sellers of energy. Under the single
price auction mechanism that operated in the cen-
tralized ISO and PX spot markets, all sellers agreed
to accept ths same clearing price for any given sale.
I'rom the time the Commission acted on SDG&E’s
complaint, all sellers into those markets were on no-
tice that those clearing prices, and the market rules
that set the clearing prices, were subject to change if
they were found to be unjust and unreasonable. For
example, the November 1 Order states: “... if the
Commission finds that the wholesale markets in
California are unable to produce competitive, just and
reasonable prices ... we may require refunds for sales
made during the refund effective period.”
Our action here establishes a revised method for
calculating the just and reasonable clearing prices to
be applied in those markets for the period beginning
October 2, 2000. This is pursuant to the Commis
sions authority under FPA Section 206 to fix the just
and reasonable rate. Our action thus revises the
market clearing prices that all market participants
previously agreed to accept for their sales. In this
context, we see no reason to treat non-public utility
4 93 FERC at p. 61.370; see also December 15 Order, 94
FERC at pp. 62,010-11 (same)
Vda
sellers differently, as they are receiving the same
price, the just and reasonable market clearing price
established pursuant to market rules approved by
this Commission, that they expected to obtain for
their wholesale sales into the centralized ISO and PX
spot markets.
When faced with a similar question under the
Natural Gas Act, the D.C. Circuit concluded that the
Commission could exert rate authority over non-
jurisdictional entities to fulfill its statutory responsi-
bilities regarding the subject matter of its NGA
jurisdiction. Jn United Gas Distribution Cos. v. FERC,
88 F.3d 1105 (D.C. Cir. 1996), local distribution com-
panies and municipalities, both of whom are exempt
from NGA jurisdiction, challenged application of
FERC’s Open Access Rules to their release of their
own capacity on a pipeline system. The court focused
on the subject matter of the transaction, not the par-
ties involved, to determine the Commission's author-
ity to act. ‘he court found that, notwithstanding the
LDCs’ exemption from the NGA, “the Commission’s
jurrsdiction attaches to the subject of the capacity re-
lease transaction: interstate transportation rights.”
88 F.3d at 1152. Further, the court found that ex-
empting LDCs would allow them to engage in capac-
ity release “without regard to the principles of open
access and nondiscrimination that are at the heart”
of the program. /d. ‘That result would be “directly
contrary to Congress’ intent in enacting the |NGAJ].”
Id. Consequently, the court found the Commission
properly included LDCs within the regulatory plan to
further the statutory goals.
Similarly, here, Commission jurisdiction attaches
to the subject matter of the affected transactions:
wholesale sales of electric energy in_ interstate
78a
commerce through a Commission-authorized and
Commission-regulated centralized clearinghouse that
set a market clearing price for all wholesale seller
participants, including non-public utilities. Exempt-
ing transactions involving non-public utility sellers
from refund scrutiny here would allow them to make
such sales without regard to the just and reasonable
standard that applies to the market clearing price
administered by the ISO (and previously by the PX),
and that pervades all Commission ratemaking poll-
cies.
It is noteworthy that California may not regulate
out of state sellers and has declined to regulate Cali-
fornia non-public utilities’ sales in the California
centralized ISO and PX spot markets. As a result,
absent FERC jurisdiction, a regulatory gap for these
sales could exist. Such a result could preclude us
from protecting consumers from exploitation in these
markets, one of our statutory objectives under the
FPA.
lor essentially the same reasons, the court in UDC
found the Commission could require compliance with
its capacity release regulations from municipalities.
FERC may, consistent with the NGA, require mu-
nicipalities to comply with its capacity release
regulations.... FIERC’s transportation jurisdiction
extends as a separate matter over capacity release
given the involvement of interstate gas pipelines.
The pipelines’ role in capacity release is absolutely
central, and the transaction itself controls access to
interstate transportation capacity, entirely inde-
pendent of the jurisdictional nature of the releasing
and replacement shippers.
88 F.3d at 1154 (emphasis in original; footnotes omit-
ted). The court also found “compelling” that prior to
19a
adoption of the Commission’s capacity release pro-
gram, neither jurisdictional nor non-jurisdictional
entities could release capacity. Thus, as the Com-
mission set up the program that benefitted both ju-
risdictional and non-jurisdictional parties, it could
establish rules by which all parties must abide. Jd.
Here, the central transactions, wholesale sales of
energy in interstate commerce, were governed by
FERC-approved rules and a FERC-jurisdictional ISO
and PX. ‘Those transactions thus fell within FERC’s
jurisdiction regardless of the jurisdictional nature of
the sellers or buyers. Further, the centralized whole-
sale spot electricity markets operated by the Califor-
nia ISO and PX were established (and have been
modified) subject to FERC review and approval.
Because the market did not exist prior to FERC
authorization, all those who participated in the mar-
ket had to recognize the controlling weight of FERC
authority. Moreover, it is fair that all those who
benefitted from this market also bear responsibility
for remedying any potential unlawful transactions
that might have occurred in the market.
Non-public utility sellers in the California market
entered into various arrangements that acknowl-
edged the Commission’s authority over the central-
ized transactions. For example, in Pacific Gas and
Electric Co., et al., 82 FERC 4 61,326 (1998), many
non-public utility sellers accepted a FERC-authorized,
pro-forma Scheduling Coordinator Agreement. Id. at
p. 62,283.55 Among the obligations under the Agree-
ment, parties agreed “to comply with the terms and
» One such seller was City of Los Arzeles, Department of
Water & Power, whose Agreement was docketed as ER9&-1934
OOO. Id
SOa
conditions of the ISO Tariff and ISO Protocols.” Jd.
For the PX, the Commission required that parties
sign a FERC-authorized, pro-forma Participation
Agreement. California Power Exchange Corp., 83
FERC 4 61,186 (1998). Against opposition, the Com-
mission concluded that the Participation Agreement
and “the services provided under the PX Tariff are
jurisdictional.” Jd. at p. 61,771. The Commission
indicated that the Agreement “is the contract under
which the California PX provides these services to its
customers” and, as such, could be required to be filed
in accordance with FPA Section 205(c). Jd. A large
number of non-public utility sellers executed the Par-
ticipation Agreement. See, e.g., PX letter filing of
January 25, 2001 (index of parties who executed the
Agreement as of December 31, 2000).
Placing jurisdictional and non-jurisdictional sellers
on the same footing for refund purposes promotes
the underlying goals of the FPA. Under California’s
restructuring system, interstate, wholesale sales of
electric energy were transacted largely through
hourly single price auctions, which meant that all
bidders into these spot markets received the same
price for a specific sale. In fact, prior to Commission
modification, California public utilities were required
by California to transact exclusively through the PX
under the mandatory buy/sell rule.
Consequently, if the price for a specific sale 1s
found to be unjust and unreasonable, then all sellers
who obtained that price received an unjust and un-
reasonable rate. To the extent the Commission de-
termines refunds are an appropriate remedy for that
sale, consumers can only be made whole by refunds
Sla
from all sellers who received the excessive price.5®
As non-public utility sellers of energy and ancillary
services accounted for up to 30 percent of all sales in
the California centralized ISO and PX spot markets,
excluding them from a potential refund remedy could
have a serious detrimental effect on consumers.
3. Refund Liability Can Apply from October 2,
2000 Through June 20, 2001
The above discussion also largely disposes of any
claim that the Commission is impermissibly applying
refund hability to non-public utility sellers back to
the October 2, 2000, refund effective date that we
previously announced. Because refund obligations
relate to factual issues concerning past periods, their
resolution is considered to be adjudication. Adjudica-
tions are generally given retroactive effect. See
Harper v. Virginia Dept. of Taxation, 509 U.S. 86,
94-95 (19938) (referring to “the fundamental rule of
retrospective operation that has governed judicial de-
cisions for near a thousand years’). The Court has
declined to accept equitable reliance as grounds for
limiting the retroactive application of an adjudica-
tory decision. “The federal law applicable to a par-
ticular case does not turn on whether litigants actu-
ally relied on an old rule for] how they would suffer
from retroactive application of a new one.” /d. at n.9
(citation and quotation marks omitted).
°» We note that non-public utilities (e.g., Turlock Irrigation
District and the City of Burbank) are seeking refunds for what
they perceive are excessive charges paid in these markets.
Under the maxim that those who seek equity must do equity,
McQuiddy v. Ware, 87 U.S. 14, 19 (1873); In re Gardenshire, 209
F.3d 1145, 1152 n.11 (9th Cir. 2000), it would only be fair that
these same utilities be willing to pay refunds related to any
excessive amounts they may have collected
82a
Of course, in the instant matter, as explained
above, the non-public utility sellers were well aware
that these transactions involved wholesale sales of
electricity subject to FERC jurisdiction. These sellers
had executed the pro forma agreements established
by the Commission that indicated, in part, their will-
ingness to comply with the terms of the FERC-
jurisdictional ISO or PX tariffs. These factors under-
mine possible claims that non-public utility sellers of
energy could reasonably have relied on their sales for
resale of electricity into the centralized interstate
California ISO and PX spot markets not properly be-
ing subject to FERC jurisdiction.
The Supreme Court’s discussion of retroactivity
arose in the context of judicial adjudication, but the
same principles counsel strongly for like treatment in
agency adjudications. See Southwestern Public Ser-
vice Co. v. FERC, 952 F.2d 555, 563 (D.C. Cir. 1992)
(indicating FER should take note” of recent Supreme
Court case that “may forbid agencies to apply rules
with selective retrospectivity.”) (citation omitted).
The D.C. Circuit also recently indicated that selective
retroactivity’’ for remedial purposes “breaches the
principle that litigants in similar situations should
be treated the same, a fundamental component of
stare decisis and the rule of law generally.” Nat!
Fuel Gas Supply Corp. v. FERC, 59 F.3d 1781, 1789
(D.C. Cir. 1995) (citation omitted). Here, as discussed
above, public utility and non-public utility sellers
under the single price auction system used in the
affected markets were similarly situated regarding
the price they received for their sales tor resale of
°! That 1s, prospective application for some, and retrospective
application for others
83a
electricity, and thus should be treated similarly in
the consideration of whether refunds should be required.
The D.C. Circuit has, however, expressly declined
to require that agency adjudications enforcing agency
decisions apply retroactively. See, e.g., Power Corp.
of America, 245 F.3d at 847. Instead, the court
applies a five-part test for deciding if retroactivity is
inappropriate. Williams Natural Gas Co. v. FERC,
3 F.3d 1544, 1553-55 (D.C. Cir. 1993); see Retail
Wholesale & Dept. Store Union v. NLRB, 466 F.2d
380, 390 (D.C. Cir. 1972) (one formulation of criteria).
Under these criteria, our determination that non-
public utility sellers of energy in the California mar-
ket can be hable for refunds should apply retroac-
tively.
The initial criterion.asks whether the issue is one
of first impression. We have no trouble finding that
the instant question is, given that Californie was the
first state to restructure its electricity market and
the Commission had never dealt with market-wide
refunds in a single price auction for widespread
centralized spot purchases of wholesale electricity
in interstate commerce. The next criterion looks to
whether Commission action seeks to fill a void in an
unsettled area of the law. For the same reasons
mentioned in the first critericn, this factor weighs
in favor of retroactivity. The Commission seeks to
redress a previously unencountered situation in a
manner that furthers the underlying purpose of the
FPA.
The third criterion asks the extent to which parties
relied on the old rule. Here, there was no old rule to
apply to the precise situation. But, in any event,
non-public utility sellers should have recognized
their sales for resale into the centralized ISO or PX
S4a
spot markets were the subject of FERC jurisdiction
and scrutiny. Among other things, FERC’s investiga-
tion into the ISO and PX market practices and rules,
with indications in the August 25 Order that possible
remedies included changes to the market clearing
price mechanisms and refunds, should have alerted
non-public utility (as well as public utility) sellers of
FERC’s authority over their sales in those markets.
Moreover, those sellers signed FERC pro forma
agreements that indicated their willingness to com-
ply with FERC-authorized tariffs.
The fourth and fifth criteria also weigh in favor
of retroactivity. Ordering non-public utility sellers
to refund amounts received in excess of just and
reasonable rates does not impose an unfair burden,
but merely place those sellers in the same position as
public utility sellers. Finally, the statutory interest
in protecting consumers against exploitation is fur-
thered by subjecting non-public utility sellers, who
represent up to 30 percent of all sales into the Calli-
fornia ISO and PX spot markets during the applica-
ble time period, to possible refund liability to the
same extent as public utility sellers. Otherwise, con-
sumers will not be made whole for any prices found
to be excessive. Moreover, fundamental fairness dic-
tates that in the context of a single price auction,
where all bidders received the same price for a
specific sale, all those parties should now bear the
responsibility of refunding any amounts found to be
unjust and unreasonable.
'n short, the balance tips decidedly in favor of ret-
roactive application of refund liability to October 2,
2000, for all sellers in the California ISO and PX spot
markets.
85a
4. DWR Transactions
By motion dated March 1, 2001, the Oversight
Board requested clarification and extension of the
December 15 Order, arguing that DWR bilateral con-
tracts should be subject to refund. These contracts
became an issue when, on January 17, 2001. the
Governor of California 1ssued an emergency procla-
mation giving DWR authority to enter into arrange-
ments to purchase power. DWR began purchasing
under this authority the next day. DWR has pur-
chased substantial amounts of energy in the ISO’s
Imbalance Energy market and is in the process
of executing long-term purchases. The California
Commission and SoCal Edison supported the motion.
Numerous other parties opposed the motion, con-
tending that the relicf sought would be inconsistent
with the objectives of the December 15 Order and be-
cause the proposed changes to parties’ market-based
rate authorizations would have to be considered
under FPA Section 206.
Subsequently, a number of parties filed comments
on the Chief Judge’s Report arguing that the DWR
bilateral contracts should remain outside the scope
of the Commission’s refund orders given that these
transactions represent bargained-for exchanges be-
tween willing buyers and sellers (with DWR picking
and choosing the transactions it wanted, exercising
discretion and exhibiting price response).5%
We believe imposing after-the-fact refund liability
on California transactions outside of the centralized
ISO and PX markets 1s unjustified. This is particu-
larly true in the instant proceeding when the Com-
°5 See Statement of the Undersigned Generators to the Chief
Judge, dated July 9, 2001, at 8.
SOHa
mission consistently encouraged California load serv-
ing entities to acquire a balanced portfolio of short,
medium and long-term contracts. Expanding the
scope of transactions subject to refund over the
period October 2, 2000, through June 20, 2001 to
include transactions outside the ISO and PX central-
ized markets would simply hinder the ability of par-
ties to enter into new bilateral contracts. Accord-
ingly, the Commission will deny the Oversight
Board’s motion.
Further, we note that while DWR is a market
participant that competes with other suppliers and
purchasers of energy and ancillary services in the
ISO markets, unlike other market participants, DWR
has had access to the ISO’s control room and associ-
ated written materials, visua] observations, and oral
statements regarding the ISO’s markets, systems,
operations and activities.°° This has provided DWR
a competitive advantage in entering into its bilateral
contracts. In addition, by voluntarily entering into
bilateral transactions outside the ISO and PX, DWR
made a conscious decision to forego the refund pro-
tection that the Commission provided for purchases
through the ISO and PX. Thus, there is no equitable
rationale that supports making DWk’s bilateral con-
tracts subject to refund.
The Commission will issue a further order concern-
ing the standards of conduct between the ISO and
DWR in Docket No. ERO1-889.
RC . .
”? If DWR (or any other party) believes any of its contracts
are unjust and unreasonable, it may file a complaint under FPA
Section 206 to seek modification of such contracts.
60 See Confidentiality, Non-Disclosure and Use of Information
Agreement dated January 24, 2001 filed as Attachment G by
the ISO on June 19, 2001 in Docket No. ERO1-889-005
5. OOM Transactions
Several parties request clarification that the ISO’s
out-of-market (OOM) purchases are subject to refund.
We grant this clarification. As we stated previously
in our November 1 Order, “the electric market struc-
ture and market rules for wholesale sales of electric
energy in California are scriously flawed and [] these
structures and rules, in conjunction with an im-
balance of supply and demand in California, have
caused, and continue to have the potential to cause,
unjust and unreasonable rates for short-term energy
. under certain conditions.”6! The order noted that
the “California market structure and rules provide
the opportunity for sellers to exercise market power
when supply is tight and can result in unjust and un-
reasonable rates under the FPA.’62 These state-
ments are most true with respect to the ISO’s daily
OOM purchases for obtaining the resources it needs
to reliably operate the grid.
As stated in the August 23 Order, if there is insuf-
ficient supply in the ISO markets, then the ISO must
procure additional supplies at the iast minute with
OOM purchases in order to meet its needs for the
operating day. Historically, the ISO procured on a
daily basis only the resources needed for the operat-
ing day. Not only did this procurement practice put
pressure on the grid operator to secure needed re-
sources at the last minute, but the practice was un-
economical. Because the ISO is the suppher of last
resort for these services, when OOM calls are made,
suppliers realize that the ISO is in a must-buy situa-
tion. For this reason, we directed the ISO to imme-
61.93 FERC at p. 61,349.
6° Td. at p. 61,350
88a
diately institute a more forward approach to procur-
ing the resources necessary to reliably operate the
grid.
To the extent the ISO made spot market OOM pur-
chases (t.e., 24 hours or less and that were entered
into the day of or day prior to delivery), such pur-
chases are no different than purchases through its
markets. Both types of purchases are made by the
ISO in order to procure the resources necessary to
reliably operate the grid. Therefore, we clarify that
spot market OOM transactions are subject to refund
and subject to the hourly mitigated price established
in the ordered hearing. The hourly price will estab-
lish the maximum price with refunds for transactions
over this level.
6. Sales Made Pursuant to DOE Orders
PPL Montana, PPL EnergyPlus, and PPL South-
west Generation Holdings (PPL Parties) state that
in the exercise of his authority under Section 202(c)
of the FPA, the Secretary of Energy (Secretary), in
a series of orders directed PPL Montana, among
others, to make the necessary arrangements to sup-
ply energy as requested by the California ISO. PPL
Parties maintain that such sales made pursuant to
the orders issued by the Secretary under this author-
ity should not be subject to refund because they were
not made pursuant to Section 205 of the FPA. The
ISO maintains that sales made pursuant to Section
202(c) should be subject to refund.
PPL Parties state that Section 202(c) has its own
mechanism for determining sales prices. Under the
section, sales are to be made at an agreed upon price.
Only if price and terms cannot be agreed to 1n accur-
63 G2 FERC at p. 61,608.
89a
dance with the existing reyulations, the terms are
to be immediately prescribed by the Secretary and
the price referred to this Commission for subsequent
determination of a rate it determines is “just and rea-
sonable.”64 According to PPL Parties, there is noth-
ing in Section 202(c) that authorizes the payment of
refunds or the redetermination of sales prices where
there has been mutual agreement.
Furthermore, PPL Parties state that the Secretary
specifically directed in his orders that “the terms of
any arrangement made between the entities subject
to this order and the California ISO pursuant to this
order are to be agreed to by the parties.” Therefore,
they assert that any action by the Commission to
alter the terms of agreements voluntarily reached by
ordering refunds would be inconsistent with the Sec-
retary’s mandate.
We agree that rates for transactions entered into
under Section 202(c) in compliance with the Secre-
tary’s orders are outside the scope of this proceeding.
The Secretary has not referred any sales to this
Commission for a rate determination; if any had been
referred here, they would have been reviewed in a
separate proceediiig.
7. PG&E Bankruptcy
We note that on April 6, 2001, PG&E filed for
Chapter 11 bankruptcy protection. Although the
Bankruptcy Code provides that the filing of a bank-
ruptcy petition automatically stays certain actions
against the debtor,® the Code also provides an excep-
tion from this automatic stay for:
61 10 C.F.R. § 205.376 (2001).
©". 11 U.S.C. § 362(a)(1) (1994 & Supp. 2000)
90a
An action or proceeding by a governmental unit
to enforce such governmental unit's or organiza-
tion’s police and regulatory power, including the
enforcement of a judgment other than a money
judgment, obtained in an action or proceeding
by the governmental unit to enforce such govern-
mental unit’s or organization’s police or regulatory
power,
The Commission has found in the past that actions
taken under the authority granted it by the Federal
Power Act and the controlling regulations fit within
this exception, and, therefore, are exempt from the
automatic stay provision.®’ In the instant matter,
we are exercising our regulatory power under Section
206 of the Federal Power Act as permitted by Section
362(b)(4) of the Bankruptcy Code to issue an order
that does not threaten the bankruptcy court’s control
over the property of the bankruptcy estate. As this
order establishes the formula for refunds but does
6 11 U.S.C. § 362(b)(4) (1994 & Supp. 2000).
"' See Virginia Electric and Power Company, 84 FERC
*| 61,254 (1998); and Century Power Corp., 56 FERC {| 61,087
(1991). ‘he Commission conclusion on this matter is consistent
with judicial precedent regarding the scope of the exemption to
the automatic stay. E.g., Board of Governors of the Federal
Reserve System v. MCorp Fin., Inc., 502 U.S. 32 (1991); SEC vu
Brennan, 250 F.o8d 6A (2nd Cir. 2000); NLRB ov. Continental
Hagen Corp., 932 F.2d 828 (9th Cir. 1991); United States |
Commonwealth Cos. Inc., 913 F.2d 518 (8th Cir. 1990); NLAB
Edward Couoper Painting, Inc., 804 F.2d 934 (6th Cir. 1986),
Penn Terra Ltd. v. Dept. of Environmental Resources, 733 F.2d
267 (38rd Cir. 1984); In re Pacific Gas and Electric Co., et al., No
01-30932 (Bankr. N.D.Cal. June 1, 2001) (finding the regulatory
exception apphes to a California Commission decision affecting
PG&k's financial condition); see generally 3 Collier on Bank
ruptey § 362.05 (15th ed. rev. 2000)
Ola
not impose any monetary obligation on PG&E, it has
no effect on PG&E’s bankruptcy estate.
C. Refund Calculation Methodology
We will adopt the recommendations of the Chief
Judge, as modified below, and apply the methodology
set out in the June 19 Order from the October 2,
2000, refund effective date, through June 20, 2001 to
determine the amount of refunds due to the custom-
ers in the ISO and PX spot markets. As the Chief
Judge recognized, the methodology in the June 19
Order must be modified in order to be applied to the
period October 2, 2000, through June 20, 2001. In
this respect, we will direct the ISO to make the mod.-
fications discussed below to the methodology pre-
sented in the June 19 Order, for the purposes of de-
veloping a factual record for analyzing these markets
during the refund period.
The scope of the June 19 price mitigation extends
to all spot market hours. Applying this to the period
October 2, 2000, through June 20, 2001, will enlarge
the number of hours that the March 9 Refund Order
made subject to refund for the period January |]
through May 28, 2001. Accordingly, we will grant
the requests for rehearing of the March 9 Refund
Order that seek to increase the hours of price miti-
gation for this period. In addition, we note that
the June 19 Order mitigates prices during all hours
effective as of June 21, 2001. This leaves a gap from
May 29 through June 20, 2001, when price mitiga-
tion only applied to periods of system emergencies.
[In order to maintain a consistent approach during all
periods of time, the Commission will require applica-
tion of the refund calculation methodology discussed
below to non-reserve deficiency hours from May 29
through June 20, 2001. Transactions that occurred
92a
during reserve deficiency hours in this_ period,
already mitigated as a result of the April 26 Order,
will not be affected.
The June 19 Order established a mitigated price
based upon the marginal cost of the last unit dis-
patched to meet the load in the ISO’s real-time
market. The June 19 Order also established a “must
offer” requirement that each generator offer all avail-
able and uncommitted capacity in real-time. The
ISO, County of Los Angeles, California Commission,
SDG&E, SoCal Edison, and the Oversight Board
(collectively, California Parties) argue that in apply-
ing the June 19 Order for the period October 2,
2000 through June 20, 2001, the methodology must
include a simulation of the must offer requirement
(an assumed economic dispatch). This modification
to the actual data lowers the heat rate for establish-
ing the market clearing price because it assumes that
all generation that was not dispatched was really
available, and that more imports were available than
the actual quantities. The California Parties allege
that the use of historical dispatch would yield h‘gher
prices than the prices resulting from using an assumed
economic dispatch, and higher prices would reward
the exercise of market power.
We did not institute the must offer requirement or
the marginal bidding requirement until May 28,
2001, and it is unreasonable to re-create the markets
to apply such requirements for the period October 2,
2000 through June 20, 2001. Generators actually
dispatched in
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