On June 9, 2009, the United States Court of Appeals for the Ninth Circuit issued a decision that upheld orders from the Federal Energy Regulatory Commission (“FERC” or the “Commission”) granting PPL Montana, LLC, PPL Colstrip LLC, and PPL Colstrip II LLC (collectively, “PPL”) market-based rate authority despite challenges by petitioners Montana Consumer Council and REC Silicon (collectively, “Montana Consumer Council” or “Petitioners”).  The Court specifically found that FERC’s policy choices and methods of calculation were not arbitrary and capricious and that its factual conclusions were supported by substantial evidence.  Thus, the Court denied Petitioners’ petition for review.

This decision appears to signal that, all things being equal, the Circuit Courts will generally defer to FERC’s new market-based rate regime. Because the Ninth Circuit is one of the least deferential to FERC, it is significant that it upheld FERC’s decision. However, the opinion itself is unpublished, and is not considered precedent “except when relevant under the doctrine of law of the case or rules of claim preclusion or issue preclusion.”  The decision may be cited in briefs to the Court under 9th Cir. R. 36.3 and 32.1, but it need not be treated by the Court as binding in any future proceeding. 
 
 The Court considered the following issues:
 
Issue 1: PPL’s Lack of Market Power

Petitioners took issue with FERC’s “snapshot in time” approach to find that PPL did not have market power.  Petitioners argued that the application of this test effectively removed several hundred megawatts of PPL’s generating capacity from FERC’s market power test because that capacity was tied up in contracts.  The Court said that FERC supported its market power determination with an alternative holding, that “even consider[ing] adjustments to the DPT with regard to [the] expiring contracts as protesters request, the evidence would still indicate that PPL Companies do not have generation market power.”  The Court determined it would not express an opinion as to the “snapshot” approach generally, but held that FERC supported its conclusion PPL lacked market power with substantial evidence.

Issue 2: Use of Spot Market Data as a Proxy

Petitioners also argued that FERC acted arbitrarily and capriciously by relying on data in the spot market rather than the long-term firm power market.  The Court found that FERC provided reasons for supporting its presumption that absent barriers to entry, spot market data would be an appropriate proxy for the state of the long-term market.  Moreover, the Petitioners did not demonstrate how certain regulatory constraints blocked entry into the long-term market such that they would invalidate FERC’s use of the short-term market as a meaningful proxy.  Thus, the Court did not second-guess the Commission’s judgment and found no basis to overturn FERC’s determination that an analysis of the short-term power market serves as an adequate proxy in the case.

Petitioners also alleged PPL’s market dominance and pricing flexibility dissuaded new entities from entering the market.  The Court found the Commission did not abuse its discretion by finding such allegations to be unpersuasive.  The Court stated there was no record evidence showing there were new market entrants who were willing to compete with PPL during the relevant time. 
 
Issue 3: Long-Term Sales

Petitioners argued that FERC simply accepted as true PPL’s assertions regarding how much competing supply was available for long-term firm sales to the NorthWestern control area.  The Court disagreed with this assessment, finding FERC considered market prices, input costs, and transmission availability in detail. 

Issue 4: SIL vs. OASIS Data

Petitioners alleged that OASIS data rather than simultaneous import data (“SIL”) would have been more appropriate to determine whether import transmission capacity existed for the out-of-state generators PPL had identified as competing capacity.  The Court disagreed, finding that FERC did not err by allowing PPL to use an SIL study rather than OASIS data, noting that the Court accords significant deference to FERC’s choice of methods for calculating market conditions.
 
Issue 5: Antitrust Policy

The Court found that FERC’s orders did not improperly fail to take into account antitrust policy.  Specifically, FERC indicated that the DPT analysis it used is based upon and incorporates antitrust principles, and that antitrust enforcement is beyond the scope of FERC’s authority in a 206 proceeding.

Issue 6: EQR Data

The Court found that the Commission did not err by using EQR data as a corroboration of its finding that PPL lacked market power.  FERC is permitted to take official notice of such data, as it is publicly filed and available on FERC’s website.  Moreover, it was only used as corroboration, and the Commission indicated it would have come to the same conclusion had it not taken the EQR data into account.