On October 3, 2011, FERC issued an order on remand from the U.S. Court of Appeals for the 9th Circuit (“9th Circuit”) concerning bilateral wholesale energy contracts that were entered into in the Pacific Northwest spot market between December 25, 2000 and June 20, 2001 (“October 3rd Order”).   In its October 3rd Order, the Commission established an evidentiary hearing before an Administrative Law Judge (“ALJ”) to address two issues on remand from the 9th Circuit: (1) consideration of purchases made in the Pacific Northwest that were ultimately consumed in California, to determine if refunds are warranted for sales in the Pacific Northwest spot market; and (2) examination of new evidence of market manipulation submitted after the ALJ in the initial proceedings made factual findings.  These purchases include jurisdictional and non-jurisdictional entities, including the California Energy Resources Scheduling (“CERS”) division of the California Department of Water Resources.

The October 3rd Order arises out of a long history of proceedings concerning the Pacific Northwest Spot Market at the Commission and the 9th Circuit.  This case first came to the Commission in October 2000 as a complaint by Puget Sound Energy (“Puget”) under section 206 of the Federal Power Act.  Puget alleged that California and the Pacific Northwest were part of a “substantially integrated wholesale power market of the Western Interconnection,” and requested caps on prices which sellers under the Commission’s jurisdiction could sell energy or capacity into the Pacific Northwest wholesale power markets.  The Commission dismissed Puget’s complaint but eventually established a separate evidentiary proceeding related to Pacific Northwest sales after San Diego Gas and Electric Company filed a complaint.  This separate proceeding was intended to develop a factual record on whether there may have been “unjust and unreasonable charges for spot market bilateral sales in the Pacific Northwest” from December 25, 2000 to June 20, 2001.  The ALJ in this separate proceeding found no evidence of market power and found that the Pacific Northwest spot market was competitive and functional during the time period in question.  The ALJ also found that transactions in the Pacific Northwest involved energy consumed in California and could not be subject to refund as the transactions were beyond the scope of the original Puget complaint.  In May 2002, parties in this separate proceeding filed motions with the Commission to reopen the evidentiary record to allow new evidence that emerged as a result of the investigations into Enron’s manipulation of California’s markets.  The Commission reopened the record, but on June 25, 2003, affirmed the ALJ’s findings and denied refunds for the Pacific Northwest spot market purchases in question.  The Commission found that even if spot market prices were unjust and unreasonable, the “balance of equities” tipped against ordering refunds.  In November 2003, the Commission denied requests for rehearing and affirmed the ALJ’s findings.

On appeal, the 9th Circuit found that the Commission failed to consider the new evidence submitted, and instead relied on the ALJ’s factual findings.  According to the 9th Circuit, this new evidence indicated that the Pacific Northwest spot market was affected by Enron’s manipulation of the California markets, and thus the Commission erred in failing to consider this new evidence showing “intentional market manipulation in California and its potential ties to the Pacific Northwest.”  Additionally, the 9th Circuit concluded that the Commission’s interpretation of the scope of the Puget complaint was arbitrary and capricious.  The 9th Circuit determined that Puget’s complaint provided no indication of intent to exclude energy purchased in the Pacific Northwest spot market for consumption outside the geographic area and accordingly, the Commission on remand must include the CERS transactions when determining whether or not to refund sales in the Pacific Northwest spot market. 

Pursuant to the 9th Circuit’s instruction, the Commission has set the indicated issues for remand and reopened the record to permit parties to present evidence of unlawful market activity between December 25, 2000 and June 20, 2001.  Further, consistent with the Mobile-Sierra presumption, parties seeking refunds must submit evidence on whether unlawful market activity occurred and demonstrate a connection between unlawful activity by a seller and unjust and unreasonable rates under a specific contract. The Commission must consider if sellers engaged in unlawful market activity in the spot market based on the laws, regulations, orders and tariffs in effect at the time of the Western energy crisis.  On remand, if the Commission determines that refunds are appropriate, the Commission will not adopt the approach taken the California refund proceedings due to the differences between the Pacific Northwest and California spot markets. 

The Commission has set the matters indicated above for a trial-type, evidentiary hearing, however it is holding the proceedings in abeyance to provide time for settlement proceedings.

A copy of the Commission’s Order is available here.