In an opinion issued August 27, 2012, the Ninth Circuit concluded that FERC has the authority to retroactively determine just and reasonable prices in order to establish refund amounts for jurisdictional entities, but does not have retroactive rate-setting authority over non-jurisdictional sellers.
This case is the continuation of a series of cases that have stemmed from California’s mid-1990’s electric energy market restructuring. At that time, California created the California Power Exchange (“CalPX”) and the California Independent System Operator Corporation (“ISO”), which jointly operated single-price auction spot markets for the wholesale sale of electricity for the state of California. The structure of the CalPX/ISO market inadvertently allowed for market manipulation which caused an increase in energy prices, ultimately leading to the California energy crisis of 2000 and 2001. In response to a filed complaint, FERC investigated the CalPX/ISO market and established a plan to mitigate the inflated prices for the region during that time frame. FERC released an order (1) setting the market clearing prices for the CalPX/ISO market based on what would have been the market prices had normal competitive market forces been in play, and (2) requiring refunds from all entities with transactions above such prices.
In Bonneville Power Administration v. FERC, 422 F.3d 908 (9th Cir. 2005), which reviewed FERC’s refund action, the court found that while FERC could order refunds from jurisdictional entities for prices that had been paid above what FERC had retroactively set as the just and reasonable rates for the time frame, FERC lacked the requisite authority to order similar refunds from non-jurisdictional entities (power-producing municipal and federal government entities). In its order, the court noted that, while FERC did not have authority to order refunds from non-jurisdictional entities, there may be a possibility to obtain relief from such entities through a contract claim.
As relevant to the case in question, thereafter FERC issued a set of orders wherein it stated that, per its Federal Power Act Section 206 authority, in order to establish a just and reasonable rate for the ordering of refunds, it had “revised” the CalPX/ISO market clearing rates for the period in which it had ordered refunds. The practical effect of this was that, though FERC agreed that it did not have appropriate jurisdiction to order refunds from non-jurisdictional parties, the CalPX/ISO rates charged under the jurisdictional CalPX/ISO tariff were reset for all market participants, jurisdictional and non-jurisdictional alike. In providing this clarification, FERC’s action to reset rates for all market participants, regardless of its refund power being limited to only jurisdictional entities, created support for separate contract actions against the non-jurisdictional entities. Petitioners in the current case, including federal power marketing agencies Bonneville Power Administration and Western Area Power Administration, as well as certain public entities, challenged FERC’s assertion, requesting review from the Ninth Circuit.
In the Ninth Circuit’s recent order, the petitions for review were denied. The court stated that, in order to set the refund rates for jurisdictional entities, the calculation “necessarily involved reevaluating the price previously charged by all market participants because the market clearing price was the same for all of them.” As such, the court held that FERC did not exceed its authority in simply determining the fair market clearing prices for all market participants. The court went on to state: “The primary focus of [FERC’s orders revising the CalPX/ISO market clearing prices] was on the fair and reasonable clearing prices, not on which parties would be affected by the Orders. FERC clearly acknowledged that it did not have authority to order refunds from the non-public utilities and explained that it was establishing just and reasonable rates in order to determine the appropriate refund amount for public entities.” In finding that FERC’s recalculation of rates was within FERC’s authority and was a necessary prerequisite to calculating the refund price for the jurisdictional entities under its control, the court stated that “[w]hat impact this calculation might have on the contract actions pending in other courts is not for us to say.”
The case, City of Redding, California et al. v. Federal Energy Regulatory Commission et al., 9th U.S. Circuit Court of Appeals, No. 09-72775, was initially argued and submitted in September 23, 2010, and the decision of the court was filed on August 27, 2012. The Ninth Circuit’s opinion is available here.