Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_01-cv-00238/USCOURTS-caed-2_01-cv-00238-4/pdf.json

Nature of Suit Code: 450
Nature of Suit: Interstate Commerce
Cause of Action: 28:1331 Fed. Question

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 The term “emergency dispatch instruction” is synonymous

with “emergency dispatch order.” The court uses the term

“instruction” herein because that is term used in the ISO

Tariff, and by the Federal Energy Regulatory Commission

(“FERC”).

2 Defendants include Reliant Energy Services, Inc.,

Reliant Energy Ormand Beach LLC, Reliant Energy Mandalay, LLC,

Reliant Energy Etiwanda, LLC, Reliant Energy Coolwater, LLC,

and Reliant Energy Ellwood, LLC (collectively referred to

herein as “Reliant”), Williams Energy Marketing & Trading

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CALIFORNIA INDEPENDENT

SYSTEM OPERATOR CORPORATION,

NO. CIV. S-01-238 FCD/JFM

Plaintiff,

v. ORDER GRANTING PRELIMINARY

INJUNCTION

RELIANT ENERGY SERVICES,

INC., et al.,

Defendants.

----oo0oo----

This lawsuit concerns the obligation of certain

generators to respond to emergency dispatch instructions1 for

electric power issued by plaintiff California Independent

System Operator Corporation (“the ISO”).2 This matter is

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 1 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Company (“Williams”), AES Placerita Inc., AES Alamitos, LLC,

AES Huntington Beach, LLC, AES Redondo Beach, LLC

(collectively “AES”), and Dynegy Power Corporation (“Dynegy”).

3 As discussed below, all defendants except Reliant have

entered into a stipulation with the ISO which moots, at least

temporarily, the ISO’s pending motion for preliminary

injunction as to those defendants. 

4 The ISO Tariff was filed with and approved by the

Federal Energy Regulatory Commission pursuant to Section 205

of the Federal Power Act, 16 U.S.C. § 824d.

2

before the court on the following motions: (1) the ISO’s

motion for preliminary injunction requiring Reliant to respond

to emergency dispatch instructions issued by the ISO;3 (2)

Reliant’s motion to dismiss the action for lack of

jurisdiction, or alternatively, to stay the action under the

doctrine of primary jurisdiction; and (3) the California

Department of Water Resources’ (“DWR”) motion to dismiss the

third-party complaint filed against it by Reliant on Eleventh

Amendment immunity grounds. By this order, the court now

rules on the pending motions 

BACKGROUND

1. California’s Electric Power Market

The ISO is responsible for controlling and maintaining

California’s electric power transmission grid. As part of its

responsibilities, the ISO acts as a power “broker” between the

generators and utilities. These transactions are governed by

the ISO Tariff.4 

California’s electric power market is comprised of two

sub-markets: the “advance market” and the “real time market.” 

In the advance market, the ISO accepts and coordinates power

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 2 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

“schedules” submitted by utilities that qualify as “scheduling

coordinators.” These schedules represent advance statements

of the quantities of electricity the scheduling coordinator

anticipates its customers will consume the day after the

schedule is submitted, together with quantities of electric

generation that the scheduling coordinator anticipates having

available the next day to meet those projected demands. This

process is repeated an hour before actual operations, to give

the utilities a chance to make adjustments to their schedules

to account for changes in weather, the status of generating

units and other factors. See ISO Tariff §§ 2.2.3, 2.2.11 -

2.2.13.

Even with the opportunity for hour-ahead adjustments,

actual customer demand for electricity and actual output of

generating units may differ from the demands and operating

levels reflected in the utilities’ schedules. The ISO is

responsible for ensuring that unscheduled demands for

electricity in real time operations are matched by additional

electricity from generating units. If customer demand is not

met by scheduled supplies in the advance market, the ISO must

procure additional electricity to maintain the reliability of

the transmission grid and serve customer demand. To meet

unscheduled demands, the ISO accepts bids from generators to

supply electricity in real time. The bid portion of the real

time market is referred to as the “imbalance market.” When

the amount of electricity available to the ISO in the

imbalance market is insufficient, the ISO issues emergency

dispatch instructions to its participating generators which

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 3 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5 PG&E and SCE have incurred enormous debts buying

wholesale power at prices that exceed the prices they can

charge their customers. PG&E and SCE have defaulted on

various debts, precipitating financial uncertainty throughout

the industry.

4

are obligated, under the ISO Tariff, to supply power when

called upon by the ISO to avert outages. See id. § 5.1.3. If

the ISO is unable to obtain sufficient power through the

issuance of emergency dispatch instructions, it must order

rolling blackouts in order to avoid a system-wide “crash” of

the transmission grid. The obligation of generators to

respond to emergency dispatch instructions is the subject of

this action.

2. The California Power Crisis 

On January 17, 2001, Governor Gray Davis proclaimed a

State of Emergency in response to California’s energy crisis. 

In January and February 2001, the ISO declared a series of

“Stage 3” Emergencies. See Ex. A to Stout Decl., filed Mar.

15, 2001. Stage 3 Emergencies are declared only when

electricity operating reserves fall below (or are expected to

fall below within the next two hours) a margin of 1 to 1-1/2

percent. 

The serious financial problems of California’s investorowned utilities, Pacific Gas & Electric (“PG&E”) and Southern

California Edison (“SCE”), have contributed significantly to

the crisis.5 As a result of these problems, many power

generators, including Reliant, have not been paid for a

significant portion of the electricity they have supplied, and

are reluctant to continue selling electricity to the utilities

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 4 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6 The order was subsequently extended by the current

Secretary of the United States Department of Energy.

7 The letter stated in pertinent part:

As you are probably aware, recent Securities and

Exchange Commission filings by [the California

utilities] indicate that the ISO may not be paid in

full when settlement payments fall due on February

2, 2001. In that event, the ISO will make only pro

rata payments to suppliers for these services as

provided in the Tariff. Despite these

circumstances, the ISO is committed to carrying out

its mission of ensuring reliable, continuing service

to California consumers and so asks for your

commitment to comply with any and all dispatch

instructions to units covered by the PGA.

Jan. 31, 2001 letter, attached as Ex. I to Verified Compl.,

filed Feb. 6, 2001.

5

(via the ISO) in the absence of assurances they will be paid.

To ensure the continued flow of electricity, on December

14, 2000, the then-Secretary of the United States Department

of Energy stepped in and ordered a host of power generators,

including Reliant, “to make arrangements to generate, deliver,

interchange, and transmit electric energy when, as, and in

such amounts as may be requested by the [ISO].”6 Amendment 2

to Jan. 11, 2001 Ord., dated Jan. 23, 2001, attached as Ex. D

to Verified Compl., filed Feb. 6, 2001. In anticipation of

the expiration of that order, on February 7, 2001, the ISO

sent a letter to generators operating in its market pursuant

to the ISO Tariff, requesting assurances that the generators

would continue to comply with any and all emergency dispatch

instructions issued by the ISO notwithstanding the financial

problems described above, and in the absence of any assurances

that they would be fully compensated for power supplied

pursuant thereto, or for power previously supplied.7

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 5 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8 It should be noted that AES does not take issue, at

least in the present litigation, with the creditworthiness

issue, but rather, with its obligation to respond to emergency

dispatch instructions where such response would violate state

and/or federal environmental laws. The court addressed this

issue in its temporary restraining order. See TRO, filed Feb.

8, 2001, at 11 n.6.

9 See California Assembly Bill 1x (approved by Governor

Feb. 1, 2001; filed with Sec’y of State Feb. 1, 2001); Senate

Bill 7x (approved by Governor Jan. 19, 2001; filed with Sec’y

of State Jan. 19, 2001).

6

Defendants’ failure to provide adequate assurances in this

regard prompted the instant action.8

/ / /

3. Current Market Share Of Emergency Dispatch Instructions

As outlined above, the ISO issues emergency dispatch

instructions when (1) customer demand in the real time market

is not met by scheduled supplies in the advance market, and

(2) the is unable to make up the shortfall through bids from

generators to supply power in real time. In recent months,

the real time market has constituted approximately 25% of the

entire market. See Detmers Decl., filed Mar. 20, 2001, ¶ 8,

and Ex. E attached thereto. Emergency dispatch instructions

have constituted approximately 50% of the real time market. 

Id. Thus, in recent months, emergency dispatch instructions

have accounted for roughly 12.5% of all power supplied through

the grid. Id.

4. DWR’s Entry Into The Market 

Earlier this year, DWR was appropriated significant funds

with which to purchase electricity,

9 and has entered into a

number of long-term contracts with generators. As discussed

below, last month DWR entered into a short term agreement with

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 6 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10 The court also granted the motion of the State of

California ex rel Electricity Oversight Board (“EOB”) to

intervene in this action at the February 6, 2001 hearing.

7

Reliant in which it agreed to pay for power provided pursuant

to emergency dispatch instructions. 

5. The Instant Litigation

The ISO filed this action, along with an application for

temporary restraining order, on the morning of February 6,

2001. 

Reliant immediately filed a motion to dismiss the action for

lack of jurisdiction. The court heard the ISO’s application

for temporary restraining order later that day, and granted

the application as to Reliant, ordering Reliant to continue to

sell electricity to the utilities via the ISO and to continue

to respond to emergency dispatch instructions.10 The order was

to remain in effect pending a further hearing on the matter on

February 7, 2001 at 3:00 p.m. The remaining defendants

stipulated that they would continue to respond to emergency

dispatch instructions until the conclusion of that hearing,

and thus, were not subject to the court’s temporary

restraining order. 

At the February 7, 2001 hearing, the court denied

Reliant’s motion to dismiss and extended the temporary

restraining order against Reliant until 5:00 p.m. (PST) on

February 8, 2001, pending issuance of a written order. The

remaining defendants again stipulated that they would continue

to abide by the provisions of the ISO Tariff, and would

continue to respond to emergency dispatch instructions, until

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 7 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11 The parties agreed that DWR’s opposition to Reliant’s

motion to join DWR as a party was properly treated as a motion

to dismiss the third-party complaint. See Feb. 16, 2001 Hr’g

Trans. at 67-68.

8

that time. See Feb. 7, 2001 Hr’g Trans. at 100-01. The court

further ordered defendants to appear on February 16, 2001 to

show cause why a preliminary injunction should not issue. In

its written order filed February 8, 2001, the court enjoined

all defendants, requiring them to comply with the terms of the

ISO Tariff and to continue to respond to emergency dispatch

instructions pending the February 16, 2001 hearing and

disposition of the order to show cause. See TRO at 11.

/ / /

On February 12, 2001, Reliant filed an application for a

temporary restraining order against the ISO, a motion to join

DWR as a party, and a third-party complaint against DWR. On

February 14, 2001, DWR filed a motion to dismiss the thirdparty complaint on Eleventh Amendment immunity grounds.11 On

February 15, 2001, Reliant filed a second motion to dismiss

for lack of jurisdiction, or alternatively, to stay based on

the doctrine of primary jurisdiction. These motions, as well

as Reliant’s application for a temporary restraining order,

were set for hearing on February 16, 2001, along with the

ISO’s motion for preliminary injunction.

At the February 16, 2001 hearing, Reliant withdrew its

motion for temporary restraining order. See Feb. 16, 2000

Hr’g Trans. at 68, 83. At the close of the hearing, the court

took the remaining matters under submission, and stated its

intent to issue a written order not later than Wednesday,

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 8 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12 Those agreements were filed under seal.

13 Because the telephonic status conference would

necessarily involve a discussion of the contents of the

confidential agreements between defendants and DWR, which were

9

February 21, 2001 at 5:00 p.m. The court also extended the

temporary restraining order to 5:00 p.m. on February 21, 2001. 

Id. at 112-14.

During the course of the February 16 hearing, at side

bar, the court was informed by counsel for Dynegy and Reliant

that those defendants had entered into agreement with DWR,

which, according to the same counsel, obviated the need to

rule on the pending motions. Those agreements, however, were

not available at the close of the hearing, and were not made

available to opposing counsel or the court until Monday,

February 19, 2001 (Reliant-DWR agreement) and Tuesday,

February 20, 2001 (Dynegy-DWR agreement).12 

On February 21, this court held a telephonic status

conference in camera to discuss the effect of those agreements

filed under seal on the pending motions and litigation. Based

on the terms of those confidential agreements and the

representations of counsel, it appeared the parties might

enter into a stipulation which would temporarily moot the

pending motions. Accordingly, at the request of the parties,

the court set the matter for a telephonic status conference in

camera on February 23, 2001 at 2:00 p.m. to allow the parties

sufficient time to enter into such a stipulation, and extended

the temporary restraining order to 5:00 p.m., Friday, February

23, 2001. See Order Extending TRO, filed Feb. 21, 2001.13 

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 9 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

filed under seal, the court, at the request of the parties,

again ordered that the telephonic status conference take place

in camera.

14 The stipulation and order also provided for termination

by any party on two-days notice. 

15 The substance of this request is discussed below in

connection with Reliant’s motion to stay.

10

On February 23, the ISO, Reliant, Dynegy and Williams

submitted a stipulation and proposed order pursuant to which

those defendants agreed to comply with emergency dispatch

instructions until 5:00 p.m. on March 19, 2001.14 At the

February 23 status conference, the ISO and AES also entered

into a stipulation pursuant to which AES agreed to comply with

emergency dispatch instructions. A further status conference

was set for March 16, 2001. The temporary restraining order

expired at 5:00 p.m. on February 23, 2001.

On March 9, 2001, the parties filed a joint status

conference statement and advised the court that Dynegy had

orally agreed to extend the February 23, 2001 stipulation

pending a ruling by the FERC on an “emergency request” filed

with the FERC on February 22, 2001,15 and that Williams was

willing to do the same. With respect to the remaining

defendants, the parties essentially agreed that the pending

motions were properly deemed submitted. 

At approximately 4:00 p.m. on Thursday, March 15, 2001,

the court received Reliant’s supplemental opposition to the

ISO’s motion for preliminary injunction. Two supplemental

supporting declarations containing extensive exhibits were

received approximately one hour earlier. These supplemental

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 10 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

documents were submitted without the court’s permission. 

However, at the March 16, 2001 status conference, the ISO and

the EOB were granted permission to file supplemental replies

not later than March 20, 2001.

At the March 16, 2001 status conference, Dynegy, Williams

and AES stipulated on the record that they would continue the

February 23 stipulations until the FERC ruled on the February

22 emergency request. See Mar. 16, 2001 Hr’g Trans. at 5-7.

The ISO accepted their stipulation, and agreed that its motion

for a preliminary injunction was mooted, at least temporarily,

as to those defendants. See id. at 6-7. Reliant would not

enter into a similar stipulation. Reliant did, however, agree

to stipulate to respond to emergency dispatch instructions

until 5:00 p.m. Wednesday, March 21, 2001, to allow the ISO

and the EOB an opportunity to respond to its supplemental

brief. See id. at 29-30.

The court has received and reviewed the ISO’s and the

EOB’s supplemental replies, the ISO’s objection to the

Declarations of Thomas Hixson and exhibits attached thereto,

and the extensive briefing submitted by all parties in

connection with the ISO’s motion for preliminary injunction,

Reliant’s motion to dismiss, and DWR’s motion to dismiss

Reliant’s third-party complaint. The court has also given

careful consideration to the arguments and testimony presented

at the hearings on these matters. For the reasons set forth

below, Reliant’s motion to dismiss or stay is denied, DWR’s

motion to dismiss is granted, and the ISO’s motion for a

preliminary injunction is granted subject to the limitations

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 11 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

set forth below. 

ANALYSIS

1. Reliant’s Motion To Dismiss Or Stay

On February 15, 2001, Reliant filed a motion to dismiss

or stay based of the FERC’s February 14, 2001 order. Reliant

moved this court to dismiss the underlying action in its

entirety for lack of jurisdiction and failure to state a claim

on which relief can be granted, or alternatively, to stay the

action under the primary jurisdiction doctrine.

A. Motion to Dismiss 

Reliant’s motion to dismiss hinges on its interpretation

of the FERC’s February 14, 2001 order as finding that “the

credit provisions of the Tariff do apply to real time

transactions.” Reliant’s Mem. of P. & A. in Support, filed

Feb. 15, 2001, at 2 (emphasis in original). Reliant’s

interpretation finds little, if any, support in the FERC’s

order. Before addressing the merits of Reliant’s argument,

some background information concerning the FERC’s order is

required.

On February 14, 2001, the FERC issued an “Order

Addressing Creditworthiness Tariff Provisions Proposed By the

California Independent System Operator And California Power

Exchange.” See FERC Ord., filed Feb. 14, 2001, attached as

Ex. A to Reliant’s Mot. to Dismiss, filed Feb. 15, 2001 (“FERC

Ord.”). That order was issued, in part, in response to

proposed Amendment No. 36 filed by the ISO on January 4, 2001

“to revise the Approved Credit Rating requirements of the

[ISO] tariff.” FERC Ord. at 2. Proposed Amendment No. 36

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 12 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16 “UDC” stands for investor-owned utility distribution

company. PG&E and SCE are both UDCs.

13

“gives the ISO temporary authority to waive the requirement

that UDCs[16] without an Approved Credit Rating post security.” 

Id. At the time it filed Amendment No. 36, the ISO announced

that it would implement it immediately, and requested that the

FERC approve it nunc pro tunc to January 4, 2001.

As discussed below in connection with the ISO’s motion

for preliminary injunction, without Amendment No. 36, the ISO

Tariff requires scheduling coordinators to maintain an

“Approved Credit Rating,” or alternatively, to post security. 

See ISO Tariff § 2.2.3.2. Scheduling coordinators that fail

to obey these requirements are prohibited from submitting

schedules to the ISO. See id. § 2.2.7.3. 

In its February 14 order, the FERC “conditionally

accept[ed] Amendment No. 36 . . . for filing to become

effective January 4, 2001, subject to clarification and

guidance provided below 

. . . .” More specifically, the FERC “accept[ed] the

amendments to the extent they allow PG&E and SoCal Edison to

continue to schedule transactions from generation and over

transmission they own to serve their own load,” and “den[ied]

the amendments to the extent they allow PG&E and SoCal Edison

to continue to schedule transactions from third-party

suppliers without adequate assurance of payment.” Id. at 1-2. 

According to the FERC, those “actions should help in

maintaining the reliability of system operations and in

encouraging the entry of lower-cost supply into California

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 13 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17 See FERC Ord. at 1-2; see also id. at 10 (“The

creditworthiness requirements in the ISO tariff apply not only

when a UDC is scheduling delivery of power purchased from a

third party, but also when a UDC or its Scheduling Coordinator

is scheduling its own generation and using its own

transmission resources that are now controlled by the ISO.”)

(emphasis added); id. at 12 (rejecting application of

Amendment No. 36 “beyond the UDCs and their Scheduling

Coordinators self-scheduling their own generation and

accessing their own transmission facilities.”) (emphasis

added).

18 The FERC order was filed after the court’s temporary

restraining order. In the temporary restraining order, the

court agreed that enforcement of Amendment 36 would require

the court to modify and/or amend the ISO Tariff, and thus

would fall outside of its jurisdiction. See TRO at 7. The

court disagreed, however, that granting the ISO the relief it

seeks implicated Amendment 36 or was otherwise related to the

ISO Tariff’s credit requirements, as the court construed

Amendment 36 to pertain solely to purchases made in the

advance market. Id. at 8.

14

markets.” Id. at 2.

Reliant interprets the FERC order to hold that the

creditworthiness provisions of the ISO Tariff apply to all

real time transactions, including emergency dispatch

instructions. They plainly do not. In its order, the FERC

recognizes that the tariff’s creditworthy requirements apply

to the scheduled delivery of electric power.17 As discussed

above and in the court’s temporary restraining order, power is

“scheduled” in the advance market, not the real time market.”18

The FERC order’s conclusion supports this interpretation:

Under our order, the ISO can continue to accept the

UDCs’ schedules to supply their load with their own

resources, and DWR’s authority to purchase on behalf

of the UDCs is acceptable. Thus, the unresolved

creditworthiness issues relate to the UDCs residual

load that is served through the ISO’s imbalance

market. Under current conditions, there is a bid

insufficiency in the ISO’s imbalance energy market

causing the ISO to issue emergency dispatch

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 14 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15

instructions in order to meet this residual load and

balance the system. By maintaining appropriate

creditworthy standards that ensure payment for

services by a creditworthy counterparty such as DWR,

this order should increase the supply in the energy

imbalance market and reduce the need for emergency

dispatch instructions.

Id. at 13 (emphasis added). Here, the FERC expressly notes

that the creditworthiness issue is unresolved as to the

imbalance market. As the order indicates, the imbalance

market is the market that precedes the issuance of emergency

dispatch instructions. If the creditworthiness issue is

unresolved as to that market, the order cannot reasonably be

construed as resolving the issue as to power supplied in

response to emergency dispatch instructions. Moreover, the

FERC concludes that by enforcing credit requirements in the

scheduled markets, its order “should . . . reduce the need for

emergency dispatch instructions.” Id. 

/ / /

In addition to proposed Amendment No. 36, the FERC also

purported to “act on various requests for clarification on

creditworthiness issues.” Id. at 1. Among other things,

Dynegy sought “clarification that the ISO tariff penalties for

failure to comply with emergency dispatch instructions do not

apply when purchasers fail to meet the tariff creditworthiness

requirements.” Id. at 4. While FERC initially purports to

address the creditworthiness aspects of Dynegy’s request, it

later states that it will address “the penalty provision for

which Dynegy seeks clarification,” in a later order. See id.

at 4, 12-13. Thus, it would appear that the FERC specifically

reserved comment on the issue of whether the ISO Tariff’s

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 15 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

19 The court also rejects Reliant’s assertion that more

recent FERC actions “confirm that this court lacks

jurisdiction.” See Supp. Opp’n at 4, filed Mar. 15, 2001. 

Reliant attempts to characterize this case as a dispute over

the just and reasonable price of power, a matter it contends

the FERC resolved in its March 9, 2001 order. The issue

before this court is whether Reliant is obligated to respond

to emergency dispatch instructions, and more particularly,

whether the ISO Tariff’s creditworthiness provisions apply to

power provided in response to emergency dispatch instructions. 

That issue was not addressed by the FERC’s March 9, 2001 order

or any other FERC order. As set forth above, that issue is

currently pending before the FERC. Reliant’s arguments

concerning DWR’s ability and/or obligation to ameliorate any

threat of irreparable harm are addressed below in connection

with the ISO’s motion for preliminary injunction. 

Reliant’s reliance on the FERC’s March 2001 Staff Report

is wholly misplaced. See Ex. B to Hixson Decl. in Supp. of

Supp. Opp’n, filed Mar. 15, 2001, is wholly misplaced. As

stated on the cover of the report, the recommendations

16

creditworthiness provisions apply to electricity provided in

response to emergency dispatch instructions. 

Indeed, had the FERC decided the issue, there would have

been nothing left to “address” concerning Dynegy’s request for

clarification of the applicability of penalties for refusing

to respond to emergency dispatch instructions, and the FERC

would not have deferred action on the request as it appears to

have done.

Because the FERC did not decide that the ISO Tariff’s

creditworthiness provisions apply to the real time market, the

FERC’s February 14 order does not moot this action. Nor does

the relief the ISO seeks, namely compliance with emergency

dispatch instructions, conflict with the FERC’s February 14

order. Based on the above, the court rejects Reliant’s

assertion that the FERC “recognized” that the ISO Tariff’s

creditworthiness provisions apply to purchases in the real

time market.19

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 16 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

contained therein are those of the staff, and “do not

necessarily reflect the views of the Commission or any of its

Commissioners.” Reliant notes that the report recommends that

“generators should be required to offer all their capacity to

the ISO” during a Stage 3 Emergency, and argues that if

generators were already so obligated, there would be no need

for the recommendation. As the court noted at the March 16,

2001 hearing, the report also recommends that during a Stage 3

Emergency, generators should receive payment at no less than

marginal cost. If the generators were already guaranteed

payment for such power, as Reliant contends, there would

likewise be no need for that recommendation. Accordingly, the

staff report does not advance the analysis of the issues

before the court.

17

Accordingly, Reliant’s motion to dismiss is denied.

B. Motion to Stay

Should the court deny its motion to dismiss, Reliant

alternatively argues that the court should stay the case,

under the primary jurisdiction doctrine, until the FERC rules

on the issue of whether the ISO Tariff’s creditworthiness

provisions apply to electricity provided in response to

emergency dispatch instructions. 

The ISO is entitled to bring an action for emergency

injunctive relief to enforce the ISO Tariff, and this court

has jurisdiction over such an action. See 16 U.S.C. § 825p. 

Under the primary jurisdiction doctrine, the court, in its

discretion, may stay the action if its resolution concerns

matters that are within the special expertise of an

administrative agency. See Chabner v. United of Omaha Ins.

Co., 225 F.3d 1042, 1051 (9th Cir. 2000); Farley Transp. Co.

v. Santa Fe Trail Transp. Co., 778 F.2d 1365, 1370 (9th Cir.

1985). There is no “fixed formula” for applying this

doctrine, and each case must be assessed on its particular

facts. Chabner, 225 F.3d at 1051; Farley, 778 F.2d at 1370. 

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 17 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18

Clearly, the FERC is an agency with special expertise

concerning the ISO Tariff. Absent the extreme exigencies of

the California power crisis, the court agrees that a stay

pending further action by the FERC would be proper, if not

routine. But those are not the facts here. Electricity is in

critically short supply. Rolling blackouts are a reality. 

The health and safety of the people of California are

potentially at risk. In light of such imminent irreparable

harm, the court declines to stay this action in its entirety.

At the February 16, 2001 hearing, defendants assured this

court that while the FERC cannot grant injunctive relief, it

will act quickly when necessary. Despite the FERC’s express

statement in its February 14 order that it would address the

applicability of the creditworthiness provisions to emergency

dispatch instructions in a future order, on February 22, 2001,

several California generators, including Reliant, filed with

the FERC a “Request [] For Emergency Order To Compel The

California Independent System Operator Corporation To Comply

With The Commission’s February 14, 2001 Order.” See Ex. A to

Joint Status Report, filed Mar. 9, 2001. In that emergency

request, the generators sought an expedited order requiring

the ISO “to comply immediately with the plain terms of the

Commission’s February 14 order on creditworthiness issues,”

including enforcing the ISO Tariff’s creditworthiness

provisions on purchases made in the real time market. See

Req. at 1-2. Despite the generators’ allegation that the ISO

has “repudiated” the “clear directives” of the FERC’s February

14 order and the extreme urgency of the request, this matter

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 18 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20 Since issuing its February 14, 2001 order, the FERC has

issued three orders concerning the practices of generators in

California, but has chosen not to address the application of

the creditworthiness requirements to emergency dispatch

orders.

19

has been pending before the FERC for a month.20 This is by no

means a criticism of the FERC. Rather, it simply demonstrates

that a stay of this entire action may well deny the ISO’s

ability to avert potentially imminent and irreparable harm to

the people of California. Accordingly, Reliant’s motion to

stay this action in its entirety is denied.

Notwithstanding the above, the fact remains that the

critical issue in this case, namely whether the ISO Tariff’s

creditworthiness provisions apply to electricity provided in

response to emergency dispatch instructions, is pending before

the FERC. Accordingly, the court preliminarily enjoins

Reliant until the FERC rules on this issue. 

2. DWR’s Motion to Dismiss Reliant’s Third-Party Complaint 

DWR moves to dismiss Reliant’s third-party complaint on

the ground that it is a state agency, and thus immune from

suit under the Eleventh Amendment. Reliant opposes the

motion, arguing that the State of California (and thus, DWR)

has waived its immunity in this case.

The Eleventh Amendment prevents states from being sued by

citizens in federal court without the state’s consent. See

Papasan v. Allain, 478 U.S. 265, 276 (1986); Pennhurst State

School & Hosp. v. Halderman, 465 U.S. 89, 100 (1984). “[T]he

Eleventh Amendment’s bar currently applies to all suits

brought by an individual against an unconsenting state,

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 19 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21 Waiver may also be found where Congress has validly

abrogated state immunity by creating private causes of action

against the states to redress violations of the Fourteenth

Amendment. See, e.g., Fitzpatrick v. Bitzer, 427 U.S. 445

(1976). This type of waiver is not at issue here. 

20

regardless of the basis of jurisdiction or the citizenship of

the plaintiff, assuming that Congress has not abrogated the

states’ immunity pursuant to legislation passed with the

requisite constitutional power.” 13 Wright & Miller, Federal

Practice and Procedure § 3524 (Supp. 2000). Thus, arms of the

state such as DWR are “presumptively entitled to Eleventh

Amendment immunity.” See Watkins v. Calif. Dept. of

Corrections, 100 F.Supp.2d 1227, 1229 (C.D. Cal. 2000).

In some circumstances, however, a state can waive its

Eleventh Amendment immunity. The test for determining whether

such a waiver has occurred “is a stringent one.” See College

Savings Bank v. Florida Prepaid Postsecondary Educ. Expense

Bd., 527 U.S. 666, 119 S.Ct. 2219, 2226 (1999). “In deciding

whether a State has waived its constitutional protection under

the Eleventh Amendment, we will find waiver only where stated

‘by the most express language or by such overwhelming

implications from the text as (will) leave no room for any

other reasonable construction.’” Edelman v. Jordan, 415 U.S.

651, 673 (1974) (citation omitted).

/ / /

The Supreme Court has identified two circumstances in

which a state, by its own actions,21 may be found to have

waived its Eleventh Amendment immunity. First, waiver occurs

when a state voluntarily invokes the jurisdiction of the

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 20 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21

court, for instance, by filing an action in federal court. 

See College Savings Bank, 119 S.Ct. at 2226 (citing Gunter v.

Atlantic Coast Line R. Co., 200 U.S. 273, 284 (1906)). 

Second, waiver may be found where the state makes a

“clear declaration” of its intention to submit itself to the

jurisdiction of a federal court. See id. (citing Great

Northern Life Ins. Co. v. Read, 322 U.S. 47, 54 (1944)). For

example, a state’s extensive participation in pre-trial

activities during the pendency of a lawsuit can result in such

a waiver. See Hill v. Blind Indus. & Servs. Of Md., 179 F.3d

754, 762 (9th Cir. 1999).

Waiver may not be constructive or implied. See College

Savings Bank, 119 S.Ct. at 2229 (expressly overruling the

theory of “constructive waiver” set forth in Parden v.

Terminal R. of Ala. Docks Dept., 377 U.S. 184 (1964)). For

instance, a state’s participation in federally-regulated

conduct does NOT constitute a waiver of Eleventh Amendment

immunity from suit in federal courts. See id. (immaterial

that state’s conduct undertaken for profit and resembles

behavior of private parties).

/ / /

Reliant raises two theories in support of its waiver

argument. These theories shall be addressed in turn.

A. The Meter Service Agreement

Reliant argues that DWR has expressly waived its Eleventh

Amendment immunity by contractually consenting to suit in

federal court. Specifically, Reliant points to a “Meter

Service Agreement for Scheduling Coordinators” entered into

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 21 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

22 In support of its position, Reliant cites a single

case, In re Innes, 184 F.3d 1275, 1282 (10th Cir. 1999). In

Innes, Chapter 13 debtors brought suit against Kansas State

University (“KSU”) seeking a determination regarding the

dischargeability of their student loans on the theory of undue

hardship. KSU moved to dismiss the action on grounds of

Eleventh Amendment immunity. The court denied the motion,

holding that “KSU knowingly and voluntarily waived its

Eleventh Amendment immunity by agreeing, as a prerequisite to

its participation in the Perkins Loan Program, to undertake

certain enumerated actions in federal bankruptcy court in the

event of a claim for discharge filed by the student-borrower.” 

See Innes, 184 F.3d at 1284. Innes is inapplicable here,

because no federal funding program is involved or implicated. 

Moreover, the Innes court observed that KSU’s waiver would

have been invalid had it lacked the statutory authority to do

so. See id. Reliant fails to point to any California

statutes authorizing DWR to enter into contracts waiving

Eleventh Amendment immunity on behalf of the State of

California.

22

between DWR and the ISO in 1998 (hereinafter “MSA”). See

Houlihan Decl., filed February 21, 2001, Ex. A. This MSA,

Reliant argues, contains terms allowing suit in federal court,

and thus, effectuates a waiver of Eleventh Amendment

immunity.22 

DWR disagrees that it has waived its immunity, stating

that the MSA was entered into long before the passage of AB1x,

and was the result of DWR’s management of its own load and

hydroelectric resources. Thus, DWR argues, even assuming the

MSA effects some sort of a waiver of Eleventh Amendment

immunity, it does not apply to DWR’s purchasing activities

under AB1x, and thus, does not effect a waiver with regard to

the claims asserted in Reliant’s third-party complaint.

The court agrees with DWR’s position. Section 11.4 of

the MSA, to which Reliant refers, states that DWR and the ISO:

irrevocably consent[] that any legal action or

proceeding arising under or relating to this

Agreement to which the ISO ADR Procedures do not

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 22 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

23 By this order, the court does not decide whether

Section 11.4 of the MSA does, in fact, waive the State of

California’s immunity with respect to claims relating to the

MSA.

23

apply shall be brought in any of the following

forums, as appropriate: any court of the State of

California, any federal court of the United States

of America located in the State of California, or,

where subject to its jurisdiction, before the

Federal Energy Regulatory Commission.

Even assuming the MSA effectuates a waiver of immunity by DWR,

such waiver would extend only to suits brought by the ISO

relating to the MSA itself.23 Reliant’s third-party complaint

does not relate to, or allege violations of, the MSA.

Moreover, given the “stringent” test applied to determine

whether a state has waived its immunity, and the requirement

that any such waiver be found only where stated “by the most

express language or by such overwhelming implications from the

text as (will) leave no room for any other reasonable

construction,” this court cannot conclude that the MSA

effectuates a general waiver of California’s immunity with

respect to all matters, brought by any party, relating to the

ISO Tariff. See College Savings Bank, 119 S.Ct. at 2226;

Edelman, 415 U.S. at 673. Reliant’s waiver argument regarding

the MSA is rejected. 

B. The State of California’s Conduct in This Litigation

Reliant next argues that the State of California’s

participation in this case constitutes consent by the State of

California to suit in this court, thereby waiving the state’s

Eleventh Amendment immunity. Specifically, Reliant points to

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 23 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

24

the EOB’s intervention in this lawsuit, as well as DWR’s

“litigati[on] of this action on the merits,” as evidence of

the State of California’s waiver. See Brief of Reliant, et

al. on Party Status of Calif. Dept. of Water Resources, filed

Feb. 21, 2001, at 7. As discussed below, neither of these

actions effectuates a waiver.

(1) The EOB’s Intervention

Reliant argues that the EOB’s intervention in this

lawsuit waives the State of California’s immunity from suit

with respect to claims arising from the same “transaction or

occurrence” as the EOB’s claims. In support, Reliant cites

the Ninth Circuit’s recent decision in In re Lazar, 237 F.3d

967 (9th Cir. 2001). Reliant reads the Lazar holding far too

broadly. 

In Lazar, the Ninth Circuit discussed the extent to which

a state waives its immunity by filing a proof of claim in

bankruptcy, as established in Gardner v. New Jersey, 329 U.S.

565 (1947), and codified at 11 U.S.C. § 106(b). After a

lengthy discussion of the so-called “Rule of Gardner” and the

circumstances presented by the case, the Lazar court held that

“when a state or an ‘arm of the state’ files a proof of claim

in a bankruptcy proceeding, the state waives its Eleventh

Amendment immunity with regard to the bankruptcy estate’s

claims that arise from the same transaction or occurrence as

the state’s claim.” See Lazar, 237 F.3d at 978.

Lazar applied general rules of Eleventh Amendment

immunity to the unique immunity problem raised in the context

of a bankruptcy proceeding in which a state asserts rights to

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 24 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

25

an estate in bankruptcy, and then resists a claim filed by the

estate with respect to the same res within the jurisdiction of

the bankruptcy court. Lazar clearly is distinguishable, and

Reliant’s attempt to apply this rule of bankruptcy law to the

facts of this case is unavailing.

Stepping outside the confines of bankruptcy law, Reliant

effectively attempts to circumvent DWR’s Eleventh Amendment

immunity by characterizing Reliant’s third-party complaint as

a counterclaim against the State of California, in light of

the EOB’s intervention. This argument fails as well. 

Assuming DWR and the EOB may be treated as a single entity for

purposes of this analysis, any possible waiver of immunity

would be strictly limited to compulsory recoupment

counterclaims. See United States v. Iron Mountain Mines, 952

F.Supp. 673, 678-79 (E.D. Cal. 1996) (state’s filing of CERCLA

action did not constitute general waiver of Eleventh Amendment

immunity); United States v. Montrose Chem. Corp. of Calif.,

788 F.Supp. 1485, 1492-93 (C.D. Cal. 1992) (Eleventh Amendment

immunity waived as to compulsory recoupment counterclaims in

tort by filing CERCLA action); see also Oregon v. City of

Rajneeshpuram, 598 F.Supp. 1217, 1219 (D. Or. 1984) (by

bringing action in federal court, state waives its Eleventh

Amendment immunity with respect to all counterclaims arising

out of same transaction or occurrence, “at least to the extent

that the counterclaims do not exceed the amounts sought in the

state’s claim”); Georgia Dept. of Human Resources v. Bell, 528

F.Supp. 17, 26 (N.D. Ga. 1981) (“[B]y bringing suit against a

private party the State waives its Eleventh Amendment immunity

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 25 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

26

and consents to the court’s jurisdiction of . . .

counterclaim[s] asserted defensively, by way of recoupment,

for the purpose of defeating or diminishing the State’s

recovery, but not for the purpose of obtaining an affirmative

judgment against the State.)” (citations omitted).

Here, the EOB’s intervention in the ISO’s lawsuit seeks

injunctive relief ordering Reliant (and other generators) to

comply with the emergency dispatch instruction provisions of

the ISO Tariff. No monetary damages are sought. By contrast,

Reliant’s third-party complaint (which, obviously, is not a

counterclaim, much less a compulsory counterclaim), seeks

declaratory and injunctive relief ordering DWR to use state

funds to purchase power from any and all energy markets. See

Verified Third Party Complaint, filed Feb. 12, 2001, at 8-10. 

Clearly, resolution of these claims in Reliant’s favor would

constitute an affirmative judgment against the State. These

claims also would require the payment of state funds, and do

not serve merely to reduce a monetary claim, since the State

of California (through the EOB) is not seeking money damages. 

Thus, by the EOB’s intervention, the State of California

cannot be said to have waived its immunity with respect to

Reliant’s third-party complaint. See Bell, 528 F.Supp. at 26.

(2) DWR’s Activities in this Litigation

Reliant next argues that DWR’s actions in this case

constitute litigation on the merits, thereby waiving its

immunity. The court disagrees. To date, DWR has (1) joined

in the ISO’s opposition to Reliant’s motion to dismiss, (2)

filed a brief and declaration supporting ISO’s application for

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 26 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

24 Reliant further argues that if this court grants DWR’s

motion to dismiss, it should go one step further and dismiss

this entire case for failure to join an indispensable party. 

See Fed. R. Civ. P. 19(b). DWR is not an indispensable party,

however. Under Rule 19(b), the determination of whether a

party is indispensable to an action “requires the

consideration of four factors: (1) the extent to which a

judgment rendered in the person’s absence might be prejudicial

to the person or those already parties; (2) the extent to

which, by protective provisions in the judgment, by the

shaping of relief, or other measures, the prejudice can be

lessened or avoided; (3) whether a judgment rendered in the

person’s absence will be adequate; and (4) whether the

plaintiff will have an adequate remedy if the action is

dismissed for nonjoinder.” Clinton v. Babbitt, 180 F.3d 1081,

1090 (9th Cir. 1999). None of these factors weighs in favor

of declaring DWR an indispensable party. The court can fully

and fairly adjudicate the claims presented in ISO’s complaint

without DWR’s presence in this case. Reliant’s request is

denied. 

27

a temporary restraining order, and (3) appeared at the TRO

hearings. All of these actions occurred within the first

month after the ISO filed this action. DWR’s involvement to

date falls far short of that required for a finding of waiver

on grounds of active involvement in pre-trial activities. See

Hill, 179 F.3d at 765 (state agency waived Eleventh Amendment

immunity by actively litigating the case on the merits, and

waiting to raise its immunity defense until the first day of

trial). Reliant’s waiver argument regarding DWR’s involvement

in this litigation is rejected.24

In sum, DWR has met its burden of demonstrating that as

an arm of the State of California, it is presumptively immune

from suit in federal court. Reliant fails to show how the

State of California waived this immunity. Accordingly, DWR’s

motion to dismiss Reliant’s third-party complaint is granted.

/ / /

/ / /

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 27 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

28

3. The ISO’s Motion For A Preliminary Injunction 

The standard for issuing a preliminary injunction is the

same as the standard for issuing a temporary restraining

order. See Dumas v. Gommerman, 865 F.2d 1093, 1095 (9th Cir.

1989). To qualify for a preliminary injunction, the moving

party must show (1) a probability of success on the merits,

and (2) the possibility of irreparable injury should the

restraining order not issue. See id. These factors represent

two points on a sliding scale, such that “the greater the

relative hardship to the moving party, the less probability of

success must be shown.” Sun Microsystems, Inc. v. Microsoft

Corp., 188 F.3d 1115, 1119 (9th Cir. 1999) (citation omitted).

After the ISO filed and the court heard the motion for a

preliminary injunction, all defendants but Reliant entered

into a stipulation with the ISO pursuant to which those

defendants will continue to respond to emergency dispatch

instructions until the FERC rules on the February 22 emergency

request. Accordingly, the ISO’s motion for a preliminary

injunction as to those defendants is denied without prejudice,

and the court addresses the appropriateness of a preliminary

injunction as to Reliant only.

A. Likelihood of Success

The ISO seeks to compel Reliant to comply with the

emergency dispatch instructions. Reliant is obligated to

comply with the provisions of the ISO Tariff by virtue of its

participation in the California electricity market and use of

the California power grid. Reliant has also entered into a

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 28 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

Participating Generator Agreement with the ISO, which requires

it, as well as the ISO, to comply with the provisions of the

ISO Tariff. 

Section 5.1.3 of the ISO Tariff provides: 

Each Participating Generator shall take, at the

direction of the ISO, such action affecting such

Generator, as the ISO determines to be necessary to

maintain the reliability of the ISO Controlled Grid. 

Such actions shall include . . . (a) compliance with

the ISO’s Dispatch Instructions.

Section 5.6.1 similarly establishes the ISO’s authority 

to instruct a Participating Generator to bring its

Generating Unit on-line, off-line, or increase or

curtail the output of the Generating Unit . . . if

such an instruction is reasonably necessary to

prevent an imminent or threatened System Emergency

or to retain Operational Control . . . during an

action System Emergency. 

Notwithstanding these express obligations, Reliant

contends that its obligation to respond to emergency dispatch

instructions is discharged by the absence of a creditworthy

buyer. In other words, Reliant contends that the

creditworthiness provisions set forth in the ISO Tariff apply

to electricity provided in response to emergency dispatch

instructions and scheduled transactions alike.

As outlined in the temporary restraining order, the ISO

Tariff requires scheduling coordinators to maintain an

“Approved Credit Rating,” or alternatively, to maintain

security in an amount intended to cover its outstanding and

estimated liability. See ISO Tariff § 2.2.3.2. It is

undisputed that PG&E, SCE and their scheduling coordinator no

longer maintain an “Approved Credit Rating” as that term is

defined in the ISO Tariff. Thus, they must post security. 

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 29 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

30

See id. § 2.2.7.3. Scheduling coordinators that fail to meet

these requirements are prohibited from submitting a schedule

to the ISO. See id. Power is “scheduled” in the advance

market, not the real time market. Accordingly, scheduling

coordinators that fail to maintain an “Approved Credit Rating”

cannot participate in the advance scheduling process. It does

not, however, follow that the ISO Tariff bars the ISO from

issuing emergency dispatch instructions to meet the need of

customers of scheduling coordinators that do not meet the

Tariff’s credit requirements. 

As detailed above, Amendment No. 36, as adopted by the

FERC, partially relieves scheduling coordinators of this

responsibility in that it allows them to participate in the

advance market despite their failure to maintain an approved

credit rating, or alternatively, post security. FERC’s

February 14 order does not change the analysis or this court’s

preliminary conclusion that the creditworthiness provisions

apply only to power scheduled in the advance market.

In its supplemental opposition filed the afternoon before

the status conference, Reliant argues for the first time that

the “ISO’s requested injunction would violate the commerce

clause.” More particularly, Reliant argues that the ISO’s

position that its emergency dispatch instructions “trump” any

existing contracts California generators have with purchasers

in other states undermines federal policy and violates the

commerce clause, as it “impedes the development of a broader

regional market in the West.” 

Reliant’s argument, however, fails to take into account

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 30 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

25 Reliant previously argued that its obligation to comply

with the provisions of the ISO Tariff was discharged by the

ISO’s failure to comply with the ISO Tariff’s creditworthiness

provisions. This court rejected that argument, finding that

the ISO Tariff has the force and effect of a federal statute,

and thus, the ISO’s failure to comply with the provisions of

the ISO Tariff does not discharge Reliant’s duties thereunder,

as it might if the ISO Tariff was merely a contract between

the parties. See TRO at 6-7. Coughlin v. Trans World

31

that the ISO issues emergency dispatch instructions when

reliability criteria issued by the Western Systems

Coordinating Council (“WSCC”) are violated. See Detmers

Decl., filed Mar. 20, 2001, ¶ 7. According to James Detmers,

Acting Vice President of Operations for the ISO, “[t]he WSCC

is a reliability counsel for the sub-region of North American

Electric Reliability Council (“NERC”) which includes the

western United States, and portions of Canada and Mexico.” 

Id. The WSCC’s reliability criteria relied on by the ISO were

established to protect the entire Western Regional grid, which

covers California, Oregon, Washington, Idaho, Nevada, Utah,

Colorado, New Mexico, Arizona, Montana, Wyoming and portions

of Canada and Mexico. Id. Thus, contrary to Reliant’s

assertions, the ISO does not issue emergency dispatch

instructions “at the expense” of its neighbors, but rather

pursuant to a set of criteria designed to protect the entire

Western region. Given the above, Reliant’s eleventh hour

argument that the ISO’s issuance of emergency dispatch

instructions violates interstate interests rings hollow. 

For the reasons set forth above, the court finds that

there is a substantial likelihood that the ISO will prevail on

the merits.25 

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 31 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Airlines, Inc., 847 F.2d 1432 (9th Cir. 1988), relied on by

Reliant, does not alter the court’s analysis. In the thirteen

years since Coughlin was decided, it has been cited only eight

times (three in the Ninth Circuit), and it has never been

applied outside the common carrier context. Nor did that case

involve the public interest concerns present here. No court

has given Coughlin the sweeping effect urged by Reliant, and

the court declines to do so here. 

More importantly, however, Reliant’s argument was

prefaced on the ISO’s unilateral implementation of Amendment

No. 36 prior to approval by the FERC. As noted above, after

the court issued its temporary restraining order, the FERC

ruled on Amendment No. 36. In pertinent part, as set forth

above, the FERC rejected Amendment 36 “to the extent [it]

allow[s] PG&E and SoCal Edison to continue to schedule

transactions from third-party suppliers without adequate

assurance of payment.” FERC Ord. at 1-2. There is no

evidence, or allegation, that the ISO has breached the FERC’s

February 14, 2001 order as to purchases made in the advance

market. Rather, Reliant contends that the ISO repudiated that

order by failing to extend those requirements to power

provided in response to emergency dispatch instructions. As

set forth above, the court rejects this contention. 

Accordingly, the ISO is not presently breaching the ISO Tariff

or the FERC’s February 14 order, and to the extent Reliant

argues that its current obligation to respond to emergency

dispatch orders is discharged by the ISO’s breach, that

argument is without merit. 

32

B. Irreparable Harm

(1) Harm to the Public

As noted in the court’s temporary restraining order, the

State of California is confronting an energy crisis of

catastrophic proportions. On January 17, 2001, Governor Gray

Davis proclaimed a State of Emergency in response to

California’s energy crisis. In January and February of this

year, the ISO has declared a series of Stage 3 Emergencies and

ordered rolling blackouts on several occasions.

At the February 7, 2001 hearing, Mr. Detmers testified

that the ISO has been forced to rely on the real time market

for a considerable period of time. At the March 16, 2001

status conference, counsel for the ISO maintained that the

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 32 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

33

potential threat of imminent irreparable harm has not changed

in any appreciable degree over the past few weeks. While the

number of emergency dispatch instructions issued in recent

weeks has declined dramatically, counsel for the ISO

explained that unusual, unexpected events can, and do, occur

and continue to pose an imminent threat of irreparable harm to

the people of the State of California. See also Detmers

Decl., filed Mar. 20, 2001, ¶¶ 6, 9, and Exs. D, F attached

thereto. Such unplanned events include generators “falling

off-line,” transformer burns, and downed power lines. Id.

For example, a Stage 2 Emergency was declared on March 14,

2001 when power from out-of-state providers dropped by 1,200

megawatts. Id. ¶ 3. Moreover, at approximately 6:00 a.m. on

March 19, 2001, the ISO declared a Stage 2 Emergency due to

insufficient system resources. By noon that same day, a Stage

3 Emergency was declared after “two units at a facility

tripped offline.” Id. ¶ 4. Immediately thereafter, the ISO

determined that it was necessary to curtail firm load, and

rolling blackouts again darkened the California landscape. 

Id. 

According to Mr. Detmers, the shortfalls in power vary

from 2,000 - 3,000 megawatts to 8,000 - 10,000 megawatts. A

Stage 3 Emergency occurs when the under-arranged amount ranges

from 7,000 - 8,000 megawatts. Reliant controls approximately

3,800 megawatts of generating capacity in California. While

the precise amount of electricity available from Reliant to

respond to emergency dispatch instructions is uncertain and in

dispute, it is nevertheless significant, and its loss poses an

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 33 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

26 Reliant points to DWR’s demonstrated ability to pay for

power provided in response to emergency dispatch instructions,

as evidenced by the February 16 agreement. According to

Reliant, any potential for irreparable harm is caused by DWR’s

refusal to accept the FERC price. Reliant points out that the

FERC’s March 9, 2001 order established $273/MWh as a

presumptively just and reasonable price during Stage 3

Emergencies in California. To the extent the prices charged

by Reliant exceed that cap, Reliant argues that DWR can seek

review by the FERC. 

34

imminent threat of blackouts. Reliant has never disputed that

such blackouts pose a dire threat to public health and safety. 

See Mississippi Power & Light v. United Gas Pipe Line Co., 760

F.2d 618, 623 (5th Cir. 1985) (injury to public may suffice as

irreparable harm in private action); see also Northern Indiana

Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 280

(7th Cir. 1986) (injury to public may suffice as irreparable

harm where public is essentially real party in interest).

(2) Role of DWR

Reliant continues to argue that any potential for

irreparable harm could be cured by DWR. But even assuming DWR

could single-handedly palliate the crisis, the Eleventh

Amendment precludes this court from subjecting DWR to its

jurisdiction. Nor, as a practical matter, does it appear DWR

can or will ride to the rescue at any cost. Indeed, the

evidence suggests otherwise. As Reliant points out, DWR has

refused to extend the February 16, 2001 agreement pursuant to

which DWR agreed to pay Reliant a certain contract price for

power provided in response to emergency dispatch instructions

until March 23, 2001.26 Nor is there any authority that the

ISO can exercise to require DWR to pay Reliant any amount for

electricity. 

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 34 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

27 The court notes that despite potential and actual

economic harm to generators posed by the failure of

California’s public utilities to pay for past purchases, the

ISO and the EOB argue that California’s power crisis has been

an economic windfall to Reliant and other generators. See,

e.g., Reliant Press Release, dated Jan. 26, 2001, attached as

Ex. E to Application for TRO, filed Feb. 6, 2001; Reliant’s

SEC filings, attached as Exs. A-C to EOB’s Req. for Judicial

Notice, filed Feb. 14, 2001.

35

Reliant, in essence, asks this court to do equity. 

“Equity,” in this context, however is circumscribed by the

filed rate doctrine. As a result, and as all of the parties

have acknowledged, the court’s jurisdiction is, therefore,

limited to enforcing the tariff. 

As an alternative to issuing a preliminary injunction,

Reliant urges the court to require DWR to contract with

Reliant. Not only does the court lack jurisdiction over DWR,

but the court is not aware, nor does Reliant cite to, any

authority that empowers the court to force anyone, let alone

the State of California, to enter into a contract.

The court does not discount the economic harm suffered by

Reliant and similarly-situated generators. However, the

potential harm to generators that may result from this order

must be put into context. Electricity provided pursuant to

emergency dispatch instructions currently accounts for

approximately 12.5% of electricity provided in the relevant

market. Moreover, pursuant to the FERC’s order, creditworthy

buyers are required for electricity sold in the advance

market, which accounts for 75% of the electricity sold in the

relevant market. Thus, this case is not about Reliant not

being paid for any of the power it provides.27 More

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 35 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

36

importantly, however, purely economic harm is an insufficient

basis upon which to grant or deny a preliminary injunction.

harm. See Rent-A-Center, Inc. v. Canyon Television &

Appliance Rental, Inc., 944 F. 2d 597, 603 (9th Cir.1991)

(“economic injury alone does not support a finding of

irreparable harm . . .”) Reliant has failed to demonstrate

that its long-term viability is threatened by the relief

sought. 

/ / / 

In an enforcement action such as this, the court must

enforce the Tariff as it is written. To the extent Reliant

contends the Tariff is unfair, that is a matter for the FERC,

not this court. Accordingly, the court finds that the

potential for imminent irreparable harm to the public remains.

CONCLUSION

Accordingly, IT IS ORDERED THAT:

1. Reliant’s motion to dismiss or stay the matter in

its entirety is DENIED.

2. DWR’s motion to dismiss Reliant’s third-party

complaint is GRANTED. 

3. The ISO’s motion for preliminary injunction as to

Dynegy, AES and Williams is DENIED WITHOUT PREJUDICE.

4. The ISO’s motion for a preliminary injunction as to

Reliant is GRANTED. Reliant shall continue to respond to

emergency dispatch instructions until the FERC issues a ruling

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 36 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

28 The stipulation entered into by the ISO, Dynegy and

Williams employs the identical language. See Stip. & Ord.,

filed Mar. 21, 2001.

37

on the pending Request for an Order to Comply.28 The parties

shall immediately notify the court of the FERC ruling, and the

court will set the matter for a further status conference

within five days of said notification. The parties shall file

and serve a joint status conference statement at least one day

prior to such conference. If no order is issued by the FERC

within 60 days of this order, a further status conference

shall be held on May 25, 2001 at 10:00 a.m. The parties shall

file and serve a joint status conference statement not later

than May 18, 2001. 

5. The bonding requirement under Fed. R. Civ. P. 65(c)

is waived, as the ISO, a not-for-profit public benefit

corporation, is unable to post a substantial bond. See People

of State of California ex rel. Van de Kamp v. Tahoe Regional

Planning Agency, 766 F.2d 1319, 1325 (9th Cir. 1985).

6. The ISO’s objections to Exhibits H-N to the

Declaration of Thomas S. Hixson In Support of the Supplemental

Opposition to Preliminary Injunction, filed Mar. 15, 2001,

Exhibits A, B & C to Declaration of Thomas S. Hixson In

Support of the Supplemental Opposition to Preliminary

Injunction (Attaching Highly Confidential Documents), filed

Mar. 15, 2001, and Exhibits F, G & H to Hixson Declaration,

are SUSTAINED. The first two sets of exhibits referred to

above are not relevant, in any appreciable way, to the brief

they purport to support. The last set of exhibits, press

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 37 of 38
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

38

reports relating to long-term power contracts, constitute

inadmissible hearsay. See Fed. R. Evid. 801.

IT IS SO ORDERED. 

DATED: March 21, 2001.

 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

Case 2:01-cv-00238-FCD-JFM Document 152 Filed 03/21/01 Page 38 of 38