Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-01216/USCOURTS-caDC-09-01216-0/pdf.json

Parties Involved:
Federal Energy Regulatory Commission
Respondent
Imperial Irrigation District
Intervenor for Petitioner
Los Angeles Department of Water and Power
Intervenor for Petitioner
Modesto Irrigation District
Intervenor for Petitioner
Sacramento Municipal Utility District
Petitioner
Southern California Edison Company
Intervenor for Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 21, 2010 Decided December 10, 2010 

No. 09-1213

TRANSMISSION AGENCY OF NORTHERN CALIFORNIA,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

CITY OF REDDING, CALIFORNIA, ET AL.,

INTERVENORS

Consolidated with Nos. 09-1216, 09-1217,

09-1245, 09-1246, 09-1247

On Petitions for Review of Orders 

of the Federal Energy Regulatory Commission

Michael Postar and Harvey L. Reiter argued the cause for

petitioners. With them on the briefs were Bhaveeta K. Mody,

Jon R. Stickman, Abigail Briggerman, Sean M. Neal, John

McCaffrey, Peter J. Scanlon, and Jason T. Gray. Lisa S. Gast,

Matthew R. Rudolphi, and Marie D. Zosa entered appearances.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 1 of 29
2

Joseph B. Nelson, Deborah A. Swanstrom, and Lodie D.

White were on the briefs for intervenors Imperial Irrigation

District and City of Los Angeles Department of Water and

Power in support of petitioners.

Samuel Soopper, Attorney, Federal Energy Regulatory

Commission, argued the cause for respondent. With him on the

brief were Thomas R. Sheets, General Counsel, and Robert H.

Solomon, Solicitor.

Daniel J. Shonkwiler argued the cause for intervenors

California Independent System Operator Corporation and

Southern California Edison Company in support of respondent. 

With him on the brief were Nancy J. Saracino, Roger E.

Collanton, Jennifer R. Hasbrouck, Erin K. Moore, and Mark R.

Huffman. Erin K. Moore and Mark D. Patrizio entered

appearances.

Before: GINSBURG, HENDERSON and ROGERS, Circuit

Judges.

Opinion for the Court by Circuit Judge ROGERS.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 2 of 29
3

ROGERS, Circuit Judge: Various municipalities1

 petition for

review of two Federal Energy Regulatory Commission orders

conditionally approving the California Independent System

Operator (“CAISO”)’s proposal to create an Integrated

Balancing Authority Area (“IBAA”) by combining the

Sacramento Municipal Utility District (“SMUD”) and the

Turlock Irrigation District (“Turlock”) for the purpose of pricing

transactions. We deny the petitions for review.

I. 

The court has recently summarized much of the pertinent

background in Sacramento Municipal Utility District v. FERC,

616 F.3d 520, 523-24 (D.C. Cir. 2010), a related case. Following

the Commission’s promulgation of Order No. 888, which called

for nationwide deregulation of electricity transmission and

encouraged public utilities to participate in regional transmission

organizations and independent system operators, the California

legislature in 1996 created the CAISO to operate transmission

and other ancillary services on parts of the California electric

power system. In response to the 2000 California energy crisis,

the CAISO, at the Commission’s behest, began redesigning the

California electricity market to foster greater reliability and

1

 Petitioners are the Sacramento Municipal Utility District, the

Turlock Irrigation District, the Modesto Irrigation District, the City of

Redding, the City of Santa Clara d/b/a Silicon Valley Power, and the

Transmission Agency of Northern California (“TANC”), a joint

exercise of powers agency partially comprised of the other petitioners. 

Petitioners are considered “municipalities” under the Federal Power

Act, see 16 U.S.C. § 796(7). This is also true for municipal

intervenors (“Municipals”), such as the Imperial Irrigation District and

the City of Los Angeles Department of Water and Power. For ease of

reference, the opinion does not identify individual parties.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 3 of 29
4

economic efficiency on its system.2

 In 2008, the CAISO filed

proposed revisions to its existing tariff and the Market Redesign

and Technology Upgrade Tariff, which it described as “a

comprehensive redesign of the California electricity markets . . .

aimed at enhancing reliability and increasing the efficient

utilization of the CAISO Controlled Grid.” CAISO,

Amendments to MRTU Tariff Provisions, at 1, Docket No.

ER08-1113-000 (June 17, 2008) (“IBAA Proposal”). The

amended tariff would: (1) implement locational marginal

pricing3; (2) implement a full network model of the transmission

system to improve dispatch efficiency; (3) include day-ahead and

real-time energy markets; and (4) ensure that day-ahead

schedules are physically feasible. The Commission has

approved the market redesign in a series of orders, two of which

concern the CAISO’s IBAA Proposal and are challenged here. 

Order Conditionally Accepting Tariff Changes and Directing

Compliance Filing, 124 FERC ¶ 61,271 (Sept. 19, 2008)

(“Order”); Order on Rehearing and Clarification, 128 FERC ¶

61,103 (July 30, 2009) (“Rehearing Order”).

2

 “An [Independent System Operator (“ISO”)] is an

independent company that has operational control, but not ownership,

of the transmission facilities owned by member utilities. ISOs provide

open access to the regional transmission system to all electricity

generators at rates established in a single, unbundled, grid-wide tariff

. . . .” NRG Power Mktg., LLC v. Maine Pub. Utils. Comm’n, 130 S.

Ct. 693, 697 n.1 (2010) (ellipsis in original) (citation and internal

quotation marks omitted).

3

 Under a locational marginal price rate design, energy prices

vary by location and time in order to reflect the cost of energy,

including the cost of transmission losses and congestion, at each

location on the CAISO-controlled grid. Sacramento Mun., 616 F.3d

at 524-25. As such, “prices are designed to reflect the least-cost of

meeting an incremental megawatt-hour of demand at each location on

the grid.” Id. at 524.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 4 of 29
5

According to the CAISO, the “most important objective” of

its proposal was to “protect CAISO ratepayers from unjust and

unreasonable prices that may result in the absence of the CAISO

having accurate information . . . to verify the location of external

resources.” IBAA Proposal at 2. The CAISO’s inability to

verify the location of external resources stemmed from

California’s and the Pacific Northwest’s electricity transmission

infrastructure. The California-Oregon Intertie, which delivers

electricity from the Pacific Northwest to central California, is

comprised of three 500 kilovolt power lines that run parallel to

each other. The first line, the California-Oregon Transmission

Project (“COTP”), runs from the Captain Jack substation in

Oregon to the Tesla substation in central California, ending at the

Olinda substation. TANC is a participant in, and the project

manager of, the COTP. The COTP is generally located within

the SMUD balancing authority area and is not part of the

CAISO-controlled grid. The remaining two lines, known

collectively as the Pacific AC Intertie (“PACI”) and at times

referred to individually as “PACI-P” and “PACI-W,” run from

the Malin substation in Oregon to the Tracy substation in central

California, ending at the Round Mountain substation. The PACI

is physically located within the geographic area of the CAISOcontrolled grid, although the CAISO is not an owner of the

PACI. The Captain Jack substation and the Malin substation are

electrically connected; likewise the Tesla substation and the

Tracy substation are electrically connected. The basic structure

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 5 of 29
6

 of the California-Oregon Intertie looks like this:

The IBAA Proposal focuses on SMUD and Turlock, two

independent but interconnected “balancing authority areas,” see

Sacramento Mun., 616 F.3d at 524 n.2, that draw power from the

Pacific Northwest over the California-Oregon Intertie when

purchasing this power is cheaper than generating it locally.

Together they have twelve interconnections with the CAISOcontrolled grid. The CAISO was concerned that it would be

unable to model power flows and calculate locational marginal

prices accurately for these entities due to “parallel flows,” also

known as “unscheduled flows.” Although a “scheduled” or

“contract” flow is planned between two points over a specific

path, the power does not always flow over the scheduled route if

there are other paths; it flows over the path of least resistance,

creating a parallel flow. In some instances, as in the CaliforniaOregon Intertie, the presence of parallel lines means that when

a scheduled flow occurs there will necessarily be an unscheduled

flow over parallel lines.

The CAISO’s proposed solution in the IBAA Proposal was

two-fold. It first combined SMUD and Turlock into a single

IBAA for purposes of the full network model. And, second, to

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 6 of 29
7

rectify concerns regarding market manipulation and to model the

IBAA connection points more accurately, the IBAA Proposal

used a “single hub” approach whereby one default proxy price

would be selected for all twelve connection points: All imports

into the CAISO system from the IBAA would be priced as if

they originated at the Captain Jack substation in Oregon; all

exports from the CAISO system to the IBAA would be priced at

a hypothetical “SMUD hub.” Alternatively, SMUD and Turlock

or future IBAA entities could enter into individual market

efficiency enhancement agreements (“MEEAs”) with the CAISO

to receive a more accurate pricing structure upon providing the

CAISO with information allowing it to verify the location and

operation of the resources used to carry out interchange

transactions between the CAISO-controlled grid and the IBAA.

The CAISO explained that the elements of its single hub,

default pricing point proposal were justified by and “result[ed]

directly from the limited type and amount of information the

CAISO expects to receive from the IBAA [e]ntities.” IBAA

Proposal at 5. The Commission agreed, concluding that “by

using a more accurate representation of the locations of external

resources used to implement interchange transactions in the

CAISO’s full network model the IBAA [P]roposal will help to

ensure that interchange transactions from the SMUD and Turlock

balancing authority areas are appropriately valued for purposes

of managing congestion on the CAISO-controlled grid, and

reduce the likelihood of significant differences between

scheduled flows and actual flows.” Order ¶ 5. Accordingly, the

Commission found the CAISO tariff, as amended by the IBAA

Proposal, was “just and reasonable” under the Federal Power Act

(“FPA”), 16 U.S.C. § 824d, but conditioned its approval on the

modification of the IBAA Proposal in several ways, including

that the CAISO address potential over-collection for charges

based upon losses of energy during transmission due to the

modeling of parallel flows, specify in its tariff the information to

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 7 of 29
8

be provided for establishing MEEAs, and treat such information

as confidential. See Order ¶¶ 6 & n.6, 8. The CAISO satisfied

the conditions in additional filings and the Commission denied

rehearing, rejecting various challenges, some of which are

renewed in the pending petitions. See Rehearing Order ¶ 1.

II. 

Petitioners challenge the Commission’s jurisdiction to

review and approve a tariff amendment governing the pricing of

electricity in the CAISO market, and also contend that the

Commission’s acceptance of the IBAA Proposal amending the

CAISO tariff was neither a reasonable exercise of its discretion

under the FPA nor supported by substantial evidence of record. 

 The court “review[s] [the Commission’s] orders under the

arbitrary and capricious standard and uphold[s] [the

Commission’s] factual findings if supported by substantial

evidence.” Am. Gas Ass’n v. FERC, 593 F.3d 14, 19 (D.C. Cir.

2010) (citation and quotation marks omitted). The court must

affirm the Commission’s orders “so long as [the Commission]

examine[d] the relevant data and articulate[d] a . . . rational

connection between the facts found and the choice made. In

matters of ratemaking, our review is highly deferential, as

[i]ssues of rate design are fairly technical and, insofar as they are

not technical, involve policy judgments that lie at the core of the

regulatory mission.” Alcoa Inc. v. FERC, 564 F.3d 1342, 1347

(D.C. Cir. 2009) (second, third, and fourth alterations and ellipsis

in original) (citations and internal quotation marks omitted). 

Nonetheless, the Commission must respond to objections and

address contrary evidence in more than a cursory fashion. See

NorAm Gas Transmission Co. v. FERC, 148 F.3d 1158, 1163-65

(D.C. Cir. 1998). In reviewing the Commission’s assertion of

jurisdiction under the FPA and its interpretation of a

Commission-approved contract, the court applies the familiar

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 8 of 29
9

two-step analysis under Chevron, U.S.A., Inc. v. NRDC, 467 U.S.

837, 842-44 (1984). See S. Cal. Edison Co. v. FERC, 502 F.3d

176, 181 (D.C. Cir. 2007); Transmission Agency of N. Cal. v.

FERC, 495 F.3d 663, 673 (D.C. Cir. 2007) (“TANC”).

A.

Jurisdiction. FPA Section 201(f) provides that “[n]o

provision in . . . subchapter [II regulating electric utility

companies engaged in interstate commerce] shall apply to, or be

deemed to include . . . any political subdivision of a State . . . or

any agency, authority, or instrumentality of . . . the foregoing . .

. unless such provision makes specific reference thereto.” 16

U.S.C. § 824(f). Section 205 requires the Commission to ensure

that the rates and charges “made, demanded, or received by any

public utility” are “just and reasonable.” Id. § 824d(a). Section

201(e), in turn, defines “public utility” to be “any person who

owns or operates facilities subject to the jurisdiction of the

Commission.” Id. § 824(e). The court has concluded that by

these provisions “Congress has . . . specifically exempted

governmental entities from subchapter II of the FPA.” TANC,

495 F.3d at 674.

Petitioners, joined by intervenor Municipals, contend that

the Commission exceeded its jurisdiction in approving the IBAA

Proposal because FPA Section 201(f) “unequivocally exempts”

governmental entities from the Commission’s rate-setting

authority under FPA Sections 205 and 206, id., and their

voluntary participation in such markets does not give the

Commission authority to regulate their rates, Bonneville Power

Admin. v. FERC, 422 F.3d 908, 924 (9th Cir. 2005). The

Commission rejected this challenge, concluding that approving

the IBAA Proposal was within its “core authority” for four

principal reasons: (1) the amended CAISO tariff applied only to

scheduled transactions that affect the CAISO-controlled grid and

the IBAA Proposal “establishes only the rates, terms and

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 9 of 29
10

conditions for sales in the CAISO’s market”; (2) in National

Association of Regulatory Utility Commissioners v. FERC, 475

F.3d 1277 (D.C. Cir. 2007) (“NARUC”), the court upheld the

Commission’s authority to regulate all aspects of wholesale

energy sales; (3) an IBAA entity’s voluntary choice to participate

in the CAISO market includes a choice to operate under the

CAISO tariff; and (4) Bonneville, which addressed the

Commission’s authority to order refunds under FPA Section 206,

does not limit the Commission’s jurisdiction here because it was

not ordering a non-jurisdictional entity to issue a refund. See

Rehearing Order ¶¶ 20-25. Petitioners and Municipals maintain

that these four bases for exercising jurisdiction impermissibly

focus on the nature of the transactions and not the identity of the

sellers. As noted, the court affords Chevron deference to the

Commission’s interpretation of its jurisdiction under the FPA. 

See TANC, 495 F.3d at 673.

Although the jurisdictional line was more easily drawn when

the electricity world was “neatly divided into spheres of retail

versus wholesale sales, and local distribution versus transmission

facilities,” the “unbundling” of services and the general

restructuring of electricity markets in the last two decades has

made line-drawing more complex. Transmission Access Policy

Study Group v. FERC, 225 F.3d 667, 691 (D.C. Cir. 2000). 

Rather than allowing the mere presence of a governmental entity

to defeat the Commission’s assertion of jurisdiction over a public

utility, the court has accepted that jurisdictional and nonjurisdictional entities are regularly integrated co-participants in

modern power markets. Thus, in NARUC, 475 F.3d at 1281,

where facilities were jointly owned by private firms and states,

the court held that the Commission’s “assertion of jurisdiction

over specified transactions, even though affecting the conduct of

the [state] owner(s) with respect to its facilities, is not per se an

exercise of jurisdiction over the facility,” observing that the

contract modifications mandated by Order No. 888 forced nonUSCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 10 of 29
11

jurisdictional owners to permit certain transactions to occur over

the jointly owned facility. Id. at 1281-82. The court observed

that the Commission was “exercising jurisdiction only over

‘interconnections to a “distribution” facility when the facility is

included in a public utility’s Commission-filed [Open Access

Transmission Tariff] and the interconnection is for the purpose

of facilitating a jurisdictional wholesale sale of electric energy.’” 

Id. at 1282 (emphasis added in opinion) (quoting Order No.

2003-A, 106 FERC ¶ 61,220 (2004), at 31,075 P 730). Likewise,

“[the Commission] may analyze and consider the rates of nonjurisdictional utilities to the extent that those rates affect

jurisdictional transactions.” TANC, 495 F.3d at 671 (citation and

quotation marks omitted).

In Sacramento Municipal, 616 F.3d 520, the court rejected

a challenge to the Commission’s jurisdiction to approve the

initial, pre-IBAA Proposal phases of the CAISO’s market

redesign, including its decision to implement locational marginal

pricing. The Imperial Irrigation District argued in that case that

the Commission exceeded its authority in assessing marginal loss

charges to transactions involving Imperial’s use of transmission

ownership rights, i.e., contractual entitlements to use facilities it

owns within the CAISO balancing authority area. See id. at 535-

36. The Commission responded by making clear that marginal

loss charges would be applied “only to transactions that . . .

involve injections and withdrawals from the [CAISO] grid and

could not be assessed where the [transmission ownership rights]

holder has no point of interface with the [CAISO].” Id. at 536

(ellipsis and second alteration in original) (citation and internal

quotation marks omitted). The court upheld the Commission’s

assertion of jurisdiction: 

Far from compelling Imperial [Irrigation District] to

become a participating transmission owner of

California ISO, [the Commission] merely permitted the

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 11 of 29
12

ISO to charge Imperial for the costs incurred by the ISO

when Imperial conducts transactions that cause

transmission losses on the ISO’s grid. The

Commission’s proper exercise of its power to regulate

California ISO’s rates was not transformed into a

violation of its statutory jurisdiction by dint of its

incidental effect on Imperial.

Id. The Commission was not charging Imperial to use its own

facilities; rather, the charges stemmed solely from Imperial’s use

of CAISO-controlled facilities and attendant services. Id. at 537. 

The court noted a similar distinction had been drawn in Michigan

Public Power Agency v. FERC, 405 F.3d 8, 13 (D.C. Cir. 2005).

The same reasoning controls here. In denying rehearing, the

Commission emphasized that “[t]he IBAA Proposal is . . .

limited, only applying to scheduled transactions that impact the

CAISO-controlled grid.” Rehearing Order ¶ 21. And “since the

IBAA Proposal only applies to scheduled transactions that

impact the CAISO-controlled grid, only a party that chooses to

use the CAISO-controlled grid is affected.” Id. ¶ 23. In short,

“the IBAA Proposal establishes only the rates, terms and

conditions for sales in the CAISO’s markets.” Id. ¶ 25. 

Although petitioners and Municipals would distinguish

Sacramento Municipal because the IBAA Proposal’s regulation

of the rate at which non-jurisdictional entities may sell energy to

the CAISO is not, in their view, an “incidental effect” of

regulating jurisdictional entities, the fact remains that the

Commission is only regulating the CAISO’s actions and the

manner in which it calculates rates on the CAISO-controlled

grid. Petitioners’ and Municipals’ rates are not the object of the

Commission’s Orders, and the Commission does not purport to

interfere impermissibly with the manner in which these

municipalities calculate their own rates. See NARUC, 475 F.3d

at 1280. In the highly integrated and complex California energy

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 12 of 29
13

market, the Commission’s regulation of a jurisdictional entity,

such as the CAISO, “may, of course, impinge as a practical

matter on the behavior of non-jurisdictional ones.” Id. But, as

in Sacramento Municipal, this is not a basis for concluding that

the Commission has exceeded its jurisdiction under the FPA. 

Contrary to petitioners’ position, neither the Ninth Circuit’s

opinion in Bonneville nor this court’s opinion in TANC preclude

the Commission from asserting jurisdiction over the IBAA

Proposal. Bonneville simply holds that the Commission may not

order a non-jurisdictional entity to issue a refund, 422 F.3d at

920, and, more critically, the Commission is not regulating

petitioners’ rates; it is regulating only the CAISO’s. Indeed,

Bonneville distinguishes a circumstance in which the

Commission orders the CAISO, as opposed to a governmental

entity, “to operate the market in a different fashion or to set a

market-clearing price for power on a going-forward basis.” Id. 

For the same reason, the Commission does not run afoul of the

prohibition in Bonneville, adopted by this court in TANC, that the

Commission’s “refund authority under the FPA is ultimately

determined by the ‘identities of the sellers subject to the refund

order.’” TANC, 495 F.3d at 674 (quoting Bonneville, 422 F.3d

at 911). 

Petitioners and Municipals also miss the mark in faulting the

Commission for justifying its assertion of jurisdiction on nonjurisdictional entities’ voluntary participation in the CAISO

market. In denying rehearing the Commission was not

suggesting that it was asserting jurisdiction by agreement; rather,

the Commission was illustrating that governmental entities are

affected by the IBAA Proposal only insofar as they choose to

transact within the CAISO-controlled grid. See Rehearing Order

¶ 22. Thus, petitioners’ and Municipals’ reliance on Columbia

Gas Transmission Corp. v. FERC, 404 F.3d 459, 463 (D.C. Cir.

2005), is misplaced.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 13 of 29
14

Municipals fare no better in responding that the IBAA

Proposal is not limited to the CAISO-controlled grid because it

incorporates prices at Captain Jack outside of the grid and makes

reference to modeling “external” resources. Although the

CAISO’s full network model uses proxies and data from outside

the CAISO-controlled grid, the IBAA Proposal sets rates only for

transactions on the CAISO-controlled grid. Moreover, the

Commission may properly “analyze and consider the rates of

non-jurisdictional utilities to the extent that those rates affect

jurisdictional transactions.” TANC, 495 F.3d at 671 (citation and

quotation marks omitted).

 B.

Existing Contracts. The Amended Owners Coordinated

Operation Agreement (“Agreement”) between Pacific Gas and

Electric Company (“PG&E”), participants in the CaliforniaOregon Transmission Project (“COTP”), and participants in the

Western Area Power Administration addresses the joint

operation of the California-Oregon Intertie, the three-line parallel

system comprised of the COTP (between Captain Jack and

Tesla) and the dual PACI-P and PACI-W lines (between Malin

and Tracy). Because the Agreement governed different subject

matter than the IBAA Proposal, the Commission rejected the

argument that approval of the IBAA Proposal violated the

Agreement. See Order ¶¶ 246-255; Rehearing Order ¶¶ 254-260. 

Petitioners and the Commission agree that the Mobile-Sierra4

doctrine prohibits the Commission from approving the IBAA

Proposal if it impinges upon rights protected under the

Agreement. The issue, then, is whether the Commission’s

determination that the Agreement and IBAA Proposal do not

conflict was reasonable.

4

 See United Gas Pipe Line Co. v. Mobile Gas Serv.

Corp., 350 U.S. 332 (1956); Fed. Power Comm’n v. Sierra Pac.

Power Co., 350 U.S. 348 (1956). 

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 14 of 29
15

A variation of the two-step Chevron analysis frames the

arbitrary and capricious review. See Entergy Servs., Inc. v.

FERC, 568 F.3d 978, 981-82 (D.C. Cir. 2009). The court “first

consider[s] de novo whether [the Agreement] unambiguously

addresses the matter at issue. If so, the language of the

Agreement controls for [the court] must give effect to the

unambiguously expressed intent of the parties.” S. Cal. Edison,

502 F.3d at 181 (citation and internal quotation marks omitted). 

Familiar contract interpretation principles apply. Thus,

ambiguity arises where an agreement “is reasonably susceptible

of different constructions or interpretations.” Iberdrola

Renewables, Inc. v. FERC, 597 F.3d 1299, 1304 (D.C. Cir. 2010)

(citation and quotation marks omitted). Further, “[i]n construing

tariffs, courts and agencies must look to the four corners of the

tariff and consider the entire instrument as a whole.” Consol.

Gas Transmission Corp. v. FERC, 771 F.2d 1536, 1545 (D.C.

Cir. 1985). And “[t]he purposes for which a tariff was imposed

should be considered . . . for ‘to decide the question of the scope

of [a] tariff without consideration of the factors and purposes

underlying the terminology employed would make the process

of adjudication little more than an exercise in semantics.” Id.

(second alteration in original) (quoting United States v. W. Pac.

R.R., 352 U.S. 59, 67 (1956)).

Section 5 of the Agreement provides:

This Agreement governs the coordinated operation of

the PACI and COTP. It is the intent of the Parties to

maintain the System as coordinated facilities to benefit

its Transfer Capability. Except as to the use of the

Tesla ByPass provided under this Agreement and as

necessary to perform curtailment sharing obligations

under Section 11 of this Agreement, no Party provides

or shall be required to provide any transmission or other

electric service to another Party under this Agreement.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 15 of 29
16

 Section 8.4 provides, in pertinent part, that

[t]he System shall be operated as a coordinated threeline transmission system. No Party shall be charged

any rate and PG&E shall not be charged any

transmission loss for any power, which flows over the

System or over the Tesla ByPass. . . . Except to the

extent necessary for sharing Curtailments, no Party

shall have a right under this Agreement to have any of

its power delivered on or otherwise have the use of

transmission facilities owned by another Party.

Although the CAISO agreed to “honor” the Agreement, see

Order ¶ 247, the extent to which the Agreement restricts the

CAISO is unclear. Insofar as it is binding, the Commission

concluded that the Agreement, which provides for shared use,

coordinated operation, maintenance, and planning of the

California-Oregon Intertie, “does not concern how energy is

priced once it enters the CAISO-controlled grid” and therefore

presents no conflict with the IBAA Proposal. Id. Viewing

section 5 to “denote[] the scope of the Agreement,” the

Commission concluded that the prohibition on charges in section

8.4 was limited to the coordinated operation and maintenance of

the PACI and COTP. Id. ¶ 248; see also Rehearing Order ¶ 225.

Petitioners contend that section 8.4 unambiguously

precludes the CAISO from “charg[ing] any rate . . . for any

power, which flows over the System.” As they see it, section 8.4

“reflects the Parties’ intent to shield one another from charges

that might otherwise be imposed as a result of their coordinated

operations, even where the power flows through the CAISOcontrolled grid.” Reply Br. 8. But section 8.4 must be read in

conjunction with section 5, as they are both part of a single

agreement. See Consol. Gas Transmission, 771 F.2d at 1545. 

On its face the Agreement does not concern the manner in which

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 16 of 29
17

the CAISO sets rates in its own market. Although section 8.4

refers broadly to “any rate” for power flowing over the system,

the reach of this provision cannot extend beyond the scope of the

Agreement itself, which is stated in section 5.

Seeking to avoid the effect of section 5, petitioners maintain

that the Commission has erroneously presumed a conflict

between the two sections. But the Commission simply read one

section in light of the other. See Order ¶ 248. In addition, the

Commission’s interpretation is consistent with the Agreement’s

general purpose, see Consol. Gas Transmission, 771 F.2d at

1545, to ensure the combination of the three power lines (COTP,

PACI-P, PACI-W) does not result in parallel flow charges to the

Parties, which they would otherwise incur. Indeed, petitioners

acknowledge that “[t]he Agreement prohibits the Parties from

assessing each other for ‘any’ such power flows.” Reply Br. 8. 

The IBAA Proposal does not permit a party to the Agreement to

charge another party for flows over the three-line system. It is

irrelevant, as the Commission maintains, that the PACI is part of

the CAISO grid.

Petitioners relatedly contend that the Commission’s

adjustment of the IBAA Proposal to prevent potential

overcollection of losses, see Order ¶¶ 106, 252, shows that the

Commission is permitting losses to be charged for parallel flows

in violation of the Agreement. The Commission directed the

CAISO to remove these charges, however, in order to avoid

having COTP customers that transact in the CAISO market pay

the cost due to losses of energy during transmission reflected in

the Captain Jack locational marginal price in addition to the same

cost reflected in the existing COTP tariff. See Order ¶ 106. 

Such action has no relation to whether the parties to the

Agreement may charge one another for parallel flows on the

California-Oregon Intertie. The Commission acknowledged that

section 8.4 of the Agreement “provides that parties cannot charge

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 17 of 29
18

a rate for these [parallel] flows.” Order ¶ 252. But its decision

to direct the CAISO “to revise the IBAA proposal to address any

potential overcollection of losses,” id., does not indicate that a

failure to remove these loss charges would have violated the

Agreement. The Commission explained that “the IBAA

proposal will not charge any rate for these flows over and above

what it is doing under the current tariff.” Id. (emphasis added). 

On rehearing, the Commission stated that it did not find such

pricing to be prohibited by the Agreement. See Rehearing Order

¶ 258. The Commission’s position on appeal, that “this

adjustment was to make the [IBAA] rate consistent with other

rate tariffs, not the Coordinated Operation Agreement,” is thus

supported by the record. Resp’t Br. 40.

Because section 5 defines the scope of the Agreement to

govern only the joint operation of the three power lines

comprising the California-Oregon Intertie, and section 8.4 is

properly read in light of section 5, the Commission reasonably

concluded that the Agreement only prohibits the parties to the

Agreement from charging each other for unscheduled use of

another’s lines associated with parallel flows and does not reach

the IBAA Proposal, which concerns the CAISO’s ability to set

rates within its own market.

C.

Discrimination. FPA Section 205, in addition to requiring

that all rates and charges be “just and reasonable,” provides:

No public utility shall, with respect to any transmission

or sale subject to the jurisdiction of the Commission,

(1) make or grant any undue preference or advantage to

any person or subject any person to any undue

prejudice or disadvantage, or (2) maintain any

unreasonable difference in rates, charges, service,

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 18 of 29
19

facilities, or in any other respect, either as between

localities or as between classes of service.

16 U.S.C. § 824d(b). To this end, upon finding that a rate is

“unjust, unreasonable, unduly discriminatory or preferential,” the

Commission is required to “determine the just and reasonable

rate, charge, classification, rule, regulation, practice, or contract

to be thereafter observed and in force, and shall fix the same by

order.” Id. § 824e(a). “A rate is not ‘unduly’ preferential or

‘unreasonably’ discriminatory if the utility can justify the

disparate effect.” Ark. Elec. Energy Consumers v. FERC, 290

F.3d 362, 367 (D.C. Cir. 2002); see also Elec. Consumers Res.

Council v. FERC, 747 F.2d 1511, 1515 (D.C. Cir. 1984). The

court will not find a Commission determination to be unduly

discriminatory if the entity claiming discrimination is not

similarly situated to others. Sacramento Mun. Util. Dist. v.

FERC, 474 F.3d 797, 802 (D.C. Cir. 2007).

In filing a revision to a tariff, the public utility bears the

ultimate burden of demonstrating that the rate is not unduly

discriminatory. See Elec. Consumers, 747 F.2d at 1515. Yet

“[o]nly upon a [Section 205] complainant’s showing that a rate

design has different effects on similarly situated customers does

the burden shift to the respondent [public utility] to justify those

disparities.” Sw. Elec. Coop., Inc. v. FERC, 347 F.3d 975, 981

(D.C. Cir. 2003). If the Commission determines the rate is not

unduly discriminatory, as it did here, then petitionercomplainants bear the burden of “demonstrat[ing] that [the

Commission’s] policy judgments are arbitrary or capricious, a

heavy burden indeed.” Transmission Access, 225 F.3d at 714. 

This framework was made clear in Sacramento Municipal, 616

F.3d at 537-38, where the court rejected the contention that the

Commission erroneously conflated the burden of proof when it

“properly placed the initial burden of showing that the tariff

proposal [wa]s just and reasonable on [the CAISO] . . . [t]hen,

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 19 of 29
20

after finding that the [CAISO] had established that it was ‘just

and reasonable’ . . . [,] simply found that Imperial had failed to

controvert that conclusion.” Petitioners likewise overlook the

shifting burdens and the standard of review in suggesting that the

Commission impermissibly advances a post hoc argument on

appeal, that petitioners failed to show the rates were unduly

discriminatory, when the Commission had placed the initial

burden on the CAISO to justify the tariff amendment, see, e.g.,

Order ¶ 208; Rehearing Order ¶ 221.

On the merits, petitioners contend that combining SMUD

and Turlock into an IBAA constituted unreasonable and undue

discrimination, in violation of FPA Section 205, 16 U.S.C.

§ 824d. Rejecting this view, the Commission credited the

CAISO’s identification of six factors distinguishing SMUD and

Turlock from other balancing authority areas, finding that

“unique circumstances” justified the consolidation for purposes

of the CAISO’s market redesign. See Order ¶¶ 208-216;

Rehearing Order ¶¶ 216-226. Petitioners now complain that the

Commission failed to provide a reasoned response to evidence

and objections advanced by parties, see NorAm, 148 F.3d at

1163-65, but the record is to the contrary. 

In response to petitioners’ objection to placing weight on the

number, rather than the size, of the connections between two

parallel systems, the Commission noted that the proposed “IBAA

does, in fact, have several large interconnection points, including

Tracy,” making the SMUD-Turlock IBAA “highly

interconnected with the CAISO with respect to the number, size,

and distance between its interconnections with the CAISOcontrolled grid.” Order ¶ 212; see also Rehearing Order ¶ 218. 

Additional statements defeat petitioners’ claim that the

Commission did not conclude SMUD and Turlock connections

were more significant than other areas. The Commission noted

that the “sheer number of interconnections and the extent of the

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 20 of 29
21

parallel flows combined with its imbedded position within the

CAISO grid” make the SMUD-Turlock IBAA the “most highly

integrated interface with the CAISO.” Order ¶ 212. The

Commission also contrasted the IBAA’s twelve interconnection

points with the next largest balancing authority area, the Los

Angeles Department of Water and Power, which has only four

points. See id. Moreover, with respect to the degree of impact

on the CAISO system, the Commission found that unscheduled

flow data for SMUD and Turlock distinguished these entities

from neighboring balancing authority areas. See Rehearing

Order ¶ 220. The Commission also responded to petitioners’

objection that the former integration of SMUD and Turlock with

the CAISO was irrelevant, pointing out that this “detailed

knowledge” helped inform the CAISO’s understanding of

challenges that might arise. Order ¶ 214. In sum, petitioners fail

to show that the Commission did not examine the relevant data

or articulate a rational connection between the facts found and

the choice made, bearing in mind that the court’s review is

highly deferential. See Alcoa, 564 F.3d at 1347.

Petitioners persist, however, contending that the

Commission failed to respond to comments raising the

arbitrariness of “lumping” SMUD and Turlock together. This

contention also fails. The Commission, citing evidence of two

experts presented by the CAISO, explained that the high degree

of integration between SMUD and Turlock justified the IBAA

Proposal. See Order ¶ 210. On rehearing, the Commission

pointed out that the CAISO had presented “compelling data that

illustrates the significance of unscheduled flows between the

SMUD and Turlock balancing authority areas and the CAISOcontrolled grid.” Rehearing Order ¶ 220 (emphasis added). This

data compared SMUD and Turlock with other neighboring

balancing authority areas, and documented the amount and

frequency of unscheduled flows over a 12-month period. The

Commission found that “[t]he evidence demonstrates that SMUD

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 21 of 29
22

and Turlock both experienced large and, in many cases, frequent

deviations between scheduled and actual power flows.” Id. The

Commission noted that SMUD did not address this long-term

data and that the petitioners’ efforts to focus on individual

factors and any one particular data set “miss the larger point of

considering the totality of factors and unique characteristics of

a potential IBAA.” Id.; see also id. ¶ 221. Finally, the

Commission reasonably found that because Turlock is “uniquely

situated within the CAISO’s balancing authority area with

SMUD, making it possible for a schedule[d] [transfer] to be

made from Turlock to the CAISO for power that is actually

being sourced from within the SMUD balancing authority area

or the Pacific Northwest, . . . it is important that the CAISO be

better able to map such flows or reflect their source in its

[locational marginal prices].” Id. ¶ 224.

Petitioners’ remaining arguments fare no better. First,

contrary to their suggestion, the Commission did not

unreasonably reject evidence relating to flow rates. Rather, the

Commission discussed in detail the parties’ respective positions

regarding the accuracy of the data and the difference between

frequency, magnitude, and peak flow data. See Order ¶¶ 37-39. 

On rehearing the Commission noted that “SMUD’s assertion

that we ignored evidence it provided suggesting that flow

reversals were ‘grossly exaggerated’ is incorrect. The

Commission considered all submitted evidence in the record in

making determinations regarding the IBAA Proposal.” 

Rehearing Order ¶ 69. As the Commission points out, the fact

that the CAISO’s experts and data were credited over petitioners’

is no reason to grant the petition because the court,

acknowledging the Commission’s expertise, “defers to the

Commission’s resolution of factual disputes between expert

witnesses.” Elec. Consumers Res. Council v. FERC, 407 F.3d

1232, 1236 (D.C. Cir. 2005).

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 22 of 29
23

Second, while petitioners correctly point out that future

approval of other IBAAs does not justify undue discrimination

against SMUD and Turlock, and that the availability of MEEAs

— an agreement between the CAISO and an IBAA entity to

share information — does not cure discrimination these

considerations are of no aid to them here. The Commission

identified no other entities suitable for IBAA treatment at the

time of the challenged orders, and thus the Commission cannot

be said to be treating similarly situated entities differently. See

Sacramento Mun., 474 F.3d at 802. If, in the future, the

petitioners or others provide information that another balancing

authority area equals or surpasses SMUD and Turlock on the

measures relied upon by the Commission and the CAISO, then

the IBAA Proposal will allow the CAISO to treat the similarly

situated balancing authority area as an IBAA. Further, the

Commission did not reject petitioners’ discrimination challenges

because MEEAs were available, but rather found the rates to be

just, reasonable, and not unduly discriminatory even in the

absence of MEEAs; it simply noted that the execution of MEEAs

would “mitigate parties’ concerns.” Order ¶ 208.

Third, petitioners incorrectly suggest that the Commission

impermissibly relied on a “totality of circumstances” approach. 

Unlike in LeMoyne-Owen College v. NLRB, 357 F.3d 55, 61

(D.C. Cir. 2004), on which petitioners rely, where the court

overturned an agency decision that entirely ignored certain

arguments made by the parties, here the Commission addressed

the parties’ arguments, identifying six factors that supported its

decision and explaining how the IBAA Proposal met those

factors. See Order ¶¶ 193-216; Rehearing Order ¶¶ 197-226. 

Consequently the Commission’s reference to “multiple, nonexclusive factors,” Rehearing Order ¶ 218, is far from a “totality

of the circumstances” approach that serves as “simply a cloak for

agency whim — or worse.” LeMoyne-Owen, 357 F.3d at 61. 

Instead, as the CAISO suggests, it likely imparted that even if

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 23 of 29
24

petitioners could show that another entity satisfied one criterion

for forming an IBAA, making the entity similarly situated to the

SMUD-Turlock IBAA in one respect, this was insufficient to

demonstrate discrimination because such entities, unlike the

SMUD-Turlock IBAA, did not satisfy all six criteria.

Fourth, the Commission did not, as petitioners note, directly

address some of the evidence regarding parallel flows or explain

why certain experts’ testimony was unpersuasive. But the

overall explanation the Commission provided sufficed because

it provided reasonable responses to petitioners’ objections that

were neither summary nor dismissive. See NorAm, 148 F.3d at

1163-65. The Commission could have expanded its discussion

of the evidence on undue discrimination, but a point-by-point

rebuttal is not necessarily required. Cf. Lemoyne-Owen, 357

F.3d at 60-61. As the court explained in Transcontinental Gas

Pipe Line Corp. v. FERC, 518 F.3d 916, 922 (D.C. Cir. 2008)

(citation and internal quotation marks omitted), even when the

Commission’s “explanation . . . left something to be desired, the

decision as a whole and the rehearing decision clarify its

analysis, and we will uphold a decision of less than ideal clarity

if the agency’s path may reasonably be discerned.” 

D. 

Proxy Prices. The Commission accepted the IBAA Proposal

to use default import and export proxy pricing points to model

the IBAA. See Order ¶¶ 82-92; Rehearing Order ¶¶ 58-70. 

Imports into the CAISO, i.e., sales from the IBAA entities to the

CAISO, are given a locational marginal price as if they

originated at the Captain Jack substation in Oregon; exports from

the CAISO, i.e., sales from the CAISO to the IBAA entities, are

given a locational marginal price at a hypothetical “SMUD hub,”

a composite point representing the average location of exports. 

See Order ¶ 64. As an alternative to these default locational

marginal prices, the IBAA Proposal provided for MEEAs.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 24 of 29
25

The Commission found this model and the underlying

assumptions of the IBAA Proposal to be reasonable “given the

available information on interchange transactions,” Order ¶ 82,

and “the absence of additional information . . . verifying an

interchange transaction’s source or sink,” id. ¶ 83. It noted that

the CAISO “has appropriately chosen to make an assumption

that imports are likely to flow through Captain Jack and exports

are likely to flow through the SMUD hub.” Id. ¶ 82. It further

agreed that the CAISO’s experience from which it “anticipates

that its proposal is needed to address unscheduled flows and

effectively manage congestion,” as applied here, reasonably

supported the use of default proxy prices. Id. The Commission

noted as well that IBAA entities could avoid the proxy price by

providing confidential proprietary information on actual power

sources through MEEAs. See id. ¶ 83.

In rejecting comments that the IBAA Proposal’s use of the

Captain Jack default proxy prices was unreasonable because it

erroneously assumed Captain Jack to be the import source, the

Commission explained that the CAISO “does not assert that all

interchange transactions are sourced at Captain Jack,” but

“[r]ather, in the absence of additional information, it asserts that

Pacific Northwest resources are likely to support interchange

transactions since they are generally less expensive.” Order ¶ 83. 

The Commission cited record evidence, submitted by the

CAISO, demonstrating that “[t]ransactions that source from the

Pacific Northwest (i.e. near Captain Jack) have very little flow

through Tracy” and therefore “[m]odeling these transactions as

if they source at Tracy will result in an inaccurate model of

congestion, since the transaction’s actual flows will not match

the scheduled flows.” Id. ¶ 83 n.67. Finally, the Commission

explained that “[w]hile a default pricing and modeling

mechanism may not reflect the actual sourcing location of an

interchange transaction, as the parties contend, it does reflect a

conservative proxy that allows the CAISO to better manage

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 25 of 29
26

congestion on its system and will reduce incentives for artificial

scheduling.” Order ¶ 83; see also id. ¶ 90. 

Petitioners challenge as arbitrary and capricious the

Commission’s determination that the default proxy prices for the

IBAA were just and reasonable. They offer four grounds, none

of which ultimately is persuasive. First, petitioners challenge the

reasonableness of the assumption that IBAA entities use

inexpensive Pacific Northwest power to schedule imports into

the CAISO, but do not challenge the use of the proxy system

itself. Their principal objection is that the Commission failed to

address uncontradicted evidence demonstrating the IBAA

entities use power from the Pacific Northwest to serve their own

loads, rather than re-selling that power to the CAISO.

Petitioners’ complaint about the different assumptions that

underlie the default prices charged for imports and for exports is

misdirected; the Commission did not mistakenly treat those

assumptions as established facts. Rather, as the Commission

explained, the default prices were based on flow data used to

accomplish the CAISO’s purpose of eliminating arbitrage

opportunities. See Order ¶ 83. The use of proxy pricing, as the

CAISO explains in its brief, focused not on the intended ultimate

use of energy purchased by the IBAA entities but on the power

flow, and the CAISO studies showed that 15% or less of energy

passing through Captain Jack flowed through Tracy and “[m]ost

of the remainder, 66% of the power flows, entered the ISO

system through the Pacific AC Intertie.” Intervenor CAISO Br.

25.

The Commission adopted this analysis in rejecting

petitioners’ evidence and contrary views. See Order ¶¶ 90-92. 

The Commission concluded that absent more detailed

information from IBAA entities about generation sources,

imports into the CAISO are likely to flow through the Captain

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 26 of 29
27

Jack substation, supported by resources from the Pacific

Northwest. The CAISO flow studies support this finding. 

Moreover, the Commission noted, petitioners may avoid default

prices by providing accurate information to the CAISO, either

through MEEAs or otherwise.

Second, petitioners object that the Commission’s failure to

remedy duplicative congestion charges is irreconcilable with its

recognition that default IBAA prices account for parallel flows. 

The Commission ordered the CAISO to prevent double-charging

for losses flowing over the COTP, one of the three CaliforniaOregon Intertie lines, and explained why there is no comparable

congestion duplication to be eliminated: 

[T]he congestion will not arise due to capacity

limitations on the California-Oregon Intertie. Rather,

the congestion will arise due to the capacity limitations

of other elements of the CAISO-controlled grid which,

under normal operations, will be the limiting factors for

scheduling interchange transactions that also use the

California-Oregon Intertie. Said another way, any

congestion that is reflected in [locational marginal

prices] applicable to interchange transactions that use

the California-Oregon Intertie will be attributable to

binding constraints, not on the intertie, but on the other

elements of the CAISO-controlled grid.

Order ¶ 105; see also Rehearing Order ¶ 82. Petitioners maintain

that the Commission failed to address record evidence

demonstrating that their congestion charges will increase under

the IBAA Proposal, creating an “overcollection.” But such

evidence does not undermine the Commission’s point that the

CAISO charges are not for congestion on the California-Oregon

Intertie. The Commission, noting evidence submitted by the

CAISO, explained that the charges are for congestion on the

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 27 of 29
28

CAISO’s own underlying 230 kilovolt line and “other elements

of the CAISO-controlled grid,” not for congestion on the

California-Oregon Intertie. See Order ¶ 105 & n.97 (citing IBAA

Proposal Ex. ISO-1, at 88-89). Thus, a customer transacting in

the CAISO market will pay one charge for using the CaliforniaOregon Intertie and another charge for any congestion created on

the CAISO-controlled grid.

Third, petitioners object that the Commission’s approval of

the default price for imports was inconsistent with its finding that

such a rate design “may, in limited circumstances, create an

artificially low price” for energy. Order ¶ 120. Quoting Federal

Power Comm’n v. Texaco Inc., 417 U.S. 380, 399 (1974),

petitioners maintain the FPA “does not permit even a ‘little

unlawfulness’” with respect to rates. Pet’rs Br. 56. But Texaco

concerned a total exemption for small producers from regulation

under the Natural Gas Act, 15 U.S.C. §§ 717 et seq., see Texaco,

417 U.S. at 383, whereas the Commission’s approval of the

IBAA Proposal is based on its consistency with the FPA’s

Section 205 requirement that rates be “just and reasonable,” 16

U.S.C. § 824d(a). That a proxy price will deviate from the

market price in limited circumstances does not mean it is

necessarily unjust and unreasonable. As the Supreme Court

cautioned in Texaco, 417 U.S. at 397, in some circumstances “the

prevailing price in the marketplace cannot be the final measure of

‘just and reasonable’ rates mandated by the [Natural Gas] Act.” 

See also id. at 397-99. If, as petitioners suggest, the proxy price

could never deviate from the market price without becoming

unlawful, then proxy pricing would be unlawful as a matter of

law unless it was in fact the market price at all times. The court

has recognized that proxy prices can be just and reasonable, if

supported by record evidence. See, e.g., Oxy USA, Inc. v. FERC,

64 F.3d 679, 695 (D.C. Cir. 1995). Petitioners cite no authority

to the contrary.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 28 of 29
29

Finally, the Commission gave a reasoned explanation for

rejecting petitioners’ suggestion that the Captain Jack price could

lead to substantially reduced imports creating instability on the

CAISO-controlled grid. Essentially, the Commission concluded

that the proxy prices generate benefits to all entities using the

CAISO-controlled grid because SMUD and Turlock cannot cause

inaccurate market prices and infeasible scheduling. In the

Commission’s view, the use of locational marginal pricing would

strengthen the market by accurately reflecting market demand

across the power grid and facilitating energy transactions. As the

Commission stated, the IBAA Proposal “is unlikely to

substantially decrease imports to the CAISO.” Order ¶ 111. 

Market supply and demand would prevent a decrease in imports

large enough to affect system stability, and while “trading

opportunities may be lost” when the Captain Jack locational

marginal price falls below the cost of generating power locally,

Order ¶ 108 (citation and quotation marks omitted), petitioners

offered no evidence that this would occur all or even a large part

of the time. On rehearing the Commission noted that “[n]o

evidence has been provided to support the legitimacy of the claim

that the IBAA Proposal could undermine resource adequacy

programs or harm reliability in the region.” Rehearing Order ¶

99. Further, the Commission observed, “the IBAA proposal does

not change the resource adequacy program” and thus will not

“lead to reliability or resource adequacy problems for the

CAISO.” Order ¶ 112. The Commission’s response to

petitioners’ concern was reasonable and supported by record

evidence submitted by the CAISO.

Accordingly, we deny the petitions for review.

USCA Case #09-1216 Document #1282371 Filed: 12/10/2010 Page 29 of 29