Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-15-73905/USCOURTS-ca9-15-73905-0/pdf.json

Parties Involved:
BP Energy Company
Petitioner
California Public Utilities Commission
Intervenor
Federal Energy Regulatory Commission
Respondent
Pacific Gas & Electric Company
Intervenor
Southern California Edison Co.
Intervenor
The People of the State of California, ex rel. Kamala D. Harris, Attorney General
Intervenor

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MPS MERCHANT SERVICES, INC.,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION,

Intervenor,

PACIFIC GAS & ELECTRIC COMPANY;

SOUTHERN CALIFORNIA EDISON CO.;

THE PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 15-73803

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2 MPS MERCHANT SERVICES V. FERC

ILLINOVA CORPORATION, on behalf

of Illinova Energy Partners, Inc.,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION; PACIFIC GAS &

ELECTRIC COMPANY; SOUTHERN

CALIFORNIA EDISON CO.; THE

PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 15-73818

FERC No.

EL00-95-280

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MPS MERCHANT SERVICES V. FERC 3

BP ENERGY COMPANY,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION; PACIFIC GAS &

ELECTRIC COMPANY; SOUTHERN

CALIFORNIA EDISON CO.; THE

PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 15-73905

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4 MPS MERCHANT SERVICES V. FERC

APX, INC.,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION; PACIFIC GAS &

ELECTRIC COMPANY; SOUTHERN

CALIFORNIA EDISON CO.; THE

PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 15-73912

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MPS MERCHANT SERVICES V. FERC 5

SHELL ENERGY NORTH AMERICA

(US), L.P.,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION; PACIFIC GAS &

ELECTRIC COMPANY; SOUTHERN

CALIFORNIA EDISON CO.; THE

PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 16-70004

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6 MPS MERCHANT SERVICES V. FERC

MPS MERCHANT SERVICES, INC.,

Petitioner,

CALIFORNIA PUBLIC UTILITIES

COMMISSION; PACIFIC GAS &

ELECTRIC COMPANY; SOUTHERN

CALIFORNIA EDISON COMPANY; THE

PEOPLE OF THE STATE OF

CALIFORNIA, EX REL. KAMALA D.

HARRIS, ATTORNEY GENERAL,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 16-70524

ILLINOVA CORPORATION, on behalf

of Illinova Energy Partners, Inc.,

Petitioner,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 16-70525

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MPS MERCHANT SERVICES V. FERC 7

SHELL ENERGY NORTH AMERICA

(US), L.P.,

Petitioner,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

No. 16-70868

FERC No.

EL00-95-287

OPINION

On Petition for Review of an Order of the

Federal Energy Regulatory Commission

Argued and Submitted August 1, 2016

San Francisco, California

Filed September 8, 2016

Before: Sidney R. Thomas, Chief Judge, and M. Margaret

McKeown and Richard R. Clifton, Circuit Judges.

Opinion by Chief Judge Thomas

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8 MPS MERCHANT SERVICES V. FERC

SUMMARY*

Federal Energy Regulatory Commission

The panel denied in part and dismissed in part

consolidated petitions for review brought by various power

companies, and held that the Federal Energy Regulatory

Commission (“FERC”) did not arbitrarily and capriciously

determine that the energy companies committed tariff

violations in California during the summer of 2000.

As part of deregulating its investor-owned, regulated,

vertically integrated electric utilitymarket, California created

two non-profit entities: the California Power Exchange

Corporation (CalPX) and the California Independent System

Operator Corporation (Cal-ISO). Both entities were subject

to FERC jurisdiction, with CalPX operating pursuant to a

FERC-approved tariff and wholesale rate schedule. The tariff

incorporated a protocol, the Market Monitoring and

Information Protocol, which set forth rules for identifying and

protecting against abuses of market power.

The panel held that FERC’s determination – that electric

sellers Shell Energy North America, LP, MPS Merchant

Services, Inc., and Illinova Corporation violated the Cal-ISO

tariff and Market Monitoring and Information Protocol – was

not arbitrary, capricious, or an abuse of discretion. 

Specifically, the panel held that FERC reasonably interpreted

the Cal-ISO tariff and Market Monitoring and Information

Protocol to prohibit the practices of false export, false load

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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MPS MERCHANT SERVICES V. FERC 9

scheduling, and Types II and III anomalous bidding. The

panel further held that FERC reasonably concluded that the

sellers engaged during the Summer Period (the period from

May 1, 2000, to October 1, 2000) in the practices deemed

tariff violations by the orders on review.

The panel further held that FERC’s Summer Period

determinations regarding APX, Inc., and BP EnergyCo. were

not arbitrary, capricious, or an abuse of discretion. The panel

held that FERC reasonably determined that APX engaged in

economic withholding and overscheduling, and therefore

violated the Cal-ISO tariff.

Finally, the panel held that because FERC’s remedial

order is not final, the panel lacked appellate jurisdiction over

it.

COUNSEL

James P. Danley, Cheryl M. Foley, John Lee Shepherd, Jr.,

and John N. Estes III, Skadden, Arps, Slate, Meagher & Flom

LLP, Washington, D.C., for Petitioners MPS Merchant

Services, Inc., and Illinova Corporation.

Brett A. Snyder and Mark R. Haskell, Cadwalader,

Wickersham & Taft LLP, Washington, D.C., for Petitioner

BP Energy Company.

Matthew T. Rick and Douglas F. John, John & Hengerer,

Washington, D.C., for Petitioner APX, Inc.

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10 MPS MERCHANT SERVICES V. FERC

Jessica L. Bayles, William M. Friedman, and Jeffrey D.

Watkiss, McDermott, Will & EmeryLLP, Washington, D.C.,

for Petitioner Shell Energy North America (US), L.P.

Candace J. Moreyand Arocles Aguilar, General Counsel, San

Francisco, California, as and for Intervenor California Public

Utilities Commission.

Eric Todderud and Stan Berman, Sidley Austin LLP, Seattle,

Washington; Joshua S. Levenberg and Mark D. Patrizio,

Pacific Gas and Electric Company; for Intervenor Pacific Gas

& Electric Company.

Catherine M. Giovannoni and Richard L. Roberts, Steptoe &

Johnson LLP, Washington, D.C.; Russell A. Archer, J. Eric

Isken, and Russell C. Swartz, Southern California Edison

Company; for Intervenor Southern California Edison Co.

Danette E. Valdez, Supervising Deputy Attorney General;

Martin Goyette, Senior Assistant Attorney General; Mark

Breckler, Chief Assistant Attorney General; Kamala K.

Harris, AttorneyGeneral; Office of the AttorneyGeneral, San

Francisco, California; Whitney E. Snyder, Judith D. Cassel,

and Kevin J. McKeon, Hawke McKeon & Sniscak LLP,

Harrisburg, Pennsylvania; for Intervenor People of the State

of California ex Rel. Kamala D. Harris, Attorney General.

Beth G. Pacella, Deputy Solicitor; Robert H. Solomon,

Solicitor; Max Minzner, GeneralCounsel; Washington, D.C.;

as and for Respondent Federal Energy Regulatory

Commission.

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MPS MERCHANT SERVICES V. FERC 11

OPINION

THOMAS, Chief Circuit Judge:

In these petitions for review, we consider whether the

Federal Energy Regulatory Commission (“FERC” or

“Commission”) arbitrarily and capriciously determined that

various energy companies committed tariff violations in

California during the summer of 2000. We conclude that it

did not, and we deny the petitions for review.

I

This case is part of a long-standing series of decisions

arising out of California’s energy crisis in 2000 and 2001. 

The relevant factual background was described in our prior

opinions, so we need not describe it in detail here.1 In brief,

FERC in the 1990s commenced a program of deregulating

and “unbundling” the wholesale electric power industry by

restructuring and separating electrical generation,

transmission, and distribution.2 As a result, California

1

See, e.g., Cal. ex. rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004);

Pub. Utils. Comm’n of State of Cal. v. FERC, 462 F.3d 1027 (9th Cir.

2006) (“CPUC”); Cal ex. rel. Harris v. FERC, 809 F.3d 491 (9th Cir.

2015) (“Harris”).

2

See Promoting Wholesale Competition Through Open Access

NondiscriminatoryTransmission Services by Public Utilities, 61 Fed. Reg.

21,540, 21,541 (May 10, 1996) (“FERC Order No. 888”), on reh’g,

62 Fed. Reg. 12,274 (Mar. 14, 1997), on reh’g, 62 Fed. Reg. 64,688 (Dec.

9, 1997), on reh’g, 82 FERC ¶ 61,046 (1998), aff’d Transmission Access

Policy Study Grp. v. FERC, 225 F.3d 667 (D.C. Cir.2000) (per curiam),

aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002).

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12 MPS MERCHANT SERVICES V. FERC

deregulated its investor-owned, regulated, vertically

integrated utility market.3

As part of the deregulation, California created two nonprofit entities: the California Power Exchange Corporation

(“CalPX”) and the California Independent System Operator

Corporation (“Cal-ISO”). CPUC, 462 F.3d at 1037–39. 

CalPX was a wholesale clearinghouse created primarily to

operate two spot markets: (1) the “day-ahead” trading market,

in which the market clearing price was derived from the

sellers’ and buyers’ price and quantity determinations for the

next day’s energy transactions, and (2) the “day of” or “hourahead” trading market, in which CalPX would determine, on

an hourly basis, a single market clearing price which all

suppliers would be paid. Id. at 1038. Cal-ISO managed

California’s electricity transmission grid and was responsible

for all real-time operations, including balancing electrical

supply and demand. Id. at 1038–39. Both entities were

subject to FERC jurisdiction, with CalPX operating pursuant

to a FERC-approved tariff and wholesale rate schedule. Pac.

Gas & Elec. Co., 77 FERC ¶ 61,204 at 61,803–05 (1996),

reh’g denied, 81 FERC ¶ 61,122 (1997).

The Cal-ISO tariff comprehensively regulated

California’s power markets. In relevant part, the tariff barred

power marketers from buying electricity in the day-ahead

market in order to resell that electricity in the real-time

market. And the tariff incorporated a protocol—the Market

Monitoring and Information Protocol (“MMIP”)—which set

forth rules for identifying and protecting against abuses of

3 Act of September 23, 1996, 1996 Cal. Legis. Serv. 854 (codified at

Cal. Pub. Util. Code §§ 330–398.5).

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MPS MERCHANT SERVICES V. FERC 13

market power. See Am. Elec. Power Serv. Corp., 103 FERC

¶ 61,345 at para. 8 (2003).

Unlike most energy markets, 80% of the California

transactions during the relevant period were conducted in the

spot markets. See CPUC, 462 F.3d at 1039. Most electricity,

by design, traded in CalPX’s day-ahead market. After a

summer 2000 spike in energy prices and a series of rolling

blackouts, San Diego Gas & Electric Company (“SDG&E”)

filed a complaint with FERC under § 206 of the Federal

Power Act, 16 U.S.C. § 824(e). See id. at 1040–41. 

SDG&E’s complaint requested that the agencyimpose a price

cap on sales into the CalPX and Cal-ISO markets. See id. at

1041. FERC denied the request, but then commenced an

investigatory proceeding into the justness and reasonableness

of the market rates. San Diego Gas & Elec. Co., 92 FERC

¶ 61,172 (2000). FERC ultimately issued a number of orders,

which have been the subject of prior petitions for review. 

This case returns to us after our decision in CPUC, in which

we directed FERC to determine whether certain sellers of

electricity in California power markets violated the rules

governing those markets in the summer of 2000, and whether

these violations could be remedied under the agency’s

authority in § 309 of the FPA. CPUC, 462 F.3d at 1048–51,

1065.

Following our remand in CPUC, FERC instructed an

administrative law judge (“ALJ”) to determine for the period

from May 1, 2000 to October 1, 2000 (the “Summer Period”):

(1) which market practices and behaviors constituted a

violation of the then-current Cal-ISO, CalPX, and individual

seller’s tariffs and Commission orders; (2) whether any of the

respondents engaged in those tariff violations; and

(3) whether any such tariff violations affected the market

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14 MPS MERCHANT SERVICES V. FERC

clearing price. San Diego Gas & Elec. Co., 135 FERC

¶ 61,183 at para. 31 (2011).

Months of hearings followed. The California Parties,4the

energy companies and Commission staff presented evidence,

producing a transcript more than 10,000 pages long. An

Initial Decision issued in February 2013. See San Diego Gas

& Elec. Co., 142 FERC ¶ 63,011 (2013) (“Initial Decision”). 

The Initial Decision found that certain energy companies had

violated the Cal-ISO tariff via several marketing strategies,

which the ALJ dubbed “False Export,” “False Load

Scheduling” and “Anomalous Bidding.”

A False Export violation occurred when a marketer

purchased electricity from the CalPX or other sources internal

to California, scheduled that electricity in advance for export,

and subsequently scheduled that electricity in real-time for

import. See, e.g., San Diego Gas & Elec. Co., 149 FERC

¶ 61,116 at para. 108 (2014) (“Op.536”); San Diego Gas &

Elec. Co., 153 FERC ¶ 61,144 at para. 80 (2015) (“Op.536-

A”). The twin transactions “disguised [the] energy [as]

sourced from outside,” 142 FERC ¶ 63,011 at para. 36, even

though the electricity never left California. See 149 FERC

¶ 61,116 at para. 122 (noting that electricity “scheduled from

A . . . to B . . . and from B to C . . . actually just went from A

to C.”). The False Export strategy let sellers “evade the [CalISO] real time price caps,” which did not apply to imported

power. 142 FERC ¶ 63,011 at para. 26.

4 Collectively, the term “California Parties” refers to the State of

California, the CPUC, Pacific Gas & Electric Company, and Southern

California Edison Company.

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MPS MERCHANT SERVICES V. FERC 15

False Load Scheduling—or, “overscheduling”—occurred

when sellers in California’s day-ahead market submitted

exaggerated demand schedules to Cal-ISO. See, e.g.,

142 FERC ¶ 63,011 at para. 38. The so-called “uninstructed

energy” would then flow on California’s transmission grid. 

Cal-ISO would direct the energy to real-time shortages and,

in exchange, pay the seller the real-time market’s clearing

price. 142 FERC ¶ 63,011 at para. 27. As an expert for the

California Parties explained, “the objective of the transaction

[was] to earn the [market-clearing price] in the [real-time]

market on the power which was purchased from the PX at the

[day-ahead] price, thus earning the difference between the

two prices[.]” Both the False Load Scheduling and False

Export strategies “in simple terms d[id] the same thing[:]

They pull[ed] energy out of the day-ahead market . . . and

they dump[ed] it in the realtime market.” The tactics relied

on two Summer Period market realities: (1) real-time prices

generally exceeded day-ahead prices, and (2) little real-time

volume went unsold, as the demand for real-time energy is

inelastic.

The third tariff violation at issue is what the ALJ termed

“Anomalous Bidding.” See 149 FERC ¶ 61,116 at para. 3. 

The ALJ defined Anomalous Bidding as “bidding behavior

that departs from normal competitive behavior in violation of

the CAISO MMIP[.]” 142 FERC ¶ 63,011 at para. 16.

The ALJ went on to identify three types of Anomalous

Bidding that violated the MMIP. The Initial Decision defined

“Type I Anomalous Bidding” as “[b]ids that vary in output in

ways that are unrelated to cost[.]” 142 FERC ¶ 63,011 at para.

18. This type of Anomalous Bidding forms no part of this

appeal: the California Parties, the ALJ found, did not meet

their prima facie burden of demonstrating that Type I

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16 MPS MERCHANT SERVICES V. FERC

Anomalous Bidding affected market clearing prices. See

142 FERC ¶ 63,011 at para. 33.

The Initial Decision defined “Type II Anomalous

Bidding” as “bids with prices above marginal cost in

combination with some other tariff violation[.]” 142 FERC

¶ 63,011 at para. 18 (emphasis added). And the Initial

Decision defined “Type III Anomalous Bidding,” also known

as “Economic Withholding,” as “[b]ids used to effectuate

supply withholding[.]” 142 FERC ¶ 63,011 at para. 18. 

Those bids occurred whenever the bid price was greater than

market-clearing price and the seller’s marginal cost was less

than the market-clearing price. Some Type III anomalous

bids “were set so high above the market price that it was

likely that they would not be accepted, thereby either

diminishing the available supply to the Cal-ISO or increasing

the market clearing price.” 142 FERC ¶ 63,011 at para. 28.

As relevant to these petitions, the ALJ determined that

False Export, False Load Scheduling, and Types II and III

Anomalous Bidding violated the Cal-ISO tariff. See

generally 142 FERC ¶ 63,011 at para. 1. False Load

Scheduling and False Export, the ALJ concluded, required

“the submission of false information” to Cal-ISO, see

142 FERC ¶ 63,011 at paras. 36, 42, and therefore violated

“[t]he collective import” of several tariff provisions. See

142 FERC ¶ 63,011 at paras. 36, 43. Type II Anomalous

Bidding “depart[ed] significantly” from competitive market

behavior in violation of several MMIP provisions. See

142 FERC ¶ 63,011 at para. 24. And economic withholding,

the ALJ explained, violated provisions in the MMIP that

barred withholding and manipulation. See 142 FERC

¶ 63,011 at paras. 31–32. The ALJ found 34,020 Summer

Period transactions that amounted to tariff violations. See

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MPS MERCHANT SERVICES V. FERC 17

142 FERC ¶ 63,011 at para. 14. Of these, the ALJ found

more than 20,000 that affected the market clearing price. Id.

Over the course of the agency proceedings, a number of

entities settled with the California Parties and were dismissed

from the case. The remaining entities in this petition for

review are:

• MPS Merchant Services, Inc. (“MPS”), formerly

known as Aquila Merchant Services, Inc., a power

marketer during the Summer Period.

• Illinova Corporation, on behalf of Illinova Energy

Partners, Inc., (“Illinova”), a power marketer during

the Summer Period.

• Shell Energy North America, LP (“Shell”), a

successor-in-interest to Coral Power, LLC, which

purchased and resold energy and capacity during the

Summer Period.

• APX, Inc. (“APX”), which served as a middleman

between electricitybuyers and sellers and California’s

energy markets during the Summer Period.

• BP Energy Co. (“BP”), which sold electricity into the

Cal-ISO market through APX.

FERC in November 2014 affirmed in part and vacated in

part the Initial Decision. See generally 149 FERC ¶ 61,116. 

The Commission found that Shell, MPS, APX, and Illinova

violated the Cal-ISO tariff and that those violations

“impacted the market clearing price.” 149 FERC ¶ 61,116 at

para. 3. The Commission explained that the False Export

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18 MPS MERCHANT SERVICES V. FERC

strategy contravened tariff provisions that barred “unusual

activity . . . relating to imports” and required sellers to specify

customers’ identities and power demands. See 149 FERC

¶ 61,116 at para. 120 (citing Cal-ISO Tariff §§ 2.2.11.1,

2.2.11.1.1-2 and MMIP §§ 2.1.1.5, 2.1.1.1). FERC held that

False Load Scheduling violated MMIP provisions that

required sellers to “submit balanced schedules” to Cal-ISO

and that barred “unusual trades and transactions.” See

149 FERC ¶ 61,116 at paras. 170–71 (citing Cal-ISO Tariff

§§ 2.2.7.2, 2.2.11.1 and MMIP §§ 2.1.1.3, 2.1.1.5). Finally,

the Commission held that Type II Anomalous Bidding and

economic withholding violated several MMIP provisions

proscribing anomalous market behavior. See 149 FERC

¶ 61,116 at paras. 94, 99 (citing MMIP §§ 2.1.1, 2.1.3,

2.1.1.4, 2.1.1.1). A November 2015 rehearing order largely

preserved these results. See 153 FERC ¶ 61,144.

At the California Parties’ request, FERC in February2016

again clarified its Summer Period determinations. See

generally San Diego Gas & Elec. Co., 154 FERC ¶ 61,063

(2016) (“Op.536-B”). The Februaryorder “clarif[ied]that the

remaining Respondents . . . are liable to disgorge overcharges

and excess payments they received for all sales during all

hours of the Summer Period during which the market prices

were inflated by tariff violations committed by any of the

Respondents.” Id. at para. 8. The Commission left “[o]ther

[pending] requests for rehearing”—notably, a request filed by

MPS in December 2015—for “a separate order.” 154 FERC

¶ 61,063 at para. 1.

These consolidated petitions for review followed. The

Federal Power Act provides us jurisdiction to review

“order[s] issued by the Commission.” See 16 U.S.C.

§ 825l(b). We have limited that jurisdictional grant to final

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MPS MERCHANT SERVICES V. FERC 19

orders, see Steamboaters v. FERC, 759 F.2d 1382, 1387–88

(9th Cir. 1985), and therefore lack appellate jurisdiction to

consider the sellers’ ongoing challenge to the remedy that

FERC ordered for the violations that the agency identified. 

See 154 FERC ¶ 61,063 at para. 8. FERC and the sellers

agree that order is not final. The evolving scope of the

agency’s remedy supports that conclusion. Compare

149 FERC ¶ 61,116 at para. 209, with 153 FERC ¶ 61,144 at

para. 142, and 154 FERC ¶ 61,063 at para 8. Nevertheless,

we have jurisdiction to review the final agency findings on

liability. See Harris, 809 F.3d at 499–500.

We review decisions by FERC to determine whether its

action was “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 5 U.S.C. § 706(2);

see also Fall River Rural Elec. Coop., Inc. v. FERC, 543 F.3d

519, 525 (9th Cir. 2008). We recognize that FERC’s

discretion “is at its zenith when . . . fashioning . . . remedies

and sanctions[.]” CPUC, 462 F.3d at 1053 (internal quotation

omitted). We review FERC’s interpretation of a tariff with a

“two-step, Chevron-like analysis.” PSEG Energy Res. &

Trade LLC v. FERC, 665 F.3d 203, 208 (D.C. Cir. 2011)

(internal quotation marks omitted). We review the agency’s

findings of fact for substantial evidence and will not disturb

such findings even if “the evidence is susceptible of more

than one rational interpretation.” CPUC, 462 F.3d at 1045. 

Our review “is limited to . . . the administrative record,”

Envtl. Coal. of Ojai v. Brown, 72 F.3d 1411, 1414 (9th Cir.

1995), and to those “grounds upon which . . . the record

discloses that [the agency’s] action was based.” SEC v.

Chenery Corp., 318 U.S. 80, 87 (1943).

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20 MPS MERCHANT SERVICES V. FERC

II

FERC’s determination that Shell, MPS, and Illinova

(“sellers”) violated the Cal-ISO tariff and MMIP during the

Summer Period was not arbitrary, capricious, or an abuse of

discretion.

A

FERC reasonably interpreted the Cal-ISO tariff and

MMIP to prohibit the practices of False Export, False Load

Scheduling, and Types II and III Anomalous Bidding. FERC

interpreted Cal-ISO Tariff §§ 2.2.11.1, 2.2.11.1.1-2 and

MMIP §§ 2.1.1.1, 2.1.1.5 to prohibit False Export. The

Commission interpreted Cal-ISO Tariff §§ 2.2.7.2, 2.2.11.1

and MMIP §§ 2.1.1.3, 2.1.1.5 to prohibit False Load

Scheduling. Types II and III Anomalous Bidding, the

Commission concluded, violated MMIP §§ 2.1.1 et seq.

1

The text of the tariff and MMIP provisions supports

FERC’s conclusions. Cal-ISO Tariff § 2.2.7.2 required

sellers to “submit to the ISO only Balanced Schedules,”

which the tariff defined as schedules where “Generation,

adjusted for Transmission Losses equal[ed] forecast

Demand[.]” Cal-ISO Tariff §§ 2.2.11 et seq. required the

submitted schedules to “include the name and identification

number” of electricity customers, as well as customers’

location and demand. The MMIP provisions called for

“corrective action” in response to, respectively, “withholding

of Generation capacity,” “unusual trades or transactions,” and

“unusual activity or circumstances relating to imports . . . or

exports[.]”

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MPS MERCHANT SERVICES V. FERC 21

FERC reasonably determined that False Export, False

Load Scheduling and Anomalous Bidding violated these

provisions. FERC explained that False Export required that

sellers “submit[] [information that] did not correspond to

actual load.” 149 FERC ¶ 61,116 at para. 120. That

falsification amounted to “unusual activity or circumstances

relating to imports . . . or exports[.]” 149 FERC ¶ 61,116 at

para. 120. Additionally, because the practice “effectively

withheld capacity from day-ahead markets,” 149 FERC

¶ 61,116 at para. 120. FERC determined that False Export

violated MMIP § 2.1.1.1. As for False Load Scheduling, the

Commission determined that sellers violated the balanced

schedule requirement by “schedul[ing] fictitious load in

anticipation of actual load.” 149 FERC ¶ 61,116 at para. 170. 

Type II and III anomalous bids, the Commission concluded,

relied on the above violations or on withholding strategies

that departed from competitive market behavior. See

149 FERC ¶ 61,116 at paras. 94, 99.

These determinations comport with the plain text of the

Cal-ISO Tariff, of which Summer Period electricity sellers

were on notice. See Cal. ex rel. Brown, 139 FERC ¶ 61,210

at para. 26 (2012); see also 142 FERC ¶ 63,011 at para. 42. 

At minimum, we defer to FERC’s reasonable constructions

of ambiguous tariff language. See PSEG, 665 F.3d at 208. 

The sellers’ contraryposition on overscheduling—that sellers

could inflate for California’s grid operators the sellers’

forecasts of how much electricity the sellers’ customers

would draw from California’s grid—is self-refuting; renders

superfluous much of the Cal-ISO tariff; and thwarts

California’s efforts to supply electricity efficiently and

reliably through day-ahead markets. See 153 FERC ¶ 61,144

at para. 96.

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22 MPS MERCHANT SERVICES V. FERC

Contrary to the sellers’ assertions, FERC reasonably

interpreted the MMIP to provide notice that FERC could

sanction practices “subject to scrutiny.”5See PSEG, 665 F.3d

at 208. “The MMIP was part of [Cal-ISO]’s tariff,”

153 FERC ¶ 61,144 at para. 111. See also 103 FERC

¶ 61,345 at paras. 8, 23 (2003), which the Commission could

interpret and enforce. See 142 FERC ¶ 63,011 at para. 16. 

The protocols “put[] market participants on notice regarding

their rights and obligations in the marketplace,” 103 FERC

¶ 61,345 at para. 23, and contemplated “corrective action[s],”

and “sanctions or penalties,” by “the appropriate regulatory

agencies.” See also MMIP § 1.1 (providing for “[ISO

Markets’] protection from abuses of market power in both the

short term and the long term”). FERC’s legal interpretation

of the MMIP follows agency precedent, see Investigation of

Anomalous Bidding Behavior and Practices in the Western

Markets, 103 FERC ¶ 61,347 at paras. 7–11 (2003), and we

see no reason to disturb that interpretation here.

In conclusion, FERC reasonably interpreted the Cal-ISO

tariff and the MMIP according to the plain text of those

documents. We therefore reject the sellers’ claims that the

tariff and MMIP did not proscribe the practices identified by

the agency.

5 We decline FERC’s invitation to uphold the agency’s several liability

findings on the theory that the sellers waived the issue of Cal-ISO Tariff

§ 2.2.11.1 (requiring that Scheduling Coordinators identify “the Location

Code of the Take-Out Point” and “[t]he aggregate quantity (in MWh) of

Demand being served at each Take-Out Point”). Waiver is inappropriate

in these unique circumstances, where the sellers’ opening briefs repeatedly

contest the liability theory for which § 2.2.11.1 provides support, even if

those briefs do not mention the section by name.

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MPS MERCHANT SERVICES V. FERC 23

2

The sellers next contest the policy foundations of FERC’s

interpretations. The agency’s interpretation of the Cal-ISO

tariff and the MMIP, the sellers argue, unreasonably

characterized permissible arbitrage as a False Export

violation. See, e.g., 153 FERC ¶ 61,144 at para. 140. The

sellers further claim that FERC’s interpretations unreasonably

punish False Load Scheduling, a practice which—the sellers

contend—arose in response to underscheduling by

California’s investor-owned utilities. The sellers also argue

that False Load Scheduling actually enhanced grid reliability. 

See 149 FERC ¶ 61,116 at para. 152.

The record evidence bears out FERC’s view of these

policy considerations. The record establishes that California

and FERC intended Cal-ISO’s real-time market as an

exchange of last resort, not as a full-fledged alternative to the

CalPX that would facilitate arbitrage and price convergence. 

See, e.g., 153 FERC ¶ 61,144 at para. 149; 103 FERC

¶ 61,345 at para. 32; see also Lockyer, 383 F.3d at 1009. The

record supports FERC’s finding that False Export and False

Load Scheduling strategies forced California’s investorowned utilities increasingly to rely on the real-time market in

order to serve load. See, e.g., 149 FERC ¶ 61,116 at paras.

163–64, 183. The record supports FERC’s conclusion that

the False Export and False Load Scheduling strategies

threatened to compromise the reliability of California’s

electrical transmission grid. See, e.g., 149 FERC ¶ 61,116 at

para. 142; 142 FERC ¶ 63,011 at paras. 49–50. Thus,

FERC’s interpretation of the Cal-ISO tariff and the MMIP

finds support not only in text, but in policy as well.

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24 MPS MERCHANT SERVICES V. FERC

3

Illinova asserts that a section of the Cal-ISO tariff

provides the company a safe harbor from overscheduling

liability.

6 We disagree. The section in question, § 22.1,

carries the title, “Temporary Simplification of Schedule

Validation Tolerances,” and provides:

Notwithstanding any other provision in the

ISO Tariff, including the ISO Protocols, a

Schedule shall be treated as a Balanced

Schedule when aggregate Generation,

adjusted for Transmission Losses, is within 20

MW of aggregate Demand, or such lower

amount, greater than 1 MW, as may be

established from time to time by the ISO. The

ISO may establish the Schedule validation

tolerance level at any time, between a range

from 1 MW to 20 MW, by giving seven days’

notice published on the ISO’s “Home Page,”

at http://www.caiso.com or such other Internet

address as the ISO may publish from time to

time.

Illinova contends that this section creates a de minimis

exception for overscheduling liability. The exception shields

Illinova, the company continues, because its overscheduling

never exceeded 20 MW. Illinova claims that a definition of

6

Illinova styles its claim as a challenge to the agency’s liability findings. 

In substance, the company contests the agency’s interpretation ofthe tariff

provision. Accordingly, we review Illinova’s § 22.1 arguments under the

framework of PSEG, 665 F.3d at 208.

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MPS MERCHANT SERVICES V. FERC 25

“Demand” contained in the Cal-ISO tariff support the

company’s reading of § 22.1.

FERC offers a competing interpretation. The agency

construes § 22.1 as an “administrative threshold for Cal-ISO

to accept a schedule from the CalPX market.” FERC rejects

the notion that § 22.1 was intended to—or did—create a de

minimis exception to overscheduling liability.

FERC’s interpretation of § 22.1—albeit not

incontrovertible—survives this court’s review. In particular,

the agency’s interpretation squares with § 2 of the Cal-ISO

tariff, which prescribes the duties of scheduling coordinators. 

That section provides that “[i]f a Scheduling Coordinator

submits a schedule that is not a Balanced Schedule, the ISO

shall reject that Schedule provided that Scheduling

Coordinators shall have an opportunity to validate their

Schedules prior to the deadline for submission to the ISO[.]” 

The section treats schedule validation—the process that

§ 22.1 purports to govern—as an ex ante condition that

precedes the transmission of electricity, not as an ex post

condition whose violation results in liability. Indeed,

Illinova’s claim that “the tolerance band in § 22.1 requires

data on actual demand,” cannot be reconciled with Cal-ISO’s

design, which required schedule submission prior to realtime.7

7 This claim also appears to misrepresent the Cal-ISO tariff, which

defined “Demand” as “[t]he rate at which Energy is delivered to Loads

and Scheduling Points by Generation, transmission or distribution

facilities. It is the product of voltage and the in-phase component of

alternating current measured in units of watts or standard multiples

thereof[.]”

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26 MPS MERCHANT SERVICES V. FERC

Ultimately, we need not decide which reading of § 22.1

“is the best . . . interpretation.” See Nat’l Cable &

Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967,

980 (2005). Instead, we defer to FERC’s construction “so

long as that construction is reasonable,” PSEG, 665 F.3d at

208, and allow the retroactive application of such a

construction unless “manifest injustice” would result, Thorpe

v. Hous. Auth. of the City of Durham, 393 U.S. 268, 282

(1969). Given the “sophistication of modern energy trading,”

CPUC, 462 F.3d at 1039, we see no such injustice or unfair

surprise here. FERC’s construction of Cal-ISO tariff § 22.1

was reasonable and foreseeable.

4

In short, FERC reasonably interpreted the Cal-ISO tariff

and the MMIP to prohibit the practices of False Export, False

Load Scheduling and Anomalous Bidding. In addition, the

agency reasonably concluded that the tariff and MMIP

sufficed to put sellers on notice that such practices were not

permitted.

B

FERC reasonably concluded that the sellers engaged

during the Summer Period in the practices deemed tariff

violations by the orders on review.

1

FERC’s conclusion that MPS overscheduled and thereby

violated the Cal-ISO tariff, see 149 FERC ¶ 61,116 at

para. 174, was not arbitrary, capricious, or an abuse of

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MPS MERCHANT SERVICES V. FERC 27

discretion.8 MPS contends that it did not overschedule

because the City of Azusa, California, submitted the

controverted schedules. Azusa’s actions, MPS argues, cannot

support liability for MPS.

We must reject such artificial formalism. FERC properly

concluded in Op.536-A that “[t]he agreement with Azusa

grant[ed] MPS the ability to make uninstructed sales . . . [and]

enabled MPS to engage in False Load Scheduling.” 

153 FERC ¶ 61,144 at para. 148. Specifically, the agreement

between Azusa and MPS’s predecessor-in-interest, Aquila,

gave Aquila the right to provide a pre-schedule of energy

deliveries to Azusa. The agreement then required Azusa to

release that energy into Cal-ISO. The fact that MPS

laundered its overschedules through a municipal utility does

not render arbitrary and capricious FERC’s liability

determination. See id. Thus, substantial evidence supports

FERC’s finding that MPS engaged in False Load Scheduling

in violation of the Cal-ISO tariff.

8 We have jurisdiction to review this determination. “In order after order,

FERC has not budged from its position,” Harris, 809 F.3d at 499, that

MPS overscheduled in violation of the Cal-ISO tariff. See, e.g.,

142 FERC ¶ 63,011 at para. 61; 149 FERC ¶ 61,116 at para. 185;

153 FERC ¶ 61,144 at para. 148. Moreover, the question whether MPS

and Azusa’s contractual status insulates one party from overscheduling

liability “presents a legal question capable of resolution by this court in a

way that does not invade the agency’s province.” Harris, 809 F.3d at 499. 

Accordingly, we conclude that FERC’s overscheduling determination

satisfies the test for administrative finality and warrants this court’s

review.

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28 MPS MERCHANT SERVICES V. FERC

2

Substantial evidence supports FERC’s finding that MPS

and Shell engaged in False Export. FERC determined that

the California Parties established a prima facie case of False

Export (1) by matching day-ahead transactions that exported

electricity from California to real-time transactions that

imported electricity to California,9and (2) with evidence of

“parking”—that is, arrangements by which exporters sold

energy outside the Cal-ISO to entities who then nominally

resold the energy to the exporter for a fee. See 142 FERC

¶ 63,011 at para. 37; 149 FERC ¶ 61,116 at para. 123;

153 FERC ¶ 61,144 at para. 59. FERC relies on evidence of

at least five parking arrangements between MPS or Shell and

utilities or municipalities. See 153 FERC ¶ 61,144 at para.

64. FERC also cited MPS and Shell’s consistent patterns of

False Export behavior: specifically, the agency found that

MPS and Shell engaged in False Export during, respectively,

403 and 110 hours of the Summer Period. See 149 FERC

¶ 61,116 at para. 127.

Shell and MPS argue—with some force—that most of the

California Parties’ evidence involved mere correlation, not

direct proof that the matched transactions were causally

related. Nevertheless, the agency’s findings are supported by

substantial evidence. Cf. Snoqualmie Indian Tribe v. FERC,

545 F.3d 1207, 1212 (9th Cir. 2008) (“Substantial evidence

means such relevant evidence as a reasonable mind might

accept as adequate to support a conclusion.”) (internal

quotation omitted). The California Parties’ screen identified

9 A California Parties’ expert testified that the signature of a False

Export is matching day-ahead exports and real-time imports or out-ofmarket sales.

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MPS MERCHANT SERVICES V. FERC 29

a significant, sustained pattern of bid behavior for which the

sellers produced no exculpatory evidence. See 153 FERC

¶ 61,144 at para. 60. That pattern predates and postdates the

formalization of parking arrangements by MPS and Shell,

153 FERC ¶ 61,144 at para. 65, which expressly

contemplated false export transactions. “Where, as here, ‘a

court reviews an agency action involv[ing] primarily issues

of fact, and where analysis of the relevant documents requires

a high level of technical expertise, we must defer to the

informed discretion of the responsible federal agencies.’” 

Snoqualmie Indian Tribe, 545 F.3d at 1212 (quoting Sierra

Club v. EPA, 346 F.3d 955, 961 (9th Cir. 2003)). Substantial

evidence supports FERC’s False Export findings.

3

Substantial evidence supports FERC’s findings that the

sellers’ tariff violations increased market-clearing prices for

electricity. See 149 FERC ¶ 61,116 at paras. 132–33;

153 FERC ¶ 61,144 at paras. 79–82. The record supports

FERC’s reliance on a model proposed by the California

Parties’ expert, Peter Fox-Penner. Under that methodology,

the actual market clearing price in each hour was compared

to what the clearing price would have been had each

individual tariff violation not occurred. The model

reasonably considered the price effects of False Export and

False Load Scheduling only in the day-ahead market. 

According to the expert, False Export and False Load

Scheduling injected artificial demand into the day-ahead

market, thereby increasing day-ahead prices. The expert’s

model incorporated all bid data submitted to CalPX during

the Summer Period. That market operated simply: CalPX

generated supply and demand curves by summing supply and

demand bids at various prices. The market cleared at the

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30 MPS MERCHANT SERVICES V. FERC

price where the curves crossed. As a result, the expert’s

model closely tracked the market’s operation and outcomes.

The California Parties’ expert testimony therefore

provides substantial evidence for FERC’s finding that the

sellers’ tariff violations increased market-clearing prices for

electricity in the CalPX. Indeed, substantial evidence

supports FERC’s finding that the expert’s model understates

the price effects of sellers’ actions—even if the model does

not quantify the magnitude of that understatement. See

153 FERC ¶ 61,144 at para. 81.

The sellers argue that the model ignores the electricity

that False Export and False Load Scheduling moved into CalISO’s real-time market. That increased supply, the sellers

continue, reduced real-time electricity prices. FERC rejected

the argument, see 153 FERC ¶ 61,144 at para. 80, and

substantial evidence supports that rejection. Because CalPX

day-ahead volumes greatly exceeded Cal-ISO real-time

volumes, the California Parties’ expert explained that “a price

change of a given magnitude in the PX market-clearing price

had a much larger impact on the buyers of electricity than that

same price change would have in the [real-time] market.”

Finally, MPS and Illinova claim that modeled CalPX

price effects of “less than 10 cents . . . [or] less than one

dollar . . . were, in fact, smaller than the margin of error for

the analysis.” But the portions of the record cited by MPS

and Illinova provide offer no margin of error for FoxPenner’s day-ahead model. Instead, MPS, Illinova and Shell

erroneously have mapped the real-time model’s errors to the

day-ahead model. For this reason, we decline to discard the

California Parties’ modeling efforts on the basis of the

sellers’ arguments about “false precision.”

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MPS MERCHANT SERVICES V. FERC 31

In sum, substantial evidence supports FERC’s conclusion

that the violations affected the CalPX market price. The

sellers’ attacks on the methodology employed are not

persuasive.10

4

FERC’s findings on Type III Anomalous

Bidding—economic withholding—are supported by the

record, and neither Shell nor APX offers developed—let

alone persuasive —arguments for disturbing those findings. 

See generally 153 FERC ¶ 61,144 at paras. 39–42, 46;

149 FERC ¶ 61,116 at paras. 84–86, 99–105. Indeed, the

record indicates that Shell’s Type III anomalous bids

exceeded real-time market-clearing prices, not just the

market’s marginal cost. See 149 FERC ¶ 61,116 at para. 51;

142 FERC ¶ 63,011 at para. 29. FERC reasonably

determined that such conduct contravened MMIP provisions

§§ 2.1.1.1 and 2.1.3, which generally barred withholding and

manipulation. See 149 FERC ¶ 61,116 at para. 99.

 

10 The analysis presented in Parts II.A through II.B.1–3 of this opinion

provides ample reason to deny review of the agency’s finding that Shell

engaged in Type II Anomalous Bidding. See 153 FERC ¶ 61,144 at

para. 45. Shell’s challenge to that finding relies exclusively on the

company’s arguments concerning False Export and False Load

Scheduling. Those arguments were unpersuasive when considering False

Export and overscheduling alone; and those arguments are still

unpersuasive whenwe consider False Export and overscheduling as means

of effecting Type II anomalous bids.

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32 MPS MERCHANT SERVICES V. FERC

III

FERC’s Summer Period determinations regarding APX

and BP were not arbitrary, capricious, or an abuse of

discretion.

A

FERC reasonably determined that APX engaged in

economic withholding and overscheduling, and therefore

violated the Cal-ISO tariff. See 153 FERC ¶ 61,144 at para.

16; 149 FERC ¶ 61,116 at para. 29. FERC reasonably argues

that APX-scheduled sales required the combined actions of

APX and its customers. See Automated Power Exch., Inc. v.

FERC, 204 F.3d 1144, 1153 (D.C. Cir. 2000) (upholding

FERC jurisdiction over APX in part because the marketmaker was “an integral part of [electricity] transaction[s]” ). 

Moreover, record evidence demonstrates that APX instructed

its members—albeit after the Summer Period ended—on how

to engage in tariff violations through APX’s services.

APX disputes FERC’s determination that the marketmaker was jointly and severally liable for overscheduling and

Type III Anomalous Bidding. But FERC’s determination

followed more than a decade of agency decisions establishing

APX’s joint and several liability for participant violations

when liability cannot be apportioned to individual customers

based on specific transactions. See, e.g., San Diego Gas &

Elec. Co., 127 FERC ¶ 61,269 at para. 272 (2009); San Diego

Gas & Elec. Co., 105 FERC ¶ 61,066 at para. 170 (2003). 

Those decisions acknowledge and reasonably respond to the

idiosyncrasies that APX claims the agency ignores. See San

Diego Gas & Elec. Co., 127 FERC ¶ 61,269 at para. 272

(“[T]he unique situation of the APX requires that the APX

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MPS MERCHANT SERVICES V. FERC 33

and its sellers be held jointly and severally liable for refunds

where the refund liability cannot be apportioned[.]”). Indeed,

FERC argues that its application of the joint and several

liability standard provides “an exception from the general

rule that scheduling coordinators are individually liable for

violations related to schedules they submit.” The agency

carved out that exception in part because FERC expected that

“[APX] bid data will be sufficiently complete in nearly all

instances to permit apportionment.” San Diego Gas & Elec.

Co., 107 FERC ¶ 61,165 at paras. 45–46 (2003) (describing

APX liability when apportionment impossible as “an

equitable solution and consistent with precedent”). Given

that the agency’s discretion “is at its zenith when it is

fashioning [ ] policies, remedies and sanctions,” CPUC,

462 F.3d at 1053 (alteration in original), we decline to hold

arbitrary or capricious FERC’s application of joint and

several liability in these unusual circumstances.

At heart, APX’s objection boils down to a question of

scienter: as a market-maker, it argues that it cannot be held

liable for violations when it did not know that schedules

reflected false load or economic withholding. However,

FERC long and repeatedly has held that “[t]he language in

Sections 205(b) and 206 does not contain any reference to

intent . . . . [T]he Commission is to be concerned with

anticompetitive effects, not motives.” In re Missouri Power

& Light Co., 5 FERC ¶ 61,086, 61,140 (1978); see also

Transcon. Gas Pipe Line Corp., 26 FERC ¶ 61,029, 61,054

n.26 (1984) (same). Consistent with controlling authority,

see Fed. Power Comm’n v. Conway Corp., 426 U.S. 271, 279

(1976) (directing FERC to consider “anticompetitive effects”

of conduct alleged to have violated § 205 of the Federal

Power Act) (emphasis added), the agency may apply such

strict liability to determinations pursuant to § 309. See

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34 MPS MERCHANT SERVICES V. FERC

16 U.S.C. § 825h. Congress said nothing of scienter in that

provision, and we see nothing unreasonable about FERC’s

interpretation. See Chevron, U.S.A., Inc. v. Nat. Res. Def.

Council, Inc., 467 U.S. 837, 844 (1984).

In sum, substantial evidence supports FERC’s finding that

APX engaged in overscheduling and economic withholding.

B

APX and BP finally contend that FERC should have

found the market-maker a “net buyer” for the Summer Period. 

This argument is premature. FERC made no findings on this

issue and, in fact, sought new evidence on the question.

To the extent that APX and BP argue that FERC’s

sequencing of apportionment proceedings alone constitutes

capricious action, that argument fails. See, e.g., 153 FERC

¶ 61,144 at para. 13. The Supreme Court has long

“emphasized that the formulation of procedures [is] basically

to be left within the discretion of the agencies[.]” Vermont

Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc.,

435 U.S. 519, 524 (1978).

IV

In sum, FERC’s interpretation of the Cal-ISO and MMIP

Tariffs was reasonable and its determination of tariff

violations was not arbitrary, capricious, or an abuse of

discretion. Because the Commission’s remedial order is not

final, we lack appellate jurisdiction over it.

PETITIONS FOR REVIEW DENIED IN PART AND

DISMISSED IN PART.

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