FOR PUBLICA TION UNITED STATES COURT OF APPEALS FOR THE NI

NTH CIRCUIT

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA, Petitioner, PUBLIC UTILITIES COMMISSION OF NEVADA; ALLEGHENY ENERGY SUPPLY COMPA

NY, LLC, Petitioner-Intervenor, ENERGY PRODUCER COGENERATION COGENERATION ASSOCIATION OF CALIFORNIA AND ENERGY PRO DUCERS ANDUSERS COALITION; AVISTA CORPORATION; PINNACLE WEST CAPITAL CORPORATIO

N; CALIFORNI

A ELECTRICITY OVERSIGHT BOARD; MIRANT CALIFORNIA; MIRANT DELTA LL C; MIRANT POT RERO LLC; MIRANT AMERICAS ENERGY MARKETING, LP; ENRON POWER MARKETING , INC.; SOUT HERN CALIFORNIA EDISON COMPANY; NORTHERN CALIF. TRANSMISSION AGENCY OF NORTHERN CALIFORNIA (“TANC”); MODESTO IRRIGATION

DISTRICT (MID ); M-S-R PUBLIC POWER AGENCY; CITY OF REDDING; CITY OF PALO ALTO; CITY OF SANTA CLARA; PORT OF No. 01-71 051 FERC N o. FERC -EL00- 000

AMENDED OPINION 

# FILED

AU G 31 2006 CATHY A. CA

TTERSON, CLERK U.S. COURT OF A PPEALS2

SEATTLE WASHINGTON; CITY OF TACOMA, W

ASHINGTO

N; PUBLIC SERVICE COMPANY OF COLORADO; PACIFIC GAS A

ND ELECT RIC COMPANY; CORAL POWER, L.L.C.; EXELON CORP.; CITY & COUNTY OF SAN FRANCISCO; OFFICE OF ATTORNEY GENERAL FOR THE STATE OF NEVADA, BUREAU OF CONSUMER PROTECTION; PORTLAND GENERAL ELECTRIC COMPANY; AUTOMATED POWER EXCHANGE, INC.; ALLEGHEY ENERGY SUPPLY CO., LLC; PUGET SOUND ENERG Y, Pu get Sou nd E ner gy, Inc.; DYNEGY POWER MARKETING, INC.; EL SE GUNDO POW ER LLC; LONG BEAC H GENERAT ION LLC; CABRILLO POWER I LLC; CABRILLO POWER II L LC; PACIFICORP’ S; PPL ENERGYPLUS, LLC; PPL MONTANA; PPL SOUTHWEST GENERATION HOLDINGS, LLC; RELIANT ENERGY POWER GENERATION, INC.; RELIANT ENERGY SERVICES, INC.; OERTHERN; PEOPLE OF THE STATE OF CALIFORN IA, ex rel. Bill Locky er; WILLIAM ENERGY MARKETING & TRADING COMPANY; CALPINE CORPORATIO

N; EL PASO MERCHANT E

NERGY L.P .; SEMPRA ENERGY TRADING CORP.; AVISTA ENERGY, INC.; CITY OF LOS ANGELES; CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER; CALIFORNIA ELECTRICITY OVERSIGHT

BOARD; IDACO RP3

ENERGY L.P.; CITY OF PASADENA, Inter

venors, And INTERNAT IONAL PACI FIC ENTERPRISES, LTD., Intervenor,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA, Petitioner, IDA CO RP. ENERGY, , IDA Corp. Energy, L.P., Petitioner-Intervenor, SAN DIEGO GAS AND E LECTRIC COMPANY; DUKE ENERGY NORTH AMERICA, LLC, DUKE ENERGY TRADING A

ND MARKET ING, LLC, (COLLECTIVELY, “DUKE ENE RGY”); CALIFORNIA ASSEMBLY; SOUTHERN CALIFORNIA EDISON No. 01-71 321 FERC N o. EL 0 0-95-0004

COMPANY; MIRANT AMERICAS ENERGY MARKETING, LP, MIRANT CA, LLC, MIRANT DELTA, LLC, AND MIRANT POTEREO, LLC (COLLECTIVELY, “MIRANT”; MIRAN T CAL IFORN IA, Mir ant Californi a, LLC; MIRANT DELTA, LLC IRAN; MIRANT

POTRERO, L LC; PUGE T SOU

ND EN ERGY, Puget Sound Energy, Inc.; C ALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION; CALPINE CORPORATION; ENRON POWER MARKETING , INC.; CORAL POWER, L.L.C.; TRANSMISSION AGENCY OF NORTHERN

CALIFORNIA ; THE M-S-R PUBLIC POWER AGENCY; THE MODESTO IRRIGATION DISTRICT; CITY OF PALO ALTO; THE CITY OF SANTA CLARA; CITY OF REDDING; EL PASO MERCHANT ENREGY, L.P.; NORTHERN CALIFORNIA POWER AGENCY; CHILD PROTECTIVE SERVICES; CONSTELLATION ENERGY CO MMODITIES G ROUP, INC.; WILLIAMS ENERGY MARKETING & TRADING COMPANY; CITY AND COUNTY OF SAN FRANCISCO; PU

BLIC SERVICE COMPANY OF NEW MEXICO; CALIFORNIA ELECTRICITY OVERSIGHT BOARD; PEOPLE OF THE STATE OF CALIFORNIA; PEOPLE OF THE STATE OF CALIFORNIA; PACIFIC GAS A

ND ELECT RIC COMPANY; PPL

ENERGY PL

US; PPL MONTANA; PP L SOUTHW EST5

GENERATI ON HOLDI

NGS, LLC; SEMPRA ENERGY TRADING CORP.; AVISTA ENERGY, INC.; CITY OF LOS ANGELES; CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER; MARCIA HABER KAMINE; CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER; CITY OF TACOMA; PORT OF SEATTLE; PINNACLE WEST COS.; PUBLIC SERVICE COMPANY OF COLORADO; PORTLAND GENERAL ELECTRIC COMPANY; DYNEGY POWER MARKETING, INC., EL SEGUNDO POWER LLC, LONG BEACH GENERATION L LC, CABRILLO POWER I LLC, AND CABRILLO POWER II LLC (COLLECTIVELY, “DYNEGY”); CITY OF SAN DIEGO; CITY OF SAN DIEGO; PORTLAND GENERAL ELECTRIC COMPANY; CAL IFORNIA ELECTRICITY OVERSIGHT BOARD; CALIFORNIA ELECTRICITY OVERSIGHT

BOARD; PUBLI C UTILITIES COMMISSION OF NEVADA, Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.6

CITY OF SAN DIEGO, Petitioner, CALIFORNIA PUBLIC UTILITIES COMMISSION; CITY OF TACOMA; PORT OF SEA TTLE; SOU THERN CALIFORNIA EDISON COMPANY; CALIFORNIA ELECTRICITY OVERSIGHT BOARD; PEOPLE OF STATE OF CALIFORNIA, Petitioner-Intervenor, PINNACLE WEST CAPITAL CORPORATIO

N; ARIZONA

PUBLIC SERVICE COMPANY; MORGAN STANLEY CAPITAL GROUP, INC.; MERRILL LYNCH CAPITAL SERVICES, I

NC.; PUBLIC SERVICE COMPANY OF COLORADO; LONG BEACH GENERATION LLC.; CABRILLO POWER I LLC; CABRILLO POWER II LLC.; CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER; TRANSPORTATION AGENCY OF NORTHERN CALIFORNIA; THE METROPOLITAN WATER D ISTRICT OF SO URTHERN CALIFORNIA ; THE M-S-R PU BLIC POWER AGENCY; THE MODESTO IRRIGATION DISTRICT; CITY OF PALO ALTO; CITY OF REDDING; CITY OF SANTA CLARA; CITY AND COUNTY OF SAN FRANCIS CO; PPL MONTANA, LLC; PPL SOU THWEST GENERATION HOLDINGS, LLC; EL No. 01-71 544 FERC No.7

PASO MERCHANT ENERGY L.P.; SEMPRA ENERGY TRADING CORP.; AVISTA CORPORATION; AVISTA ENERGY, I

NC.; PPL ENERGYPLUS, LLC; PORTLAND GENERAL ELECTRIC COMPANY; EL SEGUNDO POWER LL C; LONG BEA CH GENERATION LLC; CABRILLO POWER I L LC; CABRILLO POWER II LLC; TRANSMISSION AGENCY OF NORTHERN

CALIFORNIA ; PUBLIC SERVICE COMPANY OF NEW MEXICO; ENERGY PLUS, LLC, ET AL; CALIFORNIA ELECTRICITY OVERSIGHT

BOARD; PUBLI C UTILITIES COMMISSION OF NEVADA, Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent, NORTHERN CALIFORNIA POWER AGENCY; PACIFIC GAS AND ELECTRIC CO MPANY; IDACO RP ENERGY L.P.; PACIFICORP; MIRANT AMERICAS ENERGY MARKETING, LP, MIRANT

CALIFORNIA , LLC, MIRANT DELTA, LLC, AND MIRANT POTRERO, LLC.; PUGET SOUND ENERGY; DYNEGY POWER MARKETING, INC., EL SEGUNDO8

POWER LL C, LONG BE ACH GENERATION LLC, CABRILLO POWER I LLC, AND CABRILLO POWER II LLC (COLLECTIVELY, “DYNEGY”); CORAL POWER, L.L.C.; CONSTELLATION ENERGY COMMODITIES GROUP, INC.; THE SALT RIVE R PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT; ENRON POWER MARKETING INC., Respondent-Intervenor.

POWEREX CORPORATION, Petitioner, M-S-R PUBLIC POWER AGENCY; MODESTO IR

RIGATION D ISTRICT (MID); CITY OF PALO ALTO; CITY OF REDDING; CITY OF SANTA CLARA; METROPOLIT

AN WATER DISTRICT OF SOUTHERN CALIFORNIA, Petitioner-Intervenor, AVISTA CORPORATION; CORAL POWER, L.L.C.; CONSTELLATION ENERGY CO MMODITIES G ROUP, INC., Inter

venors,

v. No. 02-70 254 FERC N os. EL -0095-0004

EL00-95- 0019

FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent, PACIFICORP, Respondent-Intervenor.

PACIFIC GAS A

ND ELECT RIC COMPANY, Petitioner, SOUTHERN CALIFORNIA EDISON COMPANY; PORT OF SEATTLE WASHINGTON; CITY OF TACOMA, WASHINGTON; NEVADA POWER COMPANY; SIERRA PACIFIC POWER COMPANY; CITY OF SEATTLE; AVISTA CORPORATION; CORAL POWER, L.L.C.; CONSTELLATION ENERGY CO MMODITIES G ROUP, INC.; PUBLIC UTILITIES COMMISSION OF NEVADA; TRANSALTA ENERGY MARKETING (CALIFORNIA), INC., Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, No. 02-70 266 FERC N os. EL 00-95-000

EL00-95- 000 ER01-607- 000 EL00-95- 017 EL00-95- 012 EL00-95- 031 EL00-95- 004 EL00-95- 00110

Respon dent, METROPOLIT

AN WATER DISTRICT OF SOUTHERN CALIFORNIA; NORTHERN CALIF. TRANSMISSION AGENCY OF NORTHERN CALIFORNIA

(“TAN C”); M-S-R PUBLIC POWER AGENCY; MODESTO IRRIGATION DISTRICT (MID); CITY OF PALO ALTO; CITY OF REDDING, CALIFORNIA; CITY OF SANTA CLARA; PACIFI CORP, Respondent-Intervenor.

CALIFORNIA ELECTRICITY OVERSIGHT BOARD, Petitioner, PORT OF SEATTLE; CITY OF TACOMA; PEOPLE OF THE STATE OF CALIFORNIA; CITY OF PASADENA; CITY OF SAN DIEGO; CA STATE ASSEMBLY, Petit

ioners - I ntervenor s,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent. No. 02-70 275 FERC N o. FERC -EL95- 00011

CITY OF SAN DIEGO, Petitioner, CORAL POWER, L.L.C.; CONSTELLATION ENERGY COMMODITIES GROUP, INC., Inter

venors, And SOUTHERN CALIFORNIA EDISON COMPANY; PORT OF SEATTLE; CITY OF TACOMA,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent, PACIFICORP, Respondent-Intervenor. No. 02-70 282 FERC N o. FERC -00-95-000

CITY OF OAK

LAND, CAL IFORNIA ACTING BY AND THROUGH ITS BOARD OF PO RT COMMISSIONERS, Petitioner, CORAL POWER, L.L.C.; CONSTELLATION ENERGY No. 02-70 285 FERC N o. FERC -00-95-00012

COMMODITIES GROUP, INC., Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent, PACIFICORP, Respondent-Intervenor.

SAN DIEGO GAS & ELEC TRIC COMPANY, Petitioner, CALIFORNIA ATTORNEY GENERAL, Intervenor, CORAL POWER, L.L.C.; CONSTELLATION ENERGY COMMODITIES GROUP, INC., Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, No. 02-70 301 FERC N o. 02-105813

Respon dent.

SOUTHERN CALIFORNIA EDISON COMPANY, Petitioner, PORTLAND GENERAL ELECTRIC COMPANY; DYNEGY POWER MARKETING INC,.; EL SEGUNDO POWER; LONG BEACH GENERATION LLC; CABRILLO POWER; CABRILLO POWER II LLC; MORGAN STANLEY CAPITAL GROUP, INC.; AVISTA ENERGY; PUGET SOUND INVESTMENT GROUP; THE CITY OF LOS ANGELES DEPARTMENT OF WATER A

ND POWE R; SEMPRA ENERGY; CALIFORNIA POWER AGENCY; MODESTO IRRIGATION DISTRICT (MID); METROPOLITAN WATER D ISTRICT OF SO UTHERN CALIFORNIA; EL PASO MERCHANT ENERGY L.P.; POWEREX CORPORATIO

N; CORAL POW

ER, L.L.C.; MIRANT AMERICAS ENERGY MARKETING, LP; MIRANT CALIFORNIA, LLC; MIRANT DELTA, LLC IRAN; MIRA

NT POTRERO , LLC; TRANSCANADA ENERGY LTD.; CITY OF TACOMA, Washington ; PORT OF SEAT TLE, Washing

ton, Inter

venors, No. 02-72 113 FERC N o. EL- 95-00014

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.

PACIFIC GAS A

ND ELECT RIC COMPANY, Petitioner, DYNEGY POWER MARKETING INC,.; EL SEGUN

DO POWE R; LONG BEA CH GENERATION LLC; ENRON POWER MARKETING, INC.; PUBLIC UTILITY DISTRICT NO . 1 OF SNOHO MISH COUNTY, WASHINGTON; ENRON ENERGY SERVICES, INC.; CALIFORNIA ELECTRICITY OVERSIGHT BOARD; PEOPLE OF CALIFORNIA ; CALIFORNIA PUBLIC UTILITIES COMMISSION; CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION; M-S-R PUBLIC POWER AGENCY; MODESTO IR

RIGATION D ISTRICT (MID); CITY OF SANTA CLARA; CITY OF REDDING ; CORAL POW ER; CONSTELLATION ENERGY COMMODITIES GROUP, INC.; POWEREX CORP; THE SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT; SACRAMENTO No. 03-73 887 FERC No. Federal Pow er Act15

MUNICIPAL UTILITY DISTRICT; SOUTHERN CALIFORNIA EDISON COMPANY; TU CSON ELECT RIC POWER COMPANY; PORTLAND GENERAL ELECTRIC COMPANY; PINNACLE WEST CAPITAL CORPORATIO

N; ARIZONA

PUBLIC SERVICE COMP ANY; PACIFICO RP; PUBLIC SERVICE COMPANY OF NEW MEXICO; NORT HERN CALIF ORNIA POWER AGENCY; TRACTEBEL ENERGY MA

RKETING IN C.; BP ENERGY COMPANY; AVISTA ENERGY; PUGET SOUND ENERGY; CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER; AVISTA CORPORATION; SEMPRA ENE RGY; EL PASO MERCHANT E

NERGY L.P .; IDACORP ENERGY; BP ENERGY CO.; WILLIAMS POWER CO MPANY, INC; PORT OF SEATTLE; TRANSCANADA ENERGY L TD.; EXEL ON CORP, Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.

SACRAMENTO MUNICIPAL UTILITY DISTRICT, No. 03-74 25216

Petitioner,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent. FERC No. Federal Pow er Act

STATE WATER CONTRACTORS; THE METROPOLIT

AN WATER DISTRICT OF SOUTHERN CALIFORNIA, Petit

ioners, TRANSCANADA ENERGY; CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION; POWEREX

CORP.; PACIFIC ORP; TUCSON ELECTRIC POWER COMPANY; PIN

NACLE W

EST CAPITAL CO RPORATION; P ACIFIC GAS AND ELECTRIC COMPANY; CALIFORNIA POWER AGENCY; PEOPLE OF THE STATE OF CALIFORNIA ; CALIFORNIA PUBLIC UTILITIES COMMISSION; POWEREX CORP.; SOUTH ERN CALIFO RNIA EDISON COMP ANY; CALIFO RNIA ELECTRICITY OVERSIGHT BOARD; WILLIAMS POWER COMPANY, INC.; M-S-R PUBLIC POWER AGENCY; MODESTO IR

RIGATION D ISTRICT (MID); CITY OF SANTA CLARA; CITY OF REDDING; CONSTELLATION No. 03-74 527 FERC N o. EL00 -95-08117

ENERGY CO MMODITIES G ROUP, INC.; CITY OF VERNON, Inter

venors,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.

MODESTO IR

RIGATION D ISTRICT (MID), Petitioner,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent. No. 03-74 531 FERC N o. EL00 -95-081

PEOPLE OF THE STATE OF CALIFORNIA EX REL. BILL LOCKYER, Petitioner, CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, Intervenor, No. 03-74 594 FERC No.18

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent.

CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER, Petitioner,

v. FEDERAL E

NERGY REG

ULATORY COMMISSION, Respon dent. No. 04-73 501 FERC No. Federal Pow er Act

On Petiti on for Rev iew of a n Order of the Federal Energy Regulator

y Com missio n Argued a nd Submitted Apr

il 13, 2005 San Diego, CA Filed Before: THOMA S, McK EOW N, and C LIFTO

N, Circuit Judges. Opinion by

Judge Sidne y R. Thom as1 We exp ress our a ppreciation to Lisa

Evans of t

he Ninth C ircuit Cou

rt of Appeals Mediation Unit; Cole Benson, Supervisor of the Ninth Circuit Procedural Moti ons Un it; Ce cilia Denni s, former ly with t he Nin th Cir cuit Staff At torn ey’s Office ; and our co lleague Jud ge Edwa rd Leavy for their extensive work wit

h the parties in organizing

judicia l mana

geme nt of the ca ses. W e also expr ess our apprecia tion to the pa

rties and t heir attor neys f or their c ooperation , profession alism , and the q uality of their p resentat

ions. 19 THOMAS, Circuit Judge: This case come s to us on peti tions for review of a series of orders issued by the Feder al Ener gy Reg ulatory Comm ission (“ FERC”) relating to the ener gy cri sis that occur

red in Cal ifornia in

2000 and 2001. Nearly

200 petitions for revi ew of the various FERC or

ders havebeen file d in our Cour t. We consolidate d these petitions f

or administrativ e ma

nagem ent. 1 On Novem

ber 24, 200 4, we is sued a conso lidated or der in this c ase separating certain issues for decision in

two consol idated proc eedings, t he first of which we term ed the “ Jurisdicti onal Case s”; the sec ond we ter med th e “Scope/Transactions Cases.” In the Jurisdictional Cases, we considered whether FERC’s refund authority e xtended to certain governmental entities. We hear d oral argum ents on Juri sdictional Cases on A pril 12, 20 05, and issu ed an opinion concernin g the Juri sdictio nal Cases o n September 6, 20 05. Bonneville Power Admin. v. FERC , 422 F.3d 90 8 (9th Cir. 2 005).20

The Scop e/Trans action Ca ses before us here involve numerous quest ions pertaining

to the proper scope of

FERC’ s refund or

ders, inc luding the appropriate temporal reach an d the type of tra nsaction s properly subject to the refu nd orders

. We hea rd oral a rguments on the Sc ope/Tra nsaction Ca ses on Apr

il 13, 2005. This opinio n covers th e issues p resented i n the Scope /Transactio n Cases. We gra nt in relie f in part a

nd deny relief in part. I

n general , we hold

that all the transactions at issue in this case that occurred within the California Power Exchange Corporat ion (“ CalPX” ) or Cali fornia In dependent S ystem Operato r (“C al-ISO ”) m arkets, or as a re sult of a C alPX or Cal-IS O transa ction, w ere the proper subj ect of the

refund pr

oceedings instituted by

FERC. Theref

ore, we deny the petit ions for re view that ch allenge FERC’s i nclusio n of such t ransactio ns; we grant the p etitions fo r review that chall enge FER

C’s exc lusion of suc h transac tions. We deny the petitio ns for re view that seek to exp and FERC ’s ref und proceedings into the bilateral markets beyond the CalPX and Cal-ISO mar kets. In particula r, we h old that FE RC proper ly exc luded from

the refu nd proceed

ings bilateral transac tions betw een the Ca lifornia E nergy Resource s Scheduling (“CERS”) Division of the California Department of W ater Resources and other entities that occur red outsi de the CalPX an d Cal-ISO markets.2 The Californ ia Parties co nsist of the People of the State of Californ ia, ex rel Bill Loc kyer, Attorney

General; the Publi c Utiliti es Com missio n of the St ate of Californ ia; the California E lectrici ty Oversight Boa rd; Paci fic Gas and Elec tric Compa ny, an d So uth ern Cali forn ia Ed iso n Co mpany. 21 We hold t hat FERCproperly

establishe d October

2, 2000 as t

he refund effective date fo r the § 206 pr oceedings, rather t

han October 29, 2000, as argued by some p arties. Howeve r, we h old that FE RC erre d in excludin g § 309 relie f for tariff v iolations tha

t occurre d prior to O ctober 2, 2000. W e reser ve consider

ation of all othe r issues ra

ised in the v arious petitions for r eview fo r the next p hase of our appella

te procee dings. The net effect of our decision is to preserve the scope of the existing FERC refund proceedings, but to expand those refund proceedings to include: (1) tariff violations th at occurr

ed prior to October

2, 2000, ( 2) transa ctions in the CalPX a nd Cal-IS O ma

rkets that occurre d outside the

24-hour per

iod specif ied by F ERC, a

nd (3) energy excha nge trans actions i n the CalPX an d Cal-ISO markets. I Part ies and C lai ms With tha t brief sum

mary of the issue s, we tu

rn to the spe cific cl aims of the parties. The Sta

te of Cal ifornia a

nd severa l interven ors (colle ctively , “t he California Parties”) 2 seek revi ew of a n umber of FERC ’s deci sions, nam ely: ( 1) FERC’s denial of relief for sale s of electricity made at unjust rates prior to October3 This group consists of Powere x Corp.; A

vista Ene rgy, Inc.; C onstellati on Energy Comm odities Gr

oup, Inc. ; Coral P ower, L .L.C. ; Exelon C orporation on beh alf o f Exe lon Gene rati on C ompan y, LLC; PECO E ner gy Co mpany; Comm onwealth Edison Company; ID ACORP Energy LP; Portland General Electric Company ; PPL EnergyPlus, LLC; PPL Montana, L LC; Public Service Compa ny of N ew Mexic o; Puget So und Energy , Inc.; Sem pra Ener gy Tr ading Corp.; TransAlta Energy

Marketing (CA), Inc.; Tra nsAlta Energy Marketing (US) , Inc.; and Tucs on Electric Po wer Company. 22 2, 2000, th e refund e ffective date set by

FERC; ( 2) FERC ’s denial of relie f for energy sales in which CERS w as the purchaser; (3) FERC’s ref usal to order relief for ener gy exc hange tra

nsactions; a

nd (4) FE RC’s refusal to o rder re lief for certain forward market tran sactions

. A group of energy suppliers and generators called the Com petitive Suppliers Group 3 also petiti ons for re view of several of FERC’ s decisions, name ly: (1 ) FERC’s decision to set the refund effective date at O ctober 2, 2000, rather than October 29, 2000; (2) FERC’s order of re funds for transactions that took place during non-emergency hours, and (3) F ERC’s inclusion of certain out-of-ma rket transacti ons in it s refund pr oceeding s. The Port of Oakla nd, along w ith other pe titioners a nd interven ors, peti tions for review of FE RC’s de cision to ex clude cer tain bilateral tran sactions f rom i ts refund order.4 This group consists of munic ipal entiti es, inclu ding the Mode sto Irriga tion District , the Cit

y of L os Angeles Departm ent of W ater and P ower, t he Sacra mento Municipal Utility District, the City of Redding, and the State Water Contractors/The Metropolitan Water District of Southern California (w hich represe nts 27 of the29 Califor nia public entities tha

t provide sub stantial f

unding for the California Department of Water Resources’ operation of the State Water Project). 23 Also befo re us in this case are the Publi c Entitie s’ 4 and the Bonneville Power Administration’ s petitions f or review of FERC ’s dete rmina

tion that it had authori ty to o rde r rel ief f

or ce rtai n tr ans acti ons kno wn as “slee ve” and “multi -da y” transactions, as well as transactions occurring under § 202(c) of the Federal Power Act. T he Califo rnia Par

ties have m

oved to stri ke, and E l Paso Mer chant Energy Compa ny has m oved to defer, consid eration of the argum

ents until th e next phase of our con sideratio n of the FERC o rders. II Factual Background During the

mid- 1990's, F ERC bega

n examining wheth er the w holesale electric power ind

ustry s hould have be en restru ctured an d deregula ted to sepa

rate generati on, trans missio n, and dist ribution fun ctions. G eneratio n involves the production o f power through a va riety of me ans. Tr

ansmi ssion generally r

efers to the convey

ance of hi gh voltage e lectric power fr om the points of generation t o substations for conversion to delivery voltages. Distribution refers to the delivery24

of the converted low v oltage energy f rom su bstations to i

ndividual co nsume rs. The theory behind separating these functions, known as “unbundling,” was that wholesale

power co mpeti tion would be promo ted, and c onsume rs would benefit, i f public utili ties were require d to provide nondiscrim inatory , open ac cess, transmissio n. See Prom oting Whol esale Com petition Through Ope n Access Non-Dis criminatory

Transm ission Ser vices by Public Ut

ilities, 60 Fed. R

eg. 17,66 2 (proposed A

pril 7, 199 5) (codif

ied at 18 C. F.R.§ 3 5.0 et. seq. ). This examination culminated in the

issuance o f FERC Order N o. 888 in 1996. Order N o. 888, Prom oting Whol esale Com petition Through Nondi scrim inatory Transm ission 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 F.E.R.C. ¶ 61,046 (Jan. 20, 19 98), aff’d Transmis sion Access Policy Stu dy Group v. FERC , 225 F.3 d 667 (D. C. Cir. 2000) (per curiam), aff’d su b nom. New Yo rk v. FERC , 535 U.S. 1 (2002). Am ong other provisions, FERC O rder No. 888 included a series of regula

tions that pr

ovided for the crea tion of com

petitive m

arkets fo r wholesale elect ric powe r, includ

ing the creation of independ ent regiona

l transm ission com

panies that

would allo w the development o f a competitive e lectric tran smission market.25

Prior to t hese event s, the California e lectrici ty market wa s comp osed of investor-o wned utili ties, w hose generation, transmi ssion, and d istribution of electricity were ver

tically integrated and regulated by the California P ublic Utilities Comm ission (“ CPUC”) , the sta

te agency charged with regula

ting retai l electr

icity rates. Cal. Pu

b. Util. Code § 451. The CPU C set ret ail elec trical rates char ged by the inves tor-owned utiliti es provid ing servi ce in exclu sive servi ce territori es. There a re three maj or investor -owned uti lities in C alifornia : Pacifi c Gas and Electric Company

(“PG&E ”), Southern California Edison Company (“Edison”), and San Dieg o Gas and Elect ric Company (“SDG&E”) . In respon se to FERC Order No . 888 and en ergy problems in 19 95, the CPUC and the Ca lifornia l egislature com menc ed initiatives to rest ructure t he Califo rnia electric energy industry . The aim w as to conver t Califor nia’s in vestor-ow

ned, regulate d utilities, to a dere gulated m arket, i n which the

price of electri city w ould be established by competition, and consum ers could select their electrical power supplier. The theory was that com petition would lead to better service and a price reductio n for consu mers. Toward this end, the Cali fornia leg islature e nacted Asse mbly Bill 1890 (“AB 1890”). Act of September 23, 1996, 1996 Cal. Legis. Serv. 854 (codified at Cal. Pub. Uti l. Code §§ 330-398.5) . The deregulation was to proceed in se veral pha ses,5 The California legislature recognized that the transition to a deregulated

market would le ave the inv estor-ow ned utilitie s with som

e unrecoverable “stranded costs .” “ Stranded costs” are those cos ts, gener ally a ssociated with facility construction, that c annot be re covered be cause eit her the ch arged ra

te is insuffici ent to cove r the costs or the util ity ca nnot sell en ough power . In the c ase of sales m

ade pursua

nt to the dive stiture r equirements, re coverable stranded c osts meant the differe nce between t he sales pr ice and the book val ue of the as sets. During the

transition

to a dere gulated m

arket, t he investor -owned uti lities were to recover certain stranded costs through individual cost-recovery plans, whichprovided that rates would be frozen for a period of time to allow the investorowned uti lities to generate su fficient p rofits to recover thei r stranded costs. 26 beginning with the deregulation of the wholesale electricity mar ket. After a transition period during which the investor- owned utili ties were to recov er their “stranded costs ” through f ixed price s for ele ctricity , the re tail m arket wa s to be deregulat ed. 5 Under AB 1890, the maj or investor-owned, vertically integrated utilities

were required to divest a subs tantial por tion of thei

r power generati on plants, including fo ssil fuel generation pl ants (but e xcluding hydroelect ric fac ilities and nuclear power plants), to unregulated, non-utility producers. This divestiture was accomplished by a process of m arket valuation, based on a discount of projected future reve nue streams. See Order I nsti tuti ng Ru lemakin g on C ommissio n’s Proposed Policies Governing Restructuring California’s Electric Service Industry and Refor ming R egulation, 64 CPUC 2d. 1, 1995 WL 7920 86 (Dec. 20, 1995)27

(“C PUC De cision 95-12 -063”). Between 1998 and 1999, 22 electr ical gene ration plants were sold. After divesting the bulk of their generation assets, the investor-owned utilities w ere required to sel l all of the ir remaining output to CalPX , a nonprof it wholesale clearinghouse created by AB 1890. CalP X was to provide a centralized auction m arket for trading el ectricit

y. I t was dee med a

public utili ty purs uant to the Federal Power Act , see 16 U.S. C. § 824(e ), and thu s subject to regulat

ion by FERC, see 16 U.S.C. § 824(b), (d). It operated pursuant to a FERC-approved tariff and FERC whole sale rate sch edules. Pacific Gas & Elec. Co., 77 FERC ¶ 61,204 at 61,803 -05, (1996 ), reh’g denied , 81 FERC ¶ 61,122 (1997). The investor-owned utilities w ere required to pur chase all of elect rical energy tha

t they required

from the CalPX markets and to conduct all of their sales through the CalPX m arket. Part of the under

lying th eory w as that the

investor- owned utili ties could n ot exerci se market power

in a single transparent ma rket, ei ther as a buyer or a selle r, beca use prices would be posted and all market participants would be paid the same price. CalPX c ommenced oper

ations in 1998 . Initia lly, it operate d only a single price auc tion for its “spot markets,” de fined as “ sales that are 24 hour s or less a

nd that are entered into the day of or day prior to delivery.” San Diego Gas & Elec. Co., et . al. , 95 FER

C ¶ 61,418 at 62,545 ( “June 19, 2001 Or

der”). The pric e in the28

CalPX spot market was determined by evaluating bids submitted by market participa nts. As w e describ ed the proc edure in Public U tility Di st. No. 1 of Snohomish County v. Dynegy Power Marketing, Inc. (“Dy negy”) , 384 F.3 d 756, 759 (9th Cir. 2004): A seller could subm

it a serie s of bids tha

t consisted of price- quantity pairs rep resenting offers t o sell (e. g. 5 units a t $50 each, but 10 units if the price is $100 eac h). Sim

ilarly , a buy er could su

bmit a series of bids tha t consis ted of pric e-quanti ty pairs represe nting of fers to buy. The PX would then establish aggregate supply a nd dem and curves and set the “market clearin g price” at t he interse ction of t he two curve s. Once the mar ket clear ing price h ad been es tablished, “every exc hange woul d take place at the market clear

ing price, even though some buyers had been willing to pay more and some

sellers had been willing to sell for less.” Id. The CalPX spot market, or “core m arket” as it is sometim es called, consisted of: (1) “ day-a

head” trading, in w

hich the m

arket cle aring pric e was der ived from the sellers’ and buy ers’ pr

ice and qua

ntity de terminations for

the next da

y’s energy transact ions and (2) “day

of” or “ hour-ahead” trading , in whic h CalPX would determine on an hourly basis, a single m arket clearing price which all suppliers would be paid. Purc hases m ade in the C alPX spot mar ket were deem ed by C PUC to be “prudent per se.” See CPU C Decisi on 95-12-063 , 1995 WL 7920 86 at *26 -*27.29

In practice, t he CalPX spo t market generate d consid erable price uncertain ty. Theref ore, CalPX star

ted a divisi on, term

ed CalPX Trading S ervices ( “CT S”), to operate a block forward mar ket by matching supply and demand bids for long term electric ity m

arkets. In 1999, C alPX al lowed theinvestor- owned utili ties to purc hase only a limited percentage of their combined load in the CTS forward m arket. They were required to purchas e the balan ce of their l oad in th e CalPX spot market

. AB 1890 created ano ther nonpro fit entity , the Inde pendent Sy stem Operato r (“C al-ISO ”), als o subject to FERC jurisdic tion, whi ch was to b e responsib le for

managing Calif

ornia’ s electr

icity transm

ission grid a

nd balancin g electri cal supply and dem and. Alt

hough the inve stor-owne d utilities c ontinued to ow n the transm ission fac ilities, Cal-IS O exerc ised opera tional contr

ol over the

grid. The Cal-IS O grid inc luded the tr ansmi ssion sy stems of PG&E , Edison, SDG&E , and the cities of Vernon, Anaheim , Banning, and River side, Ca lifornia. To m aintain the grid, Cal-ISO w as authori zed to procure both energy ne eded to bal ance the g rid (“im balance energy”) and operating reserves (som etimes referred to as “ ancillary services ”). Th e imba

lance energy m

arket is t he so-cal led “ real tim

e” m arket, i

n which bids to supply

energy were to be ma de no later than 45 m

inutes prior

to the operating hour. Cal-ISO would rank the supply bids and purchase the required energy at the market-c learing pr ice. Cal-ISO w ould then bill CalPX f or electr icity it30

required. CalPX would, in turn, bill the investor-owned utilities, who were f orced to pay w hatever p rice that

Cal-IS O paid its suppliers, even though t hat price might have exce eded wha

t the utilities could ha

ve charge d their con sumer s as a consequ ence of the ret ail price free ze. Because Cal-ISO was responsible for ensuring that all electricity demand was met, Cal-IS O was required to buy energy out side the CalPX m arket to m ake up the energy shortfall if seller s in the Cal PX m arket were unableor unwilling to provide enough supply to meet California’s dem and during a particular period. Cal-ISO acquired operating r

eserves, constituting

capacity that could b e convert ed to ener gy and deliver

ed to the gr

id in respons e to unexpec ted events, such as pow er outage s, from ancillar y ser vices suppli ers who w ould agree to reser ve capac ity dur

ing the specified period. The ancillary suppliers would agree to supply the required electric ity dur

ing the spec ified per

iod on demand from

Cal-IS O, and w ere to be paid regardle ss of whet

her their capacity was used. All of the se operat ions were to be governed by a tariff and pro tocols fi led with FERC. As we now

know, som

ething happened on the w ay to t he trading forum , and the best laid regulat ory pla ns went as tray. The plan to establis h a com petitive market, whil e keeping t

he exerc ise of monopoly a nd monop sony pow er in chec k, failed to account for

energy econom ics and the

sophisticat

ion of m odern ener

gy31

trading. As beca

me c lear in hin dsight, even those who controlled a relatively sm

all percentage of the market had sufficien t market power to s kew markets artifi cially. In short, the old assu

mptions , based on antitrust t heory , that m

arket pow er could not be exercised by those who possessed less than 20% of the market share proved inaccurate in Californ ia’s energy market. With the new struc ture, over 80% of th e transac tions were being made in the spot markets – the converse of most other elec tricity ma rkets, in which more than 80% of tra

nsactions a

re m ade through

long term

forwar d contrac ts, lendin g stability to the m arkets. Sellers quickly learned t hat the California spot ma rkets coul d be manipulated by withholding power from the market to create scar city and then dema nding extre mely

high price s when sca

rcity was proba

ble. Th e energy

mar ket is highly dependent upon weather; heat waves or cold snaps inevitably produce demand. Thus, it wa s quickly apparent to sellers that there was little risk and great profit in withholding capacity when high demand was anticipated based on weather forecas ts. In addition, traders soon d eveloped ot her purel y art ificial m eans of market manipulation, such as shutting down power plants when electric demand was high in order

to destabil ize the e lectric grid, and to increa se prices . In order to maxim ize profi t, trade rs engage d in anom alous bidding practice s, including “hockey-st

ick bidding, ” in which

an extrem

ely hig h price is dema

nded for a

smal l32

portion of the market, and “ round trip trades,” in which an entity artificially creates the appea rance of increase d revenue and dem and through c ontinuous sale s and purchases

. Enro n Co rpo rati on a lle ged ly ga med th e Cal ifo rni a mark ets with impu nit y, using manipulative corporate strategies, such as those nicknamed “FatBoy,” “ Get Shorty ,” and “Death St ar.” U nder the “ Death St ar” stra

tegy, Enron all egedly

sought to be paid f

or mov ing energy

to relieve

congestion without actua lly m oving any energy or relie ving any

congestion. All of the

dema nd was created ar

tificial ly and frau dul ent ly, cr eati ng t he a ppe aran ce o f con ges tio n, an d th en s ati sfi ed a rti fici all y, without the

compa ny prov iding any

energy . “F atBoy ” refer s to a stra tegy th rough which En ron allege dly wi thheld prev iously agreed-to deliverie s of power to the forward market so t hat it cou ld sell th e energy at a high er price on t he spot market. The com pany w ould over-s chedule it s load; supply only en ough power

to cover th e inflated schedule, and thus, leave extra supply in the mar ket, for which Cal-ISO would pay

the com pany. Via the “ Get Shor

ty” st rategy , trader s were a

ble to fabrica te and sell

operating reserve s to Cal-I SO, re ceive pay ment, then canc el the schedules and cover their commitments by purchasing through a cheaper market closer to t he time of deliv ery.33

The California Parties allege that Enron was not alone and that other entities engaged in fraudulent power scheduling to serve false load schedules and adopted other m anipulative

strategie s. Beginning in

May 20 00, ener

gy pric es in Calif

ornia bega

n to escala

te dram atically . Low c ost hydr oelectri c power f

rom t he Northw est was no t availabl e in the volum

e of previ ous yea

rs, and w holesale e lectrici ty pri ces sky rocketed, particula rly in the CalP X spot m arkets. In May 2000, the a

verage pr ices in the CalPX spot market were double those of Ma y 1999. On June 14, 2000, energy consumer s in Northern California experienced their first wave of rolling blackouts. The California Parties allege that this occurred because of

mar ket ma nipulation. They

claim that the da

ta indicat es that the

large Californ ia genera

tors utiliz ed econom

ic or phy sical wi thholding strategies 94% of the time durin g the May throu gh November 200 0 period. Under its operating procedures, Cal-ISO would declare a “Sy stem Emergency ” when its operating reserve s dipped belo w a prede termined perc entage of its proj ected dem

and. W henever r eserves in Califor

nia fell be low seven percent, the ISO declared a “ Stage 1 System Emergency .” June 19, 2001 Order, 95 FERC ¶ 61,418 at 62,546. The hours during whi ch Cal-I SO decla red a sy stem- wide emergency

are also called “reser

ve deficiency hours.” San Diego E lec. Co. , et. al

. ,6 A brownout occurs when power is not lost completely , but is provided at

reduced vo ltage leve ls. 34 97 FERC ¶

61,275 at 62 ,246 (2001) (“D ecem ber 19, 200 1 Order” ). Dur ing the

summ er of 2000, high tem

perature s and lack o f supply forced t he Cal-I SO to declare system emergencies 39 times. See San Diego E lec. Co. , et. al

. , 93 FERC ¶ 61,121 at 61,353 (2000). In addition to blackouts , brownou ts, 6 and sys tem e merg encies, the crisi s proved enor

mously expensive to purchase rs of ret ail power , who were unableto pass along th e increa sed cost to t heir consum

ers. In June 2000, C alifornia

spent

more on purchasing energy

than in the entire sum

mer of 1999. T

his increa se

occurre d despite th e fact th at peak de mand w as lower in 2000 than in

1999. The California investor-owned utilities, who were still subject to the price freeze that was suppose d to lock in th eir profi ts, lost bil lions of dolla rs. Cooler weather in the fall did not

cool price s. Pric es continue d to escala te throughou

t the last q

uarter of 2000. In August 2000, SDG&E filed a com plaint under § 206 of the Federal Power Act, 16 U .S.C. § 824e(a) , against all selle rs of ener

gy and a ncillary services in the CalPX a nd Cal-IS O ma

rkets. S DG&E requeste d that FE RC im pose a pric e cap on35

sales into those markets. Other parties, including PG&E and the State of California, joined the complaint. On August 23, 2000, F ERC issue d an order denyin g the relie f request ed by SDG&E , but dete rmining that it w as appropr iate to inve stigate the

justness and reasonabl eness of th e rates for all sales in th e CalPX and Cal- ISO markets. San Diego Ga s & Elec. Co., e t. al. , 92 FERC ¶ 61,17 2(2000) ( “August 23, 20 00 Order”). Therefore, it es tablish ed its own i nvestig atory proceedi ng in FERC Dock et Nos. EL00-95 and EL00-98 (“the Remedy Proceedings”). The A ugust 23, 2000 Order establishe d October

29, 2000 as the refun d effect ive date, which wa s determ ined by calculating the date sixty days after publication of notice of the order in the Federal Register. Id. at 61,608. On Novem

ber 1, 2000 , FERC issued an or der proposing structur

al change s to the operat ion of th e CalPX and Cal- ISO markets. San Diego G as & Elec. Co., e t. al., 93 FERC ¶

61,121 (200 0) (“

Novem ber 1, 2000 Order” ). In the Novem ber 1, 2000 Order , FERC concluded t hat: [T]he electri c ma

rket struc ture and m

arket rul es for w

holesale s ales of electric energy in Califor

nia are s eriously

flawed and . . . these structure s and rules , in conj unction wit h an im balance o f supply

and demand in California, have caused, and continue to have the potential to c aus e, un

just and unr eas ona ble rate s fo r sh ort -ter m ener gy (Da yAhead, Day- of, Ancillary Ser vices and real-time energy sales) under certain c onditions.36

Id. at 61,349. FERC c oncluded tha

t there w as “c lear evid ence” tha t sellers could “ exercise market power

when supply

is tight” a

nd produce “

unjust and

unreasona

ble rates ” for wholesale p ower sales. Id. at 61,349 -50. The Nove mber

1, 2000 Or

der propose d, effe ctive sixty days a fter thedate of the order , to (1) e limina

te the re quirem ent that the investor- owned utili ties buy and sell powe r exclusiv ely thr ough the Cal PX; (2) require market partic ipants to schedule 95 percent o f their tr ansactions in the day -ahead m arket or be subjec t to a penalty charge; ( 3) replac e the exist ing CalPX

and Cal-I SO stake holder boar ds with independent

non-stakeh older boar

ds; and (4) require the filing o f genera tor intercon nection p rocedures. In addition to ordering structural and rule changes, FERC ordered an evidentiar

y hear ing to deter

mine t he appropr

iate ref und. At th e behest of

the Californ ia Parti es, FE RC change d the ref und effec tive date f

rom O ctober 29, 2000 to Octobe r 2, 2000, based on the filing of t

he SDG& E com

plaint. F ERC also limit ed the ref

und to Cal- ISO and C alPX spot mar ket transa ctions com

pleted duri

ng the period from October 2, 2000 through June 20, 2001 (hereinafter referre d to as the “Refund Period”).37

Emergency

conditions c ontinued fol lowing the issuance of the Novem

ber 1, 2000 Order, requiring Cal-ISO to serve increasingly larger portions of its load through the r

eal time imba

lance energy m

arket and depleting C al-ISO ’s operating reserves. As a result, Cal-IS O proposed changes to its tariff, which FERC approved in an order dated December 8, 20 00. Cal. Inde p. Operat

or Corp. , et. al., 93 FERC ¶ 61,239 (2000 ). Oneprovision of this order

lifted the Cal-IS O price caps, w ith the goal of att racting more su pply into th e auction markets. On December

15, 2000, F ERC issue d an order substantial ly adop ting the remedies propo sed in th e November 1, 2000 Order. San Diego G as & Elec. Co., e t. al. , 93 FER

C ¶ 61,294 (2000) (“Decem ber 15, 200 0 Order” ). The Decem ber 15, 2000 Order

attem pted to red

uce the re liance on s pot ma rkets by terminating CalPX’ s wholesa le rate s chedules, thereby elim inating the requirem ent that the investor-o wned utili ties buy and sell al l generat

ion through C alPX. CalPX s ought a writ o f mandamus from our Court chall engi ng th e Decembe r 15, 2 000 Or der’s prohibition o f the inves tor-owne d utilities’ selling pow er on a volu ntary basis in the CalPX m arket and the term ination of t

he wholesa

le tarif f. The City o f San Di ego also challenged the December 15, 2000 Order by writ of mandate, a

rguing that FERC ha d unreasona

bly del ayed t aking acti on on the purc hasers’ requests f or38

refunds. We den ied thos e petitio ns on April 11, 2001. In re Cal. Power E xch. Corp. , 245 F.3d 11 10 (9th Ci r. 2001). On December

26, 2000, Edison filed a suit against FERC, alleging that it had failed in its responsib ility t o ensure th at wholes ale elec tricity was sold a

t reasona ble rates. The CalPX m arket began to collapse and the investor-owned utilities were fast becoming insolvent. On January 17, 2001, the Governor of California declared a State o f Em ergency

and ordered the Cal ifornia D epartment of W ater Re sources to purchase en ergy on behalf o f Californi a consumers to h alt the rol ling bla ckouts. Subsequently, t

he Califo rnia legis lature on F ebruary 1, 2001 ena cted Asse mbly Bill 1 of the 2001-2002 First Extraordinary Session authorizing the Department of W ater Resource s to purcha se power until Dec embe r 31, 2002. Cal. W ater Code § 80000, et. seq. Following the Governor’s declaration, CERS began buy ing power on January 18, 2001. E

nergy sellers be gan refus ing to sell to Cal-IS O, and in stead sold di rectly to the investor-owned utilities and CERS through bilateral contracts. Most sales after Ja nuary 18, 2001 were m ade direc tly to C ERS, r ather tha n through CalPX or Cal-IS O. Cal PX cea sed ma rket operations on Jan

uary 3 0, 2001 and f

iled for protection

under Cha

pter 11 of t

he Bankrup tcy C ode on Marc h 9, 2001. The39

California Parties allege that from January 18, 2001 to June 18, 2001, CERS purchased

more than $5 billi on of ener

gy in the spot ma rket. On March 1, 2001, the California Electricity Oversight Board (“Cal-E OB”) filed a m otion with F ERC, a sking FER C to clar ify th at the Rem

edy Pr oceedings included CE RS transactions outsid e of the C alPX and Cal-IS O ma

rkets. The CalEOB con tended that

the seller s that had m

anipulated

the m arkets w ere now c harging the sam e or higher

rates fo r the CE RS sales. On Marc h 9, FER

C issued an

order est ablishing a provisional form ula governin g refunds during t he January 200 1 period. San Diego G as & Elec. Co., e t. al. , 94 FERC ¶ 61,245 (2000) (“Ma rch 9, 2001 Order”). The order direc ted wholesale

sellers t o provide refunds or, alternat ively, to justif

y their charges a

nd costs for t ransacti ons ma de during pow er emergencie s that wer e above a r

ate it calculat ed as appr

opriate. FERC e stima

ted that approxim ately

$69 mil lion in January 2001 electricit y sales would b e subject to refunds. On April 6, 2001, P G&E fi led a volunta ry pet ition in bankr

uptcy p ursuant to Chapter 11 of the Bankruptcy Code. Although Edison and SDG&E w ere in similar financial peril, they avoi ded bank ruptcy filing s throug h arrangements wi th credito rs.40

On April 26, 2001, F ERC issue d an order establishing a prospec tive mitiga tion and monitoring pla

n for whol esale pri ces through the real timemar kets operated b y Cal-ISO. San Diego G as & Elec. Co., e t. al. , 95 FER C ¶ 61,115 (2001) (“A pril 26, 20 01 Order

”). Th e April 26 , 2001 Or der estab lished a pr

icing mech anism

for sale s by California g enerator s made to Cal-I SO when

reserve s fell below seven percent . The or der also e stablished c onditions, including re fund liability , for m

arket-ba sed rate authority with the go al of pre venting anti

compe titive bidding behavior in the real time

Cal-IS O ma

rket. On June 19, 2001, FE RC issued a n order re affirm

ing that “ as a result of the seriously flawed electric

mar ket struct ure and rules for w

holesale s ales of e lectric energy in Califor

nia, unj ust and unre asonable r ates wer e charge d, and coul d continue to b e charge d during cer tain tim es and under

certain conditions, unless certain t argeted r

emed ies wer e impl emen

ted.” June

19, 2001 Or

der, 95 F ERC at ¶ 62557. The June 1 9, 2001 Or

der im posed price

caps on all

spot ma rket sale s from June 20, 200 1 through Se ptemb er 30, 2002 , and im posed a “ must- offer” obligation on generators to prevent them from withholding supply. The prospective price mitigation plan applied to all sellers that voluntarily sold power into the Cal-ISO and other designated spot markets, or that voluntarily used Cal-ISO’ s or other41

interstat e transm

ission fac ilities subj ect to FE RC juri sdiction. According to the Californ ia Parti es, the e ffect of the June 19 O rder wa s to put an en d to the roll ing blackouts, catastrophically high price s, and nea

r-continuo us power e merg encies. On July 12, 2001, t

he Adm inistrativ e Law J

udge (“ALJ”) issued a re

port and

recom menda tion to FER

C regard ing a ref und me thodology

to govern sales during the Refund Period. San Diego G as & Elec. Co., e t. al. , 96 FERC ¶ 63,00 7 (2001). In response

to the repo rt and re comm endation, FERC is sued an order on July 25, 2001 in the Refund Proceedings establishing the framework for refunds of past sales in the sp ot markets oper ated by CalPX and C al-ISO. San Diego G as & Elec. Co. et. al. , 96 FERC ¶ 61,120 (2001) (“July 25, 2001 Order”). FERC ordered lim ited refunds for the rates it had determined to be unjust and unreasonable and established a mitigated market cle aring pric e (“ MMCP”) in an attem pt to replic ate what

it believed t o be the j ust and rea sonable ra tes that an

unman ipulated c ompetitive energy m arket would have produced. Under the MMCP m ethodology, refunds were to be deter

mined by the differe nce betw een the m arket cle aring pric e, whic h was the price charged by all electricity suppliers at a given time, and the MMCP calculated for each hour of the

Refund Period, subj ect to ce rtain adj ustme nts. FE RC also ordered a n evidentia

ry hea ring to cal culate the

appropria

te MMCPs for eac h hour of the Refun d Period a

nd the am ount of ref

unds owed.42

However, FERC declined to order re fund relief for sales that occurred before the Refund Period, or fo r any sales out side of th e CalPX and Cal- ISO markets. FERC a lso exclude d transac tions of m ore than tw enty- four hours in length, even if those sal es were made in the Ca lPX and Cal-ISO market s within t he Refund Pe riod. The Cali fornia Pa

rties cont end that re funds for s ales prior to the Ref

und Period would total $2.3 billion in seller overcharges; that refunds for emergency purchases made by C ERS would total $3.5 billion in seller overcharges; and that other improperly excluded transactions would am ount to over $200 million in seller overcharg es. On December

2, 2001, E

nron Corpor

ation file d a voluntar

y petit ion in bankruptcy under Chapter 11 of the United States Bankruptcy Code. On December

19, 2001, F ERC issue d another or der addre ssing m itigation of the Califo rnia spot market prices and conditi ons. Decem ber 19, 200 1 Order, 97 FERC ¶ 61,275 , et. seq . The order clarified that the price m itigation plans applied to all sale s into the FERC-regulated spot m arkets an d provided f

urther ex planation for why FERC chose October 2, 2000 as the refund effective date. FERCissued an order denying rehearing o f the December 19, 20 01 Order on M ay 15, 2002. On February 13, 2002, FER C opened a non-public investigation (“FERC Enforce ment P roceeding ”) pursua nt to 18 C.F .R. § 1b. 1 et. seq. into seller market43

manip ulation of t

he energy mar kets in the Western U

nited Stat es. Fac t-Finding Investigation of Potential Manipulation of Elec. & Natural Gas Prices, 98 FER C ¶ 61,165 at 61 ,614 (2002) . FERCnoted that allegations had been m ade in the Enron bankruptcy that Enron had used its market position to distort electric and natural gas markets. FE RC direc ted its staf f to investi gate “whether

any e ntity, including E

nron Corporati on (through i ts affili ates or sub sidiaries ), m anipulated short-ter m pri ces in electric energy or natural gas m arkets in t he West or otherw ise exerc ised undue influence over whol esale pri ces in the West, for the period

January 1, 2000, forward.” Id. In June 2002, some of the Cal ifornia P arties m oved this Cou

rt for pe rmiss ion to presen t additio nal evide nce of market manipul ation in the Remedy Proceeding s. FERC opp osed the m

otion. On

August 21, 2002, wedirected FERC to allow the parties to present e vidence of mar ket ma nipulation in

the Remedy Pr

oceedings, to reconsider its earlier orders denying relief, a nd to provide to the Court supplemental findings of fact and a

ny rec ommended m odificati ons to FER C’s ord ers on the b asis of such ne w evidence. On Marc h 20, 2002, the State of Calif ornia, th rough its A

ttorney General, filed a c omplaint allegin g that gene rators an d mar keters se lling power

into ma rkets operated by Cal PX and Ca l-ISO, as well a s those m aking spot m arket sal es of44

energy to CERS , violate d § 205 of the Federal Power A ct by f

ailing to co mply

with various fi ling requiremen ts. Thecompl aint also c hallenged F ERC’ s approval of market-based tariffs. On May 31, 2002, FERC dism issed the complaint as constituting

a collateral atta ck on prior FERC or ders and de nied the co mplaint with respect to the alleg ations that FERC’ s mar

ket-base d rate fi ling requiremen ts violated the Federal Po wer Act as a matter of law. State of Cal ifornia ex. rel. Lockyer v. B. C. Pow er Exch. , et. al

. , 99 FER C ¶ 61,247 (2002) (“May 31 , 2002 Order”). California filed a petition for review of the May 31, 2002 Order. In Dece mber

2002, the A

LJ deter mined that suppliers owed a

pproxim ately $1.8 billion

to Cal-I SO and Ca

lPX for sales at r ates in exc ess of a j ust and reasonabl e rate. San Diego G as & Elec. Co., e t. al. , 101 FERC ¶ 63,0 26 (2002 ). FERC adopted in part, and modified in part, the A LJ’s proposed findings in an order issued Ma rch 26, 200 3 Order, 2003

. San Diego G as & Elec. Co., e t. al. , 102 FERC ¶ 61,317 (2 003) (“March 26, 2 003 Order”). In its Mar ch 26, 2003 O rder, F ERC stat ed that it w ould not alte r any of its previous or

ders in the

Rem edy Pr

oceedings c oncerning t

he tim e or tran saction limitations in light of the evidence presented to the ALJ. This position was reaffirmed in subsequent FERC order s on October 16, 2003, which also clarified some refund calc ulation issues. San Diego G as & Elec. Co., e t. al. , 105 FERC ¶45

61,066 (2003 ); San Diego G as & Elec. Co., e t. al. , 105 FERC ¶ 61,0 65 (2003 ). Subsequently, F ERC issue d a num ber of ord ers perta

ining to cal culation of

refunds during t he Refund Pe riod. San Diego G as & Elec. Co., e t. al. , 107 FER C ¶ 61,165 (2004); San Diego G

as & Elec. Co., e t. al. 107 FERC ¶ 61,166 ( 2004); San Diego Gas & Elec. Co., e t. al. , 108 FER C ¶ 61,311 (2004), a

nd San Diego Gas & Elec. Co., et . al. , 109 FERC ¶ 61,2 19 (2004 ), order on reh’g , 109 FERC ¶ 61,0 74 (2004 ). On September 9, 2004, w e granted in part California’s petition for review challeng ing the Ma y 31, 2002 Order. State of Califor nia ex. rel. Lo ckyer v. FERC , 383 F.3d 1006 (9th Cir. 2004) (“ Lockyer ”). W e held that

FERC’ s decision t o approve m

arket-ba sed tarif

fs in the w

holesale e lectrici ty market did n ot violate t he Federal Power Act

. Id. at 1013. W e also held that FER C erred as a m atter of

law in concludi ng retroact ive refund s were not ava ilable un der § 205. Id. at 10 15. We

rema nded the ca se to FER

C for fur ther proc eedings. Before us in the instant case are those portions of the petitions for review that involve the S cope/Transaction i ssues. W e review FERC or ders to det ermi

ne whether they a re “ arbitrar

y, c apricious, an abuse of discretio n, unsupport ed by substantial evidence, or not in accordance with law.” Cal. Dep’t of Water Res. v

. FERC, 341 F.3d 906, 910 (9th Cir . 2003). FERC’ s factual findings ar

e conclusiv e if supported by

substantial

evidence . 16 U. S.C. § 825 l (b); Bear Lake Watch, Inc. v

.46

FERC , 324 F.3d 1071, 1076 (9th Cir. 2003). Substantial evidence “m eans such relevant evidenceas a rea sonable m ind mig ht accept as adequa

te to support

a conclusion.” Id. (quoting Eichler v. SEC , 757 F.2d 1066, 1069 (9th Cir. 1985)). “If the evidenc e is suscep tible of m ore than one

rational i nterpret ation, w e must

uphold [FERC’s] findings.” Id. We review questi ons of law d e novo. Am. Rivers v. FERC , 201 F.3d 1186, 1194 (9th Cir. 1999). We review FERC ’s interpretation of the FPA under the f

amili ar analy sis establi shed in Chevron U .S.A. , Inc. v. Natural

Res. D ef. Council, 467 U.S. 837, 8 42 (1984 ) and its p rogeny. Bonnevill e Power A dmin. , 422 F.3d at 91 4. III Temporal Scope of Ref

unds Under § 206(a) of the Federal Power Act, FERC may investigate whether a particular rate or charge is “j ust and reasonable.” 16 U.S.C. § 824d(a). I f FERC finds a rate unreason able, it must ord er the imposit ion of a just and reason able rate. Id. § 824d(d). FERC m

ay the n order re funds for a ny per iod subsequen

t to the “refund effective date, ” a date FERC establishes that must be at least sixty days after the filin g of the complai nt. Id. § 824e(b). Under the express la

nguage of § 2 06, however, FERC m

ay not o rder re funds for a ny per iod prior to the filing of the complaint. Id. Section 309 of the Federal Power Act, on the other hand, gives47

FERC authority to order refunds if it finds violations of the filed tariff and im poses no temporal li mitations. Consol. Edi son v. FERC , 347 F.3d 964, 967 (D.C. Cir. 2003); 1 6 U.S.C. § 825h. In its Augu st 23, 2000 O rder, F ERC esta blished Oc tober 29, 2000 as the refund effective date pursuant to § 206. In its November 1, 2000 Order , FERC modified the refund effective date to October 2, 2000. The Competitive Suppliers Group ar gues that O ctober 29, 2000 was th e proper r efund eff ective da te. The Californ ia Parti es do not dispu te FERC ’s esta

blishm ent of Oc tober 2, 2 000 as the refund ef fective d ate for t

he § 206 proc eedings, but argue th at FERC arbitra rily a nd capricio usly re fused to or der ref unds for ta

riff viol ations under

§ 309 for pe riods prior to Oct ober 2, 200 0. A We conc lude that F ERC’ s order es tablishing O ctober 2, 2000 as the r efund effective date for the § 206 Refund Proceedings was not arbitrary or capricious, an abuse of di scretion, unsupported by substa ntial evidence, or n ot in accor dance wi th law. SDG&E

filed its initial § 206 c omplaint on August 2, 2000. I

n its respon se to SDG&E ’s filing, FER

C, in its A

ugust 23, 2000 Order, announced t hat it woul d48

comm ence its own investigation and set the refund effective date sixty days after FERC published an announcement of the investigation. The notice was published August 29 , 2000; th erefore, the refu nd effectiv e date was set as October 29 , 2000. On Septe mber

22, 2000, s ome of

the Calif ornia Par ties, nota bly PG &E and Edison, r equested th at FERC establish a n earlier refund da

te based on the filing o f the SDG &E com

plaint, rather tha

n on FERC ’s com

menc emen

t of the Enforcem

ent Proceed ings. Giv en SDG& E’s A ugust 2, 2000 filing date , the ea rliest poss ible refund effective date was October 2, 2000. In the N ovember 1, 2000 Order, FE RC granted th e request an d reset the refund effect ive date to October 2, 20 00. Thus, the question at

issue here

is whethe r FERC properly tethered the refu nd effective date to t

he SDG& E com

plaint. A lthough FER

C denied th e rem edy sou ght by SD G&E in i ts com

plaint, it did not dism

iss the SD G&E com

plaint; ra ther, it consolidate d the SDG &E com plaint wit h its own inv estigation “for purposes of hearing and decision in view of their comm on issues of law and fact.” Decem ber 19, 2001 Order, 97 FERC ¶ 61,275 at 62,198. Despite consolidati on, FER C ma de it clear tha t the Augus t 23, 2000 O rder “ establishe d two sepa rate, bu t relate d, investigations.” Id. at 62,197. Accordi ng to FERC , the inve stigation into the “justness and reasonableness of sellers’ ra tes in the ISO and PX ma rkets” that resulted i n the refun d order grew o ut of SDG&E’s complain t. Id.49

In addition, FERC not ed that its policy “is to establish t

he earlie st refund effective date allowed in order to give maxim um protection to consumers.” Id. at 62,198. T

his interpr

etation is c onsistent w ith FERC ’s “ prima ry pur pose” in “protecting consumers.” Lockyer , 383 F.3d at 1017. The Com petitive S uppliers G

roup argue s that the S DG&E compl aint cannot form the basis f

or establi shing the re fund effe ctive date because S DG&E did not seek ref unds pursuant

to § 206 in its c omplaint, and th ird-part y FE RC com

plaints must sp ecify

relief s ought. To be sure, § 206(a) requires th ird-part y com plaints to FERC to “sta

te the cha nge or cha

nges to be m

ade in the r

ate, cha rge, cla ssificati on, rule, regulation, practice , or contr act then in

force. . . .”

16 U.S. C. § 824e( a). It is also qui te true that SDG&E did not s eek a refund remedy in its initi al complaint. SDG&E ’s com

plaint sought

an em ergency

order ca pping price s in the Cal PX and Cal-ISO ma

rkets and a ruling enforcing the cap through limitations on market-based authoriz ations. Howeve r, the r

elief soug ht in the init

ial com plaint is not

dispositive o f this issue. The key question is whether the SDG& E complaint afforded sufficient notice to alert m arket par ticipants t hat sales a

nd purchase s might

be subjec t to refund . The gravamen of the S DG&E compl aint was t hat the ra tes charg ed by se llers were unjust and unreas onable. A s FERC p oints out, a compl aint chall enging the reasonable ness50

of the ra tes can le ad to a re fund under § 206, even if a ref und rem edy is not specific ally de signated in the initial compl aint. FE RC is em

powered to investiga

te the reasonableness of a rate either in the context of a third-party com plaint or sua sponte . Indeed , as wehave noted, the Feder al Power Act req uires FE RC to establish a refund effective date whenever it institute s a § 206 inves tigation. 16 U.S.C. § 824e(b). Furth er, some o f the C alifo rnia P artie s pro mptly sou ght r ehear ing o f FERC’s initial determination of the refund effective date in its August 23, 2000 Order. In short, m arket par ticipants w ere quick

ly appr ised that th e original

refund ef fective date m ight be subj ect to re vision. A s FERC n oted: “ Requests f or rehea ring of the August 23 O rder raising the re fund effe ctive date issue wer

e tim ely f iled. Thus, any reliance by sellers on the October 29 refund effec tive date prior to the issuance of a final order was at their own risk.” Dece mber 19, 2001 Order, 97 FE RC ¶ 61,275 at 62,198. T herefore, beca

use SDG &E’s § 206 com plaint unque stionably

could have led to a FE RC refun d order, because t he original

FERC or der estab lishing the refund effective date was not final, and because rehearing petitions were tim ely filed challenging the refund effective date, SDG&E’ s filing of its complaint provided sufficie nt notice to the m arket to sa tisfy § 206.51

The fac t that two investigati ons were initiated b y FE RC does not alter thi s conclusion. The investigation initiated by SDG&E’s com plaint focused on whether the seller s’ rate s in the Cal PX and Ca l-ISO m arkets w ere jus t and reas onable; the separate FERC investigation focused on whether the CalPX and Cal-ISO market rules and institutional

factors required

modif ication. As FER

C noted in it s August 23, 2000 Order: While t he SDG& E has foc used on the performance of se llers in the market, the a ction of se llers may in pa rt be caus ed by th e curren t market rules a

nd institution al structu

res. A ccordingly , we co nclude that it is a ppropriate

to investiga

te not only

the justn ess and reasonableness of public utility sellers’ rates in the PX and ISO markets, but also to investigate the tariffs and agreements of the ISO and PX to determine whether m arket rules or institutional factors embodi ed in those t ariffs a nd agreem

ents need t o be mo dified. 92 FERC ¶

61,172 at 61 ,606. In short, FERC la

unched a § 20 6 investigat ion into the j ustness and reasonabl eness of th e rates p ursuant to t he SDG& E com

plaint and

initiate d its own investigati on into the C alPX and Cal-IS O tarif

fs and agreements to deter mine whether mar ket rules r

equired m

odificati on. The C ompetitive Suppl iers Group argues th at the § 20 6 invest igation became subsumed in to the market in vestigat ion. Howeve r, this c ontention co ntradicts the plain la nguage em

ployed by FE RC when i t establishe d the two in

vestigation s and the subs equent tre atme nt of the inv estigations52

in later F ERC orders. No s ubstantive c onsolidation was ever ordered. Even if t

he cases had been substa

ntively consolidate d, consolid ation would not necess arily eviscerate a validly established refund effective date based on the original SDG&E complaint. Refunds were eventually ordered as a direct result of the SDG&E complaint. Given all these considerations, we conclude that FER C did not act arbitrar ily or capricio usly, abuse its di scretion, or act in v iolation of law in se tting the refun d effect

ive date ba sed on the S DG&E compl aint. B FERC’ s authority

to order r

efunds for

filed ra tes that ar e later d eterm

ined to be unjust, unreasona

ble, or di scrim

inatory derives f rom §§ 205 and 206 of

the Federal Power Act. F ERC also has remedial authority to require that entities violating the Federal Power Act pay r estitution for profits gained as a result of a statuto ry or tariff viol ation. Consol. E dison , 347 F.3 d at 967; Towns of Con cord, Norwood & W ellesley v. FERC , 955 F.2d 67 (D.C. Cir. 1992), S. Cal. Edison Co. v. FERC , 805 F.2 d 1068, 1071- 72 (D.C . Cir. 1986). This authorit y derives from

§ 309 of the Fed eral Pow er Act, which aut horizes F ERC “

to perfor m any and all ac ts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it ma y find necessar

y or a ppropriate

to carry out the prov isions of thi s Act.” 1653

U.S.C . § 825h. U

nlike ref und procee dings com

menc ed under § 20 6, no time lim its apply t o rem edial act

ions filed p ursuant to § 309. In its July 25, 2001 Or

der, FE RC declin ed to awa rd any relief p ursuant to § 309. The Califor nia Parties sought r eview of that decis ion. W e granted the California Parties’ motion for an order requiring FERC to entertain further evidence of ma rket m anipulation

and tarif f violation

and to rec onsider its orders lim iting remedies. Af

ter receiving further evidence, FERC ruled that it would not consider further r emed ies. Mar ch 26, 2003 O rder, 10 2 FERC ¶ 61,317 at 62 ,083. The Californi a Parties pet ition fo r review of FERC’s refu sal to con sider § 30 9 remedies. We conclude that FERC’s dec ision not to consider a § 309 remedy for tariff violations w as arbitr

ary a nd capric ious, an a

buse of disc retion, a

nd not in accordance with law. On appellate review , FERC “must be able to demonstrate that it has made a reaso ned decis ion based upon su bstanti al eviden ce in the reco rd.” N. States Pow er Co. v. FERC , 30 F.3d 177, 180 (D .C. Cir. 1994) ( internal q uotations omitte d). FE RC m

ust “a rticulate a satisfa ctory

explanati on for its a ction includ ing a rational connection between the facts found and the choice made.” Motor Ve hicle Mfrs. A ssn of the U

. S., I nc. v. State Farm Mut. Ins . Co. , 463 U.S. 29, 43 (1983).54

In this cas e, FERC offers sev eral ration ales for refu sing to g rant tariff re lief. First, it cla ims that § 206 precludes refunds pr ior to the refund effect ive date. Second, it contends that no tariff violations occurred. Third, it argues that it need not provide remedies to the California Parties because it has com menced prosecutor

ial investi gations into t

he question o f whethe r tariff violations oc curred, and those investigations may result in rem edies which would make the market whole. None of these justifications is sufficient to sustain FERC’s decision under the appli cable stan dard of revi ew. First, F ERC’ s claim

that it is pr

ecluded f rom or dering pre -Refund P eriod relief u nder § 206 m

ay be quickly

dispatched . The relief soug ht by the Califor nia Parties in this part of the proceeding is based on § 309, not § 206. Although the § 206 proceedings seeking refunds because of unjust and unreasonable rates are limited to th e Refund Peri od, § 309 p roceeding s based on tariff viol ations are not. FERC’ s apparen

t conclusion

that the ti me li mits a

pplicable to § 206 proce edings also apply to § 309 proceeding is incorrect as a matter of law . Indeed, FERC empha sized as m

uch in its ow

n filings in t

he investiga

tory pr oceedings: Thus, w ith respec t to the per iod prior to the Octob er 2, 2000 refund effective date, the Comm ission can order disgorgement of monies above the po st Octobe r 2, 2000 refunds ordered in the C alifornia Refund Pr

oceeding, if it finds violations of the ISO and PX ta

riffs an d finds that a

monet ary r

emed y is ap propriate

for such vi olations.55

Further, while refund protection has been in effect for sales in the ISO and PX sho rt-term

energy mar kets sinceOctober

2, 2000, t

he Comm ission can a dditionally

order add

itional disgo rgem ent of unj ust profits fo r tariff

violations t

hat occur red afte r Octobe r 2, 2000 ( i.e., to June 20, 2 001).
Enron Power Mktg, Inc., 103 FERC ¶ 61,346 at 62,351 (2003).To the extent that FERC is claim

ing that the§ 206 tim e lim its apply to § 309 proce edings, F ERC is wrong. Second, FERC alleges there were no tariff violations, contending that “there is no basis for finding that the sellers acted inconsistently with Commission-filed tariffs or with spe cific re quirem ents in their filed rate author izations. ” July

25, 2001 Order, 96 FERC at 61, 508. T his c oncl usio n is fl atly in cons iste nt wit h FERC’s

comm encem ent of the F ERC Enf orcem ent Proce eding, w

hich was initiated to investigate and prosecute tariff violations. It contradicts the conclusion of FERC staff, accepte d by FE RC, that bid prices in the pre- Refund Period were “e xcessively elevated solely for the pur

pose of raising price s” in violat ion of the C al-ISO and CalPX r ules. Inv estigation of Anomalous Biddin g Behavior and Prac tices in the Wester n Markets, 103 FERC ¶ 61,347 a t 62,360 (20 03). FE RC conclud ed that “ the

reme dy for

these tar iff violat ions, if f ound to exist, would be th e disgorgem ent of any unjust profits attributable to these tariff violations.” Id. at 62,359

.56

FERC’ s assertio n in this proc eeding that there w ere no tar

iff violat ions prior to the Ref und Period is contrav ened by its own findings in American Electric Power Services Corp. , to wit: As discussed below, the entities listed in the caption (Identified Entities) appear to have participated in activities (Gaming Prac tices), that consti tute gam

ing and/or a

nomal ous ma

rket beha vior in viola

tion of the Calif

ornia Ind ependent System Operator Corpo ration’s (ISO) and Calif ornia Pow er Excha

nge’s ( PX) tar

iffs durin g the perio d January 1, 2000 to Jun e 20, 2001, that war rant a m onetary rem edy of disgorgem

ent of unj ust profits and that m ay w arrant ot

her additi onal, appropria te non-monetary

rem edies. T

hese dete rmina

tions are b ased on certain o f the tar

iffs’ provisions, an ISO s tudy, a report by Com missio n Staff, and evidenc e and com ments submit

ted by m arket par ticipants. 103 FERC ¶ 61,345 a

t 62,328 (20 03) . See also Enron Power Mktg, Inc., 103 FERC ¶ 61,346. In addition to FERC’s own conclusions, the California Parties also presented significant evidence of pervasive tariff violations during the pre-Refund Period. In sum, there is n o support for FERC’ s second ra

tionale fo r deny ing the Cal ifornia Parties’ reque st for pre-Re fund Perio d relief. FERC’s third stated reason for denying the request is that it is pursuing tariff violations in

the separate FER

C Enforc emen

t Procee ding. Obvi ously, this ration ale contradic t’s FE RC’s se cond ration ale – that no tariff violations e xist. Thi s reason for rejecting the Califor nia Parties ’ request for § 309 relief is also un support able.57

In explaining its third reason for denying the request, FERC describes at length its broad investigatory and prosecutorial authority under § 307(a) (16 U.S.C. § 825(f)) an d § 309 (1 6 U.S.C. § 825h) . However, no on e disput es this au thority. What FERC fails to explain, or support, is how its inherent authority to com mence investigati ons and enfo rcem ent proce edings under 18 C.F. R. § 1b.1 et. seq. precludes a civil pro ceeding i nstitut ed by third par ty complaint. The two t ypes of proceedings are qui te distinct . One is investigative and prosecutor

ial; the oth er is a co ntested proceeding. FERC e njoys broad disc retion in the managem ent of its own § 1b prosecutorial investigations. FERC “[i]nvestigations m ay be form al or preliminary , and public or private.” 18 CFR § 1b.4. In contrast to an adjud

icated, contested proceedin g, in a § 1b p roceeding , FERC may

settle claims without review, and need not j ustify its decision to order refunds, or to decli

ne to order

refunds. Because§1b investiga

tions are p rosecutor

ial in natur

e, third parties do not participa te. 18 C. F.R. § 1b.11. F or exam ple, in thi s case FE RC denied the Californ ia Parti es’ m

otion to inter

vene in theFERC E

nforcem ent Proce eding, explaining: The Com missio n intends the

proceedings listed in the captio n of this order to pr

oceed as investigativ e and, w here appr opriate, enforce ment proceedings. Their purpose is to examine instances of potential58

wrongdoing and take remed ial action where ne eded. The Com missio n is thus acting in a prosecutorial manner in these matters, rather than strictly as an a djudicato r. . . . . . . [ This] h as im

portant im

plications, particula

rly w ith respec t to potential intervenor s. Ther e are no pa

rties to a n investigat

ive proceeding. 18 C.F.R. § 1b.11 (2003). Moreover, only a party can contest a settlement, 18 C.F.R . § 385.602(h) (2003). . . . Another implic ation of the

applicati on is the Com

missio n’s rule s governing off-the- record c omm

unications. These r

ules apply

only to c ontested, on-the-record pro ceedings; t hey do n ot apply

to Part 1b investigations unless the C omm

ission speci fically

make s an excep tion to allow form al interventions and pa rty st atus. 18 C .F.R. § 385.2201( c) (2003)

. . . . . . . C onsequently , the Com missio n is treating all pendi ng moti ons for interventi on as m otions to fil e com ments and, to the

extent the Comm ission to date

may have err oneously allowed interventio n, rescinding

those inter

ventions tha

t have heretofore b een grant ed. Fact-Finding Investigation of Potential Market Manipulation of Elec. & Natural Gas Prices, 105 FERC ¶ 61,063 at 61,352(2003) Comm issioner Ma ssey di ssented fr om this decision, writing: I do not agree that the

investigation of Anom

alous Biddin g Behavior and Practices in the Western Markets should be treated exclusively as an investiga

tion under P art 1b and t

hat there should be no pa

rties to the proceeding. Much of the evidence supporting the investigation was adduced by

parties pu

rsuant to a

court order in the California r efund proceedin g. The C alifornia parties a re integral to the a ssessm ent of and weight to be given the evidence. The Comm ission should not decide, in isolated

enforce ment p roceeding s, issues u pon which th e courtordered a dduced evid ence has a bearing w

here those

that adduc ed the evidence are not pa

rties and h ave no appe al rights.59

Id. at 61,353. At variou s time s, FER

C has state d that it re serves the right to im

pose m arketwide inquir

ies in the F ERC Enf

orcem ent Proce edings; how ever, in these proceedin gs to date, it has only pursued “ compa

ny-spe cific” investigatio ns into the actions of various m

arket par ticipants, rather t

han conducting a m arket-w ide inquiry. San Diego G

as & Elec. Co., e t. al. , 105 FERC ¶ 61,066 at 61,385. FERC itself ca sts its com

pany- specific approach as supplem ental to the

adjudica tive ref und proceedin gs undert aken purs uant to § 206. See, e. g. , San Diego G as & Elec. Co., e t. al. , 105 FER

C ¶ 61,066 at 61,391 ( “Any such com

pany- specific disgorgem

ent or other appr

opriate remed

ies would b e in additio n to the ref unds associa

ted with th e mitiga ted ma rket clea ring price s developed

pursuant to this order

and could a

pply to conduct both prior to the

Refund Period and dur

ing the Ref

und Period. ”); 102 FERC ¶ 61,108 at 61 , 289 (2003) (“T he pay ment to be made by R

eliant wi ll be in addition to a

ny ref und ultim ately

owed by Reliant a s part of t

he refund proceeding in Docket No . EL00-95, et. al.”)

. In contrast, the California Parties seek a m arket-wide refund reme dy for tariff violations pursuant to § 309 through its adjudicative filing. The fact that FERC m ay be seeking s imila

r rem edies against specif ic com panies in it s §1b investig ations does not justify its denial of the California Parties’ r equest for § 309 relief. When60

parties seek adjudicative relief from an agency, they

are entitled to a reasoned response f

rom t he agency . Here , the Ca lifornia P arties f iled a cogn izable re quest for relief a nd tendere d credible

evidencein support of

their re quest. A

party ’s valid request f or relie f cannot be

denied pure ly on the

basis that t

he agency

is consider

ing its own enforcement action that m ay impar t a portion of the relief sought. If an aggrieved party tenders su fficient

evidencethat tari ffs have b een violat ed, then i t is entitled to have FERC adjudicate whether the tariff has been violated and what relief is ap propriate

. In sum, none of the reasons given by FE RC for refusing to adjudicate whether tariffs were vi olated is sustain able. Sectio n 309 reli ef is not li mited by § 206. FERC’ s determ

ination that

no tariff violations oc curred is not supporte d by the record. FERC c annot avoid adjudicat ing a third- party

petition be cause it m

ay or may not choose to co mmence a separate enforce ment action. For t hese reason s, we conclude that FERC’s categorical rej ection of the California Parties’ request for § 309 relief was arb itrary , capric ious, and a n abuse of d

iscretion . Therefore, we grant the p etiti on fo r revi ew as it perta ins t o the Calif orni a Parti es’ cha llen ge to FERC’s foreclos ure of re lief for

tariff v iolations. We den y the C alifornia

Parties ’ petiti on insofar a s it calls f

or us to dec ide the merits of i ts request for § 309 re lief. W e do not prej udge how FERC should address the m erits or f ashion a re medy

if61

appropria te. FE RC cannot, however , catego rically refuse t o entertain the applicati on; it m

ust address the m erits. IV Out of Market

Spot Transactions FERC’ s July 25 , 2001 Or der m andated retrospec tive reli ef for sales to CalISO, including out- of-m arket (“ OOM”) transact ions. The se purcha ses were made by Cal -ISO f

rom se llers outsi de the Cal -ISO single price auction m

arket wi thin 24 hours or less of delivery, and served to stabilize the grid when supply was insuffici ent to m eet demand. Bec ause Cal- ISO had n o choice but to buy e nergy

to ensure grid reliability, potential sellers were in a position to exercise im proper market leverage by

exploiting the structural flaws in the market. FER C concluded that the O OM trans actions provided the be st opportunit y for extracti ng unjust a

nd

unreasona

ble rates and there fore, m ade them subject to potentia l refunds. The Com petitive S uppliers G

roup petiti ons for re view of F ERC’ s decision t o include O OM sales into the Cal-ISO b ecause ( 1) FERC made no express finding that the ra

tes charg ed for O OM sales were unj ust and unre asonable a nd (2) the Remedy Proceedings had been limited since their inception to the Cal-ISO/CalPX single-p rice auctio n market. We deny this pet ition fo r review. A62

Section 206(a) of the Federal Power Act requires that befor e FERC can exercise its remedial pow er to m

itigate an existing ra

te, it m ust find an e xisting rat e “unjust, unreasonable, unduly discrim inatory or preferential.” 16 U. S.C. § 824e(a); Fed. P ower Com m’n v. Sierra Pac . Power Co. , 350 U. S. 348, 3 53 (1956). The Competitive Suppliers Group argues that although FERC m ade a finding that prices within theauction m

arkets w ere unj ust and unre asonable, they never m ade such a finding with respect to OOM sales t o Cal-ISO. In its July 25, 2001 Or

der, FE RC adopted

the MMCP to calcula

te just a nd reasonabl e rates f

or Cal-I SO and Ca

lPX. T he MMCP w as the benc hmar k for determining the amount of ref unds that sellers had to pay – FERC simply looked at their transactions during the refund period then ordered them to pay the difference between the rate and the MMCP. Application of the MMCP was a determ ination that

a rate w as unjust a

nd

unreason able. As FERC exp lains in its brief, [B]ec ause the c onditions unde r which [ Cal-IS O] OO M spot transact ions were entered i nto ma de it likely

that the rates for those transactions were unjust and unreasonable, FERC required that all tr ansactions be exam

ined to dec ide which

ones would be subject to refund. . . . [ A] m arket-w ide mi tigation m

ethodology was need ed in the [C al-ISO ] and CalPX auct ion ma rkets bec ause system ic dysf unctions ca

used by structura l problem s in those markets had the potential to cause unjust and unreasonable rates ‘indepe ndent of any

conclusive

showing of a specifi c abuse of63

power. ’ In add

ition, a sh owing of m

arket pow er abuse i s not a prerequi site for f

inding rate s are outsi de the zone of reasonabl eness and , therefore, un just and un reasonabl e. FERC Br., citing July 21, 2001 Order. FERC’ s analy sis of this i ssue is cor rect. T he Federal Power

Act does n ot require t he detaile d individuali zed finding that Com petitive S uppliers G

roup requests, nor does it require a showing of market power abuses, and no court has held that it does. FERC f ound that the re was s ystem ic dysf unction in the

wholesal e energy market and that, during the tim e that Cal-ISO was making OOM purchases, it was in an emergency

must-buy situation, which gave the sellers even grea ter market power, and thus inc reased th e likelihood that the rates wer

e unjust a nd

unreasona

ble. Th ese fact s constitute d a suffic ient findin g that the r ates wer e unjust and unreasonable. FERC was not required to m ake an additional individualized finding , in additi on to the imposition of the MMCP, th at rates for Ca l-ISO OOM transacti ons were unju st and un reasonabl e. B Contrary to the Com

petitive S uppliers G

roup’s a rgument, the Remedy Proceed ings were not limited to the C al-ISO and CalPX single-pr ice aucti on markets. Fir st, nothing in the language of the A ugust 2, 2000 compl aint or ea rly64

orders ne cessaril

y lim ited the Remedy

Proceed ings to the C al-ISO and CalPXinmarket transa ctions. Indeed, the SDG&E compl aint was “ directed against al l sellers in the ISO and PX markets .” FERC did not add the Cal -ISO OOM transact ions to the pr

oceeding. Rather, it clarif ied in its or

ders that t he transa ctions were encompassed in the sco pe of the SDG&E co mplaint procee ding. Second, FERC of

fered a suffi cient exp lanation as to why the Cal-I SO OOM transactions were subject to refunds, nam ely that the purchases, like in-market purchases , were

made to “pr ocure theresource s necessa ry to r eliably operate t he grid.” July 25, 2001 Order , 96 FER C ¶ 61,120 at 61,515. Theref ore, the re was n o meaningful di stinctio n to be drawn between the in- and ou t-of-market tran sactions

. FERC f urther not ed that the

Cal-IS O OOM t

ransacti ons were

contem plated in th e Cal-ISO tariff as a backstop to the Cal-I SO auction market

. The Com petitive S uppliers G

roup points out

that OO M transac tions m ade by Cal-ISO are fund amentally different from those made in th e Cal-ISO market. Certainly, there are significant differences. The OOM transactions at issue here were bilaterally negotiated sales of power a t different prices than the market clearing price es tablished in the aucti on mar ket. How ever, a s FERC p oints out, these bilateral transactions were closely intertwined with the Cal-ISO single price auction spot

mar ket becau se ma

nipulation of

the single p rice auc tion ma rket could65

create artifi cial market forces , making it prob able that ra tes charged in the OOM transact ions were unjust and

unreasona

ble. Although different in for m, bo th the si ng le p ric e au cti on pu rch ase s an d Ca l-I SO O OM p urc has es o ccu rre d i n t he s ame market, so the

structura l flaws t hat allow ed unjust a

nd unreason able pric es to be charged in the single -price a uction also allowed u

njust and u

nreasonab le prices to be charge d in the Cal -ISO O OM trans actions. Given this structura l relatio nship, it was reasonable for FERC to exam ine those Cal-ISO OOM transactions that were affected by the manipulated market conditions and order refunds when appropriate. It is also significant to note that FERC did not order refunds for all Cal-ISO OOM tra nsactions. Rather, FERC or dered all Cal-IS O OOM spot transa ctions to be examined to decide whic h ones wou ld be sub ject to pote ntial refu nd. An agency ’s discr

etion is at its zenith w

hen it is “ fashioning [ ] polici es, rem edies and sanctions, including en forcem ent and volun

tary compl iance pro gram s in order to arrive at maxim

um effectuation of Congressional objectives.” Niagara Mohawk Power Corp. v. Fed. Power Comm’n , 379 F.2d 153, 159 (D.C. Cir. 1967). G iven this level o f deference, c oupled with FERC’ s reasone d explanati on of its dec ision, we concl ude that FE RC did not a ct arbitr arily , capric iously, or in abuse of its discretio n when it in cluded the Cal-IS O OOM t ransacti ons in the Re medy Proceeding s.66 V Non-Emergency Hours Tr ansactions

A In its initi al mi tigation or ders, FERC lim

ited price mitig ation only

to “em ergency hours” wh en supply

was def icient and suppliers k

new that t heir bids, however high, would be accepted. June 19, 2001 Order, 95 FERC ¶ 61,418 at 62,546-62, 547. FER

C believe d that during hours when ther e weresufficie nt energy reserves to ensure that the Cal-ISO controlled grid would remain reliable, called “ non-em ergency

hours,” s uppliers w ould be m otivated to bid com petitive prices. FERC reasoned tha t with exc ess supplies in the m arket, s uppliers w ould bid competitivel y because they ran th e risk that their bid s would no t be accepted

. See id. at 62,547. Over time, howe ver, FERC observed that because energy supply was generall y low, suppliers c ould count on t heir bids be ing accep ted in both emergency

and non-emergency hours. So, the incentive to bid high prices was as evident d uring no n-emergency hours as it was durin g emergency hours. See December 19, 2001 Order , 97 FERC ¶ 61,275 at 62,247 (“[ D]uring non-emergency periods w here ther e wereno excess s upplies in the mar ket and all

suppliers w ould be dispatched, the incentive to bid high prices remained.”). Altho ugh F ERC’s67

targeted remedie s had improved the wholes ale power market to some extent, see June 19, 200 1 Order, 95 FERC ¶ 61,418 at 62,546, th e ma

rket rem ained gene rally dysfunction al, id. at ¶ 62,556

. Thus, in a n attem pt to provide

“theincentive s needed to correct the [remaining] m

arket dysfunctions,” FERC e xpanded themar ket mo nitoring and mitigation p lan to add ress all op erating ho urs. Id. at ¶ 62,547. FERC imple mente d prospective relief for non-e merg ency h ours by modif ying the form ula it had us ed to set t he market clearin g price in emergen cy hours. Id. at ¶ 62,558

. Recognizing that rat es should dec rease in non-em ergency hours due to an increa se in supply , FERC set the m arket cle aring pric e for non- emer gency hours at 85 per cen t of

the marke t cl eari ng p rice est abl ish ed d uri ng t he l ast syst em emerg enc y. Id. at ¶ 62,548 . FERC would permit a h igher bid only if justifi ed by the supp lier. Id. at ¶ 62,55 8. FER

C’s intention was t o “em

ulate . . . a com

petitive m

arket,” and “prevent possible abuses that could lead to unjust and unreasonable rates.” Id. at 62,558. In its July 25, 2001 Or

der, FE RC declin ed to order refunds be cause it f

elt that an evidentiary hearing was necessary to resolve “m aterial issues of fact” before deciding whether to order a refund. July 25, 2001 Order, 96 FERC ¶ 61,120 at68

61,519-61, 520. FER

C ordere d Cal-IS O to apply the MMCP to each operating hour and report the data to an ALJ. Id. at ¶ 61,52 0. FERCthen direc ted the AL J to make findings of fact with respect to: (1) the m itigated price in each hour of the refund period; (2) the amount of refunds owed by e ach supplier a ccording to the m ethodology establishe d herein; a

nd (3) the amount currentl y owe d to each su

pplier (w ith separa

te quantiti es due from each enti ty) by

the ISO , the inve stor owne d utilities, and the State of Cali fornia. Id. FERC explained that its decision to review rates in all operating hours was based on its original f

inding of syst emicmar

ket dys function , which “

was not limited to reserve deficiency periods.” December

19, 2001 Order, 97 FERC ¶ 61,275 at 62 ,246. Refere ncing the f inding in its N ovember 1, 2000 O rder that the market was structurally

flawed, FERC stated: “

We determ

ined that structural problem s, which

existed in a

ll hours, h ad the pote ntial to ca use ma rket pric es to exceed th at which o ne would e xpect in a c ompetitive m arket. While ou r solution requires review for all hou rs, that does not m ean that th is will re sult in ref unds for all hours.” Id. The Com petitive S uppliers G

roup petiti ons for re view of F ERC’ s decision t o appl y the MMC P to no n-emerg ency op erati ng ho urs. It argue s tha t FERC’s decision to order m

itigation f or non-em

ergency hours was arbitra

ry and capricio us69

because FERC did not expressly find that rates during non-emergency hours were unjust and unreasonable. B As we have noted, before FERC ca n exercise its remedial powers under FPA § 206, it must find that the rate at issue is unjust and unreasonable. 16 U.S.C. 824e (a). The Competi tive Supp liers Group attac ks th e adeq uacy of F ERC’s general f inding of sy stemi c ma

rket dy sfunction, arguing tha t it did not sa

tisfy the conditi on precede nt to § 20 6(a) autho rity. The Com petitive S uppliers G

roup claim s that FE RC was r equired to make explicit f indings that specific r

ates char ged in eac h operating

hour were unjust or unreasonable. However, as we have noted, no such requirement exists. FERC “m ay rely on ‘generic’ or ‘ general’ findings of a system ic problem to support imposition of an industry-wide solution.” Interstate Natural Gas Ass’n of Am. v. FERC , 285 F.3d 18 , 37 (D.C. Cir. 200 2). “ [P]rop ortionality between the identified problem and the rem edy is the key.” Id. To be sure , if FE RC found iso lated probl ems w ithin the w holesale e lectric energy market, its market-wid e remedy would have be en inappr opriate. See Assoc. Gas Distri bs. v. FERC , 824 F.2d 981, 1019 (D.C. Cir. 1987) (“ Neither Wiscons in70

Gas nor any

other cas e of whic h we are awaresupports an industry -wide sol ution for a prob lem t

hat exists o nly in is olated pockets. In s uch a case , the dispr oportion of rem edy to a

ilmen t would, a t least at some point, bec ome a

rbitrary and capricio us.”). Howeve r, fac ed with a market plagued by stru ctural pr oblem s and operating under “seriously flawe d” rules, FERC could have reasonably considered a market-wide remedy necessary. FERC’s response was proportional to the identified problem: It order ed wholesale r eview of a market th at it had id entified a s wholly dysfunct ional. Moreover, the method FERC used to review the system resulted in an individualized analysis of the rates charged in each operating hour. FERC explained t

hat its expa

nsion of m

itigation m

easures o ver tim e was a r eflectio n of both the “ rapidly changing circum stances”during the r efund per iod and its a

ttemp t to balance

compe ting intere sts while f ulfilling it s FPA obli gations: In response

to [its No vember 1 dysf

unctional m

arket] findings, the Commission has sought to intervene in markets in as limited a ma nner as possible consistent with its res ponsibilitie s to ensure just and reasonable rates under the FPA, to rely on market principles whenever it can, a nd to balanc e caref

ully the need for price re lief agai nst the nee d fo r pri ce si gna ls t o at trac t cri tic al s upp ly en try. December 19, 2001 Order , 97 FERC ¶ 61,275 at 62,246.7 As a thre shold m atter, FERC a rgues that the Calif ornia Par ties’ and CalISO’ s argum ents are procedura lly def aulted bec ause they

were not raised on rehearing. 16 U. S.C. § 825 l (b) provide s that a par ty may obta

in review in this (continu ed...) 71 Given all of these c onsiderati ons, we c annot say that FER C’s dec ision to include non-emergency hours transactions in its m arket mitigation orders was arbitrar y, c apricious, or an abuse of discre tion. VI Spot Market L imitation (24-Hour Limit)

A In it July 25, 2001 Or

der, FE RC restr

icted the r

efund proc eedings to “ spot transact ions in the or

ganized m

arkets operated by

the ISO and PX dur

ing the [Refund P eriod] .” July

25, 2001 Or

der, 96 F ERC ¶ 61, 120 at 61,49 9. In its J une 19 Order, it defined the spot market at issue as constituting “ sales that are 24 hours or less and

that areentered i

nto the day

of or day prior to de livery .” June 19, 2001 Order, 95 FERC ¶ 61,418 at 62,545. By these two orders, FERC excluded sales made in the Cal -ISO a

nd CalPX spot ma rkets of gr

eater tha n 24 hours. Although this limitat ion wa s made wit hout expl anati on, it appar entl y was bas ed on FERC’s constructi on of the or

iginal SD G&E com

plaint. T he Califo rnia Par

ties petiti on for review o f this lim

itation. 77 (... continued)

court by filing a pe tition “within sixt y day s after t

he order o f the Com

missio n upon the appl ication fo r rehear ing.” W e, howe ver, ca

nnot conside r an obje ction “unle ss such obj ection shal l have bee n urged bef ore the Co mm

ission in the application for rehearing.” Id. In the ir multi ple re ques ts for rehear ing o f FERC’s orders, the California Parties fairly raised objections to FERC’s lim itation of price mitiga tion to the C al-ISO real-time m arket, a nd its lim itation of r

efunds to “ spot sales.” Thus, F ERC had t

he opportuni ty to a ddress the Caiforni a Partie s’ challeng es and we hav e jurisdict ion to co nsider FERC’s li mitation. See Transmissi on Acces

s Policy Study Group , 225 F.3d at 685 n. 4.

72 In order to analy

ze this issu e properl

y, a brief procedural review i s appropria te. In th e original

compl aint, SD G&E asked FERC to put a pri ce cap on all sales into the Cal-ISO a nd CalPX mar kets and ur

ged FERCto enter into a “ full

exam ination of t

he reason s why the ISO /PX markets ar e not workably compe titive.”

In its Aug

ust 23, 2000 O rder, F ERC insti tuted hear ing procee dings to “de tect and . . . to r esolve as e xpeditiously as possible , any

defects in the operation of competitive power m arkets in California.” 92 FERC ¶ 61,172 at 61,603. Although FE RC m entioned the “spot mark

et” in the body of

its August 2 3 order, i t did not expli citly define spot transact ions or lim

it its invest

igation to transacti ons of a cert ain lengt h. See id. at 61,605 , 61,607. FERC did inform intereste d parties t

hat it m ay “ further r

efine” or “nar row the f ocus” of th e hearing after it revi ewed its own staff’s inves tigativ e finding s. See id. at 61,603 , 61,609.73

On November 1, 2000, after FERC’s staff issued its findings, FERC issued an order identifying serious market fla ws that had caused and “ha[d] the potential to cause, unjust and unreasonable rates for short-term ener gy (Day -Ahead, Day -of, Ancillary Services and real- time energy sales) under certain conditions.” Novem ber 1, 2000 Order, 93 FERC ¶ 61,121 at 61,349. FERC proposed remedies designed to “ facilita

te forw ard contracting” a nd discourage an “ over reli ance on spot markets.” Id. at 61,359. On December

15, 2000, F ERC again stresse d that high pr ices wer e most ly due to over- reliance

on short-term c ontracts, and encouraged m arket par ticipants t o acquire b oth short-t erm and long-te rm c ontracts. Decem ber 15, 200 0 Order, 93 FERC ¶ 61,294 at 61,993-61,994. Although market participants expressed

concerns that long-t erm contract s would be a ffected by the “spiraling spot pr ices” from the previo us summ

er, FE RC assure d them

that it wo uld “m

onitor pric es in [long-term] m

arkets and also adopt a benchmark that we will use as a re ference point in addressing any

compl aints rega

rding the pr

icing of lon g-term

contract s negotiated over the next year.” Id. at ¶ 61,99 4. FERC f irst explic itly li

mited refunds to spot ma

rkets in its July 25, 2001 Order, stating, “ [t]he C omm ission m akes clea

r that tra nsactions su

bject to refund are lim ited to spot t

ransacti ons in the or

ganized m

arkets operated by

the ISO and74

PX during t he [refund p eriod].” July 25, 2 001 Order, 96 FERC ¶ 61,120 a t 61,499. FERC used th e same descripti on for “spot market” a s it had in its June 1 9 order. Id. at ¶ 61,51 5-61,516. In contesting this lim

itation, t he Califo rnia Par

ties offe red testim

ony fr om

economist Dr. Peter F ox-Penner and Dire ctor of Ma

rket Monito ring and A

nalysi s for Southern California Edison Dr. Gary A. Stern to support their claim that sellers manip ulated both s hort-ter m ene rgy m

arkets an d forwar

d mar kets and suc ceeded in raising rates above just and reasonable levels in both. Dr. Fox-Penner testified that sellers had purposefully manipulated short-term energy m arkets to cause an increase in forwa rd rates by wit

hholding supply

from the short- term

mar ket, forcing Cal-ISO to buy necessary energy outside of the spot market at higher prices and for lon ger contract perio ds. Dr. Stern te stified tha t if the MM CP m itigation method were appl ied to Cal-I SO’s forward cont racts, refund s would ex ceed $54.5 milli on. Despite t his testim ony, F ERC cont

inued to lim

it refunds to “sp ot mar

ket” transacti ons as des cribed in i ts June 1 9, 2001 or der. See March 26, 2003 Order, 102 FERC ¶ 61,317 a

t 62,084. T

he Califo rnia Par

ties reque sted rehe aring of FERC’s decision, arguing that after they had submitted additional evidence showing tha

t the sellers’ insi stence on l onger dura tion sales w as often a

n elem ent75

of the exe rcise of market power , and that FERC sh ould have re considere d its decision to exclud e forward cont racts from the monito ring and mitig ation pl an. The Cali fornia Pa

rties ar gued that F ERC shoul d include in the Remedy Proceedings all sales up to one month in duration. FERC responded on October 16, 2003, b y rej ecting theCalifor nia Parties’ ar

gument s as being “ identical to those they have already

raised,” and stating that it had “already thoroughly considered and rejected” the same arguments. San Diego G as & Elec. . Co., et. al. , 105 FERC ¶ 61,066, 6 1,365 (20 03). B FERC’ s prim ary r

eason for excluding th e forwa

rd ma rket tra nsactions is that, in its vi ew, these tran sactions were not incl uded in t he origin al SDG&E complaint. It notes that its § 206 refund authority “is discretionary a nd limited to those rates challenged as the subject of a proceeding.” Thus, FERC argues that it was prevented from mitig ating forw ard trans actions bec ause the or iginal com

plaint limited the sc ope of the p roceeding to only “spot market” tr ansactio ns. The rec ord does not s upport FE RC’s c onclusion. The orig inal com plaint explicitly referred to both short-term and forward sales in the Cal-ISO and CalPX markets. SDG &E expressed concern about the “day -ahead, hour-ahead, and block forwar d mar kets conduc ted by t

he PX.” The com

plaint cle arly challenge d rates f or76

forwar d transac tions, ass erting tha t “unti l workabl e com

petition is e stablished, supply bids into the California forward and re al-time markets should be capped at $250 per M wh.” (emphasis add ed). The complaint logically did not reference sales outside the ISO and PX’s formal markets because SDG &E was, at that tim e, required to purchas e energy

through the form al spot m arkets. However, within that limit ation, SD G&E ca st as wide a net as pos sible, inc luding chall enging those forwar d transac tions it wa s allowed to enter. The orig inal com plaint did not

limit FERC’ s section 206 refund au thority to only “ spot ma

rket” transactions . Thus, the prima ry re ason given by

FERC f or excludin g the trans actions is without adequ ate foundation in the reco rd. FERC does no t offer any other justificati on for excl uding th e transacti ons. Significantly, even in the face of new e vidence concerning forward markets, F ERC simply reiterated t hat the is sue was out side the s cope of the original complaint. FERC’s failure to even addres s the addi tional ev idence is a nother reas on that we reject its exc lusion o f these tran sactions

. FERC initially thought spot prices would discipline forward prices, and that

more forwar d contrac ting was th e answer to the m arket dy sfunction. Thus, e arly in the Remedy

Proceedings, FERC focused its mitigation m easures on short-term sales and actually encouraged ma rket participants to acquire more forwar d77

contracts
. See December 15, 2000 Order, 93 FERC ¶ 61 ,294 at 61 ,993-61,9 94. Howeve r, late r evidenc e suggested that forw ard price s had not bee n reigned in by FERC’ s miti gation of th e spot m arkets, and that se llers had s uccessful ly manipulated fo rward markets to rai se prices. In deny ing rehea

ring of its continued e xclusion of f orward t ransacti ons, FERC did not explain wh y the new eviden ce had no effe ct on its d ecision. See 105 FERC ¶ 61,066 at 61 ,365-61, 366. FERC m erely referenced its previous explanatio n, from

its Dece mber

19, 2001 Or

der, in w hich it foun d that only

the rates in “spot ma

rkets” were potentially unjust and unreasonable. However, FERC issued that order before

the Calif ornia Par ties had of

fered additional evi dence to support their claim . FERCnever exp lained wh y the a dditional ev idence did not affect its decisio n to limit mit igation proc edures to o nly “ spot ma rket” transactions

. We should uphold FERC’s decision if its path to making that decision “m ay reasonably be discerned.” See Motor Vehicle Mfrs. Ass’n , 463 U.S. at 43. However, it is difficult, if not im possible, to discern FERC’s analytical path her e, particula rly w hen its dec ision is view ed in light of its sim ultaneous de cision to expand m itigation m

easures t o include oth er previously ex cluded ca tegories o f transacti ons.78

For instan ce, FE RC expande d its m itigation m easures t o include non

emergency

hours, even though it had earlier believed that rates in non-emergency hours would be sufficiently disciplined by its mitigation m easures in emergency hours. See Decem

ber 19, 200 1 Order, 97 FERC ¶ 61,275 at 62,247. FERC later

reco gni zed new e vid enc e th at re fut ed i ts e arli er be lie f and acte d ac cor din gly, expanding its mitigation measures to include all operating hours. When sellers argued aga

inst this expa

nsion, FE RC respond ed: As Com missio n orders a

re not fina

l while sub

ject to r ehearing, and rehearing was re quested of all order s in this proc eeding, t he mit igation measures and related procedures im plemented in those orders were subject to adjustm

ent or re placement. Se llers coul d not reaso nably have expected therefore, that the mitigation measures and related procedure s implemente d in earlier orders in this proc eeding would rema in unchange d during the rehearing process. Id. at 62,218. FERC’ s explanati on applies w ith equal f orce here. Thr

oughout the proceedin gs, FER

C em phasized th at it was engaged in a continuing examination of all m arket for

ces. It s investigat

ion was not

static and

yet it proffered no reas on for rejec ting the new

evidencethat sugges ted that the forwar d mar ket was a ffected

by market manipulation that may have produced unjust and unreasonable rates. W hen faced with a similar situation in which FERCacted differently in two related8 The Publ ic Entiti es argue t hat FERCerred in

finding tha

t some of the Public En tities’ transact

ions with C al-ISO were sp ot mar ket transa ctions – not multi-day transact ions – an d thus su bject to refun ds pursu ant to FERC’s ord ers. The California Parties have m oved to strike this contention because it involves implementation questions not appropriate for this phase of the proceedings. Given our decisi on that the f

orward m arket transactions are subj ect to re fund liabil ity, the issues raised by the Public Entities are likely m oot. However, to the extent that any iss ues remain, we

grant the C alifornia

Parties ’ m otion becau se the ques tions raised by the Public Entities are fact-specific inquiries as to the nature of particular transact ions that ar

e appropr iately considere d in conjun ction with imple menta

tion issues. 79 situations w ithout offering a re asoned expl anation, we have g ranted a p etition for review. See Cal. Dep’t of Water Res. v. FERC , 341 F.3d 90 6, 910 (9t h Cir. 2003 ). FERC’ s decision t o foreclo se relie f in the fo rward m arkets ca nnot be sustained. Its cramped reading of the original SDG& E complaint is not supported by a close exam

ination of the record, and FERC does not offer any other explanatio n for its de cision. In view of t he evidenc e tendere d by the Califor nia Parties that selle rs ma

nipulated bo th the short

term and long ter

m spot m arkets, FERC ’s li mitat ion of re medy wi tho ut a reas ona ble exp lan ati on w as ar bit rary, capricio us, and an abuse of di scretion. 8 VII Energy Exchange Transactions

A80

Exchange transact ions involved two different sellers. The first sel ler, the “Exc hange Sel ler,” agreed to pr ovide Cal- ISO wi th energy in exchange

for an inkind retu rn of the same amount o f energy plus an additio nal agreed- upon amount
. See March 26, 2003 Order, 102 FERC ¶ 61,317at 62,083-62,084. Cal-ISOthen purchased

energy from the second seller, the “ Spot Seller,” on the spot ma rket and used that e nergy

to pay back the E xchange Se ller. In a typi cal excha nge transact ion, an E xchange Se ller woul d provide Ca l-ISO with one unit of

power in exchange f

or Cal-I SO’s p romis e to retur n two units o f power at a late r tim e. CalISO would use the one unit of power to supply its power grid. Then Cal-I SO would buy

two units of

power f rom a Spot Sell er in orde r to pay back the Exchange Seller. Exchange transactions had varying return ratios. A t times, the parties agreed th at Cal-I SO m

ust return the energ y in “ like tim e,” for

instance in “on- peak” hours. Cal-ISO’s purchases on the spot ma rket were mitigated when F ERC ordered Spot Selle rs to refun d amounts the y had charged in excess of th e MMCP. See id. at 62,084. H owever, FERC de clined to in clude Exc hange Sel lers in the Refund Proceeding s. The Cali fornia Pa

rties and C al-ISO challenge the exclus ion of Exc hange Sellers, contending that they also should be liable for refunds because they used81

exchange t

ransacti ons to exer

t mar ket power by dem anding exor

bitant exc hange ratios. The Cali fornia Pa rties’ witness, Dr. Ca

rolyn B erry , an indep endent

economic consulta

nt and form

er FER C econom

ist, testi fied in suppo rt of their claim that Exchange Sellers had violated the Federal P ower Act. Dr. Berry testified that “return ratios were exce ssively high.” She suggested that Exchange Sellers “m ay have been hoping to avoid refund liability by m aking sales in-kind rather than for e xplicit m

onetary paym ent.” D r. Ber

ry note d that some of the se llers’ internal e mails supported her conclusi on that those sellers w ere aw are that using inkind exch anges was a way for th em to avoid FERC’s scr utiny. Econom ist Dr. Peter F ox-Penner

also testif

ied on behal f of the C alifornia Parties regardin g exchange transact ions. He testifie d that “ [t]her

e is no econ omic differe nce to a buy

er betwe en pay ing for a po wer purc hase in doll ars and pa ying for it in a commodity whose price is well-established in dollars in the marketplace. . . . [ thus], there is no econom ic basis fo r excluding

such trans actions fr

om mitigation.” The Publi c Entitie s argue tha t Cal-IS O actual ly bene fitted fr om exc hange transact ions becaus e the Exc hange Sel lers off ered desp erately

needed fl exibility

in a crisis situation. In support of their claim, the Public Entities refer red to a Wall Street Jour

nal article in which Cal-ISO Vice P resident Jim Detm ers was described82

as praisin g exchange

transact ions becaus e they

were “ a good deal”

for Cali fornia and “might even have saved [the state] money because daily peak prices were somet imes more

than twic e the off

-peak pri ces the I SO paid f or BPA’ s replacement power.” In its Mar ch 26, 2003 O rder, F ERC held that it wo uld not subj ect the Exchange Sellers to refund l iability for excha

nge transa ctions. T

he prim ary r

eason given by FERC in excluding Exchange Sellers from the Refund Proceedings was the difficulty in calculating a refund. March 26, 2003 Order, 102 FERC ¶ 61,317 at 62,084. B FERC im properly excluded t

he Excha nge Selle rs from

the refu nd proceeding. There is no doubt that energy exchanges are considered sales, subjec t to FERC’ s jurisdi ction. 18 C .F. R. § 35.2(a) . By refusing r

elief sim ply bec ause the calculat ion was dif

ficult, FERC a

bandoned its duty under the Federal Pow er Act t o ensure just and reason able rates. See 16 U.S. C. § 824d(a ). As w e have pre viously stated, “ [t]he F PA canno t be constr ued to im muniz e those wh o overchar ge and manipulate ma

rkets in violation of the FPA.” Lockyer , 383 F.3 d at 1017. F ERC is obligated to protect c onsume rs from unjust or unreasona

ble rates , charge s, or classifications, and any rules, regulations, practices, or contracts affecting such83

rates, charge s or classi fications

. See 16 U.S.C. § 824e(a). N othing in the Federal Power Act limits it s applicat ion to th ose transa ctions t hat are easy to va lue. Although multiple variables may make certain transactions difficult to analy ze, consumers must st ill be ass ured that t hose tran sactions are just and rea sonable. FERC’ s approac h to the exc hange tra nsactions c reated a

loophole thr

ough which Ex change Se llers coul d exercis e ma rket power and m anipulate the energ y market without being su bjected to t he requirements of the Federa l Power Act. FERC’ s failure

to exerci se its broa d rem edial disc retion to a nalyz e exchange s of power during the Refund Period and address any unjust and unreasonable practices was arbi trary

and capri cious, and

an abuse of

discretio n. FERC argues that it is impossible to determ ine whether the Exchange Sellers dema nded unjust

and unrea sonable exc hange ratios because there is n o way

to assign a m

onetary value to ex change transactions . FERCclaim s that, be cause exchange t

ransacti ons involved m

ultiple var

iables like

the shortage of hy droelectric generation power in the Pacific Northwest, it c annot determine whether Exchange Sellers demanded and received value in excess of w hat would have been just and r easonable under the c ircum stances. Howeve r, FER C did not cond

uct a specific analy sis to concl ude that the

rates w ere jus t and reas onable, given the84

variable s, nor did i t make a finding th at the var

iables show ed that the

rate wa s just and reason able. FERC simply concl uded that the calcul ation was t oo difficu lt. The challenge of monetizing the transactions does not give FERC a safe harbor to t

hrow up its hands and sa

y it ca n’t be don e. Signif

icantly , FERC did not provide a r

easoned ex

planation of

imposs ibility , only

a conclusor

y obser vation of difficult y. B ut saying so doesn’ t make it so. Constructing a m ethodology did not prove too ta

xing for the

Califor nia Parties, who tendered a mit igation methodology for exam ining the E xchange Se llers’ transact ions. FE RC rej ected the

Califor nia Parties’ proposed m

itigation m

ethod beca

use it did not

account f

or all re levant variables

. See March 26, 2003 Order, 102 FERC ¶ 61,317at 62,084 (“ The CA Parties’ request toreform the excha

nge ratio c omple tely i gnores the severe e nergy shortfall in the Pac ific Nor

thwest, where m

ost of these

energy exchange transacti ons orig inated, du ring the 2 001 time perio d.”). The fact that FERC was dissatisfied with the California Pa rties’ proposed mitiga tion me thod does not j ustify its decisio n to exclude

Exchange

Sellers from the refund proceeding on a categorical basis. FERC’s own prec edent shows that when parties have failed to propose an acceptable mitigation m ethod, it may fashion a method on its own. See Re G reen Mount

ain Power

Corp. , 61 FERC ¶85

61 ,20 3 (1 99 2) ( us in g t he v alu e of a co nt empo ran eou s ca sh sal e fr om th e sa me power unit to value an exchange o f capacity for pu rposes of ordering a refund). FERC also argues that because the energy exchanges w ere conducted over periods greater than 24 hours, the transactions cannot be considered spot market transact ions subje ct to mitigation. Howeve r, we h ave alre ady re jected this argum ent as a ge neral matter, so it does not afford F ERC a valid basis fo r excludin g the trans actions at issue here

. In sum , becaus e FERC did not arti culate a valid basis for exclu ding the energy exchange t

ransacti ons from

the Refun d Procee dings, we conclude t

hat its action wa s arbitra

ry, capricio us, and an abuse of di scretion.

VIII Sleeve Transactions “Sle eve trans actions” w ere used w hen the inve stor-owne d utilities w ere on the brink of

insolvency

and credi t problem s began to li mit th e ability of the investor-o wned utili ties to purc hase powe r. As F ERC desc ribed it: A “s leeve” tr

ansaction i

nvolves thre e parties : a seller , a purch aser and a creditworthy third party “sleever” or “ sleeving party” who provides the financ ial underpi

nnings for t

he transa ction. Thus, if ei ther part y to a transac tion deter

mines that it ca

nnot buy f

rom or sell to its commercial coun terpa rty due to con cerns abou t the o ther p arty’s86

creditworthiness, the sleeving party steps in to provide the necessary financia l backing so that the tr ansaction c an go forw ard. San Diego G

as & Elec. Co., e t. al. , 107 FERC ¶ 61,1 65 at 61,6 40 (2004 ). To obtain adequate supplies of energy to continue to power the grid, Cal-ISO entered into transa ctions whe reby s leeving par ties would

buy pow er direc tly fr

om energy sellers a nd then res ell the pow er to Cal -ISO a t a prem ium to r eflect t he credit risk

. Cal-IS O decide d that cer

tain sleev e transac tions should not be subjec t to mitiga tion, but th e ALJ reached th e opposite c onclusion. After considerin g the ALJ re port, FE RC deter

mined that the sl eeve tra

nsactions sh ould be subj ect to mitiga tion; in other

words, t hose transactions should not be excl uded from potential refund liability. FERC concluded that the sleeve transactions were simila r to other sales and t

hat the sle eving parti es assumed the sam e risks of making spot energy sales to Cal-ISO, inclu ding the risk of refu nd liabi lity. Theref ore, FE RC adopted

the ALJ ’s findings and inclu ded the sle eve trans actions as part of the refu nd proceed

ings. The Public Entities now

petition fo r review

of9 The Cal ifornia P arties m oved to stri ke the port

ion of Publi c Entitie s’ briefs addressing sle eve trans actions, and El Pa so Mercha nt Energy moved to defer co nsiderati on of sleev ing issues. Both parti es argue t hat conside ration of sleeving is an issue of implementation, not an issue of scope, and therefore belongs in the

next round of

briefing. Howeve r, there is no princ ipled way to dis tin gui sh a hypo the tic al ex empti on f or s leev e tra nsa cti ons , as a dis tin ct ca teg ory, from the exem ptions or non- exem

ptions FER

C has consi dered, a

nd we are now considerin g, for O OM, energy ex change, forwar d mar ket, and o ther cate gories of transact ions. Sle eve trans actions app ear to be a distinct c ategory , subje ct to the same ty pe of analysis as the other issues. We there fore deny the California Parties and El Pa so Mercha

nt Energy ’s m otions as to s leeve tra nsactions a

nd consider

the merits of PublicEntities’ s claim that sleev e transac tions as a c ategory should have been exem

pted. Ho wever, to the exte nt that the Public Enti ties areraising factspecific issues related to implem entation, as opposed to a categorical challenge, we grant the Calif ornia Par ties’ m otion.

87 that decision, arguing that sleeve transactions were individually negotiated transact ions outside t

he scope of

the Remedy Pr

oceedings. 9 The Publi c Entitie s contend tha t the sleev e transac tions should not be included in the refund proceedings because the sleeving parties merely acted as financial intermediaries and facilitators. In their view , the sleeve transactions were individually negotiated transactions that did not take place in the single-price auction market. FERCcontends that the parties saw the sleeve transactions as compr ising two sales: one f

rom t he supplier

to the slee ving party

and the sec ond from the sleeving party to Ca l-ISO. In FERC’ s view, the sleeving parties were subject to Cal-I SO rule s becauseall selle rs in the C al-ISO mar ket had the88

responsibil ity to c omply

with m arket rul es and the t ariff. The final transac tion of the two-st ep process occurred, acco rding to FERC, in the Cal -ISO market. The record supports FERC’s conclusion. All sleeve transactions that are subject to challenge here occurred as spot market tra nsactions in the Cal-ISO market. The

fact tha t the sleev ing partie s receive d a risk premium does not re lieve them f rom l iability

if, inde pendent of t

he risk pre mium , they

charged a

n unjust an d unreasonable rate in the spot market, which was par t and parcel of the Cal-ISO market. Thu s, FER

C did not ac t arbitra

rily o r capric iously, or abuse it s discreti on in including t

he sleevetransact

ions in the refund proc eeding. IX California Energy Resources Scheduling (“C ERS”) Division Transactions
A In its De cemb er 8, 2001 Order, FERC li fted the C al-ISO price ca ps, hoping to attract more supply into the auction markets. Decem ber 8, 2000 Order, 93 FERC ¶ 61,239. In its December 15, 2001 Order, FERC elim inated the requirement that the investor-owned uti lities buy and sell al l energy

through Cal PX. D ecem

ber 15, 2001 Order , 93 FER

C ¶ 61,294. As we ha

ve discusse d, when t

hese rem edies did not stem the rise o f electr

icity prices, and the inve stor-owne d utilities w ere on the brink of ins olvency , Gover nor Davis ordered C ERS to e nter into c ontracts t o buy89

power dir ectly on behalf o f Califo rnia consum ers. These purc hases we re m ade in bilateral contrac ts outside the CalPX a nd Cal-IS O ma

rkets and t otaled m

ore than $5 billion of pur

chases. On Marc h 1, 2001, t

he Cal-E OB file d a mot

ion with FE RC, asking FERC to clarify that the Remedy Proceedings included CERS transactions. FER C denied the mo tion, conc luding that th e bilater al transa ctions we re entered into outsid e the CalPX a nd Cal-IS O ma

rkets, a nd theref ore, were outsidethe scope o f the Rem edy Proceedings. In its order, FERC noted that “ if DWR or another party believes that any of its contracts are unjust or unreasonable, it m ay file a com

plaint under FPA Section 206

. . . . ” CPUC and Cal-E OB file d such com plaints, w hich are t he subject of s eparate pet itions fo r review before this Cou rt. See Pub. Utilits. Comm’n of State of Cal. et. al. v. FERC , nos. 03-742 07, et. a

l. In this case, t

he Califo rnia Parties petition fo r review of FERC ’s deci sion to excl ude the CE RS transactions from the Remedy Proceeding s, and the v arious FERC o rders denying rehearing. We conc lude that F ERC’ s decision t o exclude t he CERS transact

ions was not arbitrary, caprici ous, or an ab use of dis cretion. B One of the

fundam ental tene ts in FER C jurisp rudence i s the rule against retroactiv e ratemaking. Arkansas L ouisiana Gas Co. v. Hall , 453 U. S. 571, 5 7890

(1981). T

his theory underpins th e lim itations on F ERC’ s rem edies under § 206 to the post -complaint per iod. § 824 e(b). Consol. Edi son Co. of N. Y., Inc. v. FERC , 347 F.3d 964, 967 (D.C . Cir. 2004). If FERC f inds a rate

unjust and

unreasona

ble pursuant to a

§ 206 com

plaint, it must or der im position of a

just and r

easonable rate; how ever, th e refund i s limi ted to peri ods subsequen t to the “ refund ef fective date” est ablished by

FERC, which m

ust be at le ast sixty

days a fter thefiling of t

he complaint. Id. By this procedure, once a com plaint is filed, sellers are on notice that thei r sales may be subject to refund. Thus, w hile FER C has consi derable l atitude in f ashioning § 206 relief, the

reme dies affo rded pursua nt to a thir

d party § 206 com

plaint m ust have a s ufficien

t nexus to the substantive allegations of the complaint so that market participants are placed on notice th at they are at risk for sales made afte r the refund effective da te. We have already

concluded that the substantive allegations of the SDG&E compl ain t wer e su ffic ien t to put sel lers on n oti ce th at t he OO M, no n-e merge ncy, energy exchange, and sleeve

transact ions mi ght be subj ect to re fund. Al l of these transacti ons were dire ctly associat ed with the CalPX and Cal-I SO markets. However, the bilateral CERS tr ansactions occurred in a different market – one that did not even e xist when t he SDG& E com

plaint wa s filed. Thus, ne ither the SDG&E compl aint nor the

subsequent a ctions by

FERC in establishing the Rem

edy91

Proceedings were sufficient to put participants in the CERS transactions on notice that thei r sales might b e subject to refund. There a re fundam

ental diff erences between

the CalP X/Cal-I SO m arkets an d the bilate ral contracts negoti ated by CERS. As we ha

ve discusse d, the CalPX and Cal-IS O ma

rkets we re centr

alized, single-pr

ice, auc tion ma

rkets, in volving multip le partic ipants. In contrast , the CE RS transactions we re two- party contract s of varying prices, term s and duration that were mutually negotiated – ostensibly a t arms-length – o utside t he CalPX and Ca l-ISO markets. Unlik e the Cal-ISO OOM and sleeve

transact ions that w e have conc luded wer e properl y consi dered in th e Refund Pr

oceedings, the CER S transac tions occur red in a m

arket tha t was not directly influence d by the

mar ket ma nipulations in the Cal- ISO and C alPX spot markets. The r

ecord reflects no direct nexus between the CERS bilateral transacti ons and t he CalPX and Ca l-ISO spot markets

. Given these differences, and the fact that the entire focus of the SDG &E complaint and FERC’s order s creating the Remedy Proceedings were directed at the CalPX

and Cal-I SO m arkets, it is clea r that the substantiveallegatio ns of the SDG&E com

plaint did not bear a sufficient nexus to the bilateral CERS transactions to afford parties to the CERS contracts sufficient notice that their sales might be subjec t to refund

.92

Indeed, when the SDG&E com plaint was filed, the investor-owned utilities

were required to conduct all of their s ales and pur

chases thr

ough the Cal PX and Cal-IS O ma

rkets. It was not un

til FERC ’s Dec embe r 15, 2000 O rder, so me si x months after the filing of the SDG&E complaint, that investor-owned utilities were free to c onduct ener

gy tra nsactions ou

tside the C alPX and

Cal-IS O ma

rkets. A nd, it was not until Januar

y, 8, 2001 that CE RS began t o make its purcha ses. Thus, FE RC conclud ed that: DWR t ransacti ons are ne gotiated bil ateral c ontracts f or the procurement of energy

on behalf of California [investor-owned utilities], and are distinctly bey ond the realm of ISO and PX centrali zed m arket ope rations tha t have bee n the subje ct of this proceedin g since its i

nception . . . . N o party

could rea sonably

have believed that the Commission intended the proceeding to be broader.
Decem ber 19, 200 1 Order, 97 FERC ¶ 61,275 at 62, 195. We agree with F ERC’ s analy sis. Bec ause the S DG&E compl aint was n ot sufficie nt to put the C ERS tra nsaction pa

rticipant s on notice, expanding th e Refund Proceed ing to include

the CER S transac tions would v iolate the rule agai nst retroactiv e ratemaking. The Cali fornia Pa

rties ar gue, wit h considera

ble force , that unj ust and

unreasona

ble rates were c harged in t he CERS transact

ions and that

the transactions93

in substance

were in distinguishab le from transact ions within the CalPX

and CalISO markets. However, FERC did not close the door on potential § 206 relief based on the

CERS tr ansactions ; in fact, it invited aggrieved pa rticipant s to file

new com plaints directed spe cificall y at th e CERS transact

ions. Thu s, while

the bilateral CERS transactions are beyond the scope of the Rem edy Proceedings at issue here, those transactions may be the subject of other challenges, the posture and merits of whi ch are beyond th e scope of t he instan t case. Given all of this, we conclude that FERC’s construction of the SDG &E compl aint as not including theCERS tr ansactions was not ar

bitrary , capric ious, or an abuse o f discretio n. X

Port of Oakland and O ther Bilateral Transactions The Port of Oakla nd argues t

hat its bila

teral con tracts w ith energy

suppliers, entered into during the

CERS period to m eet the ne eds of Oa kland’s a irport, s hould als o b e su bje ct t o t he R efu nd Pro cee di ng s. F ERC den ied th e re qu est on th e sa me basis that i t denied the

Califor nia Parties’ en

treaty to include t

he CERS transact

ions in the Ref und Procee dings. Th e analy sis of the C ERS and P ort of Oa kland transact ions is the sa

me. We den

y the pe tition for r

eview fi led by t

he Port of94

Oakland for the same reasons that we deny the petition by the California Parities for review of t he CERS transa ctions. X I Section 202(c) Transactions By Decem

ber 2000, in the middle of the energy c risis, energy suppliers were reluctant to bid into the CalPX and Cal-ISO auction markets because the investorowed utili ty buy ers in those mar kets were verging on

insolvency . In order to correct for this sho rtage of sales, C al-ISO requeste d the Unite d States D epartment of En erg y to i nte rve ne. P urs uan t to Cal- ISO’s requ est , the Depa rtmen t of Ener gy issued a se ries of or

ders under

the em ergency

provisions of

Federal Power A ct § 202(c), whic h required energy suppl iers to sel l excess av ailable po wer to Cal-ISO. The Public Entities were parties to some of these sales, which were later exem pted from a refund by FERC becau se of the fact that they were compul sory. The Public Entities attack FERC’s af firmance of the AL J’s conclusion that certain of these sales were exem pt from refund liability. The California Parties have moved to strike this argument on the basis that it constitutes an implementation issue to be decided in a different phase of this case, rather than an issue that c oncerns the

scope of th e refund p roceeding

.95

No party challenges FERC’ s determination that sales pursuant to § 202(c) are exempt from

refund liability. The Public Entities do not argue that § 202(c) transact ions categorically should or shoul d not be incl uded in the s cope of the refund proceeding. Rather, the Public Entities contest the manner in which FERC determ ined the de finition – th e scope – of the § 202(c ) exem

ption. Th e Public Entities do not argue

that any particula r categor y or sub category

of transa ctions should be cons idered § 202 (c) tra nsactions. Instead, they t ake issue with the methods and i nformation FERC u ses to det ermine what is a § 2 02(c) exemptio n. Thus, w e conclude

that the § 20 2(c) issue s raised by the Public Entities should be consider ed an implementatio n issue, rat her than a s cope trans action is sue. Theref ore, we grant the C alifornia

Parties ’ Motion to Strike w ith respec t to § 202(c) transactions

. XIII Conclus ion In general, we hold that all the transactions at issue in this case that occurred within the CalPX or Cal-ISO m arkets, or as a result of a CalPX or Cal- ISO transact ion, wer e the proper subjec t of the Re fund Proc eedings. We deny the petitions f

or review that chall enge FER

C’s inc lusion of suc h transac tions; we g rant the p etiti ons f

or rev iew th at cha llen ge FERC ’s excl usio n of su ch tra nsact ions . We96

deny th e petitions for revi ew that se ek to expand the Refun d Procee dings into the bilateral markets other than the CalPX a nd Cal-ISO mar

kets. We hold that FERC properly establishe d October

2, 2000 as t

he refund effect ive date f or the § 206 proceedings. We hold that FERC erred in excluding § 309 relief for tariff violati ons that occurred pr ior to Octo ber 2, 2000

. Specific ally, we (1) d eny the Compe titive Supp liers Gr oup’s pet ition for review c hallenging F ERC’ s establish ment o f the eff

ective re fund date; (2) grant the California Parties’ petition for review of FE RC’s decision to exclude § 309 relief; (3) deny the Com petitive S uppliers G

roup’s pe tition for r

eview ch allenging th e inclusion of

the OOM

transact ions in the R

efund Pro ceedings; ( 4) grant th e California Parties’ petition for review challenging FERC’ s exclusion of forward market transa ctions fro m the Refund Pr oceedings; (5) grant

the Calif ornia Par ties’ petition fo r review

challenging FERC’ s exclusion o f the ener gy exc hange transact ions from the Refun d Procee dings; (6) d eny the Public Entities’ petition fo r review c hallenging F ERC’ s includion of sleeve tr ansactions in the Rem

edy Proceed ings; (7) deny the C alifornia Parties ’ petiti on for rev iew chal lenging FERC’ s exclusion o f the CE RS transactions fro m the Reme dy Proceedings; (8) deny th e Port of

Oakland’ s petition f

or review challenging FERC’ s exclusion o f its bilateral CERS t

ransacti ons from

the Remedy Pr

oceedings; and (9) grant the97

motion of the Cal ifornia P arties to exclude the Public Entities’ § 202(c) a nd challeng es to the cat egorizati on of multi-da y transaction s from this pro ceeding. Each par ty shal l bear its own costs o n appeal. PETITIONS GRANT ED IN PART; D ENIED IN PART ; REMANDED FOR FURTHER

PROCEEDINGS.98 COUNSEL Stan Ber man, Heller

Ehrm an White

& McAuli ffe, S eattle, Washing ton; Kevin J. McKeon, Hawke McKeon S niscak & K ennard, Harrisb urg, Pen

nsylvnia for petitio ner-interv enor and res pondent -interven or Californ ia Parties. Robert A . O’N eil, Sa

n Diego Ci ty At

torney ’s Off

ice, Sa n Diego, Califor

nia for petitio ner-interv enor City of San Di ego. Dennis Lane, Solicitor, Federal Ener gy Regulatory Com

mission, Washington, D.C. for respon dent Federa l Energy Regulat ory Commission. Mark W . Pennak , Depar

tment of Justice , Civil D ivision, W ashington, D.C. for responde nt-interv enor and p etition er-interven or Bonnev ille Power Admini stration

. Harvey L. Rei ter, Mor

rison & He cker, Washington D .C. for respondent -interve nor and petit ioner-int ervenor Ind icated Pub lic Entiti es. David C. Freder

ick, Ke llogg, Hub er, Ha

nsen, To dd, Evans & Figel, Washing ton, D.C.; Lawrence G. Acker, LeBoe uf, Lamb, Greene & MacRae, Washi ngton, D.C.; Ronald N. Carroll , Foley & Lardner, Wa shington, D .C. for petitioner-interve nor and respo ndent-in tervenor Co mpetitive Sup pliers Grou p. Charles F. Robinson, Folsom, California; J. Phillip Jordan, Swidler Berlin Shereff Friedman, W ashington, D.C. for intervenor California Independent System Operator Corp oration. David L. Alexander, Oakl and, Cal ifornia; J ames M. Costa n, McGui re Wood s, Washingto n, D.C. for petit ioner Port of Oakland. Randolph Q. McManus, Baker Botts, Washington, D. C. for intervenor Indicated Generators.99

Natalie L. Hoc ken, Por

tland, O regon; Stu art F. P ierson, T routm an Sander s, Washingto n D.C. for respon dent-int ervenor Paci fiCorp. Kenneth W. Irvin , McDermott Will & Emery, Washington, D.C. fo r interven or El Paso Merchan t Energy, L.P.