FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PUBLIC UTILITIES 

COMMISSION OF THE STATE OF

CALIFORNIA; CALIFORNIA ELECTRIC

OVERSIGHT BOARD,

Petitioners,

PACIFIC GAS AND ELECTRIC

COMPANY; NEVADA POWER

COMPANY; SOUTHERN CALIFORNIA

EDISON CO. (“EDISON”);

DEPARTMENT OF WATER AND

POWER OF THE CITY OF LOS

ANGELES, PUBLIC SERVICE

DEPARTMENT OF THE CITY OF No. 03-74207

BURBANK, PUBLIC SERVICE

D FERC Nos. EPARTMENT OF THE CITY OF

G  EL02-60 LENDALE, AND WATER AND POWER

D EL02-62 EPARTMENT OF THE CITY OF

PASADENA (COLLECTIVELY

“LADWP, ET AL.”); SEMPRA

ENERGY; MIRANT AMERICAS ENERGY

MARKETING, L.P.; CORAL POWER;

PPM ENERGY; PUBLIC UTILITY

DISTRICT NO. 1 OF SNOHOMISH

COUNTY, WASHINGTON; DYNEGY

POWER MARKETING INC.,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent. 

19615
CALIFORNIA ELECTRIC OVERSIGHT 

BOARD; CALIFORNIA PUBLIC

UTILITIES COMMISSION,

Petitioners,

NEVADA POWER COMPANY;

SOUTHERN CALIFORNIA EDISON CO.

(“EDISON”); DEPARTMENT OF

WATER AND POWER OF THE CITY OF

LOS ANGELES, PUBLIC SERVICE

DEPARTMENT OF THE CITY OF

BURBANK, PUBLIC SERVICE

DEPARTMENT OF THE CITY OF No. 03-74246

GLENDALE, AND WATER AND POWER FERC No.

DEPARTMENT OF THE CITY OF  EL 02-60-000

PASADENA (COLLECTIVELY OPINION “LADWP, ET AL.”); SEMPRA

ENERGY; MIRANT AMERICAS ENERGY

MARKETING, L.P.; PPM ENERGY;

PUBLIC UTILITY DISTRICT NO. 1 OF

SNOHOMISH COUNTY, WASHINGTON;

DYNEGY POWER MARKETING INC.,

Intervenors,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent. 

On Petition for Review of an Order of the

Federal Energy Regulatory Commission

Argued and Submitted

December 8, 2004—Pasadena, California

Filed December 19, 2006

19616 PUC v. FERC
Before: James R. Browning, Harry Pregerson, and

Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon

PUC v. FERC 19617
COUNSEL

William J. Kayatta, Jr. (argued), Arocles Aguilar, Sean Gallagher, Jonathan Bromson, Public Utilities Commission of the

State of California, San Francisco, California; William J.

Kayatta, Jr., Jared S. des Rosiers, Louise K. Thomas, Deborah

L. Shaw, Christopher T. Roach, Pierce Atwood, Portland,

Maine; Erik N. Saltmarsh, Erin Koch-Goodman, California

Electric Oversight Board, Sacramento, California (on the

brief) for the petitioners. 

Dennis Lane (argued), Cynthia A. Marlette, Dennis Lane,

Lona T. Perry, Federal Energy Regulatory Commission,

Washington, D.C. (on the brief) for the respondent. 

Richard P. Bress (argued), John N. Estes III, W. Mason

Emnett, Skadden, Arps, Slate, Meagher & Flom, LLP, New

York, N.Y.; Jeffrey D. Watkiss, Bracewell & Patterson,

Washington, D.C.; Richard P. Bress, Michael J. Gergen,

David G. Tewksbury, Latham & Watkins, LLP, Washington,

D.C. (on the brief) for the intervenors-respondents. 

19620 PUC v. FERC
Roger A. Berliner, Stephen M. Ryan, Manatt, Phelps & Phillips, Washington, D.C.; C. Stanley Hunterton, Hunterton &

Associates, Las Vegas, Nevada, on the joint brief for intervenors Public Utility District No. 1 of Snohomish County,

Washington, Nevada Power Company, Sierra Pacific Power

Company, and Southern California Water Company. 

Julie Simon, Electric Power Supply Association, Washington,

D.C.; Andrew B. Brown, Ellison, Schneider & Harris, LLP,

Sacramento, California, on the amici curiae brief for the Independent Energy Producers Association, Electric Power Supply Association, and Western Power Trading Forum. 

Marcus Wood, Jennifer E. Horan, Stoel Rives, LLP Portland,

Oregon, on the brief of intervenor PPM Energy, Inc. 

OPINION

BERZON, Circuit Judge: 

As in Public Utility District No. 1 v. FERC (“PUD”), Nos.

03-72511, et al. (9th Cir. Dec. __, 2006), a related case also

decided today, the petitioners — here, the California Public

Utilities Commission (“PUC”) and the California Electric

Oversight Board (“CEOB”) (collectively, “Public Utilities

Commission”) — challenge the statutory validity of electric

power rates in certain wholesale power contracts. Again as in

PUD, that challenge hinges on whether the Federal Energy

Regulatory Commission (“FERC”) was correct to apply the

Mobile-Sierra1“public interest” doctrine or whether in doing

so it failed to meet its statutory obligation to provide “just and

reasonable” review. See 16 U.S.C. § 824e(a). 

1This shorthand takes its name from two Supreme Court cases decided

on the same day: United Gas Pipe Line Co. v. Mobile Gas Service Corp.

(Mobile), 350 U.S. 332 (1956), and Federal Power Commission v. Sierra

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

PUC v. FERC 19621
In PUD, we explained that Mobile-Sierra represents a presumption “that private parties to a wholesale electric power

contract have negotiated a ‘just and reasonable’ contract over

a designated period of time, lawful under the FPA throughout

that period.” PUD, Slip Op. at 19554. That presumption, however, “can be rebutted by establishing that the contract

adversely affects the public interest.” Id., Slip Op. at 19554.

We concluded that, to establish the Mobile-Sierra presumption, “three prerequisites are necessary: (1) the contract by its

own terms must not preclude the limited Mobile-Sierra

review; (2) the regulatory scheme in which the contracts are

formed must provide FERC with an opportunity for effective,

timely review of the contracted rates; and (3) where, as here,

FERC is relying on a market-based rate-setting system to produce just and reasonable rates, this review must permit consideration of all factors relevant to the propriety of the

contract’s formation.” Id., Slip Op. at 19555-56. In PUD we

found two of these prerequisites lacking and remanded to

FERC for it to consider the propriety of applying the MobileSierra mode of review to the contracts at issue. We held, in

the alternative, that even if Mobile-Sierra properly applied,

FERC’s “finding that the challenged contracts do not affect

the public interest was based on a substantively erroneous

mode of analysis.” Id., Slip Op. at 19549. 

Applying PUD to the challenged contracts in this case, we

grant the petition to review and remand to the agency to apply

the modes of review outlined in PUD. 

I.

Much of the relevant background to this case is described

in PUD. See id., Slip Op. at 19567-83. We therefore will summarize only those facts relevant to the present case. 

A. California Energy Crisis 

California responded to the energy crisis outlined in PUD

in several ways, although not until after “rolling blackout”

19622 PUC v. FERC
became a household phrase and several of California’s largest

utilities bordered on insolvency. Governor Gray Davis

declared a state of emergency on January 17, 2001, and

ordered the California Department of Water Resources

(“CDWR”) to purchase forward power “as expeditiously as

possible.” On February 1, 2001, the California Legislature

passed Assembly Bill 1 of the 2001-2002 First Extraordinary

Session (“AB1X”), which authorized CDWR to purchase

power through the end of December 31, 2002. 

Between February 6 and August 23, 2001, CDWR executed

57 forward contracts with 28 suppliers. Some of these contracts explicitly called for applying the relatively stringent

Mobile-Sierra “public interest” test, rather than the relatively

relaxed “just and reasonable” test to judge the rates included

in the contracts. Other contracts were silent regarding the test

to apply. The 57 contracts include 32 agreements with the

intervenor-respondents in this case:2

• Coral Power, for prices from $169 to $249/MWh,

for delivery in 2001 and 2002;

• Dynegy Power Marketing, Inc., for $119.50/

MWh, for delivery from January 1, 2002 through

December 31, 2004;

• Mirant Americas Energy Marketing, for $148.65/

MWh, for delivery between June 1, 2001 and

December 31, 2002;

• PacifiCorp (“PPM”), for $70/MWh, for delivery

between July 29, 2001 and June 30, 2002; and 

• Sempra Energy Resources, for $189/MWh, for

2These energy companies are all intervenors on behalf of FERC in this

case. 

PUC v. FERC 19623
delivery between June 1, 2001 and September 30,

2001. 

Under AB1X, the people of California must pay the cost of

these contracts through their electricity rates. See CAL. WATER

CODE § 80104 (West) (“Upon the delivery of power to them,

the retail end use customers shall be deemed to have purchased that power from the department. Payment for any sale

shall be a direct obligation of the retail end use customer to

the department.”). Raymond Hart, who testified for the Public

Utilities Commission, described this statutory provision as

ensuring that costs of CDWR contracts would “be passed on

to the retail end-users of the IOUs [investor-owned utilities]

through their retail electricity rates.” In other words, CDWR

passed the costs of the power it purchased to local utilities —

such as Pacific Gas and Electric — which, in turn, passed it

on to California consumers. FERC questions whether the

challenged contracts call for rates above long-run competitive

prices, Pub. Utils. Comm’n v. Sellers of Long Term Contracts,

103 F.E.R.C. ¶ 61,354, at ¶62,415 (2003), but does not contest that the cost of those contracts is passed on to California

consumers. 

On June 19, 2001, FERC issued a price mitigation order for

spot markets regarding several western states, which went

into effect the following day. Subsequently, prices generally

returned to pre-crisis levels in both spot and forward markets,

completing a downward cycle that had begun about a month

prior to the June 19 Order. 

B. Procedural Background

On February 25, 2002, PUC filed complaints under section

206(a) of the Federal Power Act,3 16 U.S.C. § 824e(a), seek3Whenever the Commission, after a hearing had upon its own motion

or upon complaint, shall find that any rate, charge, or classification,

demanded observed, charged, or collected by any public utility for any

19624 PUC v. FERC
ing modification of all power contracts signed by CDWR in

2001.4 The only contracts at issue on this appeal are those

listed above, which PUC alleges overcharge CDWR and California consumers by a total of $1.4 billion. In the process of

adjudicating and ultimately denying these complaints, FERC

issued a series of orders: 

On April 25, 2002, FERC ordered a hearing to determine

“whether the dysfunctional California spot markets adversely

affected the long-term bilateral markets, and, if so, whether

modification of any individual contract at issue [was] warranted.” Pub. Utils. Comm’n v. Sellers of Long Term Contracts,

99 F.E.R.C. ¶ 61,087, at ¶ 61,384 (2002) (footnote omitted).

FERC announced that it would review all contracts explicitly

calling for “public interest” review under Mobile-Sierra,

5

while setting for hearing the question of whether it would also

apply that standard to contracts that were silent on the issue.6

Id. ¶ 61,383. FERC dismissed the complaints with regard to

all contracts executed on or after June 20, 2001, the date its

final price mitigation order went into effect, including the

CDWR contract with PPM, which had been negotiated before

but signed after that date. Finally, the April 25 order held that

transmission or sale subject to the jurisdiction of the Commission, or that

any rule, regulation, practice, or contract affect such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the

Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and

in force, and shall fix the same by order. 

16 U.S.C. § 824e(a) (emphases added). 

4Much of the parties’ disagreement hinges on whether the identity of the

parties — state agencies other than those the one entered into the challenged agreements — affects the application of Mobile-Sierra to those

agreements. As we decide, applying PUD, that FERC erred for other reasons by applying Mobile-Sierra, we need not reach the question of the

impact of the parties’ identity. 

5These included the Coral and Mirant contracts. 

6These included the Dynegy, Sempra, and PPM contracts. 

PUC v. FERC 19625
both the PUC and CEOB “ ‘stepped into the shoes’ of

CDWR,” which is not a party in this case, because they are

all state agencies. Id. ¶ 61,382. Accordingly, the petitioners

would both be treated as if they were the same entity as

CDWR. Id. 

Before the Administrative Law Judge (“ALJ”), PUC sought

discovery regarding the sellers’ ability to exercise market

power in the spot markets. The ALJ denied this request, reasoning that “the hearing order in this case takes as a given the

proposition that the California spot markets were dysfunctional.” Additionally, the ALJ excluded some evidence, in the

form of testimony by PUC’s expert witnesses, that related to

the sellers’ market power in the forward markets. 

At the conclusion of the ALJ’s hearing, FERC created a

two-track process. For contracts that had explicit provisions

calling for the “public interest” test, FERC instructed the ALJ

not to rule on those cases and instead to certify the record

directly to the Commission. For the other contracts, the ALJ

was directed to decide only whether the parties intended the

public interest test to apply. Pub. Utils. Comm’n v. Sellers of

Long Term Contracts, 101 F.E.R.C. ¶ 61,293, at ¶ 62,173

(2002). 

On February 10, 2003, FERC, on remand from this court,

Pub. Utils. Comm’n of Cal. v. FERC, Order of August 21,

2002, (9th Cir. Docket Nos. 01-71051, et al.), issued an order

in a separate case relating to spot market manipulation, permitting discovery for over 100 days regarding such manipulation and requiring parties in that case to provide an index of

discovered material “for each other pending or proposed proceeding” where the parties so request. San Diego Gas & Elec.

Co. v. Sellers of Energy & Ancillary Servs., 102 F.E.R.C.

¶ 61,164, at ¶ 61,446 (2003). Through this “100 Days Proceeding,” PUC discovered additional evidence regarding sellers’ spot market manipulation. 

19626 PUC v. FERC
On March 26, 2003, FERC staff issued its “Final Report on

Price Manipulation in Western Markets.” STAFF OF THE

FEDERAL ENERGY REGULATORY COMMISSION, FINAL REPORT ON

PRICE MANIPULATION IN WESTERN MARKETS: FACT-FINDING

INVESTIGATION OF POTENTIAL MANIPULATION OF ELECTRIC AND

NATURAL GAS PRICES [“Staff Report”] (2003), available at

http://www.ferc.gov/legal/maj-ord-reg/land-do cs/PART-I-3-

26-03.pdf [Staff Report]. The Staff Report concluded that the

spot market dysfunction had “significant” adverse effects on

the forward markets. Id. at V-12. 

FERC issued an initial decision on June 26, 2003, rejecting

all of PUC’s claims. Pub. Utils. Comm’n, 103 F.E.R.C.

¶ 61,354 (2003). Most importantly, FERC concluded that the

“public interest” test would apply to all contracts at issue,

upholding the ALJ’s opinion that parties to all contracts

intended to trigger that test. Id. ¶ 62,409. Accordingly, evidence regarding the spot markets’ adverse effect on forward

markets — the very issue FERC initially deemed to be the

purpose of the hearings — was deemed not “relevant,” as the

“just and reasonable” test did not apply. Id. ¶ 62,415. “Under

the ‘public interest’ standard, to justify contract modification

it is not enough to show that forward prices became unjust

and unreasonable due to the impact of spot market dysfunctions; it must be shown that the rates, terms and conditions are

contrary to the public interest.”

7

Id. Further, FERC concluded

that PUC failed to satisfy any of the three prongs of the public

interest test established by Supreme Court precedent

(described below) or “any other factor” that might go to public interest. Id. FERC found “no credible record evidence that

the contracts at issue are placing Complainants in financial

distress.” Id. FERC based this conclusion on a comparison of

CDWR’s goal of “a portfolio that yielded a weighted average

price no higher than $70/MWh” with its actual portfolio,

7This language appears verbatim in FERC’s PUD orders. See Nev.

Power Co. v. Enron Power Mktg., Inc., 103 F.E.R.C. ¶ 61,353, at ¶ 61,397

(2003). 

PUC v. FERC 19627
which averaged a price of $84/MWh for 2001-2005. Id. Commissioner Massey dissented, calling application of the “public

interest” test inappropriate. Commissioner Massey also concluded that PUC proved a strong “nexus between the California spot market and the forward contract market,” and that

PUC met both the just and reasonable and public interest standards for contract reformation. Id. ¶¶ 62,448-49 (Massey,

Comm’r, dissenting). 

FERC denied rehearing on November 10, 2003. Pub. Utils.

Comm’n v. Sellers of Long Term Contracts, 105 F.E.R.C.

¶ 61,182 (2003). One week later, PUC and CEOB filed petitions for review with this court. 

C. Standard of Review 

We review FERC’s legal decisions de novo. Am. Rivers v.

FERC, 201 F.3d 1186, 1194 (9th Cir. 1999). “Our review of

a FERC decision is limited to whether the decision was arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or not in accordance with the law.” Cal.

Dep’t of Water Res. v. FERC, 341 F.3d 906, 910 (9th Cir.

2003); see also 5 U.S.C. § 706(2)(A). The court reviews factual findings for substantial evidence, 16 U.S.C. § 825l(b),

and will uphold them so long as the agency considered all relevant factors and did not make a clear error of judgment, Cal.

Dep’t of Water Res., 341 F.3d at 906. When an agency makes

an informed choice to rely on one expert opinion among competing expert opinions, the agency is entitled to deference.

Bear Lake Watch, Inc. v. FERC, 324 F.3d 1071, 1076-77 (9th

Cir. 2003). FERC “is not obligated to justify deviations from

an approach suggested by its own staff” unless “the conceptual underpinnings of the staff’s approach [are] critical to a

reasoned resolution of the problem”; in such cases FERC

must address staff recommendations. Pub. Utils. Comm’n v.

FERC, 817 F.2d 858, 862 (D.C. Cir. 1987). 

19628 PUC v. FERC
II.

Application of Mobile-Sierra

[1] We hold in PUD, decided today, that FERC may apply

the Mobile-Sierra “public interest” mode of review only if

three conditions are present: “(1) the contract by its own terms

must not preclude the limited Mobile-Sierra review; (2) the

regulatory scheme in which the contracts are formed must

provide FERC with an opportunity for effective, timely

review of the contracted rates; and (3) where, as here, FERC

is relying on a market-based rate-setting system to produce

just and reasonable rates, this review must permit consideration of all factors relevant to the propriety of the contract’s

formation.” PUD, Slip Op. at 19555-56. Here, it is undisputed

that the contracts at issue either explicitly call for MobileSierra review or do not preclude it. Cf. PUD, Slip Op. at

19589-93. Thus, resolution of the present case turns on

whether the second two Mobile-Sierra prerequisites were met,

permitting FERC to rely on the doctrine’s presumption of just

and reasonable rates. 

1. Timely and Effective Review of Rates

[2] In PUD, we hold “that although market-based rate

authority can qualify as sufficient prior review to justify limited Mobile-Sierra review, it can only do so when accompanied by effective oversight permitting timely reconsideration

of market-based authorization if market conditions change.”

Id., Slip Op. at 19593. Here, as in PUD, “the fatal flaw in

FERC’s approach to ‘oversight’ is that it precludes timely

consideration of sudden market changes and offers no protection to purchasers victimized by the abuses of sellers or dysfunctional market conditions that FERC itself only notices in

hindsight.” Id., Slip Op. at 19603. 

Energy company intervenors and amici argue here, as

FERC did in PUD, that petitioners or CDWR should have

PUC v. FERC 19629
challenged the sellers’ market-based rate authority before

entering into the forward contracts, rather than agree to and

subsequently challenge the contracts. This argument fails for

the same reasons it failed in PUD. See id., Slip Op. at

19601-02 (“Any such challenge, even if successful, could not

have been a basis for reforming the challenged contracts . . . .”

). 

Dynegy raises an argument unique to its contract, which it

did file with FERC, effective March 6, 2001, and which

FERC opened to the public for comments.8 Dynegy Power

Mktg., Inc., 95 F.E.R.C. ¶ 61,371 (2001). Dynegy asserts that

PUC had an opportunity, during the public comment period,

to raise a substantive challenge to this contract but declined

to do so. 

Nothing about this circumstance, however, justifies a contrary result from that reached with regard to all the other contracts. FERC explicitly noted that accepting the filing of the

Dynegy contract did “not constitute approval of any . . . rate

. . . ; and such action is without prejudice to any findings or

orders which . . . may hereafter be made by the Commission

in any proceeding now pending or hereafter instituted by or

against Dynegy.” Id. ¶ 62,401. FERC, therefore, did not give

prior approval to the Dynegy contract any more than it did for

any of the other contracts challenged here. Further, any challenge to the contract at the time FERC sought public comments would have been hampered by limited information: At

the time Dynegy filed its contract, the full scale of spot market manipulation and forward market dysfunction was not

nearly as fully known as it is today. 

8Dynegy’s argument on this point refers only to the prior review prerequisite to application of Mobile-Sierra. Even if its argument succeeded on

this point, it would not be sufficient to overcome the other portions of our

opinion which provide independent reasons for granting PUC’s petition

for review. 

19630 PUC v. FERC
[3] For these reasons, we hold here that FERC “cannot use

[its] choice [of regulatory regime] to excuse its duty to maintain effective oversight [of rates] and then invoke MobileSierra as a ground for precluding ordinary rate review, including review of the propriety of market-based rate authority at

the time the contracts became effective.” PUD, Slip Op. at

19603. 

2. Meaningful Review of Contract Formation

[4] Even if the agency had not committed “[t]his fundamental procedural error[,] . . . FERC’s substantive adherence

to Mobile-Sierra without regard to the market conditions in

which the contracts at issue were formed” was error. Id., Slip

Op. at 19604. In particular, FERC refused to consider evidence of forward market dysfunction caused by the spot market, asserting that such evidence was not “relevant” unless the

“just and reasonable” test applied. Pub. Utils. Comm’n, 103

F.E.R.C. at ¶ 62,415. Because “Mobile-Sierra cannot apply

without a determination that the challenged contract was initially formed free from the influence of improper factors, such

as market manipulation, the leverage of market power, or an

otherwise dysfunctional market,” PUD, Slip Op. at 19604,

FERC’s reliance on the “public interest” mode of review here

was improper. 

[5] As in PUD, FERC failed to respond to the Staff Report.

See PUD, Slip Op. at 19604-06. Rather than consider its discussion of the dysfunction in the forward market, FERC

treated the Staff Report’s conclusions as only relevant if it

was first determined that just and reasonable review is applicable, the same way it treated other evidence of market dysfunction. Pub. Utils. Comm’n, 103 F.E.R.C. at ¶ 62,415 &

n.38. This was error. See PUD, Slip Op. at 19606 (“[T]he

questions raised by the Staff Report — whether and how the

manipulated spot market influenced the forward markets —

are relevant to determining whether the Mobile-Sierra doctrine applies, because they raise questions about the market

PUC v. FERC 19631
conditions at the time of contract formation and thus about the

propriety of relying on a regime of market-based rate authority at that time to produce just and reasonable rates.”).

[6] FERC also affirmed the ALJ’s exclusion of some of

PUC’s other evidence — including testimony of expert witnesses — regarding the effect of spot market manipulation on

forward prices. As PUD makes clear, such evidence is essential to the question of whether the forward energy market was

sufficiently well-functioning to apply Mobile-Sierra. See id.,

Slip Op. at 19605-06. 

[7] On remand, FERC should consider the excluded evidence, as well as all other relevant evidence — whether part

of the “100 Day Proceeding” or not — before determining

whether the Mobile-Sierra presumption applies. 

3. Effect on the “Public Interest”

[8] Consistent with PUD, “FERC’s error in its approach to

deciding whether to apply the Mobile-Sierra presumption was

compounded by it use of an erroneous standard for determining whether the challenged contracts affect the public interest.” Id., Slip Op. at 19606-07. “In its efforts to determine the

impact on the public interest under Mobile-Sierra . . . FERC

relied on the wrong legal standard, applying factors taken

from the context of a low-rate challenge rather than those relevant to the high-rate challenge present in this case.” Id., Slip

Op. at 19607.

FERC determined that the challenged contracts in this case

did not affect the public interest because PUC: 

presented very little evidence relevant to the MobileSierra standard of review. Based on the record, we

conclude that Complainants have failed to demonstrate that any of the three prongs announced in the

Sierra case has been met or that any other factor

19632 PUC v. FERC
introduced into evidence warrants a finding that any

of the contracts is contrary to the public interest and

should be modified.9

Pub. Utils. Comm’n, 103 F.E.R.C. at ¶ 62,415. FERC determined that because consumers did not face an “excessive burden” whether consumers endured any burden was inapposite.

Pub. Utils. Comm’n, 105 F.E.R.C. 61,182, at ¶¶ 66-67. As we

explained in PUD, this determination fundamentally misunderstands the public interest inquiry in the context of a highrate challenge. See PUD, Slip Op. at 19607-11. 

[9] Under California law, all costs of the challenged contracts were passed on to consumers. See CAL. WATER CODE

§ 80104. The parties debate whether retail power rates in fact

increased after the parties signed these contracts, but this dispute is not determinative. Even if rates did not increase in the

months after CDWR signed the contracts, the retail rates

charged consumers because of these contracts might have

been higher than they would have been had the wholesale

contract rates been lower. See PUD, Slip Op. at 19609 (“[I]f

a challenged contract imposes any significant cost on ultimate

customers because of a wholesale rate too high to be within

a zone of reasonableness, that contract affects the public interest.” (citations omitted)).

III.

Finally, we grant PUC’s petition as it relates to FERC’s

dismissal of its complaint regarding CDWR’s contract with

9

In such circumstances [when the public interest test satisfies the Commission’s duty to ensure just and reasonable rates] the sole concern of the

Commission would seem to be whether the rate is so low as to adversely

affect the public interest — as where it might impair the financial ability

of the public utility to continue its service, cast upon other consumers an

excessive burden, or be unduly discriminatory. 

Sierra, 350 U.S. at 355. 

PUC v. FERC 19633
PPM. FERC’s decision to dismiss the case against the PPM

contract without a hearing may be affirmed only if FERC

addressed all “relevant factors in dispute and . . . a formal

hearing was unnecessary for the Commission to reach its conclusion.” Pac. Gas & Elec. Co. v. FERC, 746 F.2d 1383, 1386

(9th Cir. 1984). We believe FERC failed to address all relevant factors here. 

[10] FERC dismissed the PPM challenge because the parties entered the contract after FERC’s June 19 Order. Pub.

Utils. Comm’n, 99 F.E.R.C. ¶ 61,087, at ¶¶ 61,383-84 (2002).

FERC did not consider, however, whether some market dysfunction may have lingered after that order took effect. PPM,

intervening in this case, argues that the chronology of its contract factually distinguishes it from the other challenged contracts. We disagree. 

[11] It is not at all clear that the forward markets had stabilized by the date when the parties entered the PPM contract.

On the contrary, FERC’s Staff Report concluded that contracts entered after June 19, 2001, “generally show a persistence of the effects found during the crisis, i.e., statistically

significant positive elasticities of the forward price with

respect to the spot price.” Staff Report at V-14. While the

Staff Report qualified its conclusion regarding post-June 19

effects of market power, noting that, “[o]n average,” postJune 19 contracts demonstrated a lesser effect from the spot

markets than pre-June 19 contracts, FERC should have at

least considered the possibility that ill effects remained.

Therefore, the agency’s dismissal of the challenge was inappropriate. 

IV.

[12] For the foregoing reasons, we determine that a remand

is necessary so that FERC can apply the proper statutory standards to determine, first, whether Mobile-Sierra review of the

challenged contracts is appropriate; second, if so, to apply the

19634 PUC v. FERC
modified form of Mobile-Sierra review outlined in PUD and

referenced in this opinion; and finally, if not, to apply full just

and reasonable review to the challenged contracts. 

PETITION FOR REVIEW GRANTED AND

REMANDED.

PUC v. FERC 19635