Court Opinion

ID: 857054
Source: CourtListenerOpinion
Date Created: 2013-04-03 01:47:28.158681+00
Date Added: 2024-06-11T12:35:57.952354
License: Public Domain

In the United States Court of Federal Claims
                                       Case No. 07-184C
                                     FOR PUBLICATION
                                      Filed: April 2, 2013

*****************************
THE PEOPLE OF THE STATE OF       *
CALIFORNIA EX REL. EDMUND G.     *
BROWN JR., ATTORNEY GENERAL OF   *
THE STATE OF CALIFORNIA, and the *
CALIFORNIA DEPARTMENT OF WATER   *
RESOURCES BY AND THROUGH ITS     *
CALIFORNIA ENERGY RESOURCES      *
SCHEDULING DIVISION,             *
                                 *
               Plaintiffs,       *
     v.                          *
                                 *
THE UNITED STATES,               *                     Declaratory Judgment; California
                                 *                     Power Crisis
               Defendant.        *
                                 *
*****************************

        Marie L. Fiala, Sidley Austin L.L.P, San Francisco, CA, for Plaintiff, Pacific Gas &
Electric Company. Jane I. Ryan, Steptoe & Johnson L.L.P., Washington, D.C., for Plaintiff,
Southern California Edison Company. Mark Fogelman, Friedman Dumas & Springwater L.L.P.,
San Francisco, CA, for Plaintiff, San Diego Gas & Electric Company. Gary Alexander, Deputy
Attorney General, for Plaintiff The People, Office of the Attorney General, San Francisco, CA.

       Timothy P. McIlmail, Senior Litigation Counsel, with whom were Stuart F. Delery,
Principal Deputy Assistant Attorney General, Jeanne E. Davidson, Director, Martin F. Hockey,
Jr., Assistant Director, Commercial Litigation Branch, Civil Division, Department of Justice,
Washington, D.C., for Defendant.

                                  OPINION AND ORDER

Smith, Senior Judge.

        Plaintiffs brought this action to determine whether the Defendant is contractually bound
to retain no more than the just and reasonable prices the Federal Energy Regulatory Commission
(FERC) set for electric power sales by Bonneville Power Administration (BPA) and Western
Area Power Administration (WAPA) during the California Energy Crisis. The requested refunds

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fall into three categories: Refund Period sales, Excluded Transactions, and Summer Period sales.

       The Court held a trial on Plaintiffs’ claims and, thereafter, issued an opinion, PG&E v.
United States, 105 Fed. Cl. 420 (2012). The opinion addressed the Refund Period sales for
which Plaintiffs sought liability rulings. Although evidence was presented at trial for sales
involving Excluded Transactions and Summer Period sales, the opinion did not address those
claims. Thus, Plaintiffs have filed a Motion for Entry of Findings of Fact and Conclusions of
Law seeking declarations that Defendant is contractually obligated to refund any overcharges for
Excluded Transactions and Summer Period sales, if and when, FERC resets prices for those
sales.

       For the reasons set forth below and after careful consideration, the Court hereby
GRANTS Plaintiffs’ Motion for Entry of Findings of Fact and Conclusions of Law finding that
when FERC corrects the prices to just and reasonable prices for the Excluded Transactions and
Summer Period Sales, Defendant will be contractually obligated to abide by the reset prices and
refund any overcharges that the Agencies collected.

                                        BACKGROUND

         This issue stems from the BPA’s and WAPA’s participation in the California Power
Exchange (PX) and California Independent System Operation Corporation (ISO), two FERC-
regulated California electric energy markets. After market participants asked FERC to look into
the pricing in the PX and ISO markets, FERC took action under their Federal Power Act (FPA)
authority to establish a refund period that put sellers on notice that during their investigation if
any prices charged during that time were found to be unjust and unreasonable, the sellers may be
subject to a refund liability. FERC found the prices to be unfair and reset them. The recalculated
prices established the refund obligation of market participants under FERC’s enforcement
authority (jurisdictional entities). Jurisdictional entities did not include Federal government
market participants, like BPA and WAPA, but participation in the PX and ISO markets required
all participants to sign an agreement consenting to FERC’s oversight of the markets.

        In July 2001, FERC issued an order that it had the authority to retroactively reset rates
and require refunds from jurisdictional and non-jurisdictional entities. City of Redding v. FERC,
693 F.3d 828, 832-833 (9th Cir. 2012). The non-jurisdictional entities affected by the order
brought suit disputing FERC’s authority to order the non-jurisdictional refund, Id. at 833, and
the Ninth Circuit in Bonneville Power Administration v. FERC, 422 F.3d 908 (9th Cir. 2005),
held that “FERC does not have refund authority over . . . sales made by governmental entities
and non public utilities.” Id. at 911. After Bonneville, FERC issued a series of orders amending
the July 2001 Order, culminating with the May 2009 Order that stated FERC’s actions in regard
to the PX/ISO market rates were not a retroactive resetting of rates, but instead a determination
of a just and reasonable rate for the purposes of ordering refunds from jurisdictional sellers. City
of Redding, 693 F.3d at 834.

       Initially, FERC issued orders stating that it did not have the authority to correct the prices
for the period between May 1, 2000 and October 1, 2000 (Summer Period) and for Refund
Period energy exchanges and multi-day sales (Excluded Transactions). PG&E v. United States,

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105 Fed. Cl. at 430. However, in CPUC v. FERC, 462 F.3d 1027 (9th Cir. 2006), the Ninth
Circuit reversed FERC’s denial of relief during the Summer Period and Excluded Transactions
and remanded the case to FERC to reconsider. Id. at 1035. From April 11, 2012 until July 19,
2012, the FERC administrative law judge held trial to determine the refund requirements for the
Excluded Transactions and the Summer Period transactions. Declaratory J. Oral. Arg. at 15.
The FERC administrative law judge had until February 15, 2013 to rule on the case. Id. at 16.

        On February 15, 2013, FERC issued its decision. San Diego Gas & Elec. Co., 142 FERC
¶ 63,011, FERC Docket No. EL00-95-248 (Feb. 15, 2013). In its decision, FERC found that the
Agencies engaged in Excluded Transactions are subject to mitigation, and per FERC’s
instruction are “to calculate the refunds.” Id. at ¶ 131. The ALJ also found that the Agencies
collectively owed refund for those transactions in the amount of $60,213,705 (before interest).
Id. at 127, 147, 149, 151. With regard to the Summer Period sales, the ALJ found that the
Agencies engaged in anomalous bidding that violated the tariffs, and that over the Summer
Period there were over 20,000 total tariff violations that distorted the market prices. Id. at ¶¶14,
34-35. The impact of this decision is that now FERC can make a ruling on whether and to what
extent the Agencies’ prices for the Excluded Transactions and Summer Period sales are not just
and reasonable.

                                                DISCUSSION

          Plaintiffs’ complaint in this matter involves seven claims for relief. This opinion will
    address Plaintiffs’ Fourth and Fifth Claims seeking declaratory relief. Specifically, the Fourth
    Claim seeks a declaration that when FERC resets prices for the Agencies’ Excluded
    Transactions, Defendant will be contractually bound to refund the value that the Agencies
    received in excess of the mitigated prices. The Excluded Transactions include the Refund
    Period energy exchanges and multi-day sales. The Fifth Claim similarly seeks a declaration that
    when FERC resets prices for the Agencies’ Summer Period, transactions that took place from
    May 1, 2000 through October 1, 2000, Defendant will be contractually bound to refund value
    the Agencies received in excess of the mitigated prices. 1

       During the liability trial, evidence was presented regarding the Excluded Transactions
and Summer Period sales. Specifically, evidence was given by Gary Stern, Stephen Oliver, Sean
Sanderson and Jeffrey Ackerman. 2

        In its May 2, 2012, Opinion and Order, the Court found that BPA and WAPA breached
their contractual obligation to refund overcharges incurred during the Refund Period. PG&E v.
United States, 105 Fed. Cl. at 440. The Court did not make any findings as to the disposition of
the Excluded Transactions and the Summer Period transactions because that issue was with
FERC for reconsideration. Id. at 430.

1
  The People’s case is a related case in this matter, 07-184C. As such, some of the People’s claims for relief are
numbered differently from the IOUs’ claims. The People’s Fifth and Sixth Claims correspond to the IOUs’ Fourth
claim, and the People have no claim corresponding to the IOUs’ Fifth Claim. This opinion addresses the IOUs’
Fourth and Fifth claim as well as the People’s Fifth and Sixth claims which shall be collectively referred to as
“Plaintiffs’ claims.”
2
  For a complete list of witnesses and titles see PG&E v. United States, 105 Fed. Cl. 420, 431(2012).

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       A. Jurisdiction

        Though created in 1855, United States Court of Federal Claims jurisdiction received
much of its present day reach from the Tucker Act of 1887, 28 U.S.C. § 1491. The Act gave the
court the jurisdiction to “render judgment upon any claim against the United States, founded
upon the Constitution, [Congressional Act], [federal regulation], or upon any express or implied
contract with the United States, or for liquidated or unliquidated damages in cases not sounding
in tort.” 28 U.S.C. § 1491(a)(1) (2011). In interpreting what “claim” means as within the
Tucker Act, the United States Supreme Court held that for a claim to be within the Unites States
Court of Federal Claims’ jurisdiction, the claim must be for “actual, presently due money
damages from the United States.” United States v. King, 395 U.S. 1, 3 (1969).

        Congress expanded the Court of Federal Claims’ authority when it amended the Tucker
Act to provide for “equitable relief ancillary to claims for monetary relief over which it has
jurisdiction,” National Air Traffic Controllers Ass’n v. United States, 160 F.3d 714, 716 (Fed.
Cir. 1998), the Court does have the authority to hear or decline to hear or to dismiss declaratory
judgment proceedings. Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1271 (Fed.
Cir. 1999).

        In reviewing whether declaratory relief is proper in a matter before the Court of Federal
Claims, the Court has the discretion to “consider the appropriateness of declaratory relief,
including whether the claim involves a live dispute between the parties, whether a declaration
will resolve that dispute, and whether the legal remedies available to the parties would be
adequate to protect the parties’ interests.” Id. In addition, the court may consider declaratory
relief, even when there is the potential for damage claims in the future. Emery Worldwide
Airlines, Inc. v. United States, 47 Fed. Cl. 461, 472 (2000) (“The court rejects defendant's
position that we should dismiss [the declaratory relief claim] because plaintiff may, at some
point, have a claim for damages.”). In making its determination on declaratory relief, the court
may take into consideration whether present monetary damages would be sufficient. Alliant
Techsystems, 178 F.3d at 1271.

       B. Arguments

       At trial, as well as through their motions and arguments during hearings, the Plaintiffs
and Defendant have set out their evidence and arguments as to whether the Court should grant
declaratory relief to the Plaintiffs.

        Plaintiffs argue that the Court should grant a declaratory judgment. In support, Plaintiffs
argue BPA and WAPA breached their contractual duty to refund overcharges for the Excluded
Transactions and the transactions that occurred during the Summer Period. In making their
argument, Plaintiffs set out two main reasons supporting their request. First, Plaintiffs make the
argument for judicial efficiency. Plaintiffs argue that the Court has already heard the claims and
the facts on which the claims rely, and as such, it would be time-consuming and inefficient to
have to retry each set of transactions individually, especially since they are all connected by the
fact that the BPA and WAPA entered into a contract that allowed participants to request that
FERC adjust unjust and unreasonable market rates. Second, Plaintiffs argue that if the Court

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enters a declaratory judgment it could facilitate settlement discussions. The parties have acted in
good faith throughout the process and only disagree as to the refund obligation.

        Defendant argues that City of Redding precludes Plaintiffs’ arguments. The Court
addressed these arguments in its Opinion and Order dated April 2, 2013, denying Defendant’s
Motion for Reconsideration. As such, Defendant’s arguments with regard to City of Redding
precluding Plaintiffs’ claims are moot. Additionally, as Defendant reads City of Redding, FERC
cannot reset prices. But, City of Redding found that FERC could determine what a just and
reasonable rate was. This Court’s earlier decision found that this allows Plaintiffs to assert the
amount over “just and reasonable rates” as a valid contract claim. As its decision clearly states,
the ALJ has found that the Excluded Transactions are subject to mitigation, and per FERC’s
instruction are due refunds. The ALJ similarly found various tariff violations that distorted the
market prices during the Summer Period sales. Hence, Defendant’s argument is without merit.
The Court will, therefore, turn its attention to the facts presented at trial.

       C. Findings of Fact

        It is true that the contractual basis for the Agencies’ refund obligations on the Excluded
Transactions and Summer Period sales arises from the same legal principles and many of the
same facts as those for the Agencies’ Refund Period sales that this Court has already ruled upon
in its May 2, 2012 Opinion and Order. For instance, in that Opinion and Order the Court has
already found the existence of a contract between the Agencies and Plaintiffs incorporating the
PX and ISO Tariffs; that the Agencies are contractually bound by FERC’s correction of tariff
prices; that the Tariffs require repayment of overcharges; and that Plaintiffs have standing to
bring these claims against the Agencies as direct parties.

        At trial, Plaintiffs also presented facts relevant to the Excluded Transactions and Summer
Period sales. Mr. Stern testified that the Excluded Transactions included “multi-day” and
“exchange” transactions. He testified that these were transactions where the ISO arranged for
delivery of power over more than a 24-hour period. Exchange transactions involved sales in
kind through the ISO, where the selling party was repaid by the delivery of electric energy at a
later date, rather than in cash and that both BPA and WAPA engaged in such transactions.

        With regard to the Summer Period, May 1 to October 1, 2000, both Mr. Oliver and Mr.
Sanderson testified that each of the Agencies also made sales through the PX and ISO during the
Summer Period. Mr. Stern testified that the only difference between the Refund Period
Transactions and the Summer Period and Excluded Transactions was that they were at different
stages at FERC. As the only difference is the timing of the claims at FERC, the Court finds that
the same legal principles that were found in its May 2, 2012 Opinion and Order with regard to
the Refund Period apply to the Excluded Transactions and Summer Period sales as well.
Specifically, the Court finds that existence of a contract between the Agencies and Plaintiffs
incorporating the PX and ISO Tariffs; that the Agencies are contractually bound by FERC’s
correction of tariff prices; that the Tariffs require repayment of overcharges; and that Plaintiffs
have standing to bring these claims against the Agencies as direct parties.

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       D. Declaratory Relief

        As this Court has been granted the power to order declaratory relief, it is within this
Court’s discretion to make a determination as to the parties’ contract rights upon the future
occurrence of FERC’s correction of prices for the Excluded Transaction and Summer Period
sales. In making its determination, the Court must consider the appropriateness of declaratory
relief. As stated earlier, in order to determine the appropriateness, the Court must determine
whether “the claim involves a live dispute between the parties, whether a declaration will resolve
that dispute, and whether the legal remedies available to the parties would be adequate to protect
the parties’ interests.” Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1271 (Fed. Cir.
1999).

        Here, it is clear, all three parts are satisfied. First there is a “live” dispute between the
parties. Specifically, there is a live dispute regarding Defendant’s obligation to refund
overcharges with regard to the parties’ contract rights if and when FERC makes a correction of
prices. This Court notes that other courts have held such relief proper even where the future
events were much less imminent. In CW Government Travel, Inc. v. United States, 63 Fed. Cl.
369, 389-90 (2004), the plaintiff sought a declaratory judgment that its contract made it the
exclusive provider of certain commercial travel services. The United States argued there was no
“live dispute” because there was no imminent decision by the Army to reduce plaintiff’s
provision of services under the contract, so that plaintiff was seeking an “advisory opinion”
about the consequences of “a possible future event.” Id. at 389. The court disagreed, holding that
while the contract had not yet been breached, the facts “sufficiently evidence[d]” the
government’s intent to breach the contract in the future to allow the court to grant declaratory
judgment relief. Id. at 390. Here, Defendant argues that in essence this opinion is also just an
advisory opinion. That is not so. Like CW, the facts and law sufficiently show the Defendant’s
obligation to refund overcharges if, and when, FERC makes a correction of prices.

       Second, in making a declaration, the dispute will be resolved. And third, the legal
remedies available in the future will not adequately protect the Plaintiffs’ rights since trial might
have to be repeated, all the evidence has been presented, and in the future live witnesses’
testimony may be lost. This is particularly true in light of the length of some of the necessary
FERC investigations and calculations. And, of course, only if FERC orders a reset of prices will
any refund for overcharges be allowed.

                                             CONCLUSION

       For the reasons set forth above the Court hereby GRANTS Plaintiffs’ Motion.

       IT IS SO ORDERED.

                                                                     s/Loren A. Smith
                                                                     LOREN A. SMITH
                                                                     Senior Judge

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