Court Opinion

ID: 857053
Source: CourtListenerOpinion
Date Created: 2013-04-03 01:47:27.67499+00
Date Added: 2024-06-11T12:40:14.332674
License: Public Domain

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

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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                     *    Motion to Reconsider; City of Redding
RESOURCES BY AND THROUGH ITS                       *    v. FERC, 693 F.3d 828 (9th Cir. 2012)
CALIFORNIA ENERGY RESOURCES                        *    Bonneville Power Administration v.
SCHEDULING DIVISION,                               *    FERC, 422 F.3d 908 (9th Cir. 2005)
                                                   *
                      Plaintiffs,                  *
       v.                                          *
                                                   *
THE UNITED STATES,                                 *
                                                   *
                      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, Judge.

       Before the Court is Defendant’s Motion to Reconsider this Court’s Opinion and Order
dated May 2, 2012. Plaintiffs have not responded directly to this Motion nor has the Court
requested a response to this particular Motion. However, Defendant has raised the same
arguments in prior motions before this Court to which the Plaintiffs have responded. The parties
were heard on those on September 7, 2012. Additionally, supplemental briefs were filed with
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regard to these issues. For the reasons set forth below and after careful consideration, the Court
DENIES Defendant’s Motion to Reconsider.

                                        INTRODUCTION

        In its Opinion and Order, PG&E v. United States, 105 Fed. Cl. 420 (2012), this Court found
that Defendant breached its contractual duty to pay refunds owed to certain participants in the
California Power Exchange (PX) and California Independent System Operator (ISO) markets.
Id. at 440. Defendant now asks this Court to reconsider its Opinion and Order based upon the
Ninth Circuit’s decision in City of Redding v. FERC, 693 F.3d 828 (9th Cir. 2012) and to find that
Defendant did not breach any contracts with Plaintiffs with respect to the refund period claims and,
as such, enter judgment dismissing Plaintiffs’ refund period claims altogether. To this end,
Defendant argues that the Court interpreted Section 206 of the Federal Power Act (FPA), 16
U.S.C. § 824e, in a manner inconsistent with the Ninth Circuit’s decision in City of Redding.
Specifically, Defendant argues that this Court found that § 206 of the FPA permitted FERC to
retroactively adjust rates, contrary to the City of Redding decision. Defendant argues that in the
City of Redding decision, the Ninth Circuit held that § 206(a) permits FERC to adjust rates only
prospectively and that § 206(b) permits FERC only to determine just and reasonable rates to order
refunds from jurisdictional sellers. Therefore, Defendant argues, because FERC may not
retroactively reset rates for non-jurisdictional sellers, this Court erred in finding that the PX and
ISO tariffs bind the government to FERC’s determination of just and reasonable rates for the
whole market.

                                          DISCUSSION

The City of Redding Decision

        To determine whether this Court’s Opinion and Order is inconsistent with City of Redding,
the Ninth Circuit’s decision must be reviewed. In City of Redding, the Ninth Circuit had to
determine if specific FERC orders related to the PX and ISO electricity market rate adjustments
exceeded FERC’s authority. City of Redding, 693 F.3d at 831. This series of orders begins with a
November 2000 order stating that FERC planned to investigate the rates being charged in the
PX/ISO markets. Id. at 832. FERC then determined the PX/ISO rates to be unreasonable in its
March 9, 2001 Order and established a “market clearing price” that would have been in effect if
“[there] had . . . been competitive forces at work . . . .” Id. (quoting the March 9, 2001 Order, 94
FERC ¶ 61,245, at 61862). A subsequent order, the July 2001 Order, stated that FERC had the
authority to retroactively reset rates and require refunds from jurisdictional and non-jurisdictional
entities. City of Redding, 693 F.3d at 832-833. 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 Order, culminating
with the May 2009 Order that stated FERC’s actions in regard to the PX/ISO market rates were not
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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. The
court in City of Redding reviewed whether FERC exceeded its authority in the post-Bonneville
orders. Id. at 831. First, the Ninth Circuit found that § 206 of the FPA does not give FERC the
power to retroactively reset rates for all market participants. Id. at 838 (noting that the FPA gives
FERC the authority under § 206(a) to set rates prospectively and under § 206(b) the authority to
order refunds from jurisdictional sellers). In finding this, the City of Redding court dismissed
FERC’s argument that the ability to set rates retrospectively was necessary in determining the
refund amounts for jurisdictional entities. Id. at 839. Instead, the court said that under § 206(b),
FERC may only determine a just and reasonable rate for the purpose of calculating the
jurisdictional sellers’ refund amount. Id. at 841. The court also found that in reviewing the
post-Bonneville orders, FERC acknowledged that it lacked the authority to order refunds from
non-jurisdictional entities, and because of this, the court found that FERC did not exceed its
authority in issuing the those orders. Id. at 842.

        While the Ninth Circuit in Bonneville and City of Redding forbid FERC from ordering
non-jurisdictional entities to pay refunds, neither case forecloses other remedy possibilities for
injured market participants. In fact, the court in Bonneville left open the possibility that the
remedy for injured market participants could be contract claims. Bonneville, 422 F.3d at 925
(“[T]he remedy, if any, may rest in a contract claim, not a refund action.”). The Bonneville court
confirmed that the non-jurisdictional entities entered into agreements with the PX and ISO that
obligated the market participants to follow the tariffs, which are subject to FERC regulation. Id.
(“FERC…emphasize[s] that the Public Entities entered into agreements with the ISO and CalPX
that obligated them to abide by the ISO and CalPX tariffs…All of this is true.”). While
mentioning the possibility of a contract claim, the Bonneville court avoided making any
determination as to remedies other than refund actions. Id. at 926 (“[W]e take no position on
remedies available outside of the FPA.”). The City of Redding decision reestablished the
Bonneville opinion as to contract claims. City of Redding at 834. (“[Contract] actions loom large
on the outskirts of this appeal and explain the motivation of most of the parties, but they are not
before this court and we do not consider the contract-related arguments.”). Even so, the City of
Redding decision goes somewhat further than Bonneville as to what the just and reasonable prices
established by FERC mean to non-jurisdictional entities:

       We are not blind to the potential impact of FERC’s determination of the just and
       reasonable prices. In the contract actions brought in other forums, it is claimed
       that the Petitioners before us are liable for charges collected by them in excess of
       the just and reasonable prices subsequently calculated by FERC. Petitioners seek
       to protect themselves against those claims by preventing FERC from recalculating
       the market rates. But FERC’s recalculation was not an empty exercise, because it
       had to determine just and reasonable market clearing prices in order to calculate
       the refunds to be ordered from sellers from which it could order refunds. What
       impact this calculation might have on the contract actions pending in other courts is
       not for us to say.

Id. (emphasis added). As the Ninth Circuit decision in City of Redding avoids making a
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determination as to what the just and reasonable rates mean to non-jurisdictional contract claims, it
allows the courts hearing the contract claims, the California state courts and the United States
Court of Federal Claims, to make the decision as to what that effect is.

Defendant’s Contractual Obligation Argument

        In the Motion to Reconsider, Defendant states that Plaintiffs are foreclosed from relying on
the PX and ISO tariffs for a contractual remedy because having FERC effect a contractual remedy
on non-jurisdictional entities is outside of FERC’s § 206 authority. But that is not what is
happening. The contract was determined by the parties, the FPA, and the PX and ISO, not FERC.
FERC is merely and permissibly determining what a just and reasonable rate for the subject period
is. The contract determines the consequence of this price with respect to the contractual rights of
the parties. It also seems clear from the Ninth Circuit decision that this is a necessary FERC
action in order to assess refunds for jurisdictional sellers. The Defendant’s argument also ignores
the fact that City of Redding and Bonneville both provide the possibility of the contractual remedy
as an alternative to the disallowed FERC refund order. See Bonneville, 422 F.3d at 925, 926; see
also City of Redding, 693 F.3d at 834. Further, in City of Redding, the Ninth Circuit states its
understanding as to why the non-jurisdictional entities would want the court to find the FERC
orders outside of FERC’s authority since doing so would prevent a recalculated rate for the market
to be determined. Id. at 842. (“Petitioners seek to protect themselves against [the contract]
claims by preventing FERC from recalculating the market rates.”).

        The Bonneville decision describes how the Eighth Circuit permitted the contractual remedy
in the Mid-Continent Area Power Pool (MAPP) proceedings in Alliant Energy v. Nebraska Public
Power District, 347 F.3d 1046 (8th Cir. 2003). Like the PX and ISO markets, MAPP is a power
pool that includes both government utilities (outside of FERC’s refund authority) and
non-government utilities (within FERC’s refund authority). Id. at 1048. The Eighth Circuit
found that while FERC could not order the government entities to pay a refund, the terms of the
contractual agreement into which MAPP participants entered subjected all participants to FERC’s
regulatory authority. Id. at 1050. This permitted the court to enforce the agreement and order
the government entity to pay the refund. Id. Bonneville’s discussion of the contractual remedy
used in the Alliant decision shows the Ninth Circuit’s understanding that the Alliant decision
remedy and a valid contract claim, based upon a FERC determination of the just and reasonable
rate for the whole market, is not inconsistent with its decision at issue here, contrary to the
Defendant’s arguments. In addition, the Ninth Circuit’s City of Redding decision does nothing to
dispute the potential of a contractual claim remedy. It leaves in place Bonneville’s discussion of
the remedy process from the Alliant decision, only mentioning Alliant when looking for cases
discussing whether FERC had the authority to retroactively reset tariff rates. City of Redding, 693
F.3d at 839-840. The discussion of the contract remedy availability in Bonneville and City of
Redding shows that the Ninth Circuit leaves available the potential to bring a contract claim
against the non-jurisdictional parties.

       Finally, the contracts into which the non-jurisdictional entities entered to participate in the
PX and ISO markets clearly state that the markets were subject to FERC’s regulation. Bonneville,
422 F.3d at 925. The question remains as to whether the tariff language permitting a market
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participant to “exercise its rights under Section 206 of the FPA,” PG&E, 105 Fed. Cl. at 434
(quoting the language of PX Tariff Section 13, which substantively identical to ISO Tariff Section
19), permits injured market participants to rely on FERC’s determination of just and reasonable
rates in their contract claims. Section 206 permits FERC to determine a just and reasonable rate
for the purpose of calculating a refund obligation for jurisdictional sellers. City of Redding, 693
F.3d at 834. City of Redding leaves open how the recalculated rates may be used in determining
the non-jurisdictional entities’ contractual obligation. Id. at 842. Thus, Defendant’s main
argument in the Motion to Reconsider is defeated by the fact that the Ninth Circuit avoids making
a determination on the merits of the contract claims cases and leaves finding how the just and
reasonable rates may be used to the United States Court of Federal Claims. Furthermore, because
these issues have not been decided but have been left open by the Ninth Circuit, Defendant’s
argument with regard to issue preclusion and collateral estoppel is without merit.

                                         CONCLUSION

      It is clear to this Court that its Opinion and Order is consistent with the decision in City of
Redding. In light of this, the Court hereby DENIES Defendant’s Motion to Reconsider.

       IT IS SO ORDERED.

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

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