9th Circuit Overturns FERC Claim of Refund Authority During 2000-2001 California Electricity Crisis

The Federal Energy Regulatory Commission opened an investigation underthe Federal Power Act to determine whether rates in those markets were just and reasonable.

In response to complaints about sharp price increases for wholesale electricity sold in single price auction markets operated by the California Independent System Operator (ISO) and the California Power Exchange (PX), the Federal Energy Regulatory Commission (FERC) opened an investigation under §206 of the Federal Power Act (FPA) to determine whether rates in those markets were just and reasonable. It also determined, under FPA §206(b), that excessive rates charged in those markets between October 2, 2000 and June 20, 2001 would have to be refunded. On July 25, 2001, FERC, divided 3-2, ruled that all sellers in the ISO and PX markets, including government utilities and an electric cooperative otherwise exempt from its regulatory jurisdiction, would also have to make refunds. The Commission reasoned that FPA §201(b) conferred on it general subject matter jurisdiction over all sales of electricity at wholesale in interstate commerce, that the public entities had agreed to FERC’s exercise of personal jurisdiction over them by voluntarily making sales under the FERC-approved tariffs of the ISO and PX, and that they had thereby waived the statutory and decisional exemptions that otherwise apply to sales outside of FERC-regulated wholesale markets.

Bonneville Power Administration v. FERC

In Bonneville Power Administration v. FERC, No. 02-70272, decided September 6, 2005, a unanimous panel of the U.S. Court of Appeals for the Ninth Circuit held “that FERC does not have refund jurisdiction under FPA §206 with respect to governmental entities and non-public utilities.” It concluded that the plain text of the FPA unambiguously excludes such sellers from FERC’s refund authority.

First, §201(f) provides that no provision in Part II of the FPA applies to government utilities unless expressly specified. §§205 and 206 of the FPA, the only provisions authorizing FERC to order refunds of unjust and unreasonable rates and charges, are contained in Part II. Second, §§205 and 206 are expressly limited to rates charged by a “public utility.” Under the FPA’s definitional provisions, a government utility cannot be a “public utility.” Third, by decisions still in effect, FERC has ruled that an electric cooperative financed under the Rural Electrification Act is not a “public utility” subject to its jurisdiction.

Because Congress’s intent is plain from the statutory text, FERC’s contrary construction of the FPA deserved no deference under the “Chevron” doctrine, and FERC’s arguments based on legislative history are irrelevant. In any event those arguments were directly inconsistent with FERC’s determinations in recent cases that the legislative history shows an intent to deny it any jurisdiction over non-public utilities. Indeed, the Court held, it is FERC’s own controlling prior decisions, not its interpretation new-found for purposes of the California crisis, that are consistent with a plain reading of the FPA.

The Court categorically rejected FERC’s argument that it was simply resettling prices in the PX and ISO markets, on the ground that the Commission’s July 25, 2001 order was plainly directed at determining refunds under §206, not at resettlement of transactions in those markets. The court also rejected FERC’s theory that its general subject matter jurisdiction over electricity sales at wholesale gives it jurisdiction to order refunds by non-public utilities despite the express limitations in §201(f) and §§205 and 206. As a matter of statutory construction, such specific limitations always prevail over general grants of regulatory authority. As for FERC’s theory that it acquired refund jurisdiction by waiver or agreement, the Court ruled that regulatory jurisdiction can be conferred only by Congress, not by a seller’s agreement, waiver, or voluntary participation in FERC regulated-markets.

In passing the Court observed that non-public entities which participated in the ISO and PX markets may be subject to state law contract claims, but it declared “we take no position on remedies available outside the FPA.” It also noted that in §1286 of the Energy Policy Act of 2005, Pub. L. 109-58, approved August 8, 2005, Congress has granted FERC new authority to order large government utilities to make refunds in specifically delimited circumstances. The amendment, it said, comports with its interpretation in this case. This observation appears to recognize implicitly that FERC’s new authority is not retroactive.

It is unlikely (albeit theoretically possible) that either the Ninth Circuit en banc or the Supreme Court will grant further review of this straight-forward statutory decision. If unmodified, the decision will affect the California Refund Proceedings, and may affect other cases at FERC in which refunds might be sought from non-public utilities because of their participation in FERC-regulated markets.