Academic journal article Energy Law Journal

CALIFORNIA EX REL. LOCKYER V. FERC: IN WHICH THE 9TH CIRCUIT TELLS THE FERC "YES, YOU CAN"

Academic journal article Energy Law Journal

CALIFORNIA EX REL. LOCKYER V. FERC: IN WHICH THE 9TH CIRCUIT TELLS THE FERC "YES, YOU CAN"

Article excerpt

I. INTRODUCTION

In California ex rel. Lockyer v. FERC,1 the United States Court of Appeals for the Ninth Circuit ruled on yet another aspect of the legal fallout from the California electric wholesale market meltdown of 2000-2001.2 This particular case is an appeal from a Federal Energy Regulatory Commission (FERC) adjudication in which California attacked the limits of the FERC's authority over rate-making for jurisdictional utility companies. The state made a facial attack on the FERC's authority to authorize market-based rates, claiming that the authority granted to the FERC by Congress in section 205 of the Federal Power Act (FPA),3 did not include non-traditional market-based rates.4 In the alternative, California argued that the FERC had not properly administered those rates, that the rates were unjust and unreasonable, and that therefore the state and its utilities were owed refunds of up to $2.8 billion.5

The FERC's response was to deny a substantive hearing of all of these allegations on procedural grounds. The facial attack on its authority was, it claimed, a collateral attack on all of the past FERC actions with regard to market-based rates and, as such, was impermissible.6 Any breakdown in the administration of the rates was "essentially a compliance issue"7 which was not subject to a retroactive refund as a remedy, and therefore the FERC had no authority to order the type of refunds that California was requesting.8 The response of the Ninth Circuit was to uphold the FERC's authority to authorize and allow market-based rates, but to hold the FERC responsible for the proper administration and enforcement of those rates. To each claim that the FERC lacked authority to do something, be it to set market-based rates or require retroactive refunds, the response of the Ninth Circuit was to tell the FERC, "Yes, you can."

This note will give a brief factual history of the California wholesale electricity markets as they unbundled rates and the procedural history specific to this case. The Analysis section will be an overview of the reasoning of the court and its implications for future FERC action with regard to the three issues of the case: the facial validity of market-based rates; the technical requirements of those rates; and, the FERC's authority when those requirements are violated.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

1. Electricity Unbundling

With FERC Order No. 8889 in 1996, the FERC began the process of moving the wholesale electric power industry toward market-based, unbundled rates. The theory behind this unbundling was that by separating generation, transmission, and distribution functions, the industry could be functionally competitive in the markets that would support competition. The industry would still be regulated in those aspects where there was market power or a lack of competition. To that end, Order No. 888 included a series of regulations that would allow for the creation of competitive markets for wholesale electric power.10 These included the creation of a series of independent regional transmission companies that would allow the development of a competitive electric transmission market.11 The fundamental issue was that there be unbiased and independent access to the wholesale electricity market to allow for competition and the benefits flowing from it.12

2. The California Market13

In response to the deregulatory atmosphere at the federal level and to take advantage of the potential for lower market-based rates, the State of California created an independent system operator (CaIISO).14 California also created a wholesale clearinghouse for electricity transactions called the California Power Exchange Corporation (CaIPX).15 With these prerequisites in place, the state began to operate its electric purchasing market, through CaIPX and CaIISO, under the FERC authorized market-based rates in March of 1998.16

In the summer of 2000, California experienced a catastrophic market failure in its wholesale electricity markets. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.