Still Not Out of the Woods: Ninth Circuit Affirms Limits on FERC Jurisdiction Over Publics But Leaves Damages Door Ajar

Earlier today, the U.S. Court of Appeals for the Ninth Circuit issued an opinion confirming that the Federal Energy Regulatory Commission (“FERC”) cannot order publicly-owned utilities to pay refunds. However, the opinion may leave the door open for damages to be awarded against public power entities in other forums such as federal courts.

Today’s opinion, City of Redding, California v. FERC, comes more than a decade after the events giving rise to the litigation, the rampant dysfunction of the California electricity market and the resultant meltdown of markets across the West that occurred from May 2000 through June 2001. The litigation revisits a fundamental question under the Federal Power Act, namely, whether FERC has authority to disgorge refunds from federal power marketing agencies like Bonneville Power Administration and publicly-owned utilities like the City of Redding’s municipal utility. In 2005, the Ninth Circuit appeared to have settled this question. In Bonneville Power Administration v. FERC, the Court held that FERC’s authority to order refunds is limited to investor-owned utilities, and that it therefore lacks authority to order Bonneville and other publicly-owned entities to pay refunds. The Court suggested, however, that its opinion would not necessarily bar lawsuits against Bonneville and other non-jurisdictional entities in state or federal courts.

On remand, FERC vacated its previous orders requiring public power entities participating in the California markets to pay refunds. Nonetheless, FERC concluded that the “market-clearing price” — the price that theoretically would have resulted if competition had not been distorted by market manipulation and dysfunction — must be reset across the board. While, as Ninth Circuit Judge Margaret McKeown observed in her partial dissent, FERC’s remand orders “were hardly a model of clarity,” the orders seem to suggest that the new market-clearing price could be the basis for the California entities to seek damages against Bonneville and other public power utilities in court. The public power entities filed appeals attacking the latter conclusion in the Ninth Circuit.

In today’s opinion, the Ninth Circuit again sided with public power on the larger issue of FERC authority, concluding that “Congress did not provide FERC with retroactive ratesetting authority over non-jurisdictional sellers.” Nonetheless, the Court declined to vacate the FERC orders, concluding that, while FERC reset the market-clearing price across the board, it did so only as a means to calculate the refunds owed by FERC-jurisdictional utilities. Nonetheless, the opinion leaves open the possibility that FERC’s determination to reset the market-clearing price during the crisis period might be used as the basis for claims against Bonneville and other public power entities in non-FERC forums.

Judge McKeown, in a strongly-worded dissent, agreed with the majority that FERC lacks the power to order retroactive refunds against public power entities. But she disagreed with the majority’s conclusion regarding the limited impact of the FERC orders. Instead, she read those orders as attempting to “retroactively reset market rates for all entities. . . without the necessary legal authority.”

While the Ninth Circuit has once again reaffirmed that FERC lacks jurisdiction to order refunds from publicly-owned utilities, the decision may leave the door open for a recovery of damages against those entities in non-FERC forums. This result is particularly unfortunate for public power in the Northwest because any damages ultimately paid by Bonneville will come out of the pockets of the public power ratepayers who must ultimately bear all of Bonneville’s costs.