Remember the Energy Crisis? FERC Refund Orders OK

(via Lawrence Berkeley Nat. Labs)

A decade after California’s energy “crisis” spawned blackouts and political upheaval, and even some indictments, courts are still sorting out regulatory actions of that period.

The 9th Circuit Court of Appeals split 2-1 Monday, holding the Federal Energy Regulatory Commission (FERC) acted properly when it ordered public and private power companies to retroactively refund consumers for extortionate electricity rates.

That’s because the refund wasn’t really an order imposed on public entities, just the setting of fair and reasonable rates to figure out what the private utility refunds should be.

The ruling comes even though FERC does not regulate government-owned utilities and so, they argued, FERC lacked jurisdiction to order them to comply.

Not once in the opinion did the name ENRON come up.  Enron took advantage of holes in the newly deregulated system in California to game energy prices and eventually several ENRON traders were indicted and went to prison.  The company collapsed in an accounting scandal, with the massive energy trading fraud a mere sidelight.

Back in the mid-1990s, California deregulated its electricity and created two agencies, one to auction electricity and the second to manage the flow of power on the state’s transmission lines.

Artificially created unnatural shortages of electricity and taking plants offline during peak usage periods created unnatural price spikes during winter months.  Even though Californians were using less power during January of 2000 than they had the previous summer, the shortages caused widespread blackouts and rolling power outages.

Pacific Gas & Electric Co. complained to FERC in 2000 that auctioned rates far exceeded fair market levels.  FERC ordered public and private companies to pay refunds.

Government-owned utilities challenged the order, accusing FERC of retroactively resetting rates.  The 9th Circuit held that FERC lacked jurisdiction over government power companies under the Federal Powers Act and could not compel refunds.

But the divided panel also said private utilities that bought the government power could pursue breach-of-contract claims in lieu of the FERC refund.

Judge Richard Clifton said FERC had to make several tries to get its orders right, but in 2009 FERC clearly acknowledged that it did not have authority to order refunds from non-public utilities.  It was only establishing just and reasonable rates “in order to determine the appropriate refund amount for public entities.”

In dissent, Judge Margaret McKeown criticized the majority for what she called a “surprise twist ending.”

The majority holds that “FERC merely declared fair market clearing prices without actually attempting to ‘retroactively alter’ these prices.  This semantic resolution is at odds with the record and basic principles of administrative law,” she said.

She argued the FERC orders clearly go beyond its statutory authority.

The government-owned utilities that appealed included the city of Redding, Arizona Electric Power Cooperative, Northern California Power Agency, Bonneville Power Administration and Western Area Power Administration.

Case:  City of Reading v. FERC, No. 09-72775




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