State of California v. FERC

Under § 205 of the Federal Power Act, in consideration of relief for transaction reporting violations, the Federal Energy Regulatory Commission must not structure the remand process to limit its review to proof of market concentration under its hub-and-spoke test, or exclude an enforceable transaction reporting requirement.

In Lockyer v. FERC, the Ninth Circuit remanded, and held that the Federal Energy Regulatory Commission (“FERC”) could authorize market-based energy tariffs, as long as the process required both “an ex ante market power analysis and enforceable post-approval transaction reporting.” On remand, the State of California (“State”), along with other parties, filed claims for a possible refund of the amount sellers charged in excess of just and reasonable rates during the 2000-2001 California energy crisis. FERC denied the claims because the structure given to the administrative law judge (“ALJ”) for the proceeding specifically ordered to use the hub-and-spoke test to determine sellers’ market power. The State urged the FERC to rehear the claims, and to comply with the mandates established in Lockyer, however, after several denials, the State petitioned to the Ninth Circuit for judicial review. The State claimed that FERC “violated the Federal Power Act (‘FPA’) by requiring proof of excessive market share as a necessary condition for relief for transaction reporting violations.” The panel found that the structure requiring the ALJ to use the hub-and-spoke test, and to exclude transaction reporting, were contrary to the terms in Lockyer, and inadequate to consider whether a reported rate was just and reasonable. Furthermore, by only using the test, sellers would essentially be shielded from liability for reporting violations, thereby being contrary to the FPA. Thus, the panel granted the petition, and remanded again for adjudication of the claims with respect to Lockyer and the FPA. The panel emphasized the need of “the dual requirement of an ex ante finding of the absence of market power and sufficient post-approval reporting requirements.” FERC must evaluate both in order to properly determine whether the rates were unjust and unreasonable. PETITION GRANTED; REMANDED.