Energy Legal Blog

FERC Dismisses CARE Complaints, Defends Market-Based Rate Program

In an order issued at its April 19 meeting, FERC dismissed two of several pending complaints by the CAlifornians for Renewable Energy (CARE) that urged FERC to abrogate two contracts:  one between Southern California Edison (SCE) and Long Beach Generation, and the other between Pacific Gas & Electric (PG&E), Metcalf Energy Center, and Los Medanos Energy Center.  The California Public Utilities Commission (CPUC) approved both of the contracts as part of its resource adequacy program.  CARE argued that, based on the Ninth Circuit's 2004 decision in State of California ex rel. Lockyer v. FERC and its recent "Long-Term Contracts" decisions (Snohomish PUD v. FERC and CPUC v. FERC), the PG&E and SCE contracts at issue were not just and reasonable and had not been pre-filed with FERC for approval, and thus were not entitled to protections of the long-standing Mobile-Sierra doctrine.  While FERC could have dismissed CARE's complains based on their lack of real factual support or development, the Commission took the opportunity to address the merits of CARE's assertions regarding the meaning of the Ninth Circuit decisions.

FERC defended its market-based rate program on several grounds:  First, FERC emphasized that the court in Lockyer had actually upheld FERC's market-based rate regime.  According to FERC, Lockyer's holding was that the Commission had failed to properly oversee the dysfunctional California energy markets during the 2000-2001 crisis by ensuring adequate compliance with its reporting requirements, meaning that sellers could be subject to retroactive refunds for those sales.  Addressing the Long-Term Contract cases, it appears that FERC's view is a narrow one, i.e., that the court held that the Mobile-Sierra protection will apply when certain factors have been met, including whether FERC provided adequate oversight of the markets in which contracts were negotiated and whether it considered changed market circumstances in deciding whether contracts negotiated in those markets remained just and reasonable. 

FERC also defended its efforts to improve the markets, emphasizing its approval of a significant overhaul of the California market (the MRTU market design);  FERC's enhanced reporting requirements, market oversight, and increased enforcement authority to address manipulation; FERC's guidance regarding reporting to the various price indices; and the Commission's ongoing effort to strengthen its market-based rate program.  FERC made clear that it considered the California crisis to be a "perfect storm" of events that are unlikely to reoccur in the future.  FERC thus determined that the contracts here did not need to be submitted for prior review, testing whether the Ninth Circuit meant what it said when it held that the market-based rate program is still valid as long as certain protections are in place.  Of course, the court has yet to bless many of these reforms, so it remains to be seen whether FERC's efforts will be sufficient.