2003 Court Opinion Case Summaries
TO: Members of the Energy Bar Association
FROM: John E. McCaffrey, Secretary
Gary E. Guy, Assistant Secretary
SUBJECT: 2003 Energy-Related Court Opinions
Attached is a list of energy-related opinions issued by federal courts during 2003, along with a brief summary of each opinion. In recognition of the prevalent use of electronic mail by its members, the Association is now distributing the opinion via e-mail, with hard copies available upon request. For the convenience of the Association’s members, we have included, where available, an internet hyperlink in each opinion summary that will allow for instant retrieval of the opinion from the Internet. Due to the availability of most court decisions in electronic format, the Association is no longer providing hard copies of court decisions. The Association encourages the members to use the Internet links provided to access the full text of the court decisions.
Finally, due care has been taken to ensure that all relevant energy-related court opinions have been included in this report. If members are aware of energy-related court opinions issued during 2003 that are not included and that likely would be of interest to the Association’s membership, please contact Gary E. Guy at 410-234-5208, or by e-mail at email@example.com.
UNITED STATES SUPREME COURT
United States v. Navajo Nation, 537 U.S. 488 (March 4, 2003)
Native American tribe brought suit against the United States for breach of trust in connection with the Secretary of Interior’s approval of amendments to coal lease between the tribe and coal company under the Indian Mineral Leasing Act of 1938 (IMLA). The tribe alleged that the Secretary breached her fiduciary duties in approving a royalty rate that was less than justified, as a draft DOI decision indicated. The tribe also alleged that the Secretary had improperly derailed approval of a higher royalty rate by engaging in ex parte contacts with the coal company, delaying the draft decision and misleading the tribe of the status of the DOI decision. The District Court granted summary judgment in favor of the United States on the grounds that the tribe did not link the government’s breach of fiduciary duty to any statutory or regulatory obligation which could be interpreted as mandating compensation for a fiduciary breach. The Court of Appeals for the Federal Circuit reversed, finding that the degree of control exercised by the U.S. over mineral leases on tribal lands sufficed to warrant a money judgment against the United States for breach of fiduciary duty.
The Supreme Court reversed. The Court found that its decisions in United States v. Mitchell, 445 U.S. 535 (1980) and United States v. Mitchell, 463 U.S. 206 (1983) were controlling. The tribe alleged subject matter jurisdiction pursuant to the Indian Tucker Act, 28 U.S.C. § 1505, which, the Court found, is not a grant of substantive rights. The Court explained that, under its decisions in Mitchell I & II, to state a claim, the tribe was required to identify a substantive source of law establishing specific fiduciary or other duties, and allege that the government failed faithfully to perform those duties. If this showing is made, a court is required to determine whether the relevant source of substantive law can fairly be interpreted as mandating compensation for damages sustained as a result of a breach of the duties the governing law imposes. The Court explained that even where a trust relationship exists, the analysis must focus on specific rights-creating or duty-imposing statutory or regulatory prescriptions to support an inference that money damages for breach of such obligations is appropriate.
The Supreme Court found that the IMLA’s provisions regarding approval of coal leases between tribes and coal producers did not provide the type of substantive law that could mandate compensation by the government under Mitchell I & II. The Court found that the tribe failed to identify any standards circumscribing the Secretary’s affirmation of coal mining leases negotiated between a tribe and a private lessee other than a statutory minimum royalty, which was exceeded here.
As to the alleged ex parte communications and interference by the Secretary, the Court again found that the law governing the decisionmaking process imposed no substantive standards which would support a claim for monetary damages if violated.
Justice Souter, joined by Justices Stevens and O’Connor, dissented, reasoning that the Secretary’s obligation to approve leases imposed a fiduciary duty sufficient to support an action under Mitchell I & II. This duty, together with evidence of the below-market level of the approved rate and the Secretary’s actions which limited the tribe’s bargaining power, were sufficient to state a claim.
Entergy La. Inc. v. La. PSC, 539 U.S. 39 (June 2, 2003)
The Supreme Court held that a FERC tariff that delegates discretion to the regulated entity to determine the precise cost allocation preempts a state agency decision that adjudges those costs imprudent. One of five public utilities owned by a multistate holding company challenged a Louisiana Public Service Commission ruling not to consider the utility’s cost equalization payments to affiliated energy companies in other jurisdictions for shared capacity in establishing the utility’s retail rates. Each of the affiliates shares access to additional capacity when demand exceeds capacity for that company alone. The costs associated with the excess capacity are shared among the companies as well. FERC approved the cost sharing arrangement through its regulation of the parent holding company. The costs that were allocated under the FERC approved tariff to the Louisiana utility were disallowed from retail rates by the state commission. The Supreme Court ruled that this constituted an impermissible trapping of costs, and disallowed the Louisiana agency from second-guessing the cost allocation arrangements set by FERC.
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Consolidated Edison Co. v. FERC, 315 F.3d 316 (D.C. Cir. January 17, 2003)
Customers of an interstate natural gas pipeline challenged FERC’s approval of “rolled-in” pricing for pipeline expansion projects, contending that the agency acted arbitrarily and capriciously by evaluating the rolled-in pricing proposal under a 1995 pricing policy that had been superseded by a 1999 pricing policy during the pendency of the case. The Court found that FERC is only required to apply a new rule retroactively if it has the “force of law,” which the Court found the 1999 policy statement did not. The Court found that the 1999 policy was non-binding and specifically stated that it was intended to apply in future cases. FERC was only required to provide a reasoned explanation for following the 1995 policy statement. The Court found that FERC satisfied this requirement based on “administrative convenience,” insofar as the 1995 policy was not unreasonable or unlawful and the case had been fully litigated under the standards of the 1995 policy.
Exxon Mobil Corp. v. FERC, 315 F.3d 306 (D.C. Cir. January 17, 2003)
Natural gas producers shipping gas on the facilities of Transcontinental Gas Pipe Line Corporation (Transco) challenged FERC orders denying Transco’s proposal to implement “firm-to-the-wellhead” (FTW) rates to replace its interruptible service in the production area. Under Transco’s existing approach, producers contracted for the IT service in the production area, but Transco’s proposal would have resulted in downstream firm shippers having to contract for firm capacity in the production area. FERC rejected Transco’s proposal as unjust and unreasonable on the grounds that the proposal would amount to a modification of the downstream shippers’ contracts. Even though the contracts contained “Memphis” clauses, FERC ruled that the clauses did not encompass the modification proposed by Transco because the filing would require the customers to take additional service. The Court observed that FTW rates were generally permissible, and, thus, the validity of FERC’s ruling hinged upon whether Transco’s FTW proposal would be a contract modification that was not authorized by the Memphis clauses in the shippers’ contracts. While agreeing, in principle, that a Memphis clause ordinarily could not be used to force a customer to take an additional service, the Court found that FERC, in another order, had indicated that the downstream shippers were already entitled to rights of firm shippers on the production area facilities. The Court remanded for FERC to reconcile its conflicting positions.
Duke Energy Trading and Marketing, L.L.C. v. FERC, 315 F.3d 377 (D.C. Cir. January 21, 2003)
An interstate natural gas pipeline filed, under Section 4 of the Natural Gas Act (NGA), to modify its system for allocating interruptible capacity. The pipeline proposed to rank bidders for IT capacity using a “revenue-based” system calculated by multiplying the per-mile charge by the distance of haul. Any ties would be broken using a pro rata allocation. FERC rejected the proposal as unduly discriminatory against short-haul customers. The pipeline filed a revised proposal allocating all maximum rate capacity on a pro rata basis, which FERC approved. On appeal, the Court rejected petitioners’ claim that the pipeline’s second proposal was identical to its first and thus should have been rejected. The Court found that FERC’s rejection of the first proposal was based on potential discrimination against shorter-haul customers, a problem not presented by the revised pro rata allocation proposal. The Court also rejected petitioners’ argument that FERC did not support its finding that the pipeline’s proposal would allocate capacity more efficiently than its pre-existing approach. The Court noted that this argument rested on a “fundamental misunderstanding of the inquiry under Section 4 of the Natural Gas Act,” because “[n]othing in Section 4 requires the pipeline to prove that its proposal is more just and reasonable than its existing system.”
Florida Municipal Power Agency v. FERC, 315 F.3d 362 (D.C. Cir. January 21, 2003)
Municipal power agency challenged FERC’s denial of transmission pricing credits for network transmission service on a system owned by an investor-owned utility. The Court of Appeals affirmed, holding that FERC had not violated the “comparability principle” of Order No. 888 because a separate, ongoing rate case would address whether “comparable” IOU assets would be excluded from the network transmission rate base. The Court also upheld FERC’s refusal to consolidate the ongoing IOU rate case with the pricing credit case. The Court also found that, although FERC’s orders were not entirely clear on the point, substantial evidence supported the finding that the municipal power agency facilities did not satisfy the Order No. 888 “integration” test supporting pricing credits. Finally, the Court did not agree that FERC’s standard market design notice of proposed rulemaking required a remand under the holding of Williston Basin Interstate Pipeline Co. v. FERC, 165 F.3d 54 (D.C. Cir. 1999) (agency adoption of new rule during pendency of appeal requires remand of cases involving discarded rule).
PG&E Gas Transmission, Northwest Corp. v. FERC, 315 F.3d 383 (D.C. Cir. January 21, 2003)
This decision is a companion case to Duke Energy Trading and Marketing, L.L.C. v. FERC, 315 F.3d 377 (D.C. Cir. 2003), summarized above. Here, the Court addressed FERC’s rejection of the pipeline’s initial proposal to allocate interruptible capacity to shippers using a revenue-based system that determined the allocation by multiplying the per-mile charge by miles of haul. FERC had rejected the proposal as unduly discriminatory against shorter-haul shippers. On appeal, the Court rejected FERC’s argument that the appeal had been mooted by the pipeline’s filing of an alternative proposal. The Court found a controversy existed and that the pipeline’s “injury persists in that [the pipeline] has been precluded from implementing its preferred method of allocation.” On the merits, the Court agreed that FERC had failed to address adequately the pipeline’s arguments that FERC had previously accepted distance-based allocation methods and held that such methods did not constitute undue discrimination against short-haul shippers. The Court found that “FERC’s failure to come to terms with its own precedent reflects the absence of a reasoned decisionmaking process.” The Court vacated and remanded for further proceedings.
Golden Spread Elec. Coop., Inc. v. FERC, 319 F.3d 522 (D.C. Cir. February 11, 2003)
Petitioner wholesale electric customer appealed FERC’s grant of authority for one of its wholesale power suppliers to make market-based sales to the supplier’s affiliate. Petitioner had objected that such market-based rate authority potentially would allow the supplier to circumvent Petitioner’s contractual protections against exercise of market power by the supplier. While addressing skepticism at the ultimate viability of Petitioner’s arguments, the Court nonetheless found that FERC did not adequately explain its reasons for rejecting the Petitioner’s protest and remanded.
Entergy Services, Inc. v. FERC, 319 F.3d 536 (D.C. Cir. February 18, 2003)
Electric utility appealed FERC orders requiring the utility to revise proposed interconnection agreements that called for direct assignment of costs to remedy short-circuit and stability problems to new interconnecting generators. FERC required the utility to revise the agreements so that all customers shared in the costs of network upgrades, on the grounds that all customers benefit from such upgrades. The Court affirmed FERC, finding, contrary to the petitioner’s assertions, that FERC’s order had not represented a departure from prior policy, and, even if the order could be so characterized, FERC had adequately explained its reasoning. While finding some merit in the argument, the Court also concluded that FERC adequately justified its conclusion that short-circuit and network stability upgrades benefit all users of the transmission grid. The Court accepted FERC’s rationale that its pricing policy minimizes the incentive for utilities to gold plate their systems at customers’ expense and creates more accurate price signals by placing new generators on an equal footing with pre-existing, utility-owned generation whose transmission costs were generally rolled into rate base. The Court also upheld FERC’s conclusion that it was not obligated to perform a factual analysis of the benefit provided by the upgrades, as the utility had stated that the upgrades were intended to resolve certain problems. The Court also credited FERC’s conclusion that its policy did not result in cross subsidization by native load customers because native load customers benefited from the upgrades.
Alabama Rivers Alliance v. FERC, 325 F.3d 290 (D.C. Cir. April 11, 2003)
FERC was found to have committed error under the Clean Water Act by authorizing a power company to install replacement turbine generators at a dam project that would increase water flow into the river. The court vacated FERC’s issuance of a licensing amendment without first requiring the company to obtain a water quality certification from Alabama, the state of origination of discharges into navigable waters resulting from the proposed turbine generators. While issuance of a license is within the exclusive authority of FERC, the court ruled that limitations contained in state certifications concerning such discharges must be included in FERC licenses.
The ruling was made on the basis of statutory interpretation of the Clean Water Act, a statute not committed to FERC administration but rather one administered by the Environmental Protection Agency. As such, the Court ruled that no deference was owed to FERC’s interpretation, and a de novo standard of review was employed over this purely legal question.
Chippewa & Flambeau Improvement Co. v. FERC, 325 F.3d 353 (D.C. Cir. April 18, 2003)
FERC was upheld in its determination of jurisdiction to require a license under the Federal Power Act for its reservoir on a river in Wisconsin. The reservoir had been approved in 1924 without approval of FERC’s predecessor, the Federal Power Commission, based on a finding that the dam would not affect interstate commerce because the waterway was not navigable. State jurisdiction alone applied. But in a series of rulings involving relicenses of six downstream plants, FERC concluded that the plant was part of the complete development of those projects, and therefore subjected it to licensing under the Federal Power Act. The court found that FERC made its FPA determination that the reservoir is “necessary and proper” to a licensed project using a proper case-by-case approach of balancing a series of relevant factors for which the agency must be afforded latitude in exercising reasoned decisionmaking.
PG&E v. FERC, 326 F.3d 243 (D.C. Cir. April 25, 2003)
The Court of Appeals ruled that FERC correctly barred a utility from submitting a Federal Power Act Section 205 rate increase filing for energy costs because the filing was in violation of the unambiguous term of a contract precluding such a filing. However, the court vacated and remanded FERC’s ruling that the contract also precluded the utility from submitting a Section 205 application to increase transmission rates. The contract required a joint review of costs between the utility and its customer as a precondition for such a filing, and the court found that there was a factual issue as to what constitutes such a joint review and whether such a joint review took place as the utility alleged.
In an interesting passage of its opinion, the court observed that the FERC administrative law judge had made a ruling based on a citation to nothing other than a ruling by another FERC administrative law judge. The Court observed that FERC itself did not explain or defend the law judge’s particular ruling. The two law judges had stated that when determining if a rate filing is barred by a contract under the Mobile-Sierra doctrine, whether or not the action of a party is substantially in compliance with contractual requirements is not a proper test. The Court expressed the contrary view that trivial defaults in meeting contractual requirements are not normally fatal. For its authority, the court cited Williston’s Treatise on the Law of Contracts.
Intermountain Municipal Gas Agency v. FERC, 326 F.3d 1281 (D.C. Cir. April 29, 2003)
Petitioner, a municipal gas association, wanted a gas company to deliver gas to its members for delivery across state lines and in some cases back into the state for ultimate consumption. The company refused to do so on the basis of a FERC declaratory order that such transportation to the municipalities would cause the utility to lose its Hinshaw exemption from Natural Gas Act jurisdiction. Two of the issues raised on appeal were rejected on procedural grounds because they were not raised in the rehearing application before FERC. The third issue was rejected on the merits. The municipal association argued that the Hinshaw exemption should not be taken from the utility for transporting to the municipalities because they are exempt from the NGA, and therefore the subsequent transportation of the supply across state lines should have no bearing on the Hinshaw status of the utility. The court declined to express an opinion on whether FERC may regulate the interstate transportation of natural gas by a municipality. But the court held that FERC was correct in ruling that the Hinshaw pipeline would have lost its exemption from FERC regulation by entering into the transaction.
Atlantic City Electric Co. v. FERC, 329 F.3d 856 (D.C. Cir. May 20, 2003)
The Court of Appeals granted a petition for issuance of a writ of mandamus to FERC requiring it to comply with the court’s prior decision invalidating FERC’s orders that purported to mandate the transfer of FPA Section 205 rate-filing authority from transmission owners to the PJM Regional Transmission Organization that they joined voluntarily. Atlantic City Elec. Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002). The court ruled that FERC erred in reaffirming its prior rulings on remand whereas the court had previously vacated the orders as unlawful. The court stated that the matter had not been remanded for the purpose of eliciting a further explication by FERC of its previous ruling. Rather, the court stated that it fully understood the basis for FERC’s ruling when the matter came to the court, and that the court had expressly disagreed with FERC that the agency had any authority under law to deprive an electric utility of rights set by statute. The court held that FERC cannot unilaterally reinstate an order found to be unlawful but can only appeal such an appellate ruling to the next level of review, the United States Supreme Court.
Ameren Services Co. v. FERC, 330 F.3d 494 (D.C. Cir. June 6, 2003)
FERC was upheld in its interpretation of a statement of principles accompanying a settlement as prohibiting certain costs from rates to the extent that they were incurred prior to the effective date of the settlement. Ameren had filed an unexecuted service agreement that included increases in distribution charges from its affiliate utilities to the customer despite the moratorium provided in the settlement for any changes from these charges provided in the settlement documents. The court upheld FERC in concluding that there was no ambiguity in the settlement that required extrinsic evidence nor were the charges listed therein illustrative or otherwise subject to change during the settlement’s term.
City of Tacoma v. FERC, 331 F.3d 106 (D.C. Cir. June 10, 2003)
FERC was reversed for failing to satisfy statutory requirements to review agency reports concerning Federal Power Act implementation costs before approving their inclusion in rates. Section 10(e)(1) of Part I of the FPA was amended under the 1992 Energy Policy Act to provide that federal and state agencies be reimbursed for work performed to complete required studies of hydroelectric plant relicensing applications. The eight named agencies are to provide reports of these FPA-related costs to FERC for its review and approval for inclusion in rates. At issue on review was whether FERC is to determine if the costs are reasonable or whether it is merely to determine whether the rate design methodology for collecting the costs is reasonable. FERC advocated the latter statutory interpretation of its responsibility under the FPA but the court disagreed. Finding that FERC was abdicating to the other federal agencies its obligation to “fix” the amounts of the charges, and that FERC’s interpretation was inconsistent with another FPA provision (Section 30(e)) that was in pari materia, the court vacated FERC’s orders and remanded the case for further proceedings.
East Texas Elec. Coop., Inc. v. FERC, 331 F.3d 131 (D.C. Cir. June 13, 2003)
The Court of Appeals upheld FERC’s traditional ratemaking principles of cost causation and benefits for allocating network transmission revenues to participants within a power pool under the auspices of Order No. 888 open access policies. However, the court remanded the case to FERC for failure to articulate the basis for its factual findings that the small electric cooperative petitioner was not sufficiently integrated with the power pool system to share in the allocation of network transmission revenues. The court left it to FERC’s discretion as to whether a hearing was necessary for it to reach the specified factual determinations.
Williams Gas Processing—Gulf Coast, L.P. v. FERC, 331 F.3d 1011 (D.C. Cir. June 20, 2003), petitions for cert. denied (January 12, 2004)
Petitions for review were denied for failure to show that FERC’s decisions were outside a “zone of reasonableness.” FERC approved the abandonment and spin-down of certain facilities to an affiliate of the pipeline based on findings that they were gathering facilities, exempt from FERC jurisdiction. FERC also denied the pipeline’s application with respect to certain other facilities by finding that they continue to qualify as transmission facilities under the Commission’s modified primary function test. The pipeline appealed the partial denial of its abandonment application, and a group of producers appealed the partial approval of the abandonment application. The court ruled that FERC looked at a series of factors and made a reasonable case-by-case assessment. It rejected arguments that FERC acted inconsistently with prior decisions in other cases because the various factors under consideration were present or absent in different degrees in each instance. The court further held that unbundling brought about by Order No. 636 provided a reasonable basis for allowing abandonment of previously certificated facilities based on the pipeline’s explanation that those facilities were no longer needed to provide unbundled transportation-only service. Accordingly, both sets of appeals were denied and FERC was upheld in all respects.
Detroit Edison Co. v. FERC, 334 F.3d 48 (D.C. Cir. July 8, 2003)
FERC was reversed in purporting to exercise jurisdiction over unbundled retail rates. The court ruled that unbundled retail service is exclusively within state jurisdiction even when the same facilities used for distribution service are also used for interstate transmission service. The court also ruled that states cannot voluntarily cede that authority when it unbundles retail service or if a public utility voluntarily provides such service. The court upheld the petitioner’s claim that impermissible forum shopping would result whereby a customer could escape stranded costs by electing to take distribution service under a FERC-approved tariff. FERC’s action in accepting a tariff provision that would permit retail distribution service was held to be reversible error even when applying due deference to FERC under the Chevron doctrine.
Northern Natural Gas Co. v. FERC, 335 F.3d 1089 (D.C. Cir. July 25, 2003)
FERC was reversed for rejecting a discount tariff rate utilizing a fluctuating index that otherwise came within the authorized minimum and maximum range specified in the tariff. The pipeline already had a FERC-approved tariff providing for discounted rates within a prescribed range. But when the pipeline sought to add a new category of discounted rates based on a price index, FERC disapproved it. FERC was concerned that the rate would not be fixed but could change many times over within a contract period whereas discounts are usually intended to keep overall rates fixed by making adjustments to components of rates. The court ruled that the degree of variation should not matter as long as the rate stays within an acceptable band and is tied to an objective price standard.
Missouri PSC v. FERC, 337 F.3d 1066 (D.C. Cir. August 12, 2003)
FERC had previously been reversed and ordered to undertake another review of its approval of initial rates for a newly certificated natural gas pipeline consisting of three affiliated interconnecting companies that had been subject to state regulation. In its prior order at Missouri PSC v. FERC, 234 F.3d 36 (D.C. Cir. 2000), the Court ruled that FERC erred in accepting state-approved rates for the pipeline’s predecessor as initial certificate rates. On remand, FERC again approved of the same rates for different reasons than it had before, and the state commission again appealed. In the instant decision, the court again found FERC’s reasoning arbitrary and capricious, vacated FERC’s rulings, and remanded the proceeding.
FERC did not follow normal cost based rate principles in setting the initial rates under NGA Section 7, and it subsequently approved lower NGA Section 4 rates. FERC argued that this departure was reasonable because the pipeline was neither a new entity nor an existing jurisdictional entity but instead presented unique circumstances in that it was a state jurisdictional company coming under FERC jurisdiction. The court found that rationale insufficient. It held that in establishing rates based on the terms of a major loan agreement FERC failed to exercise independent judgment, as is its responsibility. The decision of another agency in approving the rates and the agreements of parties to commercial terms were not permissible substitutes for FERC's own independent examination and fact-finding according to the court.
Marseilles Land & Water Co. v. FERC, 345 F.3d 916 (D.C. Cir. October 10, 2003)
The Court of Appeals denied a petition for review of a FERC order holding that the petitioner’s preliminary permit to study the suitability of a hydroelectric project site gave it no preference over a competing development application because the petitioner failed to file a development application by the deadline set in FERC’s notice. The court agreed with the petitioner that FERC’s rules are ambiguous in that FERC’s notice of a preliminary permit application sets a date by which anyone must file a development application, even if it is only the preliminary permit applicant filing to compete against itself. However, the court held that this interpretation of the regulations had already been explained by FERC in a prior decision, which a party before FERC is deemed to have read. In addition, the court ruled that FERC’s interpretation is consistent with FERC’s rules and not a de facto amendment through adjudication, which would have been impermissible.
Williams Companies v. FERC, 345 F.3d 910 (D.C. Cir. October 10, 2003)
The Court of Appeals upheld a District Court ruling that struck regulations promulgated by FERC under authority it claimed under the Outer Continental Shelf Lands Act. FERC required companies providing gas transportation – including gathering – service to provide pricing and service information in order to enhance competition and open access for transporting gas in the Outer Continental Shelf. The court found that FERC has no general statutory authority to impose such broad open access rules under the OSCLA. Rather, the court ruled that FERC has authority, along with the Department of Energy, only to issue “ratable take” orders by which certain portions of oil, gas, or other minerals may be required to be transported or purchased through rights-of-way granted by the Department of the Interior through submerged lands of the Outer Continental Shelf. The court explained that FERC’s limited role is defined by statute and therefore no deference to FERC’s interpretation is warranted, nor is there a basis for resorting to legislative history for any explanation of the statutory text.
Domtar Maine Corp. v. FERC, 347 F.3d 304 (D.C. Cir. October 28, 2003)
The Court of Appeals denied challenges to FERC’s determination that certain dams are not exempt from Federal Power Act licensing requirements in that they operate in navigable waters for purposes of generating electric power. The petitioner argued that two upstream plants that were already licensed should be declared non-jurisdictional because they do not enhance the power-generation capabilities of downstream facilities that are themselves exempt from licensing requirements. The court upheld FERC’s use of two separate thresholds for determining its licensing authority: (i) the collective impact of the upstream and downstream facilities on power generation and (ii) the impact of individual upstream facilities exclusive of their effect on downstream facilities regardless of their dual ownership. The court found that FERC’s determination that jurisdiction applies under the first threshold is sufficient. The court declined another petitioner’s request to remand for consideration of a third possible basis for requiring the facilities to be licensed (namely, the claim that the facilities occupy reservations of the United States), because nothing would be gained by finding another basis for jurisdiction.
Consolidated Edison Co. of New York, Inc. v. FERC, 347 F.3d 964 (D.C. Cir. November 7, 2003) (reh’g denied, January 30, 2004)
The Court of Appeals upheld FERC in disclaiming Federal Power Act authority to order rate reductions retroactively as a remedy for deregulated market price hikes. However, the court remanded the proceeding on the grounds that FERC failed to adequately explain why certain emergency procedures were unavailable, erred in concluding that the independent operator did not violate its tariff in its pricing of different types of reserves, and failed to consider other alleged tariff violations. NYISO operates a Market Monitoring Plan, and Temporary Extraordinary Procedures give it authority to remedy specified problems in the deregulated market. Dramatic price increases were experienced in the bid-based market for non-spinning reserves over a two-month period. NYISO asked FERC to suspend the market-based bids. LSEs requested FERC to direct NYISO to correct alleged market design flaws and refund alleged overcharges. FERC found that the reliability of the market-based pricing was called into question and placed an immediate prospective bid cap without any retroactive relief. The court agreed with the prospective-only nature of the remedy based on statutory rate-change authority. The court found that market flaws can be corrected through rebilling retroactively for more than just mathematical errors under the emergency remedy procedures of the tariff, and that FERC failed to consider requiring such recalculations. The court found that FERC did not address allegations that NYISO itself violated the tariff in its handling of market-based bids because it had already determined that it could not provide a retroactive remedy, whereas such violations of the tariff could have given rise to tariff-based remedies retroactively. For those reasons, the case was remanded.
Southwestern Electric Coop., Inc. v. FERC, 347 F.3d 975 (D.C. Cir. November 7, 2003)
The Court of Appeals denied a petition for review of a FERC decision interpreting the terms of a contract among cooperatives concerning withdrawal rights. The cooperative member paid an exit fee for making an early termination of its membership. It then filed a complaint at FERC contending that it had incorrectly overpaid the exit charge. The cooperative filed a counterclaim for additional payments. Following an initial decision by an ALJ, FERC issued four orders on the controversy, changing its position somewhat in light of additional arguments over ambiguities and technical aspects of the contractual provisions. The court agreed with FERC that the cooperative was not barred from having signed a release from seeking additional payments in its counterclaim because the release is only effective once the proper exit fee is paid, and that amount was still under dispute. The court further upheld FERC’s ruling that the cooperative was not engaging in undue discrimination in seeking additional exit charges because it sought such charges under a formula rate from other withdrawing members. The court concluded that the withdrawal agreement was ambiguous on how to calculate withdrawal charges, except for isolated cost items, which must be followed. As to the ambiguous aspects of the agreement, the court ruled that FERC correctly adopted the interpretation of the cooperative’s witnesses, who participated in the drafting of the agreement over the former member’s witness, who was not involved in those negotiations. The parole evidence of those who participated in the formulation of the withdrawal policy was held to be more closely aligned with the language of the contract than the opposing view, and also served public policy by protecting the members of the cooperative from costs that more properly belong to the withdrawing member.
Keyspan-Ravenswood, LLC v. FERC, 348 F.3d 1053 (D.C. Cir. November 18, 2003)
The Court of Appeals vacated and remanded to FERC its decision to set a price cap on future outage rates based solely on past 12-month data whereas evidence was submitted that wide fluctuations in outage rates can occur from one 12-month period to another due, for example, to major maintenance. The court held that FERC failed to adequately respond to the argument that a longer period of time should be used to set a fixed average price cap in order to better account for anomalies in forced outage rates in 12-month cycles. The court found that FERC was curt in dismissing these claims, and was arbitrary and capricious for reaching its determination without adequate explanation of its rejection of the supporting evidence for a longer forced outage period from which to establish a just and reasonable price cap.
Hydro Investors, Inc. v. FERC, 351 F.3d 1192 (D.C. Cir. December 16, 2003)
The Court of Appeals dismissed the petition for review of FERC’s rejection of a hydroelectric power project’s request that the agency prevent a transaction between two other hydro projects whereby one would purchase the other’s debt at a large discount. The petitioner entered into a joint venture with the insolvent project that sold its debt. FERC denied the request on the merits, and the court declined to review the case on the ground that the petitioner has not shown that it was aggrieved on the basis of its joint venture agreement. The court determined that the record did not show that the joint venture interests had any value because of the financial situation of the entity whose debt was transferred and subsequently entered into a Chapter 11 bankruptcy proceeding.
Southern Co. Services v. FERC, 353 F.3d 29 (D.C. Cir. December 30, 2003)
The Court of Appeals dismissed a petition for review of FERC’s disallowance of outage related charges by a utility against two generation companies for outages experienced while the generators were being interconnected to the transmission lines. FERC had held that the utility failed to show conclusively that the temporary removal of the transmission lines in order to connect the generators caused the outages rather than weather conditions or some other cause. FERC had also held that the interconnection agreements themselves do not provide for the assessment of such charges and that, in the absence of an agreement on file reflecting such costs, the utility is not entitled to impose the costs. The court found that the record was clear that the outages were scheduled to accommodate the interconnections and thus disagreed with FERC’s ruling as to causality. However, the court agreed with FERC’s disallowance of the recovery of the outage costs due to the absence of any provision in the interconnection agreement for such cost recovery.
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
Hess Energy, Inc. v. Lightning Oil Co., 338 F.3d 357 (4th Cir. July 31, 2003)
The Court of Appeals affirmed the jury instructions of the District Court that when the seller of natural gas repudiates its contract and subsequently fails to deliver, the measure of damages for nonperformance by a supplier is the difference between the contract and the market price at the time of delivery and not at the time of the repudiation. The court reasoned that the buyer has the option of entering into a new contract at the time of repudiation and seeking the price differential using the time of repudiation or waiting for specific performance and using the time of performance at the period for measuring damages. This ruling distinguishes between a “repudiation” and a “breach” under the Virginia Uniform Commercial Code in that the breach is considered to have occurred at the time of performance rather than at the time of repudiation.
Central Electric Power Coop., Inc. v. Southeastern Power Admin., 338 F.3d 333 (4th Cir. July 29, 2003)
The Court of Appeals held that the District Court erred in reversing FERC’s approval under the Flood Control Act of the Southeast Power Administration plan for customers to pay for unrecovered costs due to shortfalls in hydroelectric power. The court agreed with FERC that power administrations have discretion in setting rates for the recovery of costs associated with generating hydroelectric power, including the recovery of past expenses not recovered under prior rates through retroactive ratemaking. It found that deference that is normally owed to an administrative agency is especially warranted here in that FERC itself is exercising appellate-type review of power administrations. The court concluded that the power administration’s rate design was not arbitrary and capricious, in that it provided affected customers options by which to pay for the shortfalls either immediately by amending existing contracts or later when subsequent contracts are entered into, or to avoid paying any portion of the costs by leaving existing contracts intact and declining to renew their contracts altogether. The court concluded that the rate was designed to produce the most flexible result possible.
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
Spiller v. White, 352 F.3d 235 (5th Cir. December 12, 2003) reh’g denied, (January 12, 2004)
The Court of Appeals affirmed the summary judgment ruling of the District Court that two government agencies’ Environmental Assessment (EA) of a proposed pipeline resulting in issuance of a Finding of No Significant Impact satisfies the requirements of the National Environmental Policy Act of 1969 (NEPA) such that no Environmental Impact Statement (EIA) need be undertaken. The court stated that NEPA prescribes procedures, which were followed here and even exceeded in that the law requires that an EA be a “rough-cut” whereas the review undertaken here was comparable to a full-scale EIS in that it consisted of a report of over 2,400 pages incorporating detailed expert analyses and review of over 6,000 written comments and statements given at six public meetings held throughout the affected areas. The court concluded that the appellants failed to show that the conclusions reached by the agencies were arbitrary and capricious but instead were dissatisfied with the result reached because they wanted to kill the pipeline, a result that the court declared it could not provide as NEPA only requires that certain procedures be followed and not any substantive rights.
Reliant Energy Services v. Enron Canada Corp., 349 F.3d 816 (5th Cir. October 29, 2003)
The Court of Appeals reversed the District Court’s entry of summary judgment and instead remanded the proceeding. At issue was whether all parties to a Netting Agreement with an energy services company had joint liability in the event of a breach by one of the parties. The District Court had absolved a nonbankrupt subsidiary from joint liability with four bankrupt subsidiaries. The Fifth Circuit held that the intent of the parties on this question was ambiguous and charged the lower court with the duty to determine the intent of the parties. A dissenting opinion held that the grant of summary judgment should be affirmed because the parties would not come to an agreement as to the meaning of the Netting Agreement, and the interpretation given by the lower court comported with the language of the entire agreement whereas any other interpretation would obviate certain references to payments by less than all parties.
Fruge v. Parker Drilling Co., 337 F.3d 558 (5th Cir. July 25, 2003, as corrected July 30, 2003 and revised July 31, 2003), cert. denied sub nom, Fruge v. Anadarko Petroleum Corp., (January 26, 2004)
The Court of Appeals affirmed the granting of summary judgment that personal injuries sustained on a drilling platform on the outer continental shelf in offshore Louisiana are not actionable against the platform owner and two independent contractors whom the owner hired to monitor the drilling operation. The injury claims, brought under the Outer Continental Shelf Lands Act by the drilling contractor, were rejected based on the contractual provisions under which the drilling contractor maintained operational control and was responsible for its own actions. The court held that civil liability is governed under state law, and federal Mineral Management Service regulations promulgated under the OCSLA do not give rise to a private cause of action or otherwise create an independent duty under Louisiana negligence law.
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Saginaw Bay Pipeline Co. v. United States, 338 F.3d 600 (6th Cir. July 30, 2003, as corrected, August 6, 2003)
The Court of Appeals reversed the District Court ruling and instead provided for seven-year depreciation applicable to gathering lines under the tax code for any gas carriage pipeline that functions as “gathering” in the methane gas production process by transporting raw natural gas from the field to the wellheads for processing regardless of the primary business of the owner of the line, the other uses of the land under which the pipeline runs and whether the pipeline is connected with a direct feeder line to the production fields. The court held that the taxpayer met its burden of proving its entitlement to the claimed accelerated depreciation by showing that the pipeline performs a gathering use even though the taxpayer company was not itself a producer of natural gas.
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Midwest Gas Services, Inc. v. Indiana Gas Co., Inc., 317 F.3d 703 (7th Cir. January 22, 2003)
Appeal of District Court’s grant of a motion to dismiss antitrust and related state law claims against Indiana natural gas local distribution company and affiliated energy services companies brought by competing energy services company and affiliated natural gas storage company relating to plaintiffs’ failed plans to use storage service to bring gas to Indiana. The Court of Appeals reversed in part and affirmed in part. The Court of Appeals found that the plaintiff storage company adequately stated a claim for conspiracy to restrain trade under both federal and Indiana state law. Likewise, the Court reversed the District Court’s dismissal of plaintiffs’ state law claim for tortious interference with a prospective economic advantage. However, the Court of Appeals affirmed the District Court’s dismissal of plaintiffs’ claims: (i) that the formation of the defendant energy services company was an illegal combination in restraint of trade; (ii) that the defendant energy services company illegally tied its sale of natural gas to sale of transportation service; and (iii) that the defendant distribution company and affiliated energy services company were maintaining or attempting to maintain, a monopoly in the distribution of natural gas and its transportation to eligible customers in the distribution company’s service area.
Alliant Energy Corp. v. Bie, 330 F.3d 904 (7th Cir. May 29, 2003), reh’g denied, 336 F.3d 545 (7th Cir. 2003), cert. denied, sub nom, Bridge v. Alliant Energy Corp. and Alliant Energy Corp. v. Bridge, both at 157 L.Ed.2d 890 (2004)
The Court of Appeals found that a state statute requiring a public utility holding company to be incorporated within Wisconsin is impermissible under the Commerce Clause as a restraint on interstate commerce lacking a legitimate local interest. The court recognized that the state has in interest in policing public utilities in order to protect the welfare of ratepayers, and upheld certain other provisions that satisfied that criterion. However, the in-state incorporation restriction was held to burden interstate commerce and constitute an overreaching by the state. The court reasoned that if every state required that the parent of a utility that operates in that state also be incorporated in that state, there would be no interstate investment in public utilities at all. No legitimate local interest was found to have been presented to justify the burden being placed on interstate commerce. While the state could have precluded local production of certain commerce entirely, once it allowed such local activity, including investment opportunities such as ownership in a public utility company, the court ruled that the state cannot prevent such commerce from crossing state lines.
Northern Border Pipeline Co. v. 644.111 Acres of Land, 344 F.3d 693 (7th Cir. September 19, 2003)
The court held that when private land is condemned to make way for an interstate pipeline transportation corridor under the Natural Gas Act, the just compensation to the landowners is be determined by the Federal Rules of Evidence, which allows the discretion of having either a bench trial or a jury trial. The court rejected the landowners’ claim that state law requiring a jury trial must be followed, instead holding that the Rules Enabling Act provides for the supersession of federal procedural rules with state procedural rules serving as a fallback in the event that federal rules are silent. The court went on to find the District Court’s decision to have a commission set the land value to be free of any clear error or abuse of discretion, noting that one commission can replace multiple juries for each parcel, a commission can visit the parcels while a jury would meet in the federal courthouse more than 100 miles away from the farthest affected parcel, and the commission is staffed with experts while a jury might be more likely to split the difference between expert witnesses, thus encouraging litigants to take extreme positions.
United States Gypsum Co. v. Indiana Gas Co., 350 F.3d 623 (7th Cir. November 24, 2003)
The Court of Appeals vacated the District Court’s grant of summary judgment against a gas consumer that alleged that a joint venture engaged in by two utilities was increasing the consumer’s spot market purchases by withholding capacity. The court found that although the entity bringing the suit was not a direct customer of the joint venturers it nonetheless fell within a class of persons protected from reductions in output that give rise to higher prices, as was alleged in the complaint. The court also held that the approval of the joint venture by the state public service commission on a finding of public benefits six years previously did not preclude an examination of antitrust claims based on the actions engaged in subsequent to such approval. The court found that the summary judgment was erroneously entered on the ground of claim preclusion whereas at most the agency findings would only represent issue preclusion to the extent that there was no showing of changed circumstances.
UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
Alliant Energy v. Nebraska Public Power District, 347 F.3d 1046 (8th Cir. October 24, 2003)
The Court of Appeals affirmed the District Court’s ruling that changes in the terms of an agreement to which a utility district was a signatory are binding, although the change was imposed by a federal agency and the agreement governed a voluntary membership. The power pool to which the utility district voluntarily joined sued the utility district for failing to refund fees that had been collected by each power pool member but which were subsequently found by FERC to be discriminatory and disallowed retroactively. FERC ordered that the power pool agreement be amended to remove the disallowed charges. The utility district signed the amended agreement with the retroactive effective date. In upholding the District Court’s granting of the power pool’s motion for summary judgment, the court stated that it is not enforcing FERC’s order but rather is enforcing the agreement, which it held that the utility district breached.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Bear Lake Watch, Inc. v. FERC, 324 F.3d 1071 (9th Cir. March 27, 2003)
Public interest organization appealed FERC’s decision that it did not have jurisdiction over a lake because the lake was not a “necessary or appropriate” reservoir for generation project(s) under the Federal Power Act, 16 U.S.C. § 797(e). Applying Chevron deference, the Court upheld FERC’s finding that the lake was not a “necessary or appropriate” reservoir because it did not provide any significant generating benefit. To the contrary, FERC had found that the lake adversely affected power generation, contrary to the developers’ original intentions. The Court concluded that FERC’s ruling was consistent with prior decisions. Further, the Court affirmed, as supported by substantial evidence, FERC’s factual conclusion that the lake did not provide any significant generating benefit for electric generation projects.
Single Moms, Inc. v. Montana Power Co., 331 F.3d 743 (9th Cir. June 10, 2003)
The Court of Appeals upheld the lower court’s dismissal of a claim by a group of single mothers in Montana that their constitutional rights had been violated by lobbying activities by utilities on behalf of a state deregulation law having the alleged effect of increasing the single mothers’ utility costs. The court ruled that lobbying by private parties does not constitute state action and therefore has no constitutional implications under the due process and equal protection provisions. Also, the court found that neither the state nor its agents willfully participated in any joint activity with the lobbyists that would constitute state action because the legislators that were lobbied were carrying out their public duties and are not agents of the state, nor were they acting for the state with private parties in a joint activity. The court further held that there is a countervailing reason against attributing activity to the government in that lobbying is an exercise of the First Amendment right to petition the government. Claims sought by the single mothers against the legislators themselves were also dismissed on the ground that they possess absolute immunity against civil suit for their legislative acts. Finally, allegations that certain utilities were unjustly enriched were rejected on the ground that the complaint failed to allege any misconduct, or that the utilities possessed property of the single mothers, or that they were otherwise acting under color of law such that any federal constitutional or statutory rights would be at issue. The court ruled unanimously and without providing for oral argument.
Skokomish Indian Tribe v. United States, 332 F.3d 551 (9th Cir. June 3, 2003)
The Court of Appeals affirmed the dismissal of claims that the United States and a city infringed on treaty fishing rights and land use by an Indian tribe through governmental regulation of the operation of hydroelectric power plants. In 1924, FERC’s predecessor issued a license for a hydroelectric project in an area wherein only a minor part occupied federal land and upon which an Indian tribe maintained rights pursuant to an 1865 treaty with the then-Washington Territory. The original license was limited to a minor part of the project because of the view that the license could not extend beyond the occupancy and use of federal lands. In 1974, upon the expiration of the 1924 license, the City of Tacoma applied for a new license covering the entire project. Litigation ensued for 24 years. In 1992, the city requested that its application be considered relicensing of its 1924 license. FERC granted the request, stating that its predecessor had been erroneous in concluding that it lacked authority to license the entire project in 1924 even though only a minor part was on federal land. The Indian tribe then filed suit in federal District Court, alleging that the city’s operation of the project pursuant to its FERC license gives rise to damage actions. The District Court and the Ninth Circuit both held that the tribe’s claims constitute an impermissible collateral attack on FERC’s licensing order. The court further held that FERC correctly interpreted its jurisdiction to issue the license covering entire projects and not just the portion occupying federal land. A partially dissenting opinion would have allowed the case to proceed to an examination of damages caused by the legal mistake of issuing a minor part license and then effectively having it serve as a proxy for a major water project license despite FERC’s admission that one cannot serve as a proxy for the other.
State of California ex rel. Lockyer v. FERC, 329 F.3d 700 (9th Cir. May 15, 2003)
The Court of Appeals denied petitions for review of FERC’s expedited approval of a corporate reorganization of an electric utility on the ground that there was adequate notice and compliance with due process. FERC had issued a notice of a request under FPA Section 203 for a transfer of assets calling for interventions and protests to be filed within four days. No one filed a timely motion to intervene. FERC issued an order approving of the transfer of stock ownership, with Commissioner Massey dissenting. The dissenting opinion prompted the State of California and other entities to file for rehearing and present substantive arguments against the corporate reorganization. FERC rejected both the late interventions and the arguments raised on the merits. The court ruled that the record demonstrated that FERC complied with the notice and opportunity to be heard requirements under the statute and the due process requirements under the Constitution. The court held that a longer notice period would not have made any difference since opposition did not arise until after FERC acted and a Commissioner dissented. Also, the court ruled that the timing of the pleadings was not significant because the opposing arguments were considered by FERC in its rehearing order, and the record was sufficient to preclude any need for a formal evidentiary hearing. The court found that allegations of harm were speculative and not imminent in that concerns expressed all had to do with possible adverse outcomes in bankruptcy proceedings that may never arise. Finally, the court ruled that FERC’s reasoning was based on substantial evidence, and was not arbitrary or capricious, an abuse of discretion or otherwise unlawful, thus satisfying the standard of review.
Paladin Associates v. Montana Power Co., 328 F.3d 1145 (9th Cir. May 13, 2003)
The Court of Appeals upheld summary judgment rejection of antitrust claims by a natural gas marketer against a natural gas pipeline company concerning the assignment of contract rights for a five-year period. The natural gas marketer claimed that the pipeline unlawfully monopolized an essential pipeline and storage facility, unlawfully tied the sales of two products, and unlawfully conspired with another marketer to organize a boycott that put the plaintiff marketer out of business. As to the illegal boycott claim, the court determined that the District Court failed to find the existence of a concerted activity but nonetheless affirmed summary judgment on the ground that the agreements of the pipeline to purchase long-term from the competitor marketer were reasonable by improving customer choice and avoiding annual transaction costs of annual renegotiation. The court found that the other claims failed due to the absence of a showing of anticompetitive harm resulting from the assignment. The plaintiff was found to have sold transportation rights at lower prices because of competition, and such procompetitive benefits to the public were held to be outside of antitrust prohibitions. The court further held that the offering of five-year assignments when one-year assignments had been offered previously could not be attributed to coercion as no evidence supporting that allegation was offered. In addition, the court found that the storage facility was not an essential facility because there were other sources of downstream supply that were competitive with the pipeline.
Confederated Tribes v. Bonneville Power Admin., 342 F.3d 924 (9th Cir. September 2, 2003)
The Court of Appeals denied petitions, many of which were untimely filed, alleging that the Bonneville Power Administration had failed to meet its hydroelectric power responsibilities under the Northwest Power Act (NPA). The court held that challenges to BPA’s alleged failure for 22 years to treat fish and wildlife on par with power was not reviewable under the NPA and the APA because they only authorize review of action and not inaction. The court stated that relief can be sought under the All Writs Act. However, the court also found that the BPA has no mandatory duty to act because it has no general statutory duty to demonstrate that it has treated fish and wildlife equitably. The court further maintained that it has limited authority to impose procedural requirements upon a federal agency in the exercise of its statutory responsibilities.
California Dep’t of Natural Resources v. FERC, 341 F.3d 906 (9th Cir. August 27, 2003)
The Court of Appeals partially vacated and remanded the proceeding to FERC for failing to adequately consider the argument of the California Department of Water Resources (DWR), a state agency that generates electricity as a by-product of its operation of dams and reservoirs, that it should not be made subject to the same requirements as merchant generators in submitting to the California Independent System Operator a schedule proposing all planned outages for the upcoming year. The court stated that the two classes of generators differ in significant ways, and FERC needed to explain why DWR’s generating units should be subject to the same outage control as those of private companies that sell power on the wholesale market. The court found that FERC had accepted DWR’s position that the two classes should be treated differently on the related question of must-run units, and that its failure to explain the application of the same factors to the outage control question failed to meet the requirements of reasoned decisionmaking.
Bell v. Bonneville Power Admin., 340 F.3d 945 (9th Cir. August 21, 2003)
The Court of Appeals rejected petitions for review challenging power sales contract amendments between the Bonneville Power Administration and several direct service industries (DSIs). The court upheld BPA’s authority to conduct a load curtailment program, which included its making payments to SDIs for agreeing to amend contracts so that BPA would be excused from obligations to supply power to them at the contract rate. Otherwise, BPA would have been required to sell at a fixed rate that exceeded the price it paid to procure the power to be sold. The court found that BPA’s curtailment program was a success that was designed to meet an energy crisis created by low power supply and high prices in the spot market. The court also rejected a NEPA claim that the curtailment amendments drain funds needed to meet BPA’s environmental responsibilities, stating that the curtailment agreements enabled BPA to save money with which to further environmental efforts.
City of Fremont v. FERC, 336 F.3d 910 (9th Cir. July 16, 2003)
The Court of Appeals dismissed a petition to review FERC’s determination to waive regulations in order to permit a hydroelectric plant operator to compete with a preference for a license application after having failed to timely file for a license renewal. The license holder had previously indicated that it intended to file for a license renewal but filed one day out-of-time. No other competing application had been filed. The license holder requested that its application be deemed timely filed but FERC ruled that the statutory deadline cannot be waived by the agency. However, FERC did consent to waive its regulations, which do not allow a license holder to compete for a license if it allows its project to become an “orphan” by not making a timely relicense application. FERC’s regulation was found to be intended to preclude an operator from misleading others into not competing by stating an intent to reapply when in fact there was no such intent. Here, however, the record demonstrated that there was no deliberate misleading in that over $3,000,000 had been expended in preparing the application and it was filed a day late due to an error in the mail room. The court held that FERC has discretion to waive its regulations and that its decision to do so here was not an abuse of discretion. The court further held that FERC acted lawfully in conferring an incumbent preference in order to see that substantial justice is done in light of the inadvertent failure to submit the relicense application on time.
Southern California Gas Co. v. City of Santa Ana, 336 F.3d 885 (9th Cir. July 14, 2003)
The Court of Appeals affirmed the District Court’s granting of summary judgment on a contract dispute between a city and a gas company whose claim that its preexisting franchise right to install and maintain pipes under the streets was substantially impaired by the city’s trench cut ordinance. The court ruled that the city could not alter the contract unilaterally by imposing costs on the gas company to construct trenches whereas the contract conveyed the right to conduct excavations without paying an additional fee. The court found that the franchise was also substantially impaired in that the city ordinance required advance estimated fees for repair work without affording an opportunity to perform the repairs whereas the franchise provides for such repairs to be undertaken first with the city having the right to inspect and require further repairs within ten days on pain of revoking the franchise if the additional repairs are not made. These impairments were held to be unreasonable because there was no showing of changed circumstances except for changes of degree and not kind.
PG&E Co. v. Cal. ex rel. Cal. Dept of Toxic Substances Control, 350 F.3d 932 (9th Cir. November 19, 2003, amended December 9, 2003)
The Court of Appeals, taking up an interlocutory appeal, reversed the District Court ruling that a Chapter 11 bankruptcy plan caused all nonbankruptcy laws applicable to a public utility’s restructuring transactions to be preempted. The court ruled that the preemption by the reorganization plan is limited to laws that were already preempted under the 1978 Bankruptcy Code and that no new preemption was provided for under 1984 amendments. In particular, the court ruled that there is not a broad Congressional intent to preempt state regulatory laws, including with respect to public utilities. The court found that there is no distinction between public utilities and other debtors in the Bankruptcy Code, and that areas of traditional state regulation is not to be presumed to be lightly preempted.
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
Hill v. Kansas Gas Service Co., 323 F.3d 858 (10th Cir. March 26, 2003)
Individual and commercial retail natural gas customers in Kansas filed a complaint against Kansas local distribution companies (LDCs) alleging that they had a property interest in, and should receive distribution of, refunds that the LDCs received from interstate natural gas pipelines for natural gas producers’ maximum lawful price violations under the Natural Gas Policy Act of 1978. The Kansas Corporation Commission (KCC) had ruled that such refunds were to be used for the benefit of low-income customers. Plaintiffs sought: (i) a declaratory judgment of a property interest in the refunds and entitlement to the refunds; (ii) placement of these amounts in a constructive trust pending resolution of their claims; (iii) an order directing their funds to be distributed to plaintiffs and similarly situated customers. The District Court granted defendants’ motion to dismiss for lack of jurisdiction, citing the Johnson Act, 28 U.S.C. § 1342, which prohibits the U.S. district courts from enjoining, suspending, restraining the operation of, or compliance with any state commission order affecting rates charged by a public utility so long as certain conditions are satisfied.
The Court of Appeals affirmed, finding that the challenged KCC order was an order “affecting rates” under the Johnson Act even though it did not directly change any rate or tariff. Further, the Court agreed, contrary to plaintiffs’ contentions, that the alleged federal question jurisdiction was “based solely on diversity of citizenship or repugnance of the [rate] order to the Federal Constitution,” a prerequisite for Johnson Act applicability. In so ruling, the Court rejected plaintiffs’ argument that they had asserted a property right claim arising from a state utility matter that was within the subject matter jurisdiction grant of 28 U.S.C. § 1331 under Verizon Maryland, Inc. v. Public Service Comm’n of Maryland, 535 U.S. 635 (2002).
UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
Florida Progress Corp. v. Comm’r, 348 F.3d 954 (11th Cir. October 21, 2003)
The Court of Appeals affirmed the ruling of the United States Tax Court that when anticipated tax liabilities collected by a utility are later determined to be excessive due to tax rate reductions and the excess billings are subsequently credited to customer billings, the credit cannot be considered a refund for purposes of taking a deductible business expense by the utility, but are instead deemed to be a rate reduction. The court found that the determination of the Tax Court that the credit was a rate reduction is a fact issue and that a clearly erroneous standard of review applies. Using this higher standard rather than making a de novo review, as it would if a legal issue were being reviewed, the Court upheld the finding of the Tax Commissioner. Rate reductions are not deductible ordinary and necessary business expenses, and the affirmance of the factual finding led to the judgment of the Tax Court being affirmed as well.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
People of California ex rel Bill Lockyer v. Mirant Corp., 266 F. Supp. 2d 1046
(N.D. Cal. March 25, 2003)
The District Court considered defendants’ motions to dismiss claims brought by California Attorney General alleging violation of Section 7 of the Clayton Act and of California’s state unfair competition law. In the antitrust actions, the attorney general alleged that Reliant Energy, Inc. and Mirant Corporation acquired significant power generation holdings in violation of Section 7 of the Clayton Act and used market power to manipulate prices during a period of high demand. The defendants argued that their actions could not have reduced competition because there had not been any competitive market for electricity in California prior to their acquisition of the generating facilities. The Court declined to dismiss on this ground without a more complete factual record. The Court also found that the attorney general had adequately plead a Section 7 violation. Finding its application to be a “novel question” in the deregulation context, the Court found that the state action doctrine did not bar the attorney general’s Clayton Act suit because there was no indication that the state action at issue was intended to displace competition. While declining to dismiss the Clayton Act claims, the Court found that the filed rate doctrine barred claims for money damages but not claims for injunctive relief, such as forced divestiture of the generating plants.
The Court dismissed the attorney general’s state unfair competition claims against various defendant wholesale power sellers, finding that federal law occupied the field with respect to wholesale power sales and that, even if “field preemption” did not apply, “conflict preemption” principles would bar relief under the state law because the relief requested by the attorney general would conflict with the Federal Power Act. Finally, the Court found that the attorney general’s state unfair competition claims were barred by the filed rate doctrine insofar as money damages would effectively modify the filed rate and that the attorney general’s allegations concerning defendants’ failure to file rate schedules as required by the FPA supported a finding that the attorney general’s claims fell within the scope of the filed rate doctrine.
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA
In re Cal. Wholesale Elec. Antitrust Lit., 244 F. Supp. 2d 1072 (S.D. Cal. January 7, 2003)
The Court granted defendants’ motions to dismiss in a suit by a Washington utility alleging that defendants, power suppliers, violated California antitrust and unfair competition law during the Western power crisis of 2000-2001. The Court concluded that plaintiff’s requests for monetary and injunctive relief were barred by the filed rate doctrine. In so ruling, the Court specifically found that the filed rate doctrine applied in a market-based rate framework. Alternatively, the Court found that the plaintiff’s claims were preempted by the Federal Power Act.
T&E Pastorino Nursery v. Duke Energy Trading & Marketing, L.L.C., 2003 U.S. Dist. LEXIS 16352 (S.D. Cal. August 27, 2003)
The District Court granted motions to dismiss claims by electricity buyers of unfair business practices against suppliers in the wholesale energy market on the ground that FERC has exclusive jurisdiction over this market, and the injunctive relief and restitution sought under state law cannot be granted. The court ruled that federal law preempts state law in the wholesale electricity field because the power that flows in the state electricity grid constitutes interstate commerce as a part of the interconnected national grid system. The court further held that the filed rate doctrine bars the claims in that they constitute challenges to rates set by FERC in a market-based rate system.
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
Chevron USA Prod. Co. v. United States Dept. of Interior, 254 F. Supp. 2d 107
(D.D.C. March 27, 2003)
The District Court considered a challenge to a Department of Interior finding that plaintiff owed royalties to the United States under renegotiated contracts for sales of natural gas produced on federal lands. The Court discussed the applicable precedent governing when contract buy-out payments will be considered payment for “production sold” requiring royalty payments. Applying the relevant legal standards, the Court found that the Department of Interior had properly analyzed the contract buyouts at issue in finding royalty liability on the portion of the buyouts attributable to obtaining a lower price for future sales.
Public Utility Dist. No. 1 v. FERC, 270 F. Supp. 2d 1 (D.D.C. June 30, 2003)
The District Court denied a motion that it issue a temporary injunction against FERC taking up a case on review of an initial decision of an administrative law judge based on allegations that the Chairman and another Commissioner should recuse themselves for having discussed the case in a meeting outside of the requirements of the Sunshine Act. FERC had already denied a recusal motion and a rehearing request was pending before the Commission. The court determined that it lacks jurisdiction to review FERC’s denial of a recusal motion as that is exclusively within the jurisdiction of the Court of Appeals once a final order on rehearing is issued. The court noted that FERC was taking up the exceptions to the initial decision at virtually the same time that the court was being asked to require discovery into what was discussed by the two Commissioners in a telephone conversation involving approximately 20 representatives of the energy market, financial institutions, investment houses, and investor rating services concerning contract abrogation issues in the underlying case. The court declined to order discovery regarding the recusal issue that falls within the exclusive jurisdiction of the United States Courts of Appeals, which themselves can remand the proceeding for further fact-finding if they deem that to be desirable.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
Green v. Peoples Energy Corp., 2003 U.S. Dist. LEXIS 4958 (N.D. Ill. March 28, 2003)
Customers of natural gas local distribution companies (LDCs) sued the LDCs for antitrust violations related to the LDCs’ inclusion of meter rental charges in the customers’ rates. The Court granted defendants’ motion to dismiss on grounds that the suit was barred by the filed rate doctrine because the meter rental charges were included in rates approved by the Illinois Commerce Commission. Alternatively, the Court found that the suit was barred under the state action doctrine which precludes antitrust challenges of state regulatory restraints where: (i) the restraint is one clearly articulated and affirmatively expressed as state policy; and (ii) the policy is actively supervised by the state. The Court found both requirements to be met.
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA
Northern Nat. Gas Co. v. Munns, 254 F. Supp. 2d 1103 (S.D. Iowa February 28, 2003)
The Court granted summary judgment in favor of plaintiffs, interstate natural gas pipeline companies, finding that environmental remediation regulations promulgated by defendants, the members of the Iowa Utilities Board, were preempted by federal law. The Court also held that Iowa statutes and regulations that provided for: (i) reversion of pipeline easements to landowners if left unused; and (ii) damages for harm to trees in connection with pipeline construction/maintenance violated the Contracts Clause of the U.S. Constitution because the contracts between plaintiffs and Iowa landowners specifically addressed these matters. Further, the state’s interest in passing the laws was not to serve a broad societal purpose, but specifically to favor one party to the contractual arrangements – the landowners. Finally, the Court denied plaintiffs’ claims for relief under 42 U.S.C. § 1983, finding that the Natural Gas Act did not confer rights that were actionable under § 1983.
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF LOUISIANA
Santa Fe Snyder Corp. v. Norton, 2003 U.S. Dist. LEXIS 11426 (W.D. La. January 8, 2003)
The District Court granted summary judgment in favor of plaintiff, an oil and gas producer, finding that the U.S. Department of Interior’s Minerals Management Service had found plaintiff liable for certain royalties on oil production from leased federal lands in contravention of the Outer Continental Shelf Royalty Relief Act (RRA). The Court found that the RRA provided automatic royalty relief to all new leases sold after November 28, 1995, and the DOI’s implementing regulations improperly imposed “new production” and “new field” requirements on the statutory “new lease” exemption. The Court concluded that, under the first prong of a Chevron analysis, the plaintiff was entitled to royalty relief pursuant to the unambiguously expressed intent of Congress in the RRA. The Court invalidated the applicable DOI regulations at 30 C.F.R. §§ 260.112-117.
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
In re NRG Energy, Inc., 2003 U.S.Dist. LEXIS 11111 (S.D.N.Y June 30, 2003)
A power marketer debtor in a voluntary Chapter 11 bankruptcy proceeding obtained bankruptcy court approval to reject a Standard Offer Service Wholesale Sales Agreement entered into with the local utility and approved by FERC. While the request was pending before the bankruptcy court, parties petitioned FERC to stay the termination and FERC ordered the power marketer to continue to provide service pending further proceedings at FERC. The bankruptcy court granted parties relief from the automatic stay provision of the Bankruptcy Code so that they could participate in the FERC proceeding. The bankruptcy court also declined to enjoin FERC or vacate FERC’s order that service continue. The power marketer sought injunctive relief from the federal District Court. The court denied the motion, and instead ruled that it lacks subject matter jurisdiction because FERC has exclusive jurisdiction over the wholesale power contract, subject to review by United States Courts of Appeal.
UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA, TAMPA DIVISION
Tampa Interstate 75 Ltd. P’ship v. Fla. Gas Transmission Co., 294 F. Supp. 2d 1277 (M.D. Florida October 23, 2003)
Landowners sought to eject an interstate transmission company from land upon which it constructed a portion of its pipeline pursuant to a FERC NGA Section 7(c) certificate. The land had been obtained by the pipeline under state law but the state court was subsequently reversed on the ground that the pipeline was not a public utility such as would be entitled to avail itself of the state law. The claim for ejectment, as well as claims of trespass and unlawful detainer, was transferred to federal District Court based on diversity of citizenship. The court referred the issues to FERC under the doctrine of primary jurisdiction because the relief requested would constitute abandonment and rerouting of the FERC-approved pipeline facilities in contravention of FERC’s certificate order. The court held that exclusive provisions for rehearing, review, or modification of the order are contained in Sections 19(a) and (b) of the Natural Gas Act and are within the jurisdiction of FERC, which has procedures for untimely intervention by aggrieved persons for good cause shown.
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, FORT WORTH DIVISION
In re Mirant Corp., 303 B.R. 304 (N.D. Texas December 23, 2003)
The District Court denied a motion by debtors in Chapter 11 bankruptcy allowing them to reject an agreement previously approved by FERC. The debtors had purchased generation facilities of a public utility and assumed responsibility for power purchase obligations of the utility except to the extent that customers refused to consent to any assignment of rights and responsibilities under existing contracts. As to those non-consenting customers, the debtors entered into Back-to-Back Agreements that required the debtors to reimburse the utility for payments and receive all power from the utility that it purchased to satisfy the requirements owed to those customers. The debtors sought release from the Back-to-Back Agreements because they were depleting the estates of the debtors. They obtained an ex parte temporary restraining order and preliminary injunction from the bankruptcy court and sought permanent relief from the federal District Court. The District Court ruled that the Back-to-Back Agreements were service obligations for the wholesale sale of electricity in interstate commerce and fully within the exclusive ratemaking jurisdiction of FERC under the FPA. The court held that the public interest is involved rather than merely the interest of private parties, and that FERC’s expertise is required to evaluate the effects of the proposed cessation of service as well as continuing justness and reasonableness of the rates set in the agreements that FERC had previously accepted as filed rates. The court saw no reason why the debtors could not seek from FERC basically the same relief that they were seeking from the bankruptcy court and the District Court, neither of which it considered to be authorized to grant the relief requested.