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9th Circ. Ducks Review of Energy Crisis Decisions

(CN) - The Ninth Circuit on Thursday refused to review the Federal Energy Regulatory Commission's decision to invoke a presumption that high-priced power sales during California's 2001 energy crisis were just and reasonable.

A three-judge panel ruled that the commission was entitled to invoke the so-called Mobile-Sierra doctrine to short-term energy purchases made by California and others in a Pacific Northwest spot market at unusually high prices.

During the electricity crisis - also known as the Western U.S. Energy Crisis of 2000 and 2001 - California suffered from multiple large-scale blackouts, one of the largest energy companies in the state collapsed, and the economic fallout led to the 2003 ouster of then-Gov. Gray Davis, who became the second governor in U.S. history to be recalled by voters.

California Attorney General Kamala Harris and others challenged the commission's denial of refunds to wholesale electricity buyers that purchased energy in the Pacific Northwest spot market at unusually high prices during the energy crisis.

The commission invoked the Mobile-Sierra doctrine, which generally obligates the commission to treat any freely negotiated wholesale transaction as just and reasonable.

The just and reasonable presumption can only be overcome if specific criteria is met, such as if it can be shown that one party engaged in extensive unlawful market manipulation that altered the playing field for contract negotiations.

The commission's invocation of this doctrine meant that electricity buyers would have to show that a seller engaged in unlawful market activity in the spot market and that the activity directly affected contracts to which the buyers were a party. Allegations of market dysfunction would be insufficient to overcome the presumption.

The commission said in this case that a marketwide remedy would be inappropriate because the Pacific Northwest spot market operated through bilateral contracts, which distinguished the transactions from those conducted by California's centralized power exchange.

California and other buyers challenged the commission's invocation of the Mobile-Sierra doctrine before the Ninth Circuit, arguing that it cannot apply to the spot sales at issue.

"The circumstances here, according to petitioners, render the presumption illogical because the contracts were not freely negotiated long-term contracts with lawful prices. Instead the transactions were short-term spot sales with a high degree of pressure on buyers," Circuit Judge M. Margaret McKeown wrote for the panel.

However, the panel found that the "mere short-term nature of these spot-sale contracts does not render the commission's application of the Mobile-Sierra doctrine unreasonable."

Even though long-term contracts may have a special role in stabilizing the market, the Supreme Court has found that the presumption can be invoked when it comes to any contracted-for rate, the panel said.

"After the presumption is invoked, the parties may avoid or rebut it based on an evidentiary showing, but commission's baseline assumption that the presumption applies to the contracts at issue is not unreasonable," McKeown said.

The panel dismissed California's other evidentiary challenges for lack of jurisdiction.

Petitioners argued that they were bullied into making purchases through bilateral contracts when sellers refused to sell through the usual channels, but these arguments related to whether the presumption can be overcome and whether the commission's eventual decision was based on a proper record.

"These types of factual and evidentiary matters do not speak to whether the commission properly invoked Mobile-Sierra as a baseline, even if the evidence surrounding these contested circumstances ultimately warrants avoidance or rebuttal of the presumption," McKeown said.

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