California Wins 9th Circuit Energy-Regulation Battle

     SAN FRANCISCO (CN) – Federal regulators must reform their “arbitrary” and “capricious” implementation of market-based energy tariffs, the 9th Circuit ruled Wednesday.
     The ruling comes after California Attorney General Kamala Harris and three state utilities sued the Federal Energy Regulatory Commission for failing to follow the court’s instructions on remand in an earlier case.
     Harris accused FERC of violating the Federal Power Act by requiring proof of excessive market share as a necessary condition for relief for transaction-reporting violations.
     A three-judge panel of the 9th Circuit found Wednesday that FERC’s sole reliance on the “hub-and-spoke market-share measure … immunizes sellers from any consequence for failure to report market transactions.”
     It also ignores the statutory duty to determine whether energy sellers charged a “just and reasonable” rate, Chief Judge Sidney Thomas wrote for the court.
     The preceding case stems from FERC’s enforcement and review of market-based rates during the 2000-01 California energy crisis.
     It has been over a decade since the 9th Circuit criticized FERC in the 2004 decision California ex rel. Lockyer v. FERC.
     “We held [then that] FERC abdicated its discretion by structuring the remand proceedings in a manner that prevented any meaningful review of sellers’ failure to file transaction reports during the crisis,” Thomas wrote Wednesday.
     “FERC casts market power identified solely through excessive market share as a necessary condition to conclude that a seller’s rate is unjust or unreasonable,” the 21-page opinion continues.
     “This view undercuts the essential importance of transaction reporting and the distinct purpose of each prong of a viable market-based tariff system.”
     In structuring the remand proceedings to focus exclusively on market-share evidence of market power, FERC unlawfully administered the market-based tariff, the court found.
     “The manner in which FERC structured the proceedings on remand is arbitrary, capricious, and otherwise not in accordance with law,” Thomas wrote. “To fully consider whether a reported rate was just and reasonable, the agency must consider claims and evidence beyond the hub-and-spoke analysis.”
     On remand, FERC must evaluate reporting deficiencies and related market-based rates to determine whether they were unjust and unreasonable in light of the claims by Harris and the utilities.
     “To remedy reporting violations, FERC must review the transaction reports to determine whether a just and reasonable price was charged by each seller, with specific attention to whether reporting deficiencies masked manipulation or accumulation of market power,” Thomas said.
     “If so, FERC may then elect to exercise its remedial discretion as appropriate.”
     Neither side could be reached for comment.

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