879 F.3d 966
9th Cir.2018Background
- Section 219 of the Federal Power Act and FERC’s Order No. 679 establish prospective, case-by-case "incentive adders" to ROE to induce utilities to join and remain in regional transmission organizations (RTOs/ISOs). Order 679 declined to adopt a generic adder and stated ongoing membership creates a presumption of eligibility but awarded "when justified."
- In 1997 PG&E transferred operational control of transmission to the California ISO (Cal‑ISO); CPUC retained state-law authority to authorize any future transfers and required CPUC approval for withdrawals under Cal. Pub. Util. Code § 851.
- Since 2007 PG&E annually requested a 50 basis‑point adder for continued Cal‑ISO membership in its FERC section 205 filings; FERC routinely and summarily granted those adders. Many earlier proceedings settled without resolving CPUC’s objections.
- In PG&E’s 2014–2015 filings (TO‑16 and TO‑17), CPUC protested, arguing PG&E’s continued Cal‑ISO membership is not voluntary (state law bars unilateral withdrawal) so the adder cannot ‘‘induce’’ conduct it is required to perform.
- FERC summarily granted the requested adders and denied rehearing, holding Order 679 presumes eligibility from ongoing membership and that voluntariness need not be reexamined; CPUC petitioned for review in the Ninth Circuit.
- The Ninth Circuit concluded FERC’s grants were arbitrary and capricious because FERC misinterpreted Order 679, failed to address the voluntariness challenge, created a de facto generic adder, and departed from its prospective‑inducement policy without reasoned explanation.
Issues
| Issue | Plaintiff's Argument (CPUC) | Defendant's Argument (FERC/PG&E) | Held |
|---|---|---|---|
| Whether FERC reasonably interpreted Order 679 to allow summary awards of adders based solely on ongoing membership | Order 679’s presumption is rebuttable; voluntariness matters because adders must induce conduct | Ongoing membership satisfies Order 679’s presumption; FERC may grant adders without reexamining voluntariness | Court: FERC’s interpretation is plainly erroneous or unexplained; presumption is rebuttable and voluntariness is relevant (FERC not entitled to Auer deference) |
| Whether FERC’s awards to PG&E were arbitrary because they departed from its longstanding prospective‑inducement policy without explanation | Granting an adder for involuntary continued membership rewards conduct already required by state law, contradicting FERC’s prospective inducement policy | FERC has authority under Order 679 to grant adders for continued membership; PG&E’s participation is effectively voluntary or could be made so | Court: FERC departed from its prior policy of awarding incentives only to induce future voluntary conduct and failed to acknowledge/explain the change — arbitrary and capricious |
| Whether FERC’s summary approvals created an improper generic adder | The summary grants, repeated without case‑specific inquiry into PG&E’s ability to withdraw, effectively created a generic adder contrary to Order 679’s case‑by‑case requirement | Identical awards to multiple utilities do not make an adder "generic"; precedent supports summary acceptance | Court: The summary, non‑fact‑specific grants amounted to a generic adder and violated Order 679’s case‑by‑case mandate |
| Whether CPUC’s petition impermissibly collateral‑attacked Order 679 | CPUC challenged a different question: eligibility for an adder when continued participation is involuntary — not an impermissible collateral attack | FERC contended CPUC re‑argues issues already decided by Order 679 or should have been on notice from prior settlements | Court: Not a collateral attack; a reasonable party would not have perceived Order 679 as precluding this voluntariness challenge; CPUC’s petition is proper |
Key Cases Cited
- Auer v. Robbins, 519 U.S. 452 (deference to agency interpretations of its own ambiguous regulations)
- Motor Vehicle Mfrs. Ass’n v. State Farm, 463 U.S. 29 (agency must give reasoned explanation for changes in policy)
- FCC v. Fox Television Stations, 556 U.S. 502 (requirement that agency display awareness when changing position)
- Skidmore v. Swift & Co., 323 U.S. 134 (weight of agency interpretation depends on persuasiveness)
- Christopher v. SmithKline Beecham Corp., 567 U.S. 142 (application of Skidmore factors)
- Price v. Stevedoring Servs. of Am., 697 F.3d 820 (post hoc rationalization indicia)
- W. Radio Servs. Co. v. Qwest Corp., 678 F.3d 970 (standards for Auer deference in Ninth Circuit)
- Fall River Rural Elec. Coop. v. FERC, 543 F.3d 519 (standard of review of FERC orders)