659 F.3d 910
9th Cir.2011Background
- FERC Order 697 established a market-based rates program with upfront market-power screening (horizontal and vertical) and ongoing oversight; Order 697-A denied rehearing and retained the policy.
- Petitioners—Montana Consumer Counsel, Public Citizen, Colorado Office of Consumer Counsel, Public Utility Law Project of NY, and state AGs—challenge the order as violating the FPA by relying on market prices to set just and reasonable rates.
- Intervenors and commenters include various electric industry groups and utilities; the case consolidates petitions Nos. 08-71827, 08-74439, 08-74443 to review FERC’s facial legality of Order 697.
- The court applies Chevron deference to FERC’s interpretation of the FPA and evaluates whether Order 697 exceeds FERC’s authority.
- The Ninth Circuit ultimately denies the petitions, concluding Order 697 does not per se violate the FPA under current precedent.
- The court notes its review is facial, not as-applied, and leaves open the possibility of as-applied challenges to FERC’s implementation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether market-based rates comply with 'just and reasonable' requirement | Petitioners—e.g., Montana—claim market-based rates outsource FERC’s duty | FERC contends screening plus monitoring ensures just and reasonable rates | Order 697 does not per se violate the FPA |
| Whether market competitiveness must be shown prior to authorizing market-based rates | Lockyer requires market competitiveness before approval | Individual-seller power screening suffices; market-wide competitiveness not required | No additional market-wide competitiveness finding required beyond screening |
| Whether empirical evidence supports reliance on market forces to set prices | Texaco requires evidence that competition will yield just and reasonable rates | Screening plus data monitoring adequacy replaces need for predictive empirical proof | Empirical proof not required beyond the screening regime |
| Whether annual or frequent reporting requirements are necessary under 824d(d) | Market-based rates need 60-day advance notice for changes | Notice is flexible; rate changes occur upon market-based rate authorization, not every price fluctuation | Triannual reporting and Category 1 exemptions are permissible within Lockyer framework |
| Whether FERC may review reports for market power and not for rate justness | FERC will not ensure rates are just and reasonable, only check for market power | FERC monitors data to ensure a competitive market; zone-of-reasonableness approach permitted | Order 697’s approach within Chevron framework is permissible; facial challenge denied |
Key Cases Cited
- California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004) (approves market-based tariffs with ex ante screening and reporting requirements)
- Tejas Power Corp. v. FERC, 908 F.2d 998 (D.C. Cir. 1990) (assumes competition implies reasonable terms; cautions against ungrounded market reliance)
- Fed. Power Comm'n v. Texaco Inc., 417 U.S. 380 (Supreme Court 1974) (market price cannot be ultimate measure of just and reasonable rates when market distorted)
- Morgan Stanley Capital Grp. v. Pub. Util. Dist. No. 1 of Snohomish Cnty., 554 U.S. 527 (U.S. 2008) (recognizes market-based rates debated; invites as-applied challenges)
- La. Energy & Power Auth. v. FERC, 141 F.3d 364 (D.C. Cir. 1998) (economic efficiency in competitive markets supports market-based regulation)