Pacific Gas and Electric Co. v. United States
2016 U.S. App. LEXIS 17765
| Fed. Cir. | 2016Background
- California restructured wholesale electricity markets in the late 1990s; California Power Exchange (Cal‑PX) and California Independent System Operator (Cal‑ISO) acted as central exchanges that collected bids, set market‑clearing prices, and settled payments between participants.
- Appellants (PG&E, SCE, SDG&E, and California) participated as buyers; federal sellers WAPA and BPA participated via participation agreements with Cal‑PX/Cal‑ISO. No direct buyer‑seller contracts between market participants existed because electricity is fungible.
- During Oct. 2, 2000–June 20, 2001, market prices spiked; FERC later found those rates unjust and unreasonable and ordered refunds, but the Ninth Circuit held FERC could not compel refunds from federal agencies (BPA/WAPA) because they are excluded from FERC jurisdiction.
- Appellants sued in the Court of Federal Claims alleging breach of contract by the federal sellers for overcharging; the trial judge initially sided with appellants, but the successor judge dismissed for lack of standing/privity.
- The Federal Circuit affirmed dismissal: it held plaintiffs lacked privity with the United States, failed to show the exchanges were agents of the buyers/sellers, and were not intended third‑party beneficiaries of the federal agencies’ participation agreements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether buyers have standing under the Tucker Act to sue federal sellers for breach of contract (privity) | Buyers contend the market structure and tariff provisions create direct contractual obligations between all buyers and all sellers, placing them in privity with BPA/WAPA | Government contends each market participant contracted only with the exchanges (Cal‑PX/Cal‑ISO), so buyers lack privity with the United States | No privity: contracts were between each participant and the exchanges (middleman sale model); buyers lacked standing |
| Whether exchanges acted as agents of buyers/sellers (agency exception to privity) | Buyers argue tariff language and market practice show exchanges acted as agents for participants, permitting buyers to sue sellers directly | Government says buyers cannot show requisite control by principals over the exchanges; exchanges had independent control over prices, settlement, and disbursements | No agency: plaintiffs failed to prove the buyers/sellers had the degree of control required for an agency relationship |
| Whether buyers are intended third‑party beneficiaries of contracts between federal sellers and exchanges | Buyers assert tariff overpayment/settlement provisions were intended to benefit individual buyers and thus confer third‑party beneficiary status | Government argues the overpayment provisions create duties owed to the exchanges (to collect/disburse/remit), not direct promises to individual buyers | No third‑party beneficiary status: contract language does not demonstrate intent to benefit particular buyers directly; requirements for this exception were not met |
| Whether equitable/subrogation or other remedies allow buyers to step into exchanges’ shoes | Buyers did not advance assignment/subrogation; they sought direct relief from the United States for FERC‑ordered refunds | Government notes no assignment, and equitable subrogation is narrowly applied (typically surety context) | Buyers cannot assume exchanges’ contractual rights; no assignment or equitable subrogation shown; remedy could have been pursued against exchanges/arbitration per tariff |
Key Cases Cited
- S. Cal. Fed. Sav. & Loan Ass’n v. United States, 422 F.3d 1319 (Fed. Cir.) (privity requirement to sue government on contract claims)
- First Hartford Corp. Pension Plan & Tr. v. United States, 194 F.3d 1279 (Fed. Cir.) (third‑party beneficiary exception to privity is limited)
- Nat’l Leased Hous. Ass’n v. United States, 105 F.3d 1423 (Fed. Cir.) (agency/privity exceptions in prime‑contractor context require explicit contractual language)
- United States v. Eurodif, S.A., 555 U.S. 305 (2009) (transactions in fungible goods are consistent with exchange acting as buyer/seller rather than mere service)
- Anderson v. United States, 344 F.3d 1343 (Fed. Cir.) (stringent test for third‑party beneficiary standing)
- H.F. Allen Orchards v. United States, 749 F.2d 1571 (Fed. Cir.) (example of third‑party beneficiary finding where contract clearly intended direct benefit to identifiable parties)
- Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir.) (FERC lacks authority to order refunds from federal power agencies)