Lead Opinion
Opinion by Judge THOMAS; Concurrence by Judge McKEOWN.
This is another in a series of cases arising out of the energy crisis that occurred in California and other western states in 2000 and 2001. We are asked to review the decision by the Federal Energy Regulatory Commission (“FERC” or “Commission”) to deny refunds to wholesale buyers of electricity that purchased energy in the short-term supply market at unusually high prices in the Pacific Northwest. We are also asked to review FERC’s decision to exclude from any potential refund those transactions involving energy purchased in the Pacific Northwest for consumption in California. We conclude that we have jurisdiction over FERC’s decision to deny refunds, and that FERC abused its discretion in denying potential relief for transactions involving energy that was ultimately consumed in California. We also conclude that in determining whether refunds were warranted, FERC should have considered new evidence of intentional market manipulation submitted by the parties with FERC’s approval. At this time, we decline to reach all other issues raised by the parties. We grant the petitions for review in part and remand this case to FERC to address the market manipulation evidence, to include the California-consumed energy in its analysis, and to further consider its refund decision in light of related, intervening opinions of this court.
I
The California energy crisis serves as the backdrop of this litigation. That crisis has been well-documented, see, e.g., Pub. Utils. Comm’n of State of Cal. v. FERC,
In the mid-1990’s, the California legislature deregulated the electricity market, ostensibly to reduce energy prices for consumers. Act of September 23, 1996, 1996 Cal. Legis. Serv. 854 (codified at Cal. Pub. UtiLCode §§ 330-398.5). Shortly thereafter, for a variety of reasons related to the deregulation and other market factors, wholesale electricity prices skyrocketed. In May 2000, for instance, average prices in the California short-term supply market, also known as the “spot market,” were twice as high as average prices in May 1999. Pub. Utils. Comm’n,
The effects of this crisis were felt in other areas of the western energy market as well, as “dysfunctions in the spot markets operated by the [California Independent System Operator] and California Power Exchange (PX) affected the prices
Prices in the Pacific Northwest spot market skyrocketed during the energy crisis. Other factors, such as an extreme reduction in energy supply due to drought, also contributed to the crisis in the Pacific Northwest, a region that relies heavily on water flow through hydroelectric dams to generate electricity. Puget Sound Energy, Inc., et al.,
Under the Federal Power Act (“FPA”), all rates charged by a public utility — defined, confusingly, as a nongovernmental entity, BPA,
Pursuant to the FPA, San Diego Gas & Electric (“SDG & E”) filed a complaint with FERC regarding the skyrocketing energy prices in California. See BPA,
On December 15, 2000, shortly after finding that prices in the California spot markets were unjust and unreasonable, Pub. Utils. Comm’n,
Also on June 22, 2001, Puget filed a motion to dismiss and a notice that it was withdrawing its complaint, explaining that the June 19, 2001 Order instituting price mitigation in the Pacific Northwest satisfied its complaint. On July 9, 2001, the Port of Seattle and the City of Tacoma filed an answer opposing Puget’s motion, explaining that a dismissal would prejudice other entities in the Pacific Northwest that relied on Puget’s complaint. On the same day, the City of Seattle and the Attorney General of Washington filed late motions to intervene as well as answers in opposition to Puget’s notice of withdrawal. Although it does not normally grant late interventions, FERC granted the late motions to intervene filed by the City of Seattle and the Attorney General of Washington because “over the course of the SDG & E proceeding,[FERC] has expanded the scope of its focus from just California to include the entire Western interconnect and also to implicate wholesale spot market transactions of non-public utilities.” San Diego Gas & Elec. Co., et al.,
In its July 25, 2001 Order, FERC noted that there had been little time during the California settlement discussions to address issues raised by the Pacific Northwest parties. Id. at 61,520. As a result, FERC directed “all parties to the Puget Sound complaint proceeding to participate in [a separate preliminary evidentiary proceeding] and to focus on settling past accounts related to spot market sales in the
The preliminary evidentiary proceeding took place from August 1, 2001, to September 17, 2001. The administrative law judge (“ALJ”) expedited the proceeding by limiting discovery responses to four business days, prohibiting depositions, and conducting a three-day hearing in which cross-examination was frequently waived. September 24, 2001 ALJ Report,
On May 6, 2002, FERC released on its website documents relating to Enron’s manipulation of the California energy markets. According to the parties seeking refunds, this new evidence also reflected on market manipulation in the Pacific Northwest because some of Enron’s tactics relied on the import and export of electricity to and from California and the Pacific Northwest. The parties seeking refunds also allege that Enron relied on counterpart energy sellers in the Pacific Northwest to carry out its manipulative strategies.
In response to this newly-released evidence of Enron’s intentional market manipulation, some of the parties filed motions to reopen the evidentiary record in the Puget complaint. On December 19, 2002, FERC agreed to reopen the eviden-tiary record, giving the parties until February 28, 2003, to submit “additional evidence concerning potential refunds for spot market bilateral sales transactions in the Pacific Northwest for the period January 1, 2000 through June 20, 2001 and proposed new and/or modified findings of fact.” Puget Sound Energy, Inc., et al.,
After receiving the new evidence and holding oral argument, FERC ruled on the ALJ’s findings. A divided three-commissioner panel agreed with the ALJ, denying the request for refunds for energy purchases in the Pacific Northwest spot market. June 25, 2003 Order,
In this appeal, governmental entities from the Pacific Northwest&emdash;the City of Seattle, the Port of Seattle, and the City of Tacoma, all of which purchased, on the whole, more electricity during the energy crisis than they sold&emdash;petition for review of FERC’s decision to deny refunds. The State of California, the Public Utilities Commission of California, and the California Electricity Oversight Board (“the California Parties”), petition for review of FERC’s decision to exclude from the refund proceeding transactions involving energy that was ultimately consumed in California, as well as FERC’s decision to deny refunds. These parties will be referred to, collectively, as the “Refund Proponents.” Supporting FERC’s decision to deny refunds are the Bonneville Power Administration, Puget&emdash;the public utility that filed the initial complaint in this proceeding but which now opposes refunds&emdash;-and many other public utility intervenors. These parties will be referred to, collectively, as the “Refund Opponents.”
II
We review FERC orders to determine whether they are “arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or not in accordance with law.” Cal. Dep’t of Water Res. v. FERC,
As a threshold matter, we must determine whether we have jurisdiction to review FERC’s decision to deny refunds for energy transactions in the Pacific Northwest. FERC contends that we lack jurisdiction to review its denial of refunds because this decision is committed to agency discretion by law.
We lack jurisdiction to review “an agency’s decision not to prosecute or
That is the case here. FERC has already made a decision to commit resources to an examination of whether refunds are warranted for certain energy transactions in the Pacific Northwest for a period of time in 2000 and 2001. In response to the filing of a complaint, FERC has held hearings and taken evidence to adjudicate a dispute between the parties as to whether refunds should be awarded. Although the steps FERC has taken do not require FERC to find that refunds are appropriate, FERC’s decision regarding the propriety of awarding refunds is reviewable by this court. Indeed, we regularly exercise judicial review over FERC’s decision to grant or deny refunds, Pub. Utils. Comm’n,
Ill
We also must decide whether FERC erred in finding that Puget’s original complaint, which launched the Pacific Northwest refund proceeding, was not withdrawn as a matter of law in July 2001. If FERC erred and the opinion was withdrawn, the entire Pacific Northwest evi-dentiary proceeding before the ALJ, as
A
As a threshold matter, we conclude that Puget has standing to assert this challenge, even though it was the prevailing party before the agency. The FPA limits judicial review to those parties who have been “aggrieved by an order issued by the Commission.” 16 U.S.C. § 825i (b). In addition, “[l]ike all parties seeking access to the federal courts, [Puget is] held to the constitutional requirement of standing.” Shell Oil Co. v. FERC,
“[M]ere disagreement with an agency’s rationale for a substantively favorable decision, even where such disagreement focuses on an interpretation of law to which a party objects, does not constitute the sort of injury necessary for purposes of Article III standing....” Id. at 1202(internal quotation marks omitted). The general rule is that a party may not appeal from a decree in its favor. Lindheimer v. Illinois Bell Tel. Co.,
Puget undoubtedly prevailed before the agency; indeed, it argues that FERC reached the correct result in not granting refunds. Puget has standing, however, because, while not technically bringing a cross-appeal, it essentially finds itself in the position of a cross-appellant who lost a collateral issue below but ultimately prevailed. With the Refund Proponents appealing FERC’s denial of refunds, FERC’s collateral refusal to let Puget withdraw its complaint would expose Puget to greater refund liability should we reverse. Accordingly, under Hilton, the risk that Puget “might become aggrieved upon reversal” allows it to bring this appeal.
B
Although it has standing to raise them, Puget’s procedural arguments are unavailing. On June 19, 2001, FERC extended price mitigation beyond California to the rest of the western states, including the Pacific Northwest. June 19, 2001 Order,
FERC’s regulations provide that a withdrawal “of any pleading is effective at the end of 15 days from the date of filing ... if no motion in opposition to the notice of withdrawal is filed within that period and the decisional authority does not issue an order disallowing the withdrawal within that period.” 18 C.F.R. § 385.216(b)(1). If, on the other hand, “a motion in opposition to a notice of withdrawal is filed within the 15 day period, the withdrawal is not effective until the decisional authority issues an order accepting the withdrawal.” Id. § 385.216(b)(2). Puget contends that although the Refund Proponents opposed Puget’s notice, this opposition was not effective because another regulation states that motions may be filed only by “a participant or a person who has filed a timely motion to intervene which has not been denied.”
FERC has interpreted 18 C.F.R. § 385.216(b)(1) as placing no limitation on who may oppose a party’s notice of withdrawal. June 25, 2003 Order,
C
The Refund Opponents supporting Puget further argue the Pacific Northwest proceeding was procedurally doomed because Puget’s complaint did not request a required “refund effective date,” thus stripping FERC of any authority to order refunds for electricity purchases in the Pacific Northwest. We reject this argument as well.
Congress has provided that “[wjhenever [FERC] institutes a proceeding under this section, [FERC] shall establish a refund effective date.” 16 U.S.C. § 824e(b) (2004). This refund effective date may not be earlier than sixty days after the filing of a complaint or the filing of a notice by FERC that it intends to investigate rates sua sponte.
The Refund Opponents argue that Puget’s complaint never requested refunds or the setting of a refund effective date. To the contrary, Puget’s complaint clearly stated that “[Puget] requests that any refunds ordered by the Commission reflect the prospective nature of the relief sought. If and to the extent any refund is called for in response to [Puget’s] petition, [Puget] respectfully requests that the refund effective date be set ... sixty (60) days after the date of filing of this Complaint.”
In the alternative, the Refund Opponents argue that because FERC dismissed Puget’s complaint on December 15, 2000, December 15, 2000 Order, 93 FERC
Second, the FPA does not support the contention of the Refund Opponents. On the one hand, the FPA provides that if FERC does not respond to an application for rehearing within thirty days after filing, the application “may be deemed to have been denied.” 16 U.S.C. § 825i (a) (emphasis added). FERC’s regulations make this denial automatic, stating that “[u]nless [FERC] acts upon a request for rehearing within 80 days after the request is filed, the request is denied.” 18 C.F.R. § 385.713(f). On the other hand, the statute also states that until the record is filed with the court of appeals, FERC may at any time, with reasonable notice, modify or set aside any finding or order it has made. 16 U.S.C. § 825i (a). Thus, even if Puget’s rehearing request was denied as a matter of law thirty days after it was filed, this denial did not strip FERC of its ability to change its mind and modify its decision in the June 25, 2003 Order.
Moreover, we have already explained that petitions for rehearing keep market participants on notice that an alternative refund effective date, once rejected by FERC, might in the future be made the refund effective date. Pub. Utils. Comm’n,
Finally, the Refund Opponents argue that FERC was required to set a refund effective date, if at all, before instituting a § 206 refund proceeding. FERC acknowledges in its brief that “[t]he Commission never established an FPA § 206(b) refund effective date for this matter.... ” However, the plain language of the FPA does not place any restriction on when FERC may set the refund effective date. Hertzberg v. Dignity Partners, Inc.,
FERC’s interpretation, which would permit it to set the refund effective date at any time, is consistent with the overall framework of the statute, which indicates the primary concern of Congress was to afford notice to market participants of the period of time during which they may be liable for refunds. The sixty-day rule provides notice to the market that if FERC ever decides to order refunds based on a given complaint, those refunds could cover a period beginning sixty days after the filing of that complaint, and no earlier. This is a permissible construction of the statute, and is supported by our prior decision regarding the California proceeding, in which we found that the “key question is whether the SDG & E complaint afforded sufficient notice to alert market participants that sales and purchases might be subject to refund.” Pub. Utils. Comm’n,
In sum, we reject the procedural challenges raised by the Refund Opponents and hold that Puget’s complaint requested a refund effective date, FERC’s dismissal of Puget’s complaint did not disturb FERC’s ability to set the refund effective date, and FERC was not required to formally set the refund effective date prior to instituting a § 206 refund proceeding. We also hold that Puget’s complaint was not withdrawn as a matter of law because the Refund Proponents timely opposed Puget’s notice of withdrawal. Accordingly, FERC had the authority to order refunds for transactions in the Pacific Northwest spot market during the permissible time period, although it declined to do so on the merits.
IV
The California Parties challenge FERC’s decision to exclude from the Pacific Northwest refund proceeding purchases of energy made by the California Energy Resources Scheduling (“CERS”) division in the Pacific Northwest spot market. CERS, a division of the California Department of Water Resources, began purchasing wholesale power on behalf of California consumers in the California and Pacific Northwest spot markets during the energy crisis. See Pub. Utils. Comm’n,
We cannot accept such a constrained reading of the Puget complaint. First, FERC’s factual finding that the energy purchased by CERS was delivered in California is not supported by substantial evidence. The ALJ never explicitly found that a CERS witness admitted that the energy deliveries took place in California. The section in which the ALJ discusses the CERS witness is actually a recitation of arguments made by the Refund Opponents. September 24, 2001 ALJ Report,
Furthermore, FERC’s attempt to distinguish between the location where a change of ownership of electricity occurs and the location where that electricity physically changes hands is not supported by either the law or the governing contractual agreements between CERS and energy sellers in the Pacific Northwest.
Having established that FERC could not have found, on this record, that the CERS purchases occurred in California, we must determine whether sales to CERS were outside the scope of the Pacific Northwest refund proceeding even if the legal change of ownership occurred in the Pacific Northwest. In so doing, we are mindful that we owe deference to FERC’s interpretation of the scope of Puget’s complaint. Amerada Hess Pipeline Corp. v. FERC,
We conclude that FERC’s interpretation of the scope of Puget’s complaint is arbitrary, capricious, and an abuse of discretion. On its face, Puget’s complaint provides no indication of an intent to exclude refunds for energy purchased in the Pacific Northwest spot market for consumption outside the geographical area. The complaint petitioned FERC to cap prices at which sellers subject to FERC’s jurisdiction “may sell capacity or energy into the Pacific Northwest’s wholesale power markets. [Puget] seeks an order that prospectively caps the prices for wholesale sales of energy or capacity into the Pacific Northwest. ...” This language indicates that the complaint was concerned with (1) sellers
FERC’s interpretation of Puget’s complaint is also inconsistent with its prior interpretation of the complaint filed by SDG & E in the California proceeding. That complaint similarly petitioned FERC “for an emergency order capping ... the prices at which sellers subject to its jurisdiction may bid energy or ancillary services into California’s two large bulk-power markets.... ” (Emphasis added.) In contrast to its interpretation of the Puget complaint, FERC did not interpret the California complaint as limiting refunds to entities that purchased energy for ultimate consumption in California, and in fact some parties who benefited from refunds in the California proceeding did not consume the fruits of their purchases in California. FERC’s interpretation of the California complaint is the better one, and one upon which we relied, and its conflicting interpretation of a similar complaint in a similar refund proceeding renders its subsequent interpretation unworthy of deference. Koch Gateway Pipeline Co. v. FERC,
In addition, FERC argued in the SDG & E case that the CERS transactions were the subject of other regulatory proceedings. Pub. Utils. Comm’n,
We therefore conclude that FERC must, on remand, include the CERS transactions when it determines whether refunds are warranted for sales in the Pacific Northwest spot market.
V
Finally, we must determine whether FERC was required to take into account evidence of market manipulation filed by the parties after the ALJ hearing. FERC permitted the Refund Proponents to submit new evidence of market manipulation that emerged after the ALJ’s evidentiary proceeding. December 19, 2002 Order,
In order for an agency to avoid making an arbitrary and capricious determination, it must “examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co.,
Given these requirements, FERC’s failure to consider or examine the new evidence showing intentional market manipulation in California and its potential ties to the Pacific Northwest was arbitrary and capricious. The Refund Proponents argue that the new evidence suggests, among other things, that: sellers of electricity in the Pacific Northwest were involved in schemes to withhold energy and to assist Enron in creating false congestion; Enron used markets outside of California in order to advance its tactics in California; Enron may have implemented fraudulent schemes outside California markets; and utilities in the Pacific Northwest violated posting requirements in transactions with Enron. Even assuming all of these transactions occurred in the California spot market, the fact that Pacific Northwest sellers were apparently involved in Enron’s manipulation indicates that FERC must at least consider the possibility that the Pacific Northwest spot market was not, as the ALJ found, functional and competitive. June 25, 2003 Order,
Moreover, we reject the contention by the Refund Opponents that FERC need not consider the new evidence because FERC already is addressing market manipulation in separate proceedings focusing on misconduct. Not only did FERC fail to rely on this reasoning below, see Laclede Gas Co.,
VI
At this juncture we find it preferable to reserve judgment on other issues raised by the parties. As such, we decline to reach the merits of FERC’s ultimate decision to deny refunds but urge the Commission to further consider its decision, on remand, in light of the related decisions of this court that followed FERC’s final orders in the Pacific Northwest proceeding.
PETITION GRANTED IN PART; DENIED IN PART; REMANDED. Each party shall pay its own costs on appeal.
Notes
. Although the language permitting “a person who has filed a timely motion to intervene which has not been denied/’ 18 C.F.R. § 385.212(a)(2) (emphasis added), might apply to someone not yet officially a "participant” or "party,” none of the Refund Proponents would fall into this category because their motions to intervene were filed out of time.
. The City of Tacoma and the Port of Seattle did not file their motions to intervene in the
. Amendments effective August 8, 2005, removed the sixty-day waiting period, permitting the refund effective date to be set as early as the date the complaint is filed or the date the Commission files notice of its investigation. 16 U.S.C. § 824e(b) (2006).
Concurrence Opinion
concurring:
I concur in the opinion and the result, with the exception of the question of whether Puget Sound Energy is an “aggrieved party.” Puget lacks standing because it was granted all the relief it sought (i.e., FERC granted price mitigation in the Pacific Northwest proceeding), and thus Puget is not “aggrieved” within the meaning of 16 U.S.C. § 8251 (b). On this point, I agree with FERC’s position. A party seeking appeal must establish, at a minimum, “injury in fact” to a protected interest. Shell Oil Co. v. FERC,