Appeals Court Rules State Must Submit to FERC

The Ninth Circuit Court of Appeals ruled California cannot litigate allegations of double-selling energy in state court because it is a federal issue. Attorney General Bill Lockyer's appeal primarily involved a dispute over which venue should hear the allegations. The presumption is that a California court would be more receptive to the attorney general's argument. In its appeal, the state requested restitution and civil penalties from power sellers, including Reliant, Mirant, Dynegy, and NRG Energy, claiming they sold capacity to the California Independent System Operator (CAISO) for ancillary services and then sold the same power on the real-time market. On July 6, Ninth Circuit judge Diarmuid O'Scannlian ruled the attorney general cannot litigate in state court because California "presented no independent state law claim." He added, "The claims were necessarily federal in character, and the conduct the state sought to condemn was expressly governed by CAISO tariffs." The judge upheld two district court orders. The U.S. District Court for the Northern District of California had denied the AG's request for a remand to state court and dismissed the state's unfair competition claims. The district court held the state claims were barred by federal preemption and the filed rate doctrine. "The court's opinion takes great pains to right the efforts by the attorney general to turn logic on its head," said Gary Ackerman, director of the Western Power Trading Forum. He added the decision is a "complete put-down" of the state's arguments but doubts the attorney general and staff will "shout 'uncle'." For Lockyer, the decision creates a Catch-22. The attorney general argued, "The court said our only remedy is FERC, and FERC has frustrated and obstructed the state's attempt to get refunds." The attorney general also claimed that sovereign immunity allows the state to avoid the federal forum for the allegations. O'Scannlian replied that sovereign immunity protects states from being sued and thus it "cannot invoke" it in this case. While acknowledging that states do have jurisdiction over certain electricity sales, the court said wholesale transactions are defined by a "bright line," and this case was clearly on FERC's side. In the last few weeks, courts have been both giving FERC jurisdiction and taking it away. On June 22, the U.S. Court of Appeals for Washington, D.C., denied FERC jurisdiction in the matter of determining the membership of the state grid operator's governing board ( Circuit , June 25, 2004). The attorney general's office has yet to decide whether to appeal the Ninth Circuit decision to the Supreme Court ( No. 02-1669 et al. ).

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Appeals Court Rules State Must Submit to FERC

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