The Public Utility District No. 1 (PUD) of Snohomish County, WA, struck out a second time last Monday in its attempts to collect damages for high-priced power or renegotiate contracts signed during the western energy crisis. Monday’s loss came in the form of the dismissal of its case by a U.S. district judge in California. The judge ruled that the claims made by the PUD against power suppliers are preempted by FERC’s regulatory authority.

The action came about three weeks after a Federal Energy Regulatory Commission administrative law judge recommended dismissing actions by PUD and others that sought to have long-term contracts that had been signed during the crisis renegotiated.

In its lawsuit, the PUD sought redress for alleged unfair business practices and market manipulation of the wholesale energy market in California by several power suppliers.

Generators targeted by Snohomish in the lawsuit included Williams Energy Marketing, Mirant Corp., Reliant Energy Services, Duke Energy Trading, Dynegy Power Marketing and Sempra Energy Resources. Snohomish alleged that the generators unlawfully manipulated the market for electric energy by fixing prices and restricting supply into the markets operated by the now-bankrupt California Power Exchange (PX) and the California Independent System Operator (CAISO).

The PUD also said that it has been forced to pay prices for power in excess of rates that would have been achieved by a competitive market. Snohomish asserted that the generators “gamed” California’s power market, which resulted in “wholesale energy being sold at prices that far exceed the price at which energy would be sold in a truly competitive market.”

Snohomish asked the U.S. District Court for the Southern District of California to “enjoin the defendants from continuing to conduct business via…unlawful and unfair business acts or practices,” as well as to require the generators to “disgorge” all monies wrongfully obtained.

A group of power suppliers subsequently filed a motion to dismiss the PUD’s lawsuit at the court. Powerex Corp. filed a separate motion to dismiss. The power suppliers said the lawsuit should be dismissed on two related, but separate, grounds — federal preemption and the filed rate doctrine.

As to federal preemption, the generators maintained that the relief sought by the PUD — monetary relief to reduce past rates and injunctive relief to regulate future conduct in the wholesale electricity market — cannot be granted without interfering with exclusive federal authority over wholesale power transactions.

The fact that FERC maintains exclusive jurisdiction over interstate wholesale electricity rates under the Federal Power Act (FPA) indicates that the PUD’s state law claims are barred under the doctrine of field preemption, U.S. District Judge Robert Whaley said, noting that the only authority given to states under the FPA is over intrastate retail electricity sales.

“Because FERC retains ‘exclusive jurisdiction’ over the regulation of interstate wholesale energy rates, under the ‘bright line’ division of authority contained in the FPA, federal law occupies ‘an identifiable portion’ of the regulated electricity field,” wrote Whaley. “Thus, to the extent that state regulation or court action would operate within the exclusive federal domain of wholesale energy rates, it is preempted.”

The judge pointed out that FERC is currently conducting proceedings “directly related to the issues in front of this court.” Whaley noted that FERC appears to be in the process of making changes to tariff rules and is investigating whether the operation of the tariffs and contracts of CAISO and PX adversely affected the wholesale power markets in California.

“Thus, both the monetary and injunctive relief plaintiff seeks here present direct and specific conflicts with FERC’s regulatory authority,” Whaley ruled.

The judge also agreed with the generators’ assertions that the filed rate doctrine bars the PUD’s claims in its lawsuit. The filed rate doctrine holds that electricity generators that file their rates with FERC, as they are required to do by law, are insulated from lawsuits challenging those rates and from court orders having the effect of imposing a rate other than that filed with FERC.

The power suppliers said that the court should apply the doctrine to dismiss the PUD’s claims because, in order to resolve those claims, the court would have to do precisely what the doctrine forbids — set a rate different from that chosen by FERC.

FERC in September 2002 set for hearing a complaint filed by the PUD asking the Commission to modify forward bilateral contracts for delivery of energy that were entered into with power suppliers during California’s 2000-2001 energy crisis. But the Commission said that in order to help the parties in settling their disputes “without the burden and expenses of litigation,” FERC would hold the hearings in abeyance pending the outcome of settlement judge procedures.

More recently, a FERC administrative law judge (ALJ) in December urged the full Commission to dismiss a series of complaints brought by power companies in Nevada, California and Washington (Snohomish) seeking to reform above-market electric contracts that they entered into with generators during the height of the western energy crisis in 2000 and 2001. The complainants failed to show that the contract rates in question adversely affected the public interest as required under the Mobile-Sierra doctrine, which ALJ Carmen Cintron said was the “applicable standard for use in this case.”

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.