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9th Circuit Hides Behind its Own Bad Precedent

9th Circuit Hides Behind its Own Bad Precedent to Deny Electric Ratepayers Protection from Excessive Charges

By Lynn Hargis

The federal Ninth Circuit Court of Appeals has once again refused to require the Federal Energy Regulatory Commission (FERC) to enforce its enabling law and ensure that wholesale electric rates are not only “reasonable” but also “just” to consumers.  Instead, in a recent decision, the appeals court continued to allow FERC to administratively deregulate electric rates and allow “the market,” e.g., the very electric utility sellers that the Federal Power Act was enacted to constrain, to set their own rates as long as the federal agency believes that they lack “market power.”  State commissions are then required by federal preemption to allow such charges to be passed on to retail consumers as “reasonable” rates because the Federal Power Act assumes that FERC is actually determining, after advance review and public input, that such rates are not excessive. Instead, FERC is allowing rates to be determined by whatever the market will allow.

To rub salt in the wound, the court also denied that FERC must have “substantial evidence” to support its claim that reliance on “the market” (the sellers) actually does result in reasonable (not to mention “just”) rates to consumers, even though the Federal Power Act itself (section 313) requires such evidence for material facts on which FERC’s orders rely. Such facts, for example, could include the actual rates of return or profits that sellers are making under “market based” rates.  Instead, the court continues to allow FERC to rely on “assumptions” and “inferences” that the sellers will set rates that only earn  normal rates of return.  Assumptions and inferences based on market rate theory apparently don’t require supporting evidence in the 9th Circuit’s view.

The court of appeals also ignored Public Citizen’s citations to Supreme Court holdings that federal agencies may not simply dispense with notice and prior rate filing requirements set by a statute. Instead, the decision repeatedly points to an earlier 9th Circuit case and says:  “Were we to reach a different conclusion, we would nevertheless be bound by our prior decision on this question.”  Indeed, the court claims numerous times to be bound by the prior decision despite the fact that that decision failed to address the questions raised by petitioners here.  These include why FERC has never complied with the explicit instructions in the Federal Power Act as to what the agency must do in order to modify the requirement for 60-day advance notice to the agency and the public of any increase in rates.

Public Citizen’s briefs on behalf of electricity consumers were joined by the Attorneys General of Connecticut, Illinois and Rhode Island, as well as by the Public Utility Law Project of New York, Inc. and the Colorado Office of Consumer Counsel.  The case is No. 08-71827, Montana Consumer Counsel v. FERC, opinion issued October 13, 2011.

About the author: Lynn Hargis joined the Energy Program in June 2003. From 1986 to May 2003, she was counsel at an international law firm where she worked on regulatory issues regarding the ownership, acquisition and sale of electric generating plants around the world. Prior to that, she was the assistant general counsel for electric rates and corporate regulation at the Federal Energy Regulatory Commission (FERC). She has written and spoken widely on the potential impacts of repeal of the Public Utility Holding Company Act (PUHCA) as well as on federal/state jurisdiction and other issues under the Federal Power Act, the statute regulating rates for electricity sales for resale between U.S. states. She received her J.D. from the University of California at Berkeley School of Law and her B.A. from Southern Methodist University in Dallas, Texas