Attorney General Lockyer Applauds Court Ruling That Opens Door to $2.8 Billion in Energy Refunds for California Ratepayers

(SACRAMENTO) – Attorney General Bill Lockyer issued the following statement on today's ruling by the U.S. Ninth Circuit Court of Appeals ruling in Lockyer v. Federal Energy Regulatory Commission, 02-73093. Lockyer represented the people of California in the case.

The court opened the door to $2.8 billion in ratepayer refunds for price gouging by power sellers during the Energy Crisis of 2000-01. The three-judge panel unanimously ruled FERC failed to properly administer the market-based rate system that governed California's wholesale electricity market. The court also held FERC unduly restrained itself in determining remedies for violations of its rules.

"This is a huge victory for California ratepayers, and vindication for state officials who have been struggling for years to wrench justice out of FERC. The ruling puts back on the table $2.8 billion in refunds that FERC had denied ratepayers.

"And the court echoed points we have been making throughout this long legal battle: the watchdog was sleeping during the robbery, it failed to enforce its own rules, and it unduly restricted remedies for consumers with artificial chains."

The court remanded the case back to FERC to reconsider its refund decision consistent with the court's ruling. That means ratepayers could see about $2.8 billion in refunds that FERC had determined were beyond its authority to order.

Lockyer noted the ruling also could pave the way for reconsideration of another FERC decision to deny billions of dollars in refunds to the California Department of Water Resources (CDWR). Additionally, federal court rulings denying damages to California in antitrust lawsuits against energy companies could be revisited.

The court ruled FERC could fulfill its duty to ensure just and reasonable rates, in accordance with the Federal Power Act, under its market-based rate system and tariffs that govern that system. But the panel agreed with Lockyer's argument that FERC "failed to administer the tariffs in accordance with their terms and abused its discretion in limiting available remedies for regulatory violations."

The FERC market-based system had three components: FERC must determine sellers cannot exercise market power; if it makes that determination, it grants sellers market-based rate authority; and sellers given that authority must file quarterly reports with FERC detailing their market transactions. The ruling hinged on the last prong.

Sellers routinely failed to file the quarterly reports with the transaction-specific information. The court noted FERC itself called the reports crucial to proper implementation of the market-based system, and acknowledged rampant violations of the rule during the Energy Crisis. Nevertheless, FERC determined it had no authority to order retroactive refunds for the reporting failures, calling them a mere technical compliance issue.

"FERC misapprehends its legal authority in this context," the court ruled. "In fact, FERC possesses broad remedial authority to address anti-competitive behavior ... The power to order retroactive refunds when a company's non-compliance has been so egregious that it eviscerates the tariff is inherent in FERC's authority to approve a market-based tariff in the first place."

The court also faulted FERC for a regulatory failure that left Californians vulnerable to market misconduct. "With FERC abdicating its regulatory responsibility, California consumers were subjected to a variety of market machinations ...," the court said.