US appeals court affirms FERC wholesale power rate authority

Washington (Platts)--10Aug2004

The US Court of Appeals for the Ninth Circuit Tuesday affirmed that the US
Federal Energy Regulatory Commission has exclusive authority over interstate
wholesale power markets and backed up FERC's market-based rate regulation
practices. In dismissing an appeal by the Public Utility District No 1 of
Grays Harbor County, Washington, against Idacorp, the court affirmed a lower
court's ruling that held FERC, not state or other courts, is the agency to
deal with wholesale power rates. Grays County in late 2002 challenged the
$249/Mwh contract it had signed with Idacorp for Oct 1, 2001 to March 21,
2002, saying that because it was based on a dysfunctional, manipulated market,
refunds were owed it. The ruling, however, was not a complete victory for FERC
because the court opened the door for Grays Harbor to again press its argument
before the lower court.

Remanding in part, the appeals court disagreed with the US District Court for
the Western District of Washington that Grays Harbor could not approach it
again to seek contract reformation. "A complaint that merely seeks declaratory
relief as to contract formation issues would not necessarily intrude upon the
rate-setting jurisdiction of FERC," the opinion said. "For instance, the
district court could determine that, because of wide-spread market
manipulation and dysfunction, the contract was formed under circumstances of
unilateral or mutual mistake." But, Judge Consuelo Callahan dissented on this
point from the majority opinion written by Judge Harry Pregerson, writing
separately to contend that the contract formation issues at hand "are tightly
intertwined" with FERC regulation.

Grays Harbor's claims of a mistake in connection with the contract are tied to
its allegation that the Pacific Northwest energy markets were running haywire,
so the district court again would be faced with a matter for FERC, Callahan
said. "This case calls to mind the famous ontological debate of whether the
chicken begat the egg. Like the scrambled relationship of the chicken and the
egg, it is impossible to sever the issues of state contract reformation in
this case from matters of federal energy regulation that are purely in the
province of FERC," the dissent added.

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