By Jonathan Stempel
(Reuters) - A divided federal appeals court, in a case tied to California's 2000-2001 electricity crisis, said a U.S. energy regulator has authority to retroactively determine prices to help it obtain refunds from entities it oversees, though it lacks broader authority to reset rates for all market participants.
By a 2-1 vote, the 9th U.S. Circuit Court of Appeals in San Francisco upheld Federal Energy Regulatory Commission authority to set "just and reasonable" prices in markets overseen by the California Independent System Operator and California Power Exchange, with a goal of getting refunds from public utilities.
The court took more than 23 months to issue its decision, which was a defeat for several federal and municipal government power sellers such as the Bonneville Power Administration and the city of Redding, California. These power sellers are not subject to FERC refund jurisdiction, but face lawsuits over alleged overcharges.
California had set up the non-profit ISO and CalPX to oversee power sales and the transmission grid as part of a mid-1990s deregulation push that the state hoped would drive electricity prices lower.
But market manipulation by energy producers helped fuel a crisis marked by skyrocketing prices, power shortages and rolling blackouts, and the April 2001 bankruptcy of a large public utility, PG&E Corp's Pacific Gas & Electric.
The state and its largest public utilities -- Pacific Gas & Electric, Edison International's Southern California Edison and Sempra Energy's San Diego Gas & Electric -- have since filed damages lawsuits to force power sellers to accept ISO and CalPX rates, including those lowered by FERC.
Writing for the 9th Circuit panel majority, Circuit Judge Richard Clifton said these lawsuits "loom large" and "explain the motivation of most of the parties" in the current challenge to FERC, but were ultimately not determinative.
"FERC's recalculation was not an empty exercise, because it had to determine just and reasonable market clearing prices in order to calculate the refunds to be ordered from sellers from which it could order refunds," Clifton wrote. "What impact this calculation might have on the contract actions pending in other courts is not for us to say."
Circuit Judge Margaret McKeown dissented, accusing the majority of using semantics to reach the "surprise twist ending" that FERC had "merely declared fair market clearing prices without actually attempting to 'retroactively alter' prices."
The U.S. Department of Justice argued the appeal on behalf of power sellers. A spokesman for the department, Charles Miller, declined to comment. FERC spokesman Craig Cano and Richard Roberts, a lawyer who represents Southern California Edison and also argued in the case, also declined to comment.
In 2005, the 9th Circuit ruled that FERC lacked authority to order refunds from entities over which it had no jurisdiction.
The case is City of Redding, California et al v. Federal Energy Regulatory Commission et al, 9th U.S. Circuit Court of Appeals, No. 09-72775.
(Reporting By Jonathan Stempel in New York)