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California Dep't of Water Resources v. Powerex Corp.

September 4, 2009


The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge


On August 17, 2009, a hearing was held on Defendant Powerex Corp.'s ("Powerex") motion for a stay or dismissal of this action, based on the argument that the California Attorney General ("CAG") has recently caused all issues involved with Plaintiff California Department of Water Resources' ("CDWR") state claims in this federal district court case to be pending at the Federal Energy Regulatory Commission ("FERC"). Specifically, Powerex argues CDWR's three state claims in this federal court case all require a finding on "the predicate act" whether Powerex engaged in illegal market manipulation, which Powerex contends is the same issue squarely before FERC today. CDWR opposes the motion, arguing FERC will not reach the issues CDWR seeks to have determined in this federal district court case.


CDWR, "by and through its California Energy Resources Scheduling Division" ("CERS"), filed its Second Amended Complaint ("SAC") in this federal court case on September 22, 2008. (SAC Preface.) CDWR alleges in the SAC that the following occurred "during the California energy crisis of 2001":

[T]he California Energy market was subjected to artificial manipulation on a massive scale. (Calif. ex rel. Lockyer v. FERC, 383 F.3d 1006, 1015-1016 (9th Cir. manipulators. As a result of this manipulation, 2004)). [Powerex] was one of the market California faced an unexpected and severe energy shortage in 2000 and 2001. Due to the state of emergency created by the energy crisis, the State of California, through [C]DWR, was compelled to enter into numerous energy transactions with Powerex. The majority of transactions between

[C]DWR and Powerex were made on a real-time basis, with the energy needed to satisfy demand for electricity within less than an hour from when the transactions were finalized. During this crisis,

[C]DWR had no reasonable alternative but to transact with Powerex to procure needed energy for

POWEREX took an oppressive and unfair advantage of the California. distress created by the California energy crisis, the necessities which compelled

[C]DWR to procure sufficient energy to avoid blackouts, and POWEREX's own participation in and knowledge of energy market manipulation. [C]DWR's agreements to the terms of the transactions with Powerex were not real, mutual, or free. Moreover, the transactions are contrary to the public policy and public interest of the State of California. Pursuant to Grays Harbor v. Idacorp, 379 F.3d 641 (9th Cir. 2004), [C]DWR seeks a declaration that all of the contracts or transactions with Powerex from January 17, 2001, through December 31, 2001, determination are void and of no force and effect, and any as to the amount of monetary relief involving issues of just, reasonable or fair rates would be addressed to [FERC]. (SAC ¶¶ 1-3) (emphasis added). CDWR argues the contracts and transactions are void because CDWR entered them under "duress," "undue influence" and "contrary to [California] public policy and interest" as a result of having been subjected to Powerex's "participation in... energy market manipulation." (SAC ¶¶ 2, 37-43.)

The CAG argues in his Complaint at FERC ("FERC Complaint"), filed on behalf of the People of the State of California, that he is giving FERC "in first instance an opportunity to enforce the [Federal Powers Act] and remedy [energy]sales to CERS," which is a division of CDWR. (FERC Compl. 2, 56; SAC Preface) (internal quotations omitted). The FERC Complaint is alleged against Powerex and 18 other "public utility sellers of short term bilateral energy to [CERS] during the period January 18, 2001 to June 20, 2001 that have not settled their refund liability with the [CAG]." (FERC Compl. 2.) The FERC Complaint states the following:

The [CAG] seeks refunds for California ratepayers on sales to CERS because those sales were made at unreasonable and unjust prices. These unjust and unreasonable prices resulted from: (1) [FERC]'s sellers' violation of applicable tariffs, exercise regulatory failure to protect ratepayers; and (2) of undue market power in California's electricity markets, manipulation of those markets through withholding and other abusive market schemes, and failure to comply with market-based rate oversight requirements... [The CAG argues FERC] should order sellers [both tariff violators as well as situational beneficiaries] to pay refunds on all short-term bilateral sales to CERS that were priced at unjust and unreasonable levels as measured by application of the mitigated market clearing price ("MMCP")*fn1 methodology that [FERC] has already adopted in the California Refund Proceeding.*fn2

(FERC Compl. 2-3)(emphasis added.)

Powerex also explains in its motion:

[O]n May 22, 2009, the CAG, along with the Public Utilities Commission of California ("CPUC"), Pacific Gas and Electric Company ("PG&E"), and Southern California Edison Company ("SCE") (collectively the "California Parties") filed at FERC a motion to consolidate ["FERC MTC"] the concurrently-filed CAG [FERC] Complaint with three pre-existing "California Energy Crisis" proceedings now on remand at FERC from the Ninth Circuit "into one proceeding that will encompass all [claims for short-term sales] made by the California Parties for the Crisis Period and that will measure the total financial harm done to California ratepayers[.]" (Def's Mot. 5:3-14) (internal citation omitted.) The California Parties request the following in the FERC MTC, in which they also request summary disposition, and urge the FERC to combine FERC proceedings and issue expeditious relief:

[T]hat [FERC] timely implement the mandates in the Remand Proceedings*fn3 and adjudicate the related [FERC Complaint] in a single, comprehensive proceeding, so as to provide full and expeditious relief to California consumers harmed by the Energy Crisis. Consolidation of these proceedings is necessary because these cases all involve the same issues, parties, related markets, and requested relief. Consolidating all of these cases is the only lawful way to ensure that the Ninth Circuit's mandates are enforced and that the interrelated issues are resolved based on a complete factual record. Litigating the claims separately would not allow a reasoned determination of the magnitude of financial harm that California ratepayers suffered during the Crisis. Piecemeal litigation also would squander the resources of [FERC] and the parties ...

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