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Montana Consumer Counsel v. Energy

October 13, 2011

MONTANA CONSUMER COUNSEL, PETITIONER, THE INTEGRYS GROUP; AMERICAN PUBLIC POWER ASSOCIATION; PUBLIC SERVICE COMPANY OF NEW MEXICO; TUCSON ELECTRIC POWER COMPANY; PACIFICORP; TRANSMISSION ACCESS POLICY STUDY GROUP; NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION; TRANSMISSION DEPENDENT UTILITY SYSTEMS; THE PPL COMPANIES; INDUSTRIAL CUSTOMERS: PJM INDUSTRIAL CUSTOMER COALITION; INDUSTRIAL
INDUSTRIAL ENERGY USERS-OHIO; NEPOOL INDUSTRIAL CUSTOMER COALITION; COALITION OF MIDWEST TRANSMISSION CUSTOMERS; SOUTHEAST ELECTRICITY CONSUMERS ASSOCIATION; SOUTHWEST INDUSTRIAL CUSTOMER COALITION; WEST VIRGINIA ENERGY USERS GROUP; ELECTRIC POWER SUPPLY ASSOCIATION, INTERVENORS,
v.
ENERGY CONSUMERS-PENNSYLVANIA; FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT. GEORGE JEPSEN,* ATTORNEY GENERAL OF THE STATE OF CONNECTICUT; LISA MADIGAN, ATTORNEY GENERAL OF THE STATE OF ILLINOIS; PETER F. KILMARTIN,* ATTORNEY GENERAL OF THE STATE OF RHODE ISLAND, PETITIONERS, AMERICAN PUBLIC POWER ASSOCIATION; COALITION OF MIDWEST TRANSMISSION CUSTOMERS; DESERET GENERATION & TRANSMISSION CO-OPERATIVE, INC.; INDUSTRIAL ENERGY CONSUMERS- OHIO; INDUSTRIAL ENERGY CONSUMERS-PENNSYLVANIA; INTEGRYS ENERGY GROUP, INC.; INTEGRYS ENERGY SERVICES, INCORPORATED; NEPOOL INDUSTRIAL CUSTOMER COALITION; NATIONAL RUAL ELECTRIC COOPERATIVE ASSOCIATION; PJM INDUSTRIAL CUSTOMER COALITION; SOUTHEAST ELECTRICITY CONSUMERS ASSOCIATION; SOUTHWEST INDUSTRIAL CUSTOMER COALITION; TRANSMISSION ACCESS POLICY STUDY GROUP; UPPER PENINSULA POWER COMPANY; WEST VIRGINIA ENERGY USERS GROUP; WISCONSIN PUBLIC SERVICE CORPORATION, PETITIONERS-INTERVENORS, ELECTRIC POWER SUPPLY ASSOCIATION, INTERVENOR,
v.
FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, DUKE ENERGY CORP.; LOWER MOUNT BETHEL ENERGY, LLC; PPL BRUNNER ISLAND, LLC; PPL
COLSTRIP I, LLC; PPL COLSTRIP II,
LLC; PPL EDGEWOOD ENERGY, LLC; PPL ELECTRIC UTILITIES CORPORATION; PPL ENERGYPLUS, LLC; PPL GREAT WORKS, LLC; PPL HOLTWOOD, LLC; PPL MAINE, LLC; PPL MARTINS CREEK, LLC; PPL MONTANA, LLC; PPL MONTOUR, LLC; PPL SHOREHAM ENERGY, LLC; PPL SUSQUEHANNA, LLC; PPL UNIVERSITY PARK, LLC; PPL WALLINGFORD ENERGY, LLC; PACIFICORP; SHELL ENERGY NORTH AMERICA (U.S. L.P.); TUCSON ELECTRIC POWER COMPANY, RESPONDENTS-INTERVENORS.
PUBLIC CITIZEN, INC.; COLORADO OFFICE OF CONSUMER COUNSEL; PUBLIC UTILITY LAW PROJECT OF NEW YORK, INC., PETITIONERS, ELECTRIC POWER SUPPLY ASSOCIATION,
INTERVENOR,
v.
FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT.



On Petition for Review of an Order of the Federal Energy Regulatory Commission FERC No. RM04-7-000 FERC No. FERC-697-A

The opinion of the court was delivered by: Gould, Circuit Judge:

FOR PUBLICATION

*George Jepsen is substituted for his predecessor, Richard Blumenthal, as Attorney General of the state of Connecticut; Peter F. Kilmartin is substituted for his predecessor, Patrick Lynch, as Attorney General of the state of Rhode Island. See Fed. R. App. P. 43(c)(2).

OPINION

FERC No. FERC-697-A

Argued and Submitted June 8, 2011-Portland, Oregon

Before: Raymond C. Fisher, Ronald M. Gould, and Richard A. Paez, Circuit Judges.

Opinion by Judge Ronald M. Gould

OPINION

Petitioners Montana Consumer Counsel, Public Citizen, Inc., Colorado Office of Consumer Counsel, Public Utility Law Project of New York, Inc., and the state attorneys general for Connecticut, Illinois, and Rhode Island seek review of a final order of Respondent the Federal Energy Regulatory Commission ("FERC"). Petitioners bring a facial challenge to the order, contending that the order violates FERC's governing statutes. We must decide whether the market-based regulatory policy established by FERC's order is permissible under the law. FERC asserts that it has improved on its prior regulatory policies by enhancing its up-front tests for market power and reinforcing its ongoing oversight of market-based rates. Petitioners contend that FERC has not done enough. We have jurisdiction to review final orders of FERC under 16 U.S.C. § 825l(b) and we deny the petition.

I. Background

FERC's statutory mandate is set forth in the Federal Power Act ("FPA"), 16 U.S.C. §§ 824-824w. The FPA requires, and charges FERC with ensuring, that "[a]ll rates and charges made, demanded, or received" by power wholesalers be "just and reasonable." 16 U.S.C. § 824d(a). All rates and charges for sales and transmission of power are subject to FERC's review. §§ 824d(a), (d), (e). The FPA requires every public utility to file with FERC "schedules showing all rates and charges . . . together with all contracts which in any manner affect or relate to such rates, charges . . . ." § 824d(c). Any change in a rate, charge, or contract requires notice, publicly filed with FERC, sixty days in advance of the change "[u]nless the Commission otherwise orders." § 824d(d).

In the early 1990s, FERC began moving to a regulatory policy that allowed sellers of wholesale electricity to file "market-based" rates with FERC. In the years that followed, FERC varied its implementation of the market-based policy by making adjustments in response to industry and consumer feedback and in response to decisions of the federal appellate courts. Most recently, in Order Number 697, published July 20, 2007, FERC codified the existing limited market-based policy, along with multiple enhancements, in a final rule. Under Order 697, sellers who elect to participate in the market-based policy must be pre-screened by FERC, and must show that they lack (or have adequately mitigated) both horizontal (energy generation) and vertical (energy transmission) market power. According to FERC, the screening process enables it to "measure market power at both peak and off-peak times, and to examine the seller's ability to exercise market power unilaterally and in coordinated interaction with other sellers." When a seller passes the screening process, FERC adopts a presumption that the seller does not have market power, though intervenors may present evidence to rebut that presumption. Sellers who fail the screening process are presumed to have market power, and are then given the opportunity to rebut the presumption, mitigate the market power, or adopt cost-based rates. After passing the screening process, or successfully rebutting or mitigating FERC's presumption of market power, a seller may be authorized by FERC to file a market-based rate. A seller who has obtained authorization must file an updated market-power analysis every three years.*fn1 If the seller has gained market power, the authorization will be revoked. In addition, sellers must provide quarterly reports of all transactions and the contractual terms governing those transactions, to be filed electronically with FERC. Authorized sellers must also notify FERC within thirty days of changes in status that might affect their eligibility to file market-based rates. Sellers must comply with FERC's other rules and regulations, and are subject to FERC's enforcement mechanisms.

Order 697 became effective September 18, 2007. The published order took into account public comments from a range of sources, including wholesalers, customers, and public interest organizations. Petitioners and other interested parties requested rehearing on several grounds, including the grounds asserted in this petition. On April, 21, 2008, in Order 697-A, FERC responded to the requests, but denied rehearing. Specifically, FERC rejected Petitioners' view that it did not have authority to implement the market-based rates program and that the program violated the FPA.

After FERC filed Order 697-A, Petitioners and other parties filed petitions for review in the federal appellate courts. All but three petitions were eventually withdrawn. The remaining three petitions, with case numbers 08-71827, 08-74443, and 08-74439, were consolidated and are before us. Petitioners contend (1) that FERC, by relying solely on the market to regulate rates, has violated its statutory obligation to ensure that rates are just and reasonable; and (2) that the market-based rates policy, which allows sellers to file a market-based rate and does not ...


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