On February 26, 2007, the California Court of Appeal, Fourth District pulled the plug on the remaining wholesale electricity manipulation cases, based upon the California recent energy crisis. See, Wholesale Electricity Antitrust Cases I & II, California Court of Appeal, Fourth District, Nos. 4204, 4205, February 26, 2007.
In late 2000, eighteen private treble damage class actions were filed against a series of defendants. The defendants included groups of generators, sellers, or traders of electricity at wholesale. The complaint alleged that the defendants manipulated, distorted, "gamed", and corrupted the wholesale electricity market in California, thus forcing consumers to pay electricity rates not based upon competitive market forces. Citing and adopting the decisions of the Court of Appeals for the Ninth Circuit in Public Utility Dist. No. 1 of Snohomish County v. Dynergy Power Marketing, Inc., 384 F.3d 756 (9th Cir. 2004) ("Snohomish") and Public Utility Dist. No. 1 of Grays Harbor County, Washington v. Idacorp, Inc., 379 F 3rd. 641, 647 (9th Cir. 2004) ("Grays Harbor"), the Court of Appeal upheld the sustaining of a demurrer without leave to amend, holding that the claims were preempted by the Federal Power Act ("FPA"), and the exclusive regulatory authority of the Federal Energy Regulatory Commission ("FERC"). In an alternative holding, the Court of Appeal also affirmed the trial court's determination that transactions involving interstate wholesale electricity markets are preempted under the FPA, and that the filed rate doctrine applies to the rates regulated pursuant to the authority of FERC. The trial court entered judgment of dismissal, which the Court of Appeal affirmed.
The plaintiffs argued that in light of various changes in the FERC regulatory process, from filed rates to a market-based type of regulation pursuant to an Independent Service Operator ("ISO"), Congress could not have intended to preempt the field. Plaintiffs relied upon Younger v. Jensen, 26 Cal. 3d 397 (1980) to contend that there was concurrent state antitrust regulation in the California wholesale interstate electricity market. The trial court held, and the Court of Appeal affirmed, that Younger was distinguishable. The trial court, and the Court of Appeal, relied primarily on the authority of the Ninth Circuit decisions cited above. The Ninth Circuit decisions, as well as the Court of Appeal decision here, concluded that the plaintiffs' claims and prayer for relief would impermissibly require a "fair price" determination, and thus second guess the authority of FERC to determine what is a "fair and reasonable" rate.
The Court of Appeal reasoned that "the general rule disfavoring implied preemption" was inapplicable, as here, there is a history of significant and pervasive federal regulation. As the field of interconnection relating to wholesale electricity distribution agreements has a history of significant federal presence, the presumption was held inapplicable.
The Court of Appeal held that the plaintiffs' proper course of action was to apply to FERC for redress and to argue that the prices approved by FERC pursuant to filed tariffs were not "just and reasonable," or that the defendants sold electricity in violation of the filed tariffs.
Plaintiffs also argued that FERC had done a particularly poor job in regulating the California interstate wholesale electricity market, and that accordingly, state antitrust law principles should be applicable. The Court of Appeal rejected the argument, and held that the issues as framed presented a "bright line easily ascertained between state and federal jurisdiction …". The Court of Appeal noted that even considering FERC's "difficult history", is has been provided with sufficient regulatory authority such that federal preemption principles must be applied. It noted that FERC possesses "broad remedial authority to address anti-competitive behavior".
The Court of Appeal recognized that the trial court's ruling that federal preemption applied was dispositive. Nevertheless, for completeness, it held in the alternative that the filed rate doctrine was applicable. It noted that in Grays Harbor the Court of Appeal found that the market-based rates filed with FERC were adequate for the application of the filed rate doctrine. It noted,
"The market-based rate regime established by FERC continues FERC's oversight of the rates charged. FERC only permits power sales at market-based rates after scrutinizing whether the seller and its affiliates do not have, or have adequately mitigated, market power in generation and transmission and cannot erect other barriers to entry."
It noted further that "this oversight is ongoing…". The plaintiffs' allegations, the Court of Appeal observed "amount to requests for penalties for alleged anticompetitive conduct by defendants, and these potentially would interfere with FERC supervision of market-based rates and any enforcement activities allowed under FERC procedures."