Client Alert

Court Reaffirms FERC's Exclusive Jurisdiction over Wholesale Energy Rates

9/6/2005

On August 22, 2005, the U.S. District Court for the Eastern District of California dismissed a lawsuit by the California Department of Water Resources ("DWR") against Powerex Corp. for alleged price gouging during the California Energy Crisis of 2000-2001. California Dept. of Water Resources v. Powerex Corp., No. 2:05-CV-518-GEB-PAN (E. D. Cal. March 16, 2005)("Powerex"). The Court ruled that the state’s claim should be taken to the Federal Energy Regulatory Commission (FERC) because FERC has exclusive jurisdiction to determine "just and reasonable" wholesale energy rates.

This case has its roots in California’s Energy Crisis. In January of 2001, California Governor Gray Davis authorized the State of California, through the DWR, to purchase electricity to protect the health, safety and economic interests of California citizens and businesses. Powerex (Aug. 22, 2005 Order at 1). That same month, the California Legislature passed legislation charging the DWR with the duty of obtaining energy to provide California consumers with a stable supply of electricity. The DWR entered into numerous energy transactions with Powerex Corp., a Canadian corporation. In March of 2005, the state filed suit against Powerex Corp. alleging that the transactions were the result of duress and/or undue influence and were contrary to public policy. Id. at 1-2. The state sought $850 million in damages.

Defendant Powerex asked the Court to dismiss the case, arguing that the state’s claims would require the Court to assume a hypothetical rate different from that actually set by FERC, which would necessarily intrude upon FERC’s exclusive jurisdiction to determine just and reasonable wholesale energy rates. Id. at 5-6. In response, the state argued that its claims alleged contract formation issues that did not intrude upon the rate-setting jurisdiction of FERC. Id. at 7. The Court agreed with Powerex, and found that the state’s allegations could only be resolved by looking to FERC’s prescribed wholesale rates. Id. at 11. The Court ordered the case dismissed.

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