Late last week, folks at FERC probably popped some bottles of champagne when the U.S. Court of Appeals for the Ninth Circuit issued an opinion denying a petition challenging FERC’s Order No. 697, “Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities.”
Order No. 697, which became effective September 18, 2007, codified FERC’s standards for market-based rates by “providing a rigorous up-front analysis of whether market-based rates should be granted, including protective conditions and ongoing filing requirements in all market-based rate authorizations, and reinforcing its ongoing oversight of market-based rates.” The components of the rule were designed, according to FERC, “to ensure that market-based rates charged by public utilities are just and reasonable.”
However, not everyone thought Order No. 697 was the bee’s knees. Less than a year after the original rules were published, FERC filed Order No. 697-A, which responded to “a number of requests for rehearing and clarification of Order No. 697.” Mostly, FERC denied rehearing of the issues, though it did provide some clarifications.
Still unsatisfied, several petitioners filed a petition for review in federal appellate courts. The petitioners contended that “(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 require sellers to give sixty days advance notice of changes in market prices, violates the express terms of the FPA.”
The Court denied the petition, but not without a tip of the hat to the petitioners themselves in this rather touching conclusion:
The parties to this dispute raise policy issues of exceptional importance. We recognize that the questions here considered impact real-world energy markets, industries, and consumers. Plainly the well-being of consumers, and not regulatory inertia, should be the touchstone. But we emphasize that our role is limited by statute and the holdings of the Supreme Court. Our review is that of a federal appellate court, not a policy analyst. The question before us here is not whether we think market-based rates are a good idea; instead, it is whether the market-based rate policy embodied in Order 697 exceeds FERC’s authority as conferred by the FPA. Taking into account Chevron deference, the law of our circuit, other relevant precedent, and the direction of the Supreme Court as to how we should approach such administrative law issues concerning federal agencies, we conclude that Order 697, as presented to us in this petition, does not per se violate the FPA.
As law firm Van Ness Feldman put it (in a recent alert), “The case, Montana Consumer Counsel v. FERC, No. 08-71827, is a clear vindication of FERC’s market-based rate policy, from a court that has viewed market-based rates with suspicion.”