Metropolitan News-Enterprise


Wednesday, July 7, 2004


Page 1


Ninth Circuit Upholds Dismissal of California’s Suits Against Major Wholesalers of Electricity


By a MetNews Staff Writer


Suits by Attorney General Bill Lockyer against some of the nation’s major wholesalers of electricity are preempted by federal law, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

Lockyer accused Reliant Energy, Inc., Dynegy, Inc., Mirant Corporation, Xcel Energy, Inc., NRG Energy, Inc., and various affiliated companies with defrauding the state by receiving millions of dollars to hold power in emergency reserve, then selling it on the open market.

That conduct increased electricity prices by forcing California’s grid operators to buy power on the expensive spot market instead of calling on their reserve capacity when supplies became tight during the 2000-2001 energy crisis, Lockyer charged.

Federal Law

The attorney general sought more than $150 million in penalties, restitution, disgorgement of all profits the companies earned as a result of their illegal conduct, and court-ordered protections against future misconduct. Lockyer said the companies were paid $49 million between 1998-2000 to reserve electricity that was not delivered when requested.

 But the Court of Appeals, without addressing the merits of those charges, agreed with U.S. District Judge Vaughn Walker of the Northern District of California, who ruled a year ago that federal regulation of the energy market preempts the application of California’s Unfair Competition Law to the transactions in question.

Any remedy the state is entitled to, the judges ruled, must come from the Federal Energy Regulatory Commission.

Lockyer brought the suits in San Francisco Superior Court, but the companies removed the cases to federal court, contending that the Federal Power Act and the filed-rate doctrine created federal-question jurisdiction. Walker and the Court of Appeals agreed, and rejected the state’s contention that Eleventh Amendment immunity precluded removal.

Eleventh Amendment Argument

The state may invoke the Eleventh Amendment only as a defendant, not as a plaintiff, Judge Diarmuid F. O’Scannlain explained.

“We cannot agree with California’s theory that the State has regulatory authority over the specific tariff-governed conduct alleged in this case,” the judge wrote. “[O]ur cases specifying the nature and scope of exclusive FERC jurisdiction make clear that the interstate ‘transmission’ or ‘sale’ of wholesale energy pursuant to a federal tariff—not merely the ‘rates’—falls within FERC’s exclusive jurisdiction.”

He went on to write:

“States do, of course, have jurisdiction over certain sales, but we have enunciated a bright-line distinction between wholesale sales, which fall within FERC’s plenary jurisdiction, and retail sales, over which the states exercise jurisdiction.”

The opinion was joined by Senior Judges Cynthia Holcomb Hall and Edward Leavy. The case was argued by Deputy Attorney General Tamar Pachter for the state and Terry J. Houlihan of Bingham McCutcheon LLP for the defendants.

Several Los Angeles attorneys worked on the briefs, including John A. Sturgeon and Bryan A. Merryman of White & Case for Mirant, David T. Peterson and Theodore G. Spanos of Morgan Lewis & Bockius LLP for Xcel, and Carlton A. Varner and Timothy B. Taylor of Sheppard, Mullin,Richter & Hampton LLP for NRG.

The states of Oregon and Washington filed an amicus brief supporting Lockyer.

The case is People of the State of California ex rel. Lockyer v. Dynegy, Inc., 02-16619.


Copyright 2004, Metropolitan News Company