## Facts

- California restructured its electric industry to rely on competitive wholesale markets, including a centralized power exchange and an independent system operator managing the transmission grid.
- Numerous wholesale power sellers obtained authorization from the Federal Energy Regulatory Commission (FERC) to sell at market-based rates, subject to conditions intended to ensure rates remained just and reasonable under the Federal Power Act (FPA).
- A key condition of market-based rate authority required sellers to submit quarterly reports detailing market-based sales, enabling FERC to monitor outcomes and detect market power abuses.
- During 2000–2001, California experienced severe price spikes and reliability problems; California and the California Public Utilities Commission sought refunds for allegedly excessive charges and market manipulation.
- FERC issued orders administering market-based rate tariffs and limiting refunds, including declining to order refunds for past transactions based solely on sellers’ violations of the quarterly reporting requirements.
- California petitioned for judicial review, challenging both the legality of the market-based rate regime as applied and FERC’s refusal to order refunds tied to reporting violations.

## Issues

1. Whether FERC’s authorization and administration of market-based rate tariffs satisfied the FPA requirement that wholesale rates be just and reasonable.
2. Whether FERC acted lawfully and within its discretion in declining to order (or meaningfully consider) refunds for sellers who violated quarterly reporting conditions attached to market-based rate authority.

## Decision

- The court upheld FERC’s use of market-based rate tariffs under the FPA, concluding the program could satisfy the just-and-reasonable requirement when paired with adequate oversight and enforcement tools.
- The court held FERC abused its administrative discretion by treating violations of quarterly reporting requirements as insufficient to justify refunds or further refund consideration.
- The court granted the petition in part and remanded to FERC for further proceedings addressing refunds in light of reporting violations.

## Legal Principles

- Market-based rate tariffs are permissible under the FPA if FERC retains and uses sufficient mechanisms to ensure resulting rates remain just and reasonable.
- A market-based tariff framework may satisfy filing and regulatory obligations when combined with enforceable monitoring conditions that allow ex post review of transactions.
- Conditions on market-based rate authority, including quarterly transaction reporting, function as substantive safeguards central to FERC’s statutory duty to police market power and unjust or unreasonable rates.
- FERC abuses its discretion when it disregards violations of core monitoring conditions in deciding whether refunds are appropriate for sales made under market-based authority.

## Conclusion

The Ninth Circuit sustained FERC’s general reliance on market-based rates as consistent with the Federal Power Act, but required FERC to reconsider refunds because noncompliance with quarterly reporting conditions undermined the oversight structure that justified market-based rate authority in the first place.


California ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004)