CPUC V. FERC, No. 16-70481 (9th Cir. 2018)
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The Ninth Circuit granted CPUC's petition for review of FERC's determination that PG&E was eligible for an incentive adder for remaining a member of the California Independent System Operator Corporation (Cal-ISO) when state law prevented PG&E's departure without authorization. The panel held that FERC's determination that PG&E was entitled to incentive adders for remaining in the Cal-ISO was arbitrary and capricious, because FERC did not reasonably interpret Order 679 as justifying summary grants of adders for remaining in a
transmission organization. The panel explained that, because FERC's interpretation was unreasonable, FERC's grants of adders to PG&E were an unexplained departure from longstanding policy. Furthermore, FERC created a generic adder in violation of the order.
Court Description: Federal Energy Regulatory Commission. The panel granted the California Public Utilities Commission’s (“CPUC”) petition for review and held that the Federal Energy Regulatory Commission (“FERC”) arbitrarily and capriciously determined that Pacific Gas & Electric was eligible for an incentive adder for remaining a member of the California Independent System Operator Corporation when state law prevented PG&E’s departure without authorization. Section 219(c) of the Federal Power Act required FERC to provide incentives to induce utilities to join regional transmission organizations. Accordingly, FERC adopted Order 679 which established upward adjustments, or “incentive adders,” to the rate of return on equity of utilities that participate in transmission organizations. In 1998, the CPUC approved PG&E’s transfer of operational control of certain transmission assets to a newly-created California Independent System Operator Corporation. The panel held that FERC did not reasonably interpret Order 679 as justifying summary grants of adders for CPUC V. FERC 3 remaining in a transmission organization. The panel also held that FERC’s interpretation was neither entitled to Auer v. Robbins, 519 U.S. 452 (1997), deference nor persuasive in its own right. The panel further held that because its interpretation was unreasonable, FERC’s grants of adders to PG&E were an unexplained departure from longstanding policy, which provided that incentives should only be awarded to induce future voluntary behavior. In addition, the panel held that FERC created a generic adder in violation of Order 679’s requirement of case-by-case review of adders. The panel held that the CPUC’s petition was not an impermissible collateral attack on Order 679.
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