Montana Consumer Counsel v. FERC

Filing

FILED OPINION (RAYMOND C. FISHER, RONALD M. GOULD and RICHARD A. PAEZ) DENIED. Judge: RCF , Judge: RMG Authoring, Judge: RAP . FILED AND ENTERED JUDGMENT. [7926216] [08-71827, 08-74439, 08-74443]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MONTANA CONSUMER COUNSEL,
Petitioner,
THE INTEGRYS GROUP; AMERICAN
PUBLIC POWER ASSOCIATION; PUBLIC
SERVICE COMPANY OF NEW MEXICO;
TUCSON ELECTRIC POWER COMPANY;
PACIFICORP; TRANSMISSION ACCESS
POLICY STUDY GROUP; NATIONAL
RURAL ELECTRIC COOPERATIVE
ASSOCIATION; TRANSMISSION
DEPENDENT UTILITY SYSTEMS; THE
PPL COMPANIES; INDUSTRIAL
CUSTOMERS: PJM INDUSTRIAL
CUSTOMER COALITION; INDUSTRIAL
ENERGY CONSUMERS-PENNSYLVANIA;
INDUSTRIAL ENERGY USERS-OHIO;
NEPOOL INDUSTRIAL CUSTOMER
COALITION; COALITION OF MIDWEST
TRANSMISSION CUSTOMERS;
SOUTHEAST ELECTRICITY CONSUMERS
ASSOCIATION; SOUTHWEST
INDUSTRIAL CUSTOMER COALITION;
WEST VIRGINIA ENERGY USERS
GROUP; ELECTRIC POWER SUPPLY
ASSOCIATION,
Intervenors,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent.

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No. 08-71827
FERC No.
RM04-7-000

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MONTANA CONSUMER COUNSEL v. FERC

GEORGE JEPSEN,* Attorney General
of the State of Connecticut; LISA
MADIGAN, Attorney General of the
State of Illinois; PETER F.
KILMARTIN,* Attorney General of
the State of Rhode Island,
Petitioners,
AMERICAN PUBLIC POWER
ASSOCIATION; COALITION OF
MIDWEST TRANSMISSION CUSTOMERS;
DESERET GENERATION &
TRANSMISSION CO-OPERATIVE, INC.;
INDUSTRIAL ENERGY CONSUMERSOHIO; INDUSTRIAL ENERGY
CONSUMERS-PENNSYLVANIA;
INTEGRYS ENERGY GROUP, INC.;
INTEGRYS ENERGY SERVICES,
INCORPORATED; NEPOOL INDUSTRIAL
CUSTOMER COALITION; NATIONAL
RUAL ELECTRIC COOPERATIVE
ASSOCIATION; PJM INDUSTRIAL
CUSTOMER COALITION; SOUTHEAST
ELECTRICITY CONSUMERS
ASSOCIATION; SOUTHWEST
INDUSTRIAL CUSTOMER COALITION;
TRANSMISSION ACCESS POLICY
STUDY GROUP;

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*George Jepsen is substituted for his predecessor, Richard Blumenthal,
as Attorney General of the state of Connecticut; Peter F. Kilmartin is substituted for his predecessor, Patrick Lynch, as Attorney General of the
state of Rhode Island. See Fed. R. App. P. 43(c)(2).

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MONTANA CONSUMER COUNSEL v. FERC

UPPER PENINSULA POWER COMPANY;
WEST VIRGINIA ENERGY USERS
GROUP; WISCONSIN PUBLIC SERVICE
CORPORATION,
Petitioners-Intervenors,
ELECTRIC POWER SUPPLY
ASSOCIATION,
Intervenor,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent,
DUKE ENERGY CORP.; LOWER
MOUNT BETHEL ENERGY, LLC; PPL
BRUNNER ISLAND, LLC; PPL
COLSTRIP I, LLC; PPL COLSTRIP II,
LLC; PPL EDGEWOOD ENERGY,
LLC; PPL ELECTRIC UTILITIES
CORPORATION; PPL ENERGYPLUS,
LLC; PPL GREAT WORKS, LLC;
PPL HOLTWOOD, LLC; PPL MAINE,
LLC; PPL MARTINS CREEK, LLC;
PPL MONTANA, LLC; PPL
MONTOUR, LLC; PPL SHOREHAM
ENERGY, LLC; PPL SUSQUEHANNA,
LLC; PPL UNIVERSITY PARK, LLC;
PPL WALLINGFORD ENERGY, LLC;
PACIFICORP; SHELL ENERGY NORTH
AMERICA (U.S. L.P.); TUCSON
ELECTRIC POWER COMPANY,
Respondents-Intervenors.

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No. 08-74439
FERC No.
FERC-697-A

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MONTANA CONSUMER COUNSEL v. FERC

PUBLIC CITIZEN, INC.; COLORADO
OFFICE OF CONSUMER COUNSEL;
PUBLIC UTILITY LAW PROJECT OF
NEW YORK, INC.,
Petitioners,
ELECTRIC POWER SUPPLY
ASSOCIATION,
Intervenor,
v.
FEDERAL ENERGY REGULATORY
COMMISSION,
Respondent.

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No. 08-74443
FERC No.
FERC-697-A
OPINION



On Petition for Review of an Order of the
Federal Energy Regulatory Commission
Argued and Submitted
June 8, 2011—Portland, Oregon
Filed October 13, 2011
Before: Raymond C. Fisher, Ronald M. Gould, and
Richard A. Paez, Circuit Judges.
Opinion by Judge Ronald M. Gould

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COUNSEL
Lynn N. Hargis, Public Citizen, Inc. and Scott L. Nelson
(argued), Public Citizen Litigation Group, Washington, D.C.;
Richard Blumenthal, Attorney General for the State of Connecticut, John S. Wright and Michael C. Wertheimer, Assistant Attorneys General, New Britain, Connecticut; Lisa
Madigan, Attorney General for the State of Illinois, Michael
Scodro, Solicitor General, Janice A. Dale, Assistant Attorney
General, Chicago, Illinois; Patrick C. Lynch, Attorney General for the State of Rhode Island, Providence, Rhode Island,
for the petitioners.
Michael A. Bardee, General Counsel, Robert H. Solomon
(argued), Solicitor, Carol J. Banta, Attorney, Washington,
D.C., for respondent Federal Energy Regulatory Commission.
Ashley C. Parrish (argued), David G. Tewksbury, and Angela
M. Butcher, King & Spalding LLP, Washington, D.C.; Jesse
A. Dillon, PPL Services Corp., Allentown, Pennsylvania;
Donald A. Kaplan and John Longstreth, K&L Gates LLP,
Washington, D.C., for the intervenors.

OPINION
GOULD, Circuit Judge:
Petitioners Montana Consumer Counsel, Public Citizen,
Inc., Colorado Office of Consumer Counsel, Public Utility

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MONTANA CONSUMER COUNSEL v. FERC

Law Project of New York, Inc., and the state attorneys general for Connecticut, Illinois, and Rhode Island seek review of
a final order of Respondent the Federal Energy Regulatory
Commission (“FERC”). Petitioners bring a facial challenge to
the order, contending that the order violates FERC’s governing statutes. We must decide whether the market-based regulatory policy established by FERC’s order is permissible
under the law. FERC asserts that it has improved on its prior
regulatory policies by enhancing its up-front tests for market
power and reinforcing its ongoing oversight of market-based
rates. Petitioners contend that FERC has not done enough. We
have jurisdiction to review final orders of FERC under 16
U.S.C. § 825l(b) and we deny the petition.
I.

Background

FERC’s statutory mandate is set forth in the Federal Power
Act (“FPA”), 16 U.S.C. §§ 824-824w. The FPA requires, and
charges FERC with ensuring, that “[a]ll rates and charges
made, demanded, or received” by power wholesalers be “just
and reasonable.” 16 U.S.C. § 824d(a). All rates and charges
for sales and transmission of power are subject to FERC’s
review. §§ 824d(a), (d), (e). The FPA requires every public
utility to file with FERC “schedules showing all rates and
charges . . . together with all contracts which in any manner
affect or relate to such rates, charges . . . .” § 824d(c). Any
change in a rate, charge, or contract requires notice, publicly
filed with FERC, sixty days in advance of the change
“[u]nless the Commission otherwise orders.” § 824d(d).
In the early 1990s, FERC began moving to a regulatory
policy that allowed sellers of wholesale electricity to file
“market-based” rates with FERC. In the years that followed,
FERC varied its implementation of the market-based policy
by making adjustments in response to industry and consumer
feedback and in response to decisions of the federal appellate
courts. Most recently, in Order Number 697, published July
20, 2007, FERC codified the existing limited market-based

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policy, along with multiple enhancements, in a final rule.
Under Order 697, sellers who elect to participate in the
market-based policy must be pre-screened by FERC, and
must show that they lack (or have adequately mitigated) both
horizontal (energy generation) and vertical (energy transmission) market power. According to FERC, the screening process enables it to “measure market power at both peak and
off-peak times, and to examine the seller’s ability to exercise
market power unilaterally and in coordinated interaction with
other sellers.” When a seller passes the screening process,
FERC adopts a presumption that the seller does not have market power, though intervenors may present evidence to rebut
that presumption. Sellers who fail the screening process are
presumed to have market power, and are then given the
opportunity to rebut the presumption, mitigate the market
power, or adopt cost-based rates. After passing the screening
process, or successfully rebutting or mitigating FERC’s presumption of market power, a seller may be authorized by
FERC to file a market-based rate. A seller who has obtained
authorization must file an updated market-power analysis
every three years.1 If the seller has gained market power, the
authorization will be revoked. In addition, sellers must provide quarterly reports of all transactions and the contractual
terms governing those transactions, to be filed electronically
with FERC. Authorized sellers must also notify FERC within
thirty days of changes in status that might affect their eligibility to file market-based rates. Sellers must comply with
FERC’s other rules and regulations, and are subject to
FERC’s enforcement mechanisms.
Order 697 became effective September 18, 2007. The published order took into account public comments from a range
of sources, including wholesalers, customers, and public interest organizations. Petitioners and other interested parties
1

Sellers who control less than 500 MW of power generation and meet
other criteria are in “Category 1” and are exempt from the ongoing
market-power-analysis requirement.

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requested rehearing on several grounds, including the grounds
asserted in this petition. On April, 21, 2008, in Order 697-A,
FERC responded to the requests, but denied rehearing. Specifically, FERC rejected Petitioners’ view that it did not have
authority to implement the market-based rates program and
that the program violated the FPA.
After FERC filed Order 697-A, Petitioners and other parties filed petitions for review in the federal appellate courts.
All but three petitions were eventually withdrawn. The
remaining three petitions, with case numbers 08-71827, 0874443, and 08-74439, were consolidated and are before us.
Petitioners contend (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 sixtydays advance notice of changes in market prices, violates the
express terms of the FPA. We discuss each contention below.
II.

Standard of Review

We must set aside agency actions that are “in excess of
statutory jurisdiction, authority, or limitations, or short of statutory right.” Administrative Procedure Act, 5 U.S.C.
§ 706(2)(C). Though we are the “final authority on issues of
statutory construction,” Am. Rivers v. FERC, 201 F.3d 1186,
1194 (9th Cir. 1999), we owe “[d]eference . . . to FERC’s
interpretation of the FPA, the law it is charged with administering.” Cal. Dep’t of Water Res. v. FERC, 489 F.3d 1029,
1036 (9th Cir. 2007) (citing Cal. Trout, Inc. v. FERC, 313
F.3d 1131, 1133-34 (9th Cir. 2002)). Our analysis of FERC’s
interpretation of the FPA is governed by the familiar standard
set forth in Chevron U.S.A. Inc. v. Natural Resources Defense
Council, 467 U.S. 837, 842 (1984). Port of Seattle, Wash. v.
FERC, 499 F.3d 1016, 1026 (9th Cir. 2007); Am. Rivers, 201
F.3d at 1194. Under Chevron, a court reviewing an agency’s
construction of a statute addresses two questions:

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First, always, is the question whether Congress has
directly spoken to the precise question at issue. If the
intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give
effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress
has not directly addressed the precise question at
issue, the . . . question for the court is whether the
agency’s answer is based on a permissible construction of the statute.
467 U.S. at 842-43 (footnotes omitted). “If a statute is ambiguous, and if the implementing agency’s construction is reasonable, Chevron requires a federal court to accept the
agency’s construction of the statute, even if the agency’s reading differs from what the court believes is the best statutory
interpretation.” Nat’l Cable & Telecomm. Ass’n v. Brand X
Internet Servs., 545 U.S. 967, 980 (2005). Petitioners must do
more than demonstrate that FERC’s policy is a bad idea.
Chevron requires they demonstrate that FERC has violated an
unambiguous command of Congress, or adopted an impermissible interpretation of the FPA.
III.
A.

Discussion
“Just and Reasonable” Rates

Petitioners contend that FERC’s market-based rates policy
impermissibly equates market rates with “just and reasonable”
rates in violation of the FPA. 16 U.S.C. § 824d. According to
Petitioners, the market-based rates policy is incompatible with
the FPA because it calls for FERC to “rely on the market” to
set rates that are just and reasonable. Petitioners contend that
FERC cannot outsource its regulatory duties to the “Invisible
Hand” of the market, and note that the Supreme Court has
ruled that “the prevailing price in the marketplace cannot be
the final measure of ‘just and reasonable’ rates mandated by

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the Act.” Fed. Power Comm’n v. Texaco Inc., 417 U.S. 380,
397 (1974).
First, Petitioners assert that FERC’s market-power screening is inadequate because it evaluates only the market power
of individual sellers, not the competitiveness of the market as
a whole. Second, Petitioners contend that FERC must provide
substantial evidence that competition will drive prices to fair
and reasonable levels. Third, Petitioners attack FERC’s
reporting requirements for authorized market-based rate sellers, contending that the reporting requirements are not sufficiently rigorous, and that even if FERC enforces the
requirements, it has “no benchmark for the justness and reasonableness of market-based rates” beyond whether the seller
has market power or the ability to manipulate the market.
Finally, Petitioners contend that FERC has no intention to
review the filed reports for the justness and reasonableness of
rates; rather, FERC will review reported data only to check
for evidence of market power or manipulation.
1.

The Competitiveness of the Market

[1] Petitioners’ first contention—that FERC, before authorizing market-based rates, must first determine that a market
is competitive—ignores the holdings of the federal courts on
this issue. We addressed nearly identical issues in California
ex rel. Lockyer v. FERC, 383 F.3d 1006 (9th Cir. 2004). In
that case, we agreed with the D.C. Circuit that “[i]n a competitive market, where neither buyer nor seller has significant
market power, it is rational to assume that the terms of their
voluntary exchange are reasonable, and specifically to infer
that the price is close to marginal cost, such that the seller
makes only a normal return on its investment.” Id. at 1013
(quoting Tejas Power Corp. v. FERC, 908 F.2d 998, 1004
(D.C. Cir. 1990)) (internal quotation marks omitted). We did
not hold, or even suggest, that FERC must make a specific
finding that a market is competitive in addition to screening
for market power. After our decision in Lockyer, the D.C. Cir-

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cuit held that “what matters is whether an individual seller is
able to exercise anticompetitive market power, not whether
the market as a whole is structurally competitive.” Blumenthal
v. FERC, 552 F.3d 875, 882 (D.C. Cir. 2009). In light of these
authorities, we reject Petitioners’ contention that FERC has an
additional obligation, beyond screening individual sellers for
market power, to assess the overall competitiveness of the
market.
2.

Empirical Evidence

[2] Petitioners contend that FERC must conduct an “empirical analysis” or offer “substantial evidence” that competition among sellers will drive rates to reasonable levels. We
disagree. To support their argument, Petitioners cite Tejas,
which faulted FERC for assuming, without analysis or substantial evidence, that competition would keep rates “in reasonable check.” 908 F.2d at 1004-05. But Tejas did not
require FERC to show, through analysis or evidence, that
rates in a competitive market will necessarily be reasonable.
On the contrary, the court reasoned that, if buyers and sellers
did not have market power, it would be “rational to assume
that the terms of their voluntary exchange are reasonable.” Id.
at 1004. In that case, because FERC assumed—wrongly and
without evidence—that sellers lacked market power, it did not
meet its obligation to ensure that rates were just and reasonable. Id. But here FERC’s order requires, through a screening
process, the collection of empirical data on sellers’ market
power before it authorizes the filing of market-based rates. If
a seller passes the market-power screening, FERC presumes
that the seller’s prices will be just and reasonable. Petitioners
are correct that the Supreme Court, in Texaco, held that the
market price “cannot be the final measure of ‘just and reasonable’ rates.” 417 U.S. at 397. But in the next sentence, the
Court explained that, in that case, concentration in the industry and monopolistic forces had distorted the market. Id. at
397-98. In fact, the Court noted that the actual market price
was not the “true” market price and explained that the “true”

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market price would be the “just and reasonable rate.” Id. at
398. Because the market was distorted, the agency could not
rely on the market to drive prices to just and reasonable levels
—the “true” market price. But by contrast in this case, FERC
has adopted a rigorous screening process to detect market
power.2 We reject Petitioners’ contention that FERC lacks
evidence to support its policy.
3.

Reporting Requirements

[3] Petitioners contend that FERC’s plan to monitor transactions through regular reports filed by market-rate sellers is
“much less stringent than the Lockyer court understood.” In
our opinion in Lockyer, we assumed that FERC would require
authorized market-rate sellers to file a market-power analysis
every four months. 383 F.3d at 1013. Petitioners assert, and
FERC concedes, that authorized sellers will instead file an
updated market-power analysis only every three years. Additionally, Petitioners note that FERC will exempt from marketpower analysis Category 1 sellers, who control less than 500
MW of generation and meet other criteria. Apart from these
two matters, Petitioners have not pointed to any action taken
by FERC that loosens reporting requirements from those contemplated by our holding in Lockyer. Because we approved of
the requirements in Lockyer, the question before us here is
whether these two changes—pertaining to frequency of evaluating market power and exempting Category 1 sellers—are
sufficient cause for us to invalidate the market-based rates
policy that we otherwise approved in our prior Lockyer holding. They are not.
2

We recognize the possibility that FERC in some cases may fail to
detect market power due to lack of enforcement or ineffective screening
protocols. In that event, parties may challenge FERC in court under existing law to force FERC to comply with its own orders. The petition before
us is a facial challenge to Order 697, and the record here does not enable
us to review what FERC does in practice in particular cases.

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[4] While there is a difference between reporting every
three years and reporting every four months, we cannot say
that requiring triennial reports constitutes an abuse of FERC’s
“broad discretion to establish effective reporting requirements.” Id. The precise nature and timing of FERC’s reporting requirements are within the agency’s discretion. As long
as the requirements are sufficient in frequency to ensure compliance with FERC’s statutory and regulatory obligations,
FERC is within its discretion to set an appropriate schedule
for the required reports. For similar reasons we defer to
FERC’s decision to exclude Category 1 sellers from marketpower analysis. These two changes are not so substantial that
they invalidate the policy we generally approved in Lockyer.3
4.

Reviewing Reports for Market Power and
Manipulation

Petitioners object that FERC “promises only to examine
reported rates to determine if [the rates] suggest that sellers
have acquired market power or engaged in manipulative practices” and that there is “no remedy to correct unreasonable
rates or charges.” Stated another way, Petitioners contend that
FERC will review reports and data only to determine whether
sellers have market power, not whether rates are just and reasonable. Petitioners assert that FERC has no “objective” standard, other than the theoretical market rate, for evaluating
whether rates are just and reasonable.
[5] Our role in determining whether rates are just and reasonable is limited. “The statutory requirement that rates be
‘just and reasonable’ is obviously incapable of precise judicial
definition, and we afford great deference to the Commission
in its rate decisions.” Morgan Stanley Capital Grp. v. Pub.
3

FERC has the power to investigate a seller for market power during the
interim period between triennial market-power reports, upon complaint or
discovery of changed market conditions, and may revoke market-based
rate authority from sellers found to have market power.

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Util. Dist. No. 1 of Snohomish Cnty., Wash., 554 U.S. 527,
532 (2008). The Supreme Court has long held that the statutory command that rates be “just and reasonable” means that
courts must balance “the investor and the consumer interests,”
and “[i]f the total effect of the rate order cannot be said to be
unjust and unreasonable, judicial inquiry . . . is at an end.”
Fed. Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591,
602-03 (1944); see also In re Permian Basin Area Rate
Cases, 390 U.S. 747, 767 (1968) (“[C]ourts are without
authority to set aside any rate selected by the Commission
which is within a ‘zone of reasonableness.’ ” (quoting Fed.
Power Comm’n v. Natural Gas Pipeline Co. of Am., 315 U.S.
575, 585 (1942))).
FERC’s discretion is not without limit. FERC may not
determine in advance that the prevailing market rate is by definition just and reasonable. Texaco, 417 U.S. at 397. Such a
policy would be regulation in name only. Nor may FERC, in
an ambiguous order, assure the public that it will adjust prices
when rates are “unreasonably high considering appropriate
comparisons with highest contract prices for sales by large
producers or the prevailing market price for intrastate sales.”
Id. at 396. Comparisons of the rates charged by sellers to the
rates charged by other sellers are insufficient—such comparisons tell FERC nothing about whether the rates are just and
reasonable. FERC may not substitute prevailing market prices
for its own judgment.
[6] But the law permits the approach embodied in Order
697. FERC has determined that it can ensure that rates are just
and reasonable by indirectly regulating the wholesale market.
Where sellers do not have market power or the ability to
manipulate the market (alone or in conjunction with others),
it is not unreasonable for FERC to presume that rates will be
just and reasonable. See La. Energy & Power Auth. v. FERC,
141 F.3d 364, 365 (D.C. Cir. 1998) (“Where there is a competitive market, [FERC] may rely on market-based rates in
lieu of cost-of-service regulation to ensure that rates satisfy

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[the just and reasonable] requirement.”); Elizabethtown Gas
Co. v. FERC, 10 F.3d 866, 870-71 (D.C. Cir. 1993) (holding
that a truly competitive market “provides strong reason to
believe that [a seller] will be able to charge only a price that
is ‘just and reasonable’ ”). Contrary to Petitioners’ assertion
that FERC has no standard for evaluating reported data,
FERC has confirmed that it will monitor the data to ensure
that the reported transactions are consistent with the data
expected of a competitive, unmanipulated market. FERC is
able to evaluate the reported data to determine whether the
average prices charged by a seller are comparable to the average prices that would be charged in a competitive market
where no sellers were able to exercise market power. If the
data are consistent with a competitive market, FERC may
properly assume that the charged rates fall within a zone of
reasonableness.4 As we affirmed in Lockyer, “[t]he principle
justifying this approach as ‘just and reasonable’ [is] that ‘[i]n
a competitive market, where neither buyer nor seller has significant market power, it is rational to assume that the terms
of their voluntary exchange are reasonable, and specifically to
infer that the price is close to marginal cost, such that the
seller makes only a normal return on its investment.’ ” 383
F.3d at 1012-13 (quoting Tejas, 908 F.2d at 1004). Consumers, competitors, and other complainants may challenge,
through FERC’s processes and the courts, the determination
that markets are competitive and that rates are just and reasonable. FERC may sua sponte or upon complaint investigate
sellers to determine whether they are unjustly or unreasonably
exercising market power and, in its discretion, remedy such
violations through rebates and disgorgement of profits. By
screening for market power before authorizing market-based
rates, and by continually monitoring sellers for evidence of
market power, FERC has adopted a permissible approach to
4

FERC is not restricted to this formulation of “just and reasonable”
rates; rather, it is a reasonable formulation among others that FERC may
use in its discretion.

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fulfilling its statutory mandate to ensure that rates are just and
reasonable.
Were we to reach a different conclusion, we would nevertheless be bound by our prior decision on this question. We
held in Lockyer that “there is nothing inherent in the general
concept of a market-based tariff that violates the FPA.” Lockyer, 383 F.3d at 1014. There, we noted that FERC was “not
contending that approval of a market-based tariff based on
market forces alone would comply with the FPA.” Id. at 1013.
Rather, “the crucial difference” between previous marketbased regulatory policies rejected by the courts and the policy
at issue in Lockyer was “the dual requirement of an ex ante
finding of the absence of market power and sufficient postapproval reporting requirements.”5 Id. We are bound by our
decision in Lockyer that “market-based tariffs do not per se
violate the FPA.” Id. at 1013 n.5.
Petitioners suggest that the Supreme Court may disagree
with our holding in Lockyer and the holdings of the D.C. Circuit validating the per se legality of the market-based rate policy. The Supreme Court has recently observed: “We have not
hitherto approved, and express no opinion today, on the lawfulness of the market-based-tariff system, which is not one of
the issues before us.” Morgan Stanley, 554 U.S. at 538. Further, the Court noted: “We reiterate that we do not address the
lawfulness of FERC’s market-based-rates policy, which
assuredly has its critics. But any needed revision in that policy
is properly addressed in a challenge to the policy itself . . . .”
Id. at 548. Petitioners have taken up the Supreme Court’s
invitation, and have challenged the policy itself. But as the
5

Of course, monitoring is not enough—FERC must have the tools to act
when markets fail, and it must use those tools to ensure that customers pay
only just and reasonable rates. Without enforcement, there is little reason
to believe that sellers will police themselves. We are satisfied for purposes
of this facial challenge that FERC has those tools. Petitioners and other
parties are free to challenge FERC’s implementation of its market-based
rates policy in an as-applied challenge.

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Supreme Court recognized, “[b]oth the Ninth Circuit and the
D.C. Circuit have generally approved FERC’s policy of
market-based tariffs.” Id. at 538. We upheld the facial legality
of market-based rates under the FPA in Lockyer, and we are
bound by our precedent. In re Osborne, 76 F.3d 306, 309 (9th
Cir. 1996). The Supreme Court’s reservation of judgment in
Morgan Stanley does not disturb or cast doubt on our decision
in Lockyer. In any event, one could not correctly say that the
mere reservation of the issue by the Supreme Court in Morgan Stanley sufficiently undermines the rationale of Lockyer
so as to free us from following it. Cf. Miller v. Gammie, 335
F.3d 889, 900 (9th Cir. 2003) (en banc) (establishing the standard under which a three-judge panel may disregard a prior
precedent of our circuit).
B.

Filed Rates and the Sixty-Days-Notice Requirement

Petitioners contend that the FPA expressly commands that
changes in rates be filed with FERC before they go into
effect. Petitioners rely on the following provisions of the
FPA:
(a) Just and reasonable rates
All rates and charges made, demanded, or received
by any public utility for or in connection with the
transmission or sale of electric energy subject to the
jurisdiction of the Commission, and all rules and
regulations affecting or pertaining to such rates or
charges shall be just and reasonable, and any such
rate or charge that is not just and reasonable is
hereby declared to be unlawful.
***
(c) Schedules
Under such rules and regulations as the Commission
may prescribe, every public utility shall file with the

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Commission, within such time and in such form as
the Commission may designate, and shall keep open
in convenient form and place for public inspection
schedules showing all rates and charges for any
transmission or sale subject to the jurisdiction of the
Commission, and the classifications, practices, and
regulations affecting such rates and charges, together
with all contracts which in any manner affect or
relate to such rates, charges, classifications, and services.
(d) Notice required for rate changes
Unless the Commission otherwise orders, no change
shall be made by any public utility in any such rate,
charge, classification, or service, or in any rule, regulation, or contract relating thereto, except after sixty
days’ notice to the Commission and to the public.
Such notice shall be given by filing with the Commission and keeping open for public inspection new
schedules stating plainly the change or changes to be
made in the schedule or schedules then in force and
the time when the change or changes will go into
effect. The Commission, for good cause shown, may
allow changes to take effect without requiring the
sixty days’ notice herein provided for by an order
specifying the changes so to be made and the time
when they shall take effect and the manner in which
they shall be filed and published.
16 U.S.C. §§ 824d(a), (c)-(d).
Petitioners contend that § 824d(d) plainly requires a filing
sixty days in advance of any change in rates by a public utility. According to Petitioners, sellers that participate in the
market-based rate policy by selling power at market-based
rates will necessarily violate this requirement, because the
market price will fluctuate in ways that are unforeseeable.

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Under the market-based-rate policy, an authorized seller files
a market-based rate one time, and after initial approval FERC
does not require the seller to file notice of subsequent changes
in the actual price charged for electricity (though the utility
continues to be subject to FERC’s ongoing monitoring and
reporting requirements). On the theory that “rate” means
price, Petitioners claim that § 824d(d) explicitly requires sixty
days’ notice, and that FERC is statutorily barred from negating that requirement.
[7] But FERC has broad discretion to construe the FPA’s
notice and filing requirements, as evidenced by the restrictive
preface to § 824d(d)’s notice requirement: “Unless the Commission otherwise orders . . . .” § 824d(d). FERC contends
that under the market-based policy, “a rate change is initiated
when a seller applies for authorization of market-based pricing, not when it subsequently enters into negotiated rates.” In
other words, the “rate” filed by authorized power wholesalers
is the “market rate,” and that rate does not “change” even
though the prices charged by the wholesalers may rise and fall
with the market.
[8] Applying Chevron, we first ask whether Congress
unambiguously expressed its intent in the text of the FPA.
Petitioners contend that § 824d(d) is unambiguous, and that
the market-based policy constitutes a clear violation. We disagree. Given the context of § 824d(d)’s notice requirement,
including the overall flexibility evident in the FPA’s other
provisions and, particularly, the statutory instruction that the
notice requirement applies “[u]nless the Commission otherwise orders,” the statute does not clearly prohibit the filing of
market-based rates. In fact, it is at least arguable that the statute clearly authorizes FERC to make an exception to the
notice requirement for market-based rates.
[9] But even assuming that the statute does not clearly
authorize the exception, and that its meaning is not clear one
way or the other, the question for us is whether FERC’s inter-

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pretation of § 824d(d)’s notice requirement is a permissible
one. We conclude that it is. FERC’s assertion that a rate
“change” occurs only once, when an authorized seller files a
market-based rate, is a reasonable interpretation. The FPA
does not define initial rates versus changed rates. Otter Tail
Power Co. v. FERC, 583 F.2d 399, 404 (8th Cir. 1978) (holding that, in order to reject FERC’s determination of what constitutes a rate “change,” the court “must find that the decision
cannot be rationally reconciled with the terms of the Act”).
Given the flexibility afforded FERC by the statute’s express
terms, FERC’s definition of a rate “change” is not impermissible.
Moreover, in Lockyer we were squarely presented with this
question. See Petitioners’ Opening Br., No. 02-73093, 2002
WL 32178975 (Dec. 30, 2002) (“After-the-Fact Reporting of
Rates for ‘Informational Purposes’ Writes Section [824d(d)]
Out of the Statute and Eliminates FERC’s Ability to Protect
Consumers By Making Rates Effective Subject to Refund.”).
Though we did not explicitly address § 824d(d) in Lockyer,
we undoubtedly recognized that this question was before us.
See 383 F.3d at 1011-12 (discussing the “filed rate doctrine,”
and observing that FERC had, a decade before, begun to
allow the filing of market-based rates). Faced squarely with
that issue, we held “that market-based tariffs do not per se
violate the FPA.” Id. at 1013 n.5. Petitioners attempt to distinguish that holding by claiming that “any discussion of
whether after-the-fact reporting of changes in rates satisfies
the separate and very specific requirement of § 824d(d) that
sellers give 60 days’ advance notice of any change in a rate
or charge by filing” is “[w]holly absent” in Lockyer. While in
that case we did not discuss specifically the section of California’s opening brief about the § 824d(d) filing requirement, we
nevertheless rejected California’s facial challenge to the
market-based policy. See id. at 1014 (“[T]here is nothing
inherent in the general concept of a market-based tariff that
violates the FPA . . . .”).

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We decline Petitioners’ invitation to reject here the notification policy that we approved in Lockyer. Even if we had not
already decided this question, the text of the FPA provision
requiring notification is susceptible to more than one interpretation. In light of that ambiguity, we cannot say that FERC’s
construction is impermissible. See Nat’l Cable & Telecomm.
Ass’n, 545 U.S. at 980 (“If a statute is ambiguous, and if the
implementing agency’s construction is reasonable, Chevron
requires a federal court to accept the agency’s construction of
the statute, even if the agency’s reading differs from what the
court believes is the best statutory interpretation.”).
IV.

Conclusion

[10] 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.6
PETITION DENIED.
6

We leave open the possibility that Petitioners or other parties will succeed in an as-applied challenge to FERC’s implementation of the order.