United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 3, 1999 Decided March 7, 2000
No. 98-1415
Automated Power Exchange, Inc.,
Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
Pacific Gas and Electric Company, et al.,
Intervenors
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Martin V. Kirkwood argued the cause for petitioner. With
him on the briefs was Clark Evans Downs.
Andrew K. Soto, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Jay L. Witkin, Solicitor, and John H. Conway,
Deputy Solicitor.
Before: Ginsburg, Rogers and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Rogers, Circuit Judge: Automated Power Exchange, Inc.
("APX") petitions for review of two orders of the Federal
Energy Regulatory Commission ("FERC") asserting jurisdic-
tion over APX as a public utility within the meaning of the
Federal Power Act and requiring APX to file certain informa-
tion about itself. APX operates a computerized marketplace
in which buyers and sellers of electric energy enter into
short-term power supply contracts at prices displayed by the
APX computer, subject to the buy and sell limits established
by market participants. FERC concluded that because the
APX computer plays a role in setting market price, APX is a
public utility subject to regulation under the Federal Power
Act. See 16 U.S.C. s 824(b) (1994).
APX contends that FERC has impermissibly expanded its
limited jurisdiction to include, for the first time, entities that
neither sell nor transmit power in interstate commerce but
only facilitate trades. Viewing itself as no more than a "high
tech power broker," APX maintains that FERC's orders rely
on a faulty understanding of APX's marketplace and are
contrary to long-standing agency precedent defining the char-
acteristics of a public utility. APX contends, alternatively,
that assuming FERC's jurisdiction, FERC has arbitrarily
imposed different filing requirements on it than have been
imposed on similarly situated entities.1 Because FERC's
__________
1 The petitions of APX and the California Power Exchange Cor-
poration ("CalPX") challenging FERC's imposition of the annual fee
paid by other public utilities have become unripe as a result of
FERC's decision to waive the annual fee until it has conducted a
general review of the issue. See PJM Interconnection, L.L.C., 88
FERC p 61,109 at p. 61,257-58 (1999); on reh'g, 89 FERC p 61,133
(1999). Accordingly, the court granted petitioners' motion to dis-
miss CalPX's appeal in No. 98-1419 and that portion of APX's
interpretation of the Federal Power Act is entitled to defer-
ence and FERC has distinguished APX from the entities over
which it previously has declined to assert jurisdiction and has
explained why its decision here is in harmony with its rele-
vant precedent, we deny the petition for review.
I.
The instant case began when APX filed an application
requesting that FERC disclaim jurisdiction over its operation,
or, alternatively, grant APX market-based rate authority,
accept for filing its rate schedule to become effective January
1, 1998, and waive prior notice and other filing requirements
and annual charges. The Federal Power Act ("FPA" or "the
Act") applies to the transmission or sale at wholesale of
electric energy in interstate commerce, see FPA s 201(b)(1),
16 U.S.C. s 824(b)(1) (1994), and FERC's jurisdiction extends
over all facilities for such transmission or sale of electric
energy. See id. As a result, FERC has jurisdiction over any
"public utility," which the Act defines as any person who owns
or operates facilities subject to FERC's jurisdiction. FPA
s 201(e), 16 U.S.C. s 824(e) (1994).
In its application, APX asserted that it will not be a public
utility under the FPA because it will not make sales for resale
of electric power in interstate commerce or transmit electric
energy therein, and will not own or operate any facilities
subject to FERC's jurisdiction. Furthermore, APX stated
that it will not take title to the electricity which is sold, will
not exercise control over decisions by any market participant
to purchase or sell electricity, and will not dictate prices at
which a buyer or seller must transact. Rather, APX claimed,
it will serve as an information management agent for buyers
and sellers of electricity that choose to voluntarily trade using
APX's services. Thus, APX's application put before FERC
the question whether a new market institution that will
operate as an electric power exchange is a public utility as
__________
petition challenging the annual fee. See Automated Power Exch. v.
FERC, 1999 WL 1215753 (D.C. Cir. Nov. 30, 1999).
defined in the Federal Power Act and is therefore subject to
FERC's jurisdiction.
In the orders under review, FERC acknowledged that the
archetypal "facilities" under the Act are power generating
plants and transmission lines, but also recognized that the
phrase "facilities ... for sale" has long been read broadly to
include, among other intangibles, contracts used by resellers.
See Automated Power Exchange, Inc., 82 FERC p 61,287 at
p. 62,106 (1998) ("Hearing Order"); see also Hartford Elec.
Light Co. v. FPC, 131 F.2d 953, 961 (2d Cir. 1942); Citizens
Energy Corp., 35 FERC p 61,198 at p. 61,453 (1986). FERC
recognized that APX does not own or operate either tradition-
al physical facilities used to transmit power or paper facilities
used to resell power. However, FERC had recognized a new
kind of public utility in recent decisions concerning the Cali-
fornia Power Exchange ("CalPX"), a state-created market-
place that operates in the geographic area in which APX
seeks to compete. In its CalPX orders, FERC had construed
the FPA's provision covering facilities for wholesale sale of
electricity to include the operators of a power exchange if the
operator exercises "effective control" over sales in the mar-
ketplace, Pacific Gas and Elec. Co. et al, 77 FERC p 61,204
at p. 61,805 (1996) ("First CalPX Order") or, alternatively, if
the operator is an "integral part of the transactional chain."
Southern Cal. Edison Co., 80 FERC p 61,262 at p. 61,946
(1997) ("Second CalPX Order").2 FERC thus concluded that,
like CalPX, APX also exercised "effective control" over sales
in its market and was an "integral part of the transactional
chain" because "APX will determine the market price at
which energy will be sold, and [ ] it will take the combined
actions of the seller and buyer participants as well as APX to
__________
2 Because FERC's jurisdiction over CalPX had not been contest-
ed, FERC had pithily described that the key attributes of CalPX's
operations that rendered it jurisdictional were that CalPX would
control sales in its market by aggregating supply and demand,
setting price, and matching buyers and sellers, see, e.g., First CalPX
Order, 77 FERC at p. 61,806-07, and that CalPX was a necessary
intermediary through which all sales would take place. See Second
CalPX Order, 80 FERC at p. 61,946.
effectuate wholesale sales." Hearing Order, 82 FERC at p.
62,108; see also Automated Power Exchange, Inc., 84 FERC
p 61,020 at p. 61,085-86 (1998) ("Rehearing Order"). FERC
rejected the argument that APX was more like the computer-
ized bulletin board system over which FERC had disclaimed
jurisdiction in Continental Power Exchange, 68 FERC
p 61,235 (1994), noting that unlike APX's market, participants
in Continental's system determined price through direct ne-
gotiation. See Hearing Order, 82 FERC at p. 62,108-09.
Upon denying the petition for rehearing, FERC ordered APX
to file a "detailed description and explanation of its services,
including the calculation of market price, fees, and all rele-
vant terms" as described in its order. Rehearing Order, 84
FERC at p. 61,089-91.
II.
To appreciate the substance of APX's challenges to the
orders under review and FERC's reasoning, some back-
ground concerning changes in the electric power industry and
how the APX market operates is needed.
At the end of the twentieth century, the wholesale electric
power industry was undergoing a significant transformation.
Beginning with Congress' decision to mandate that certain
power generators be allowed to "wheel" power,3 the tradition-
al monopoly structure of the power industry began breaking
down, see Campaign for a Prosperous Georgia v. SEC, 149
F.3d 1282, 1284 (11th Cir. 1998), so that by the mid-1990s a
wholesale market for low-cost power generated by a variety
of power sellers had emerged and traditional vertically-
integrated utilities were competing for sales of power at
__________
3 "Wheeling" involves a transfer by direct transmission or dis-
placement electric power from one utility to another over the
facilities of an intermediate utility. See Public Utilities Regulatory
Policies Act of 1978, 16 U.S.C. ss 796(17)-(18), 824a-3, 824i, 824k
(1994); Otter Tail Power Co. v. United States, 410 U.S. 366, 368
(1973); Richard D. Cudahy, Retail Wheeling: Is This Revolution
Necessary?, 15 Energy L.J. 351, 351 & n.2 (1994); cf. Association of
Oil Pipe Lines v. FERC, 83 F.3d 1424, 1429 (D.C. Cir. 1996).
wholesale. FERC, in response to enactment of the Energy
Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776, 2905-
21 (1992), codified at 42 U.S.C. ss 13201-13556 (1994), pro-
mulgated Order No. 888, Promoting Wholesale Competition
Through Open Access Non-Discriminatory Transmission
Services by Public Utilities, 61 Fed. Reg. 21,540 (1996),
codified as revised at 18 C.F.R. Pts. 35 & 385 (1999),4 which
"transformed the competitive environment." Louisiana En-
ergy and Power Auth. v. FERC, 141 F.3d 364, 370 (D.C. Cir.
1998). As a result, FERC notes in it brief, the industry now
consists of a variety of electric power sellers and power
marketers, which purchase and resell power generated by
others. APX seeks to market its services to participants in
the electric power market in the western United States, of
which California is the hub, consuming nearly half of the
power generated in the entire region. As of 1997, approxi-
mately 100 entities traded power in the western market;
furthermore, according to FERC, 650 entities in addition to
the owners and operators of physical facilities have applied to
act as middlemen (resellers) of power nationwide.5
Prior to the emergence of power exchanges, the industry
had developed standardized power contracts covering five
periods of time, ranging from power for the following month
to power in the next hour.6 Of these, the most prevalent
__________
4 For the revisions and clarifications of Order No. 888, see 76
F.E.R.C. p 61,009 (1996), 76 F.E.R.C. p 61,347 (1996), and 79
F.E.R.C. p 61,182 (1997), on reh'g, Order No. 888-A, 62 Fed. Reg.
12274 (1997), on reh'g, Order No. 888-B, 81 F.E.R.C. p 61,248
(1997), on reh'g, Order No. 888-C, 82 F.E.R.C. p 61,046 (1998), on
appeal sub nom. Transmission Access Policy Study Group, et al. v.
FERC, No. 97-1715 (D.C. Cir.) (submitted November 3, 1999).
5 This number does not necessarily reflect 650 new entrants
because a number of traditional utilities are divesting themselves of
their generating facilities and focusing on the transmission business.
See, e.g., Second CalPX Order, 80 FERC at p. 61,944.
6 Long-term (month-ahead) contracts are designed to meet easily
foreseeable demand in order to assure that a utility whose demand
routinely exceeds its own supply can meet its baseload require-
have been contracts formed in the spot market for next-day
and hour-ahead power. According to APX's brief, beginning
in the mid-1980s, buyers and sellers in both the long-term
and spot markets found each other through power brokers or
power marketers,7 a practice that made sense when the
universe of potential buyers and sellers was small, and consid-
erations other than price were at issue. The arrival of
market-based rate authority, and open access tariffs has
sparked an interest among industry participants to eschew
brokers and marketers in favor of trading power in a market-
place, particularly in the spot market where transaction costs
have come to be perceived as too high.
To spur development of such a marketplace, the California
Public Utilities Commission ("CPUC") created the California
Power Exchange. Buyers and sellers submit bids to CalPX,
which ranks, evaluates, and matches the bids. Bids are
phrased in terms of megawatthours whereby participants
offer to contract, for example, for power to be delivered
__________
ments, to supplement power to meet seasonal demand, or to assist
in financing investment in power generation. Since 1996, the New
York Mercantile Exchange has provided a market in which month-
long contracts can be traded. By contrast, short-term contracts
meet less foreseeable demand, such as that caused by a heatwave,
and are divided into periods of (1) 23 days (power each day during
the 16 hours of peak demand); (2) 6 days (same); (3) next-day
(peak or off-peak); and (4) hour-ahead.
7 A power broker seeks out potential buyers or sellers on behalf
of an undisclosed principal and proposes the terms on which the
principal is willing to deal. At oral argument, it was clarified that
once a compatible counterpart has been identified and the broker
either commences, or even concludes, negotiations, at some point
the broker steps back from the transaction, which is concluded
directly between principals. Thus, while the broker may have
facilitated price negotiations, the principals have not bound them-
selves to accept the price the broker negotiates. Unlike a broker, a
power marketer is a reseller who may not own or operate generat-
ing or transmission facilities but who purchases (takes title) to
power and then resells (conveys title) it to its customers. See
generally Citizens Energy Corp., 35 FERC p 61,198 (1986).
during the peak hours the following day. There is one round
of bidding, after which CalPX assesses the aggregate supply
and demand for each hour of power. Although CalPX is not
formally a party to the contracts, CalPX matches buyers and
sellers for each hour of power at a price and on terms
determined by CalPX. See First CalPX Order, 77 FERC at
p. 61,806-07. To ensure that an adequate supply of power
would be available in the fledgling market, the CPUC direct-
ed the three largest investor-owned public utilities in Califor-
nia to sell their entire power supply through the CalPX
through the year 2001. See id. at p. 61,803-05.
APX was established to compete with CalPX. Like CalPX,
APX operates separate hourly markets, although APX's mar-
ket is more expansive, dividing California into two power
zones and allowing participants to contract for up to 168
hours (one week's worth) of power.8 Unlike in CalPX's
market, bidding is ongoing in the APX market and prices
fluctuate from the opening of trading until trading stops
shortly before delivery. However, price fluctuations in the
APX market are a function of the APX computer's algorithm
rather than a reflection of direct price negotiations by market
participants. Thus, when a new hourly market opens, the
__________
8 Because each hour of power is traded separately, prices will
fluctuate for each hour. For example, assume it is 10:00 a.m on
Monday, November 22, 1999. Consistent with current practice,
APX allows for purchase of hour-ahead power, i.e., from 11:00 a.m.
to 12:00 p.m. of that day through and until one week from that
point. If the price per megawatt for the period between 11:00 a.m.
to 12:00 p.m. is X, the price for power from 12:00 p.m. to 1:00 p.m.
could be Y; and the price for the 1:00 p.m. to 2:00 p.m. period could
be Z; and so on until 168 hours later: 9:00 a.m. to 10:00 a.m. of the
following Monday. When it becomes 11:00 a.m. on Monday, No-
vember 22, trading stops for the hour of 11:00 a.m. to 12:00 p.m. and
trading opens for the next hour one week later, i.e. 10:00 a.m. to
11:00 a.m. on Monday, November 29, 1999, and all hours prior.
Thus, at any given time, the APX markets cover the next 168 hours.
And the markets in each of the two California zones are indepen-
dent so that the price of power from 10:00 a.m. to 11:00 a.m. on
November 22nd may differ between zones.
APX computer, acting as electronic auctioneer, displays an
initial price per megawatthour based on the price for power
of the same hour of the day in the previous seven days.
Responding to the initial price, participants enter buy or sell
orders. The orders specify the quantity sought or offered,
and may contain price or time limits within which the APX
computer shall fulfill an order. If neither limitation is set,
the order remains pending until matched, and is for whatever
is the market price displayed by the APX computer at the
time the computer finds a matching order. Then, after
displaying the initial price, the APX computer alters the price
periodically in response to the activity of the participants.
The price does not fluctuate with each new order placed.
Rather, at certain unspecified intervals, the APX computer
clears the market by matching as many buy and sell orders as
it can at the then-displayed price. This matching process
forms binding contracts.9 The market-clearing process con-
tinues throughout the 168-hour period in which trading for
that hour of power occurs, happening with increasing fre-
quency as the time for delivery approaches. Each time after
clearing the market, the APX computer alters the displayed
price, raising it if the majority of unmatched orders are to
buy (demand exceeds supply) and lowering it if unmatched
orders are to sell (supply exceeds demand). The amount of
the price fluctuation is a function of the APX computer's non-
public algorithm.
Consequently, the phrase "market price" when used in
relation to the APX marketplace describes the price APX's
computer estimates to be most likely to clear the market
rather than the more common meaning in other contexts, i.e.,
__________
9 For example, if a seller offered to sell at or above $8.00 per
megawatthour and a buyer offered to buy at or below $8.20 per
megawatthour, and the APX Market Price at the time of clearing
was $8.05 per megawatthour, the computer would clear those orders
by forming a contract between the two parties for $8.05 per
megawatthour. This example, furnished by the parties, assumes a
bilateral contract, but in reality it will more often be the case that
contracts formed through the APX market will be multilateral,
although the role of the APX Market Price is unchanged.
a price at which willing buyers and sellers have agreed to
trade.10 While participants can set the price range or price
limits, only APX can set the final price at which the sale is
actually transacted. APX acknowledges that it could have
designed its computer program to allow participants to nego-
tiate price by including a price term in their respective offers,
but APX considered that a less efficient means of operating a
power exchange. Although APX considers its computer-
generated "market price" to be a feature likely to attract
participants to its market, from FERC's perspective, it is
precisely this feature that makes APX a public utility.
III.
APX challenges FERC's assertion of jurisdiction over it on
several grounds. First, APX contends that the plain meaning
of "sale" in the FPA or as construed previously by FERC and
the courts limits FERC's jurisdiction to those entities that as
"public utilities" transmit or take title to power. Second,
APX contends that even if the language of the FPA can
reasonably be interpreted to include as a "public utility" an
entity that exercises control over sales without taking title to
power, FERC's interpretation was arbitrary and capricious
because it failed to follow or explain its departure from its
precedents distinguishing the jurisdictional treatment of pow-
er brokers and power marketers. Third, APX contends that
even if FERC's statutory interpretation is consistent with its
precedent, FERC arbitrarily applied that interpretation to
the APX market by concluding that the price-setting feature
of APX's computer made APX more like CalPX, over which
FERC had asserted jurisdiction, than like the computerized
bulletin board system over which FERC had disclaimed
jurisdiction in Continental Power Exchange, 68 FERC
__________
10 See, e.g., Associates Commercial Corp. v. Rash, 520 U.S. 953,
117 S. Ct. 1879, 1884 & n.2 (1997); United States v. 50 Acres of
Land, 469 U.S. 24, 25 n.1 (1984); United States v. Cartwright, 411
U.S. 546, 551 (1973); Recording Indus. Ass'n of Am. v. Librarian of
Congress, 176 F.3d 528, 533 (D.C. Cir. 1999).
p 61,235 (1994). Finally, APX contends that even if it is
subject to FERC's jurisdiction, FERC arbitrarily imposed
filing requirements on it different from those imposed on
similarly situated entities.
The court reviews FERC's statutory interpretation under
the now-familiar framework announced in Chevron U.S.A.
Inc. v. NRDC, Inc., 467 U.S. 837, 842-43 (1984). Relying on
the traditional tools of statutory construction, the court first
considers whether Congress addressed the precise question
at issue. See Southern Cal. Edison Co. v. FERC, 195 F.3d
17, 22-23 (D.C. Cir. 1999). If Congress left ambiguous how
the FPA is to apply to power exchanges, the court will uphold
FERC's interpretation so long as it is reasonable. See id.
Even if FERC's statutory interpretation might otherwise be
reasonable, however, FERC must also interpret the Act
consistently with its own precedent or explain its reasons for
departure therefrom. See Louisiana Pub. Serv. Comm'n v.
FERC, 184 F.3d 892, 897 (D.C. Cir. 1999). Finally, when
applying its interpretation of the Act, FERC must demon-
strate that it has made a reasoned decision based upon
substantial evidence in the record. See Sithe/Independence
Power Part., L.P. v. FERC, 165 F.3d 944, 948 (D.C. Cir.
1999).
APX's threshold contention--that either the plain meaning
of the FPA or FERC precedent limits FERC jurisdiction to
entities that, unlike APX, take title to the power--merits
little discussion. The phrase "facilities ... for [wholesale]
sale" of electricity admits of more than one meaning. Power
exchanges such as APX did not exist when Congress enacted
s 201 of the FPA, and while this fact alone does not foreclose
the possibility that Congress enacted language directed at the
precise issue at hand, it makes that possibility unlikely.11
__________
11 Indeed, contrary to APX's position, the Second Circuit, in a
pre-Chevron case in which the court specifically avoided reliance on
the pre-Chevron form of judicial deference to administrative exper-
tise, understood the plain meaning of "facilities" to be a "widely
inclusive term, embracing anything which aids or makes easier the
Moreover, the breadth of the statutory language and the
absence of other indicia of congressional intent concerning the
jurisdictional treatment of exchanges like APX demonstrates
that Congress did not address the precise question at hand.
See, e.g., Military Toxics Project v. EPA, 146 F.3d 948, 958
(D.C. Cir. 1998); Formula v. Heckler, 779 F.2d 743, 758-59
(D.C. Cir. 1985). Consequently, the question becomes, under
Chevron's second step, whether FERC's construction of the
FPA is reasonable. Again, given the breadth of the statutory
language, FERC's interpretation of "facilities ... for [whole-
sale] sale" as encompassing facilities used to exercise effective
control over the sale in a power exchange is a permissible
construction of the FPA. Additionally, the FERC precedent
on which APX relies does not limit public utilities to those
entities that take title to power. See, e.g., Washington Water
Power Co., 74 FERC p 61,033 at p. 61,083-84 (1996); Citizens
Energy Corp., 35 FERC at p. 61,453.
APX's next contention, that FERC's statutory interpreta-
tion in the orders under review is inconsistent with its
precedents concerning power brokers and power marketers,
fares no better. APX acknowledges that FERC relied on its
statutory interpretation announced in the CalPX orders, but
APX contends that interpretation is unlawful. Prior to the
emergence of power exchanges, FERC had distinguished
between power marketers (or resellers)--which were subject
to FERC jurisdiction because they took title to electricity and
therefore used contracts as paper facilities for the wholesale
sale of electricity--and power brokers, which were not sub-
ject to FERC jurisdiction because they only acted as agents
of the principals and had no proprietary interest in the
electricity being purchased. See Citizens Energy Corp., 35
FERC at p. 61,452-53.12 APX maintains that it is no more
__________
performance of the activities involved in the business of a person or
corporation." Hartford, 131 F.2d at 961, 966.
12 Citizens involved a non-profit organization that sought to act as
both a power broker and a power marketer. With respect to the
brokering services, FERC opined that no question of jurisdiction
appeared to arise. See Citizens Energy Corp., 35 FERC at p.
than a "high tech power broker" and that, therefore, the
orders under review are contrary to Citizens, where FERC
claimed jurisdiction because the non-profit organization would
take title to power as a reseller, and that FERC has failed to
offer a reasoned explanation for its departure from precedent.
Yet, FERC's decision in Citizens is not fairly read to have
held that an entity owns facilities for the wholesale sale of
electric power if, and only if, that entity takes title to the
power. Similarly, in the power broker and related prece-
dents cited by APX, FERC's reasoning did not address a
situation in which an entity did not take title but played a role
in setting the price at which wholesale power sales would
occur. See Washington Water Power Co., 74 FERC at p.
61,084 ("Washington Power represents that it would not have
the obligation or ability to initiate, control, or change a
transaction."); Idaho Power Co., 74 FERC p 61,149 at p.
61,524 (1996) (similar); cf. LG & E Power Marketing, Inc., 68
FERC p 61,247 at p. 62,125 (1994). Therefore, when FERC
addressed how the FPA applies to power exchanges, it was
not obliged to distinguish its power broker/power marketer
precedents.13
__________
61,452. However, FERC asserted jurisdiction over Citizens with
respect to its reselling services because it would be using paper
facilities, such as contracts, accounts, and records, to engage in
wholesale sales of electric power in interstate commerce. See id. at
p. 61,453.
13 APX also contends that FERC's integral-to-the-transaction
standard is inconsistent with other precedents in which FERC had
held that an entity that schedules wholesale sales but that does not
take title to power was not a public utility. See Idaho Power Co.,
74 FERC at p. 61,524-25. APX's contention would have force were
FERC's standard read to include any actor without whom transac-
tions may not occur. But FERC made clear that to the extent its
standard carries with it a "but for" component, that component is
limited to those entities essential for a transaction to take place at a
specific price. See Hearing Order, 82 FERC at p. 62,108 ("But for
APX's intervention in the process, wholesale sales transactions
between buyers and sellers will not necessarily occur at the speci-
fied market price.").
APX maintains that even if the CalPX orders and Conti-
nental are the correct frame of reference, and that a power
exchange is a public utility when it exercises effective control
over sales, FERC arbitrarily concluded that APX exercised
such control like CalPX and unlike Continental. FERC in
fact recognized that APX does not play as interventionist a
role as CalPX in pairing buyers and sellers and in setting the
terms of their transactions, but the material similarity it
identified was that the APX computer selects a price within
the range set by participants and that price may be different
from the price the participants would have selected had they
engaged in direct negotiations. See Rehearing Order, 84
FERC at p. 61,086; Hearing Order, 82 FERC at p. 62,108.
APX somewhat misses the point in its response that this
observation is "irrelevant" because participants in its market
voluntarily submit to its "price setting" role and are, there-
fore, not controlled by APX. FERC concluded that even if,
under its current terms of service, APX may face economic
disincentives from setting price at the highest possible point
within the participants' range, because APX had the power to
set a price different from one that would have resulted from
direct negotiations, APX exercised effective control over sales
in its market. Thus, FERC's analysis suffices to show that
voluntary participation in APX's marketplace does not make
irrelevant the potential gap between the APX-set price and a
directly-negotiated price.
However, there is some force to APX's argument that it is
materially different from CalPX because all participants in
APX's marketplace, unlike some of those in the CalPX mar-
ket, can choose not to trade through APX's system at any
time and can carefully calibrate their bids through price and
__________
With respect to APX's contention that FERC failed to consider
whether it need assert jurisdiction over APX in order to protect
consumers inasmuch as FERC regulates sellers participating in
APX transactions, because APX did not raise this issue before
FERC in its rehearing request, the court lacks jurisdiction to
consider it under FPA s 313(b). See Granholm ex rel. Michigan
Dep't of Natural Resources v. FERC, 180 F.3d 278, 282 (D.C. Cir.
1999).
time limits. FERC's analysis might have delved deeper into
why the power to select a price within a range set by
participants gives APX "control" over sales even when APX
market participants, presumed to be rational profit-seekers,
choose to rely on APX's computer to determine a market-
clearing price in lieu of direct negotiations, power brokers,
CalPX, or any other marketplaces that may develop, particu-
larly given that participants can exit from the APX market-
place at any time should inequities or more attractive alterna-
tives appear. It is also true, as APX contends, that, under
the Federal Power Act, Congress did not vest FERC with
general jurisdiction over all participants in the wholesale
electric power industry, regardless of whether the industry
undergoes significant transformation not anticipated by Con-
gress. See Chemehuevi Tribe of Indians v. FPC, 420 U.S.
395, 422-24 (1975); Henry v. FPC, 513 F.2d 395, 401 (D.C.
Cir. 1975).
Nonetheless, Congress chose broad language to describe
FERC's jurisdiction, and, under the applicable deferential
standard of review, see Public Util. Comm'n of the State of
California v. FERC, 143 F.3d 610, 615 (D.C. Cir. 1998), the
court cannot say that FERC unreasonably concluded that
facilities used to exercise control over wholesale sales are
subject to its jurisdiction and that the power to establish the
price at which sales will take place, notwithstanding market
participants' voluntary acquiescence in the exercise of such
power, is sufficient to demonstrate such control. Although
the roles APX and CalPX play in their respective markets
differ in certain respects, FERC could reasonably focus,
consistent with the standards it has adopted for operators of
power exchanges, on the power to set price as being indica-
tive of exercising control over wholesale sales of electricity.
With respect to that criterion, the record supports FERC's
view that APX is more like CalPX than Continental. Indeed,
APX acknowledged in its brief that it "is no mere bystander
in the market it operates." At oral argument APX conceded
that participants who bid in the APX market are obliged to
accept the price APX sets within the overlapping range
established by the participants' bids, a price which, in theory,
could always be set at the highest point in that range without
the knowledge of participants or ratepayers. These acknowl-
edgments are tantamount to a concession that APX is a de
facto third party to the buyer-seller transaction, and, thus,
that its services make it an integral part of the transaction.
Although FERC may conclude after a period of experience
in the new computerized market for electricity that regulation
of such entities as APX is no longer necessary, FERC could
reasonably conclude in the orders under review that the
manner in which APX participates in the sale and purchase
makes it a de facto third party to the transaction and not
simply a bystander that provides information that the parties
can accept or reject. While the parties voluntarily decide to
use APX's services and can set limits on the prices at which
they will sell and buy, they are bound to the market price
that APX sets within those limits once they submit a bid. So
far as the record indicates, FERC has no way to determine at
this point exactly where APX will set the market price; there
is no experience to show whether the APX price may always
be on the high end or, conversely, on the low end, of the
parties' price range. Similarly, because APX treats informa-
tion concerning the frequency of market clearing as a pro-
prietary trade secret, it is unclear from the record how
responsive the APX market price is likely to be to partici-
pants' bidding behavior, and, consequently, bidders' time
limits may afford insufficient leverage. Notwithstanding
FERC's determination that prices set by APX for its services
will be fair and just, it remains to be seen whether prefer-
ences or other forms of discrimination or unfairness may
result from APX's operations.
Under these circumstances, FERC's determination is rea-
sonable even if participants in APX's market have decided
that savings from the lower transaction costs of the APX
pricing system outweigh any of its disadvantages relative to a
market-based, directly-negotiated pricing system. Although
FERC might have taken a different tack, relying instead on
indirect monitoring of APX through review of filings by public
utilities that participate in the APX marketplace, see 16
U.S.C. s 824d(c); LG&E Power Marketing, Inc., 68 FERC at
p. 62,124, its decision to assert jurisdiction directly over APX
is consistent with the Act and the standards FERC has
adopted for power brokers and resellers. In time, FERC
may agree that APX's price "setting" activities reflect the
collective actions of the voluntary, profit-seeking participants
in a market, and is undertaken as an agent of the parties
rather than as an independent agent; but deference to
FERC's expertise is due where it concludes that APX's de
facto third-party role is substantively different from that of a
traditional power broker over which FERC has previously
disclaimed jurisdiction.
Finally, APX's challenge to the filing requirements FERC
imposed is unpersuasive. In many respects, FERC has
treated APX like other public utilities that lack market
power, granting it the same waivers as those utilities. See
Rehearing Order, 84 FERC at p. 61,086; Hearing Order, 82
FERC at p. 62,110. To the extent that APX has been treated
differently, that treatment flows from the differences between
the role APX plays in jurisdictional sales, and the role played
by other public utilities granted market-based rate authority.
FERC has no prior experience with a market like the one
APX operates and it is entirely possible that the type of
information it seeks to have filed, namely, a detailed state-
ment concerning APX's business, could ultimately cause
FERC to conclude, in light of experience with the APX
market, that there is no need for APX to be regulated. In
the meantime, the court cannot conclude that FERC's filing
requirements are arbitrary inasmuch as those requirements
are reasonably related to FERC's legitimate regulatory con-
cerns and to the differences between APX and other public
utilities. APX's objections cannot overcome the fact that how
APX adjusts the price goes to the essence of FERC's juris-
dictional concern--to ensure that APX's rate-setting and
power sales mechanisms are "just, reasonable, and not unduly
discriminatory or preferential." Hearing Order, 82 FERC at
62, 107.
Accordingly, we deny the petition for review.