CA Dept Water Rescr v. FERC

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 12, 2002 Decided October 18, 2002

No. 01-1234

California Department of Water Resources,
Petitioner

v.

Federal Energy Regulatory Commission,
Respondent

California Independent System Operator Corporation, et al.,
Intervenors

On Petition for Review of Orders of the
Federal Energy Regulatory Commission

Edna Walz, Deputy Attorney General, Attorney General's
Office of State of California, argued the cause for petitioner.
With her on the briefs were Bill Lockyer, Attorney General,
Richard M. Frank, Chief Assistant Attorney General, and
Elisa J. Grammar. Mary E. Hackenbracht, Senior Assistant

Attorney General, Attorney General's Office of State of Cali-
fornia, and Peter C. Kissel entered appearances.

Michael Postar argued the cause for intervenors M-S-R
Public Power Agency and the Cities of Redding, Santa Clara,
and Palo Alto, California. On the briefs were Wallace L.
Duncan, James D. Pembroke, Richmond F. Allan, and Sean
M. Neal.

Beth G. Pacella, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
the brief were Cynthia A. Marlette, General Counsel, and
Dennis Lane, Solicitor.

Jennifer L. Key, Kenneth G. Jaffe, and Michael E. Ward
were on the joint brief for intervenors California Independent
System Operator Corporation and Southern California Edison
Company. Richard L. Roberts and Edward Berlin entered
appearances.

Before: Sentelle and Randolph, Circuit Judges, and
Silberman, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: The first and, as it turns out, the
last question we must decide in this petition for judicial
review of an order of the Federal Energy Regulatory Com-
mission is whether we have jurisdiction.

California Independent System Operator Corporation (the
California ISO) operates a grid comprising the transmission
systems of several public utilities that have turned over
operational control of their facilities to it. See Pub. Utils.
Comm'n v. FERC, 254 F.3d 250, 252-53 (D.C. Cir. 2001).
Entities with firm contractual rights to transmissions gener-
ated by these public facilities (contractual rightsholders) may
also join the California ISO by assigning their contractual
rights to the ISO's control. ISO Revised Tariff s 2.4.4.1.2.
Public utilities and contractual rightsholders joining the Cali-
fornia ISO are called transmission owners. Under the ISO's
regulations, transmission owners are required to develop

pricing mechanisms.1 ISO Revised Tariff s 7.1. Through
these pricing mechanisms, the California ISO compensates
transmission owners for the transmissions they convert to the
ISO's control and sets the prices customers pay for transmis-
sions. Id.

On May 3, 1999, the Commission issued an order condition-
ally approving Amendment 9, a proposal by the California
ISO for the provision of firm transmission rights (May Or-
der). California Indep. Sys. Operator Corp., 87 F.E.R.C.
p 61,143 (1999). Under Amendment 9, the ISO auctions
transmission paths that are subject to congestion. 87
F.E.R.C. at 61,570. Auction revenues are distributed to the
transmission owner that owns, or has contractual rights to,
the auctioned transmission paths. Id. Transmission owners
receiving auction revenues are required to deduct these reve-
nues from the costs they seek to recoup from the California
ISO. Id. The Commission specifically held that the May
Order did not address "the exercise of conversion rights
(which permits Existing Customers to convert to ISO Tariff
service[)]." Id. at 61,581.

The petitioner in this case, the California Department of
Water Resources (the Water Department), is a contractual
rightsholder that has firm transmission contracts with Pacific
Gas & Electric and Southern California Edison. The Water
Department anticipates joining the California ISO as a trans-
mission owner. On June 2, 1999, the Water Department
sought rehearing of the May Order, arguing that contractual
rightsholders should not be required to develop and use ISO
pricing mechanisms because they do not apply to contractual
rightsholders. The Water Department's logic was as follows:

__________
1 The pricing mechanisms are a Transmission Revenue Re-
quirement, which is the total annual authorized revenues turned
over to the California ISO; a Transmission Revenue Balancing
Account, which ensures that all credits a transmission owner re-
ceives are subtracted from its Transmission Revenue Requirement;
and an Access Charge, which is the price a transmission owner
charges customers. ISO Tariff s 7.1; see generally California ISO
Second Revised Sheet No. 354.

(1) the ISO pricing mechanisms are calculated by determining
the costs of providing transmissions, ISO Tariff s 7.1; (2)
because contractual rightsholders receive transmissions from
other transmission providers, contractual rightsholders do not
have costs associated with transmissions; therefore (3) the
Water Department, and other contractual rightsholders,
should not be required to develop and use ISO pricing
mechanisms. California Indep. Sys. Operator Corp., 88
F.E.R.C. p 61,156, at 61,527-28 (1999). On August 2, 1999,
the Commission granted the Water Department's rehearing
petition (August Order). Id. at 61,528.

The California ISO and Southern California Edison Compa-
ny filed an application for rehearing of the August Order,
contending that because the California ISO compensates
transmission owners for their costs and prices transmission
charges based upon the ISO pricing mechanisms, contractual
rightsholders that join the California ISO must develop ISO
pricing mechanisms to avoid "severely skew[ing] the cost
allocation system under the California ISO tariff." Califor-
nia Indep. Sys. Operator Corp., 94 F.E.R.C. p 61,343, at
62,269 (2001). On March 28, 2001, the Commission granted
the California ISO's and Southern California Edison's petition
for rehearing (March Order). Id.

In a related proceeding, on November 10, 1999, in response
to questions regarding the jurisdictional status of transactions
under the California ISO's proposal, the Commission issued
an opinion holding that pursuant to section 205 of the Federal
Power Act, 16 U.S.C. s 824d, the Commission has jurisdiction
over the sale of transmission rights. California Indep. Sys.
Operator Corp., 89 F.E.R.C. p 61,153, at 61,435 (1999). The
Cities of Redding, Santa Clara, and Palo Alto, California, and
the M-S-R Public Power Agency (Redding), sought rehear-
ing of this decision, arguing that the Commission had imper-
missibly attempted to assert jurisdiction over municipalities
in violation of section 201(f) of the Federal Power Act.2 The

__________
2 Section 201(f) provides, in relevant part: "No provision in this
subchapter shall apply to ... any political subdivision of a State ...

Commission denied Redding's petition for rehearing on
March 28, 2001. 94 F.E.R.C. at 62,270-71.

Without seeking rehearing of the March Order, the Water
Department filed this petition for judicial review of the
March, August and May Orders, arguing that the Commis-
sion's decision requiring it to develop and use ISO pricing
mechanisms was not based upon substantial evidence. The
Water Department also contends that the Commission cannot
exercise jurisdiction over it because it is a transmission
customer, not a utility owner. See 16 U.S.C. s 824(b). Red-
ding intervened in support of the Water Department, raising
the same argument Redding presented in its petition for
rehearing before the Commission.

Section 313(a) of the Federal Power Act provides that a
"state commission aggrieved by an order issued by the Com-
mission ... may apply for a rehearing." 16 U.S.C. s 825l(a).
It further provides that "no proceeding to review any order of
the Commission shall be brought by any person unless such
person shall have made application to the Commission for
rehearing thereon." Id. The rehearing requirement is an
"express statutory limitation[ ] on the jurisdiction of the
court." Tennessee Gas Pipeline Co. v. FERC, 871 F.2d 1099,
1107 (D.C. Cir. 1989); see also Granholm ex rel. Michigan
Dep't of Natural Resources v. FERC, 180 F.3d 278, 280 (D.C.
Cir. 1999). Neither the court nor the Commission has the
discretion to ignore it. See Granholm, 180 F.3d at 280-81;
see also Blue Stone Energy Design, Inc. v. FERC, 74 F.3d
1288, 1293 (D.C. Cir. 1996); Town of Norwood, Mass. v.
FERC, 906 F.2d 773, 774 (D.C. Cir. 1990).

As we have interpreted s 313(a), if an order on rehearing
modifies the results of the earlier order in a significant way
adverse to a party, that party must seek a rehearing of the
order before filing a petition for judicial review. See Nor-
wood, 906 F.2d at 775. This gives the Commission "an
opportunity to bring its knowledge and expertise to bear" on
the petitioner's objections before they are presented to the

__________
unless such provision makes specific reference thereto." 16 U.S.C.
s 824(f).

court; if the objections are well-founded, Commission action
on the rehearing request may obviate judicial proceedings.
Northwest Pipeline v. FERC, 863 F.2d 73, 77-78 (D.C. Cir.
1988); Granholm, 180 F.3d at 280.

The Water Department concedes that the March Order, in
which the Commission reversed its position regarding wheth-
er the Water Department must use ISO pricing mechanisms,
significantly modified the August Order. It maintains,
though, that the March Order did not significantly modify the
May Order because it merely reinstated the aggrievement the
Water Department suffered from the May Order.3 The idea
must be that in determining whether there was enough of a
change to require a rehearing petition, one must compare the
original order with the last order, ignoring whatever orders
issued in between. We doubt that our precedents support
this approach. But even if they did, the March Order cannot
be viewed as making only a minor alteration to the May
Order. In its May Order, the Commission conditionally
approved the California ISO's proposal regarding firm trans-
mission rights, and nothing more. The Water Department's
alleged injury stems not from the May Order, but from the
Commission's decision in its March Order that contractual
rightsholders must develop ISO pricing mechanisms. The
March Order thus significantly altered legal relationships and
gave rise to the grievance the Water Department now presses
in court. See Norwood, 906 F.2d at 775. Even if we had
jurisdiction and agreed with the Water Department's argu-
ments that it should not be required to develop California
ISO pricing mechanisms, this would have no bearing on the
May Order approving Amendment 9.

Given these circumstances, there is no possibility of "an
endless cycle of applications for rehearing and denial."

__________
3 Our use of the term "aggrievement" is for convenience and is
not meant to imply that the Water Department has in fact been
aggrieved. The Water Department is not a member of the Califor-
nia ISO, which the Commission claims deprives it of standing to
challenge the March Order. We do not resolve this particular
standing question. See Ruhrgas AG v. Marathon Oil Co., 526 U.S.
574, 585 (1999).

Southern Natural Gas Co. v. FERC, 877 F.2d 1066, 1073
(D.C. Cir. 1989). In Southern Gas, the court held that a
petitioner did not need to seek a rehearing of a Commission
order denying rehearing when the outcome had not been
changed but the Commission had "supplie[d] a new improved
rationale." Id. (emphasis in original). Here, the March
Order directed an outcome significantly different from the
May and August Orders, not the same outcome with a new
rationale. The Southern Gas court explicitly stated that in
such a situation the rehearing requirement under s 313(a)
begins anew.4 Id.

The Water Department also sought judicial review of the
May and August Orders, but we do not have jurisdiction over
those orders either because the Water Department plainly
does not have standing to contest them. A party claiming to
be aggrieved within the meaning of s 313(a) must satisfy the
constitutional requirements for standing. See Public Utility
Dist. No. 1 of Snohomish County, Washington v. FERC, 272
F.3d 607, 613 (D.C. Cir. 2001). One such requirement is that
a party suffer an "injury-in-fact." Id. As is clear from the
preceding discussion, neither the May Order nor the August
Order aggrieved the Water Department. The May Order
merely approved Amendment 9 without binding the Water
Department to any of the pricing schemes that it currently
challenges, and in the August Order the Commission decided
in its favor. The Water Department suffered "injury-in-fact"
from neither of these orders.

As to the intervenors, "absent extraordinary circumstances,
intervenors 'may join issue only on a matter that has been
brought before the court by' " a petitioner. Alabama Mun.
Distribs. Group v. FERC, 300 F.3d 877, 879 (D.C. Cir. 2002)
(quoting Illinois Bell Tel. Co. v. FCC, 911 F.2d 776, 786 (D.C.
Cir. 1990)). An exception to this rule is that an intervenor
may raise an issue if the intervenor has preserved the issue in
its own petition for rehearing before the Commission, and the
intervenor satisfies the statutory requirements for a petition-

__________
4 Southern Gas construed s 19(b) of the Natural Gas Act.
That provision is analogous to s 313(a). See Norwood, 906 F.2d at
774.

er to seek judicial review of the Commission's order. See
Alabama Mun., 300 F.3d at 880; see also Rio Grande
Pipeline Co. v. FERC, 178 F.3d 533, 539 (D.C. Cir. 1999)
(intervenors must seek direct review to raise additional is-
sues). Neither situation is present here. The Water Depart-
ment, toward the end of its brief, mentions in a footnote that
16 U.S.C. s 824(f) precludes the Commission from exercising
jurisdiction over political subdivisions of a state; the footnote
adds that the provision has no "direct applicability" to it, but
shows congressional intent. The Water Department's foot-
note does not properly present, and thus does not preserve,
the issue the intervenors wish to argue. See Carducci v.
Regan, 714 F.2d 171, 177 (D.C. Cir. 1983). Although Redding
raised the arguments it makes in court in its petition for
rehearing before the Commission, Redding did not satisfy the
statutory requirements for judicial review. Petitioners must
seek review "within sixty days after the order of the Commis-
sion upon the application for rehearing." 16 U.S.C. s 825l(b).
Redding intervened on June 25, 2001--eighty-nine days after
the Commission entered its March 28, 2001 order.

The petition for judicial review is therefore dismissed for
lack of jurisdiction. We also have no jurisdiction to consider
the intervenors' contentions regarding the merits.

Dismissed.