Free Response to Motion [Dispositive] - District Court of Federal Claims - federal

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ELECTRONICALLY FILED ON MAY 20, 2008

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

THE PEOPLE OF THE STATE OF CALIFORNIA EX REL. EDMUND G. BROWN JR., ATTORNEY GENERAL OF THE STATE OF CALIFORNIA, and the CALIFORNIA DEPARTMENT OF WATER RESOURCES BY AND THROUGH ITS CALIFORNIA ENERGY RESOURCES SCHEDULING DIVISION, Plaintiffs, v. THE UNITED STATES, Defendant.

No. 07-184C (Hon. Loren A. Smith, Senior Judge)

THE PEOPLE'S OPPOSITION TO DEFENDANT'S MOTION TO DISMISS

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TABLE OF CONTENTS BACKGROUND ............................................................................................................................ 1 I. II. A. B. C. D. E. F. G. H. I. J. K. L. INTRODUCTION .................................................................................................................. 1 FACTS .................................................................................................................................... 3 The California Wholesale Markets During the 2000-2001 Energy Crisis.......................... 3 FERC's Authority Over the ISO and PX Markets.............................................................. 5 The Agencies Agreed to Abide by the Tariffs .................................................................... 6 The ISO and PX Auction Market Mechanisms .................................................................. 7 Market Participants Have the Right, Under the Tariffs, to Bring Actions Directly Against Other Market Participants ....................................................................... 9 May 2000 to June 2001: The Energy Crisis..................................................................... 10 The People Seek Relief From FERC: The FERC Remedy Proceeding........................... 11 FERC Remediates the Unlawful Market Prices................................................................ 11 The Discovery of Market Manipulation ........................................................................... 12 FERC's Authority to Order the Agencies to Pay Refunds-- The Bonneville Decision ................................................................................................... 12 The People's Claims Against the Agencies and Denial of the Claims ............................. 13 FERC's October 19, 2007 and November 19, 2007 Orders ............................................. 13

M. The People's California Action ........................................................................................ 14 ARGUMENT................................................................................................................................ 15 I. THE MOTION TO DISMISS FOR LACK OF JURISDICTION MUST BE DENIED IF THE WELL-PLEADED ALLEGATIONS OF THE FIRST AMENDED COMPLAINT SUPPORT JURISDICTION.................................................... 15 THE COURT HAS JURISDICTION OVER THE PEOPLE'S DECLARATORY RELIEF CLAIMS AND MAY GRANT THE REQUESTED RELIEF .............................. 17 A. B. This Court Has Jurisdiction to Grant Declaratory Relief Regarding the Interpretation of Contracts .......................................................................................... 18 The People Allege Proper Claims for Declaratory Relief ................................................ 20 -i-

II.

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1. 2. 3.

This Court May Determine the Parties' Contract Obligations Upon the Occurrence of a Future Event ....................................................................... 20 Each of the People's Declaratory Relief Claims Raise a "Live" Controversy Concerning Actual, not Hypothetical, Obligations .................................. 22 Prudential Considerations Support Hearing the People's Declaratory Relief Claims ............................................................................................................... 24

III. THE BASES FOR THE PEOPLE'S FOURTH AND SEVENTH THROUGH ELEVENTH CLAIMS WERE PROPERLY PRESENTED TO THE AGENCIES ............ 26 A. A Complaint May Include Different Legal Theories If the Plaintiff Has Provided the Contracting Officer with Adequate Notice of the Basis of the Claims ........................................................................................................... 26 1. 2. 3. 4. 5. The Fourth Claim Regarding Adjustment of the Agencies' ISO and PX Accounts........................................................................................................... 27 The Seventh Claim for Declaratory Relief Under the WSPP Agreement..................................................................................................................... 28 The Eighth Claim Regarding Contractual Liability for Market Shortfall......................................................................................................................... 28 The Ninth Claim for Breach of the Covenant of Good Faith and Fair Dealing .................................................................................................................. 29 The Tenth and Eleventh Claims Based on Lack of Consent ........................................ 31

IV. THE PEOPLE'S STANDING ALLEGATIONS ESTABLISH THIS COURT'S JURISDICTION ................................................................................................................... 31 A. B. C. D. 1. 2. The U.S.'s Arguments May Not be Resolved on this Motion .......................................... 31 California Law Governs the Agencies' Contractual Obligations Under the ISO and PX Tariffs ..................................................................................................... 32 The People's Contract Claims Are Well Founded in Fact and Law, and Premised on Arguments Made by the U.S. Itself in Related Litigation ........................... 34 The People's Allegations Sufficiently Demonstrate Standing.......................................... 38 The U.S. and the People Are Parties to the Same Multi-Party Contracts..................... 39 The ISO and PX Tariffs Both Create Contractual Obligations That Are Enforceable by the Market Participants................................................................. 42

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3. 4. 5. E. 1.

Electricity Need Not Be "Traced" to a Particular Seller for The People to Be Able to Recover Refunds from Sellers.................................................... 47 The U.S.'s Misinterpretations of SCE Statements in the Edison and Lynch Proceedings Have No Applicability Here ................................................... 48 The Restatement (Third) of Agency Permits This Action ............................................ 49 The People Have Sufficiently Pleaded Standing as Third-Party Beneficiaries ..................................................................................................................... 49 For the People to Prevail on This Motion, They Need Only Plead That the Contractual Obligations Between the U.S. and ISO and PX Manifest an Intent to Benefit Them .............................................................................. 50 The Tariffs Manifest an Intent to Benefit Market Participants Such as the People...................................................................................................................... 50 The People Have Standing as the Surety for the Payment Obligations of Other Purchasers of Energy from the Agencies ........................................................... 51

2. F. V.

THE PEOPLE PROPERLY PLEADED BREACH OF CONTRACT AND ANTICIPATORY REPUDIATION CLAIMS IN THE ALTERNATIVE .......................... 54

CONCLUSION............................................................................................................................. 56

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TABLE OF AUTHORITIES CASES Acceptance Ins. Co. v. United States, 503 F.3d 1328 (Fed. Cir. 2007)................................................................................................. 16 Adarbe v. United States, 58 Fed. Cl. 707 (2003) .............................................................................................................. 16 Admiralty Constr., Inc. v. Dalton, 156 F.3d 1217 (Fed. Cir. 1998)) ............................................................................................... 52 Alliant Energy Corp. v. FERC, 253 F.3d 748 (D.C. Cir. 2001) .................................................................................................. 35 Alliant Energy v. Nebraska Pub. Power Dist., 347 F.3d 1046 (8th Cir. 2003), aff'g No. 00-2139 ADM/FLN, 2001 WL 1640132 (D. Minn. Oct. 18, 2001).................................................................................................... passim Alliant Energy v. Nebraska. Pub. Power Dist., No. 00-2139 ADM/FLN, 2001 WL 1640132 (D. Minn. 2001), aff'd, 347 F.3d 1046 (8th Cir. 2003).................................................................................. passim Alliant Techsystems, Inc. v. United States, 178 F.3d 1260 (Fed. Cir. 1999).......................................................................................... passim ATK Thiokol, Inc. v. United States, 76 Fed. Cl. 654 (2007) .............................................................................................................. 27 Balboa Ins. Co. v. United States, 775 F.2d 1158 (Fed. Cir. 1985)................................................................................................. 52 Bell v. Hood, 327 U.S. 678 (1946).................................................................................................................. 16 Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir. 2005), cert denied, 128 S.Ct. 804 (Dec. 10, 2007)........................................................................ passim Boyle v. United Tech. Corp., 487 U.S. 500 (1988).................................................................................................................. 33 Brunswick Leasing Corp. v. Wisconsin Cent. Ltd., 136 F.3d 521 (7th Cir. 1998) .................................................................................................... 49

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Casady v. Modern Metal Spinning and Mfg. Co., 188 Cal. App. 2d 728 (1961) .................................................................................................... 40 Cedars-Sinai Medical Center v. Watkins, 11 F.3d 1573 (Fed. Cir. 1993).............................................................................................. 15-17 Centex Corp. v. United States, 395 F.3d 1283 (Fed. Cir. 2005)................................................................................................. 30 Cerberonics, Inc. v. United States, 13 Cl. Ct. 415 (1987) ................................................................................................................ 26 Coast Fed. Bank, FSB v. United States, 48 Fed. Cl. 402 (2000), aff'd, 323 F.3d 1035 (Fed. Cir. 2002) ....................................................................................... 33 Coenen v. R. W. Pressprich & Co., 453 F.2d 1209 (2d Cir. 1972).................................................................................................... 40 Corrugated Paper Prods., Inc. v. Longview Fibre Co., 868 F.2d 908 (7th Cir. 1989) .................................................................................................... 50 CW Government Travel, Inc. v. United States, 63 Fed. Cl. 369 (2004) .............................................................................................................. 21 Employers Ins. of Wausau v. United States, 23 Cl. Ct. 579 (1991) ................................................................................................................ 31 Figueroa v. United States, 57 Fed. Cl. 488 (2003) .............................................................................................................. 56 Fireman's Fund Ins. Co. v. England, 313 F.3d 1344 (Fed. Cir. 2002)................................................................................................. 52 First Fed. Sav. & Loan Ass'n of Twin Falls v. East End Mut. Elec. Co., 735 P.2d 1073 (Idaho App. 1987)............................................................................................. 40 First National City Bank, v. United States., 548 F.2d 928 (Ct. Cl. 1977) ...................................................................................................... 53 Flexfab, L.L.C. v. United States, 62 Fed. Cl. 139 (2004), aff'd, 424 F.3d 1254 (Sept. 27, 2005) ....................................................................................... 49 Gear v. Webster, 258 Cal. App. 2d 57 (1968) ...................................................................................................... 40

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Glass v. United States, 258 F.3d 1349 (Fed. Cir. 2001), amended by, 273 F.3d 1072 (Fed. Cir. 2001) ...................................................................... 50-51 Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308 (2005).................................................................................................................. 34 Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 (1974).................................................................................................................. 32 Holland v. United States, 75 Fed. Cl. 492 (2007) .............................................................................................................. 33 Kawa v. United States, 77 Fed. Cl. 294 (2007) ....................................................................................................... passim Liberty Mut. Ins. Co. v. United States, 70 Fed. Cl. 37 (2006) ................................................................................................................ 52 Link v. Dept. of the Treasury, 51 F.3d 1577 (Fed. Cir. 1995)................................................................................................... 30 Long Island Sav. Bank, FSB v. United States, 503 F.3d 1234 (Fed. Cir. 2007)................................................................................................. 32 Maltese v. Dubinsky, 108 N.E.2d 604 (N.Y. 1952)..................................................................................................... 40 Manuel Bros., Inc. v. U.S., 55 Fed. Cl. 8 (2002), aff'd, 95 Fed. Appx. 344 (Apr. 9, 2004) ................................................................................... 27 Maxima Corp. v. United States, 847 F.2d 1549 (Fed. Cir. 1988)................................................................................................. 29 McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936).................................................................................................................. 17 Montana v. United States, 124 F.3d 1269 (Fed. Cir. 1997)................................................................................................. 50 Moyer v. United States, 190 F.3d 1314 (Fed. Cir. 1999)........................................................................................... 15, 17 Muh v. Newberger, Loeb & Co., Inc., 540 F.2d 970 (9th Cir. 1976) .................................................................................................... 40

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Nelson Constr. Co. v. United States, 79 Fed. Cl. 81 (2007) .................................................................................................... 16, 31, 50 New York v. FERC, 535 U.S. 1 (2002)........................................................................................................................ 5 Nippon Steel Corp. v. United States, 219 F.3d 1348 (Fed. Cir. 2000)................................................................................................. 32 Pearlman v. Reliance Ins. Co., 371 U.S. 132 (1962).................................................................................................................. 52 Pub. Utils. Comm'n of Cal. v. FERC, 462 F.3d 1027 (9th Cir. 2006) ........................................................................................... passim Republic Savings Bank, FSB v. United States, 80 Fed. Cl. 295 (2008) .............................................................................................................. 54 Reynolds v. Army & Air Force Exchange Service, 846 F.2d 746 (Fed. Cir. 1988)................................................................................................... 17 Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003)............................................................................................ 26-27 Shwarz v. United States, 35 Ct. Cl. 303 (1900) ........................................................................................................... 53-54 Simmons v. United States, 71 Fed. Cl. 188 (2006) .............................................................................................................. 17 Southern California Federal Savings & Loan Association v. United States, 422 F.3d 1319 (Fed. Cir. 2005), cert. denied, 126 S.Ct. 2967 (June 26, 2006)............................................................................ 42 Spruill v. Merit Sys. Prot. Bd., 978 F.2d 679 (Fed. Cir. 1992)............................................................................................. 16, 32 Sullivan v. United States, 54 Fed. Cl. 214 (2002) .............................................................................................................. 50 Swanson Group, Inc. v. United States, 76 Fed. Cl. 44 (2007) ................................................................................................................ 27 Tiger Natural Gas, Inc. v. United States, 61 Fed. Cl. 287 (2004) ................................................................................................... 18-19, 22 Total Med. Mgmt. v. United States, 104 F.3d 1314 (Fed. Cir. 1997)................................................................................................. 16 - vii -

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Trauma Serv. Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997)................................................................................................. 16 United Pacific Ins. Co. v. United States, 26 Cl. Ct. 773 (1992) ................................................................................................................ 53 United States v. Seckinger, 397 U.S. 203 (1970).................................................................................................................. 33 United States v. Winstar Corp., 518 U.S. 839 (1996).................................................................................................................. 33 Westfed Holdings, Inc. v. United States, 407 F.3d 1352 (Fed. Cir. 2005)............................................................................................ 32-33 ADMINISTRATIVE CASES Automated Power Exch., Inc., 84 FERC ¶ 61,020 (1998) ......................................................................................................... 48 Automated Power Exch., Inc., 85 FERC ¶ 61,232 (1998) ......................................................................................................... 48 Cal. Power Exch. Corp., 92 FERC ¶ 61,096 (2000) ........................................................................................................... 9 Pac. Gas & Elec. Co., 81 FERC ¶ 61,122 (1997) ..................................................................................................... 9, 45 San Diego Gas & Elec. Co., 92 FERC ¶ 61,172 (2000) ................................................................................................... 11, 45 San Diego Gas & Elec. Co., 93 FERC ¶ 61,121 (2000) ......................................................................................................... 12 San Diego Gas & Elec. Co., 95 FERC ¶ 61,418 (2001) ......................................................................................................... 10 San Diego Gas & Elec. Co., 96 FERC ¶ 61,120 (2001) .................................................................................................... 11-12 San Diego Gas & Elec. Co., 109 FERC ¶ 61,218 (2004) ................................................................................................... 9, 46 San Diego Gas & Elec. Co., 121 FERC ¶ 61,067 (2007) ................................................................................................ passim San Diego Gas & Elec. Co., 121 FERC ¶ 61,188 (2007) ............................................................................................ 13-14, 27 - viii -

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S. Cal. Edison Co., 80 FERC ¶ 61,262 (1997) ......................................................................................................... 46 FEDERAL STATUTES, LAWS, AND RULES 16 U.S.C. § 824 (2000) ................................................................................................................ 4-5 16 U.S.C. § 824d (2008) ................................................................................................................. 5 16 U.S.C. § 824e (2008) .............................................................................................................. 5-6 16 U.S.C. § 824e(a) (2000)............................................................................................................. 6 16 U.S.C. § 832a(f) (2008) ........................................................................................................... 33 28 U.S.C. § 1491(a)(2) (2008) ...................................................................................................... 18 42 U.S.C. § 7256(a) (2008)........................................................................................................... 33 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005)................................................................................... 5 Fed. R. Evid. 201(b)........................................................................................................................ 4 Rules of the United States Court of Federal Claims 8 .................................................................. 56 OTHER AUTHORITIES 73 Am. Jur. 2d, Stock and Commodity Exchanges, § 7 (2001)..................................................... 40 9 Corbin, Contracts § 44.6 (2007) ................................................................................................ 51 18 C.J.S. Corporations § 154 (2007)............................................................................................ 40 2 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence §201.12 (2d ed. 2008) ................................................................................................................. 4 RESTATEMENT (THIRD) OF AGENCY § 6.05 (2006) ....................................................................... 49

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BACKGROUND I. INTRODUCTION During California's Energy Crisis of 2000-2001, the Bonneville Power Authority ("BPA") and the Western Area Power Authority ("WAPA") (together, the "Agencies") sold electricity into California's wholesale electricity markets at prices up to 100 times previous norms. As a pre-condition of gaining entry to California's lucrative wholesale electricity markets, the Agencies signed written contracts agreeing to sell power only at prices approved by, and subject to after-the-fact revision by, the Federal Energy Regulatory Commission ("FERC"). FERC did, in fact, reset prices to just and reasonable levels for sales into the California's wholesale energy markets for the period from October 2, 2000 to June 20, 2001 (the "Refund Period"). However, the Agencies have refused to honor their contractual obligations to abide by the corrected prices and to refund their overcharges. This lawsuit by the People1 followed the Agencies' denial of their contractual obligations in response to claims presented by the People. The U.S. now moves to dismiss the People's lawsuit on a variety of grounds. The U.S.'s motion should be denied for the following reasons: 1. The U.S. argues that Claim 4 through 8 seek only advisory opinions and therefore

do not present a justiciable case or controversy. The U.S. is incorrect.

"The People" is used herein to refer collectively to plaintiffs the People of the State of California ex rel. Edmund G. Brown Jr., Attorney General of the State of California; and the California Department of Water Resources, by and through its California Energy Resources Scheduling Division ("CERS"). The People's action in this Court parallels the actions in Pacific Gas and Elec. Co., et al. v. United States, No. 07-157C (LAS), and San Diego Gas & Elec. Co. v. United States, No. 07-167C (LAS), now consolidated under lead case number 07-157C (the "Utilities' COFC Actions"). The United States has filed motions to dismiss in both actions that raise parallel issues. The motions to dismiss the People's and the Utilities' COFC Actions are both set for hearing before the Court on June 24, 2008. -1-

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The Court has jurisdiction over the People's declaratory relief claims because they seek interpretation of the parties' rights and obligations under the relevant contracts. The U.S. raises only prudential considerations that are irrelevant to the Court's jurisdiction, and its arguments are factually incorrect. The People's declaratory relief claims concern the parties' rights and obligations with respect to forthcoming administrative decisions and actions that are certain to take place in the near future. Thus, the People's claims present "live" rather than hypothetical disputes. 2. The U.S. argues that Claims 4 and Claims 7 through 11 were not presented to the

Agencies' contracting officers through the People's pre-lawsuit administrative claim. The U.S. is incorrect. As the People demonstrate, sufficient notice of the factual bases of the People's claims and the legal theories now asserted were provided to the Agencies' contracting officers. 3. The U.S. argues that the People are not in contractual privity with the Agencies

and therefore have no standing to pursue any of the Claims. The U.S. is incorrect. The U.S. merely posits its own interpretation of the contractual relationships created by the agreements the Agencies signed to participate in California's wholesale energy markets. The U.S.'s arguments cannot overcome the People's well-pleaded allegations which provide specific facts establishing standing. The People are in privity with the Agencies based on specific provisions of the relevant agreements which establish contractual relationships between participants in California's wholesale markets. Additionally, the People have standing to pursue their claims as third-party beneficiaries of the Agencies' transactions, and because they served as the fiscally responsible stand-in for the energy markets and market participants in transactions with the Agencies.

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4.

The U.S. argues that Claim 1 must be dismissed for failure to state a claim upon

which relief may be granted. The U.S. is incorrect. In its argument, the U.S. claims that, in similar litigation which has not been coordinated with this litigation, the plaintiff Utilities "conceded" that no contractual obligation to pay refunds had yet arisen. The U.S. claims that this statement by another party in separate litigation affects the validity of the People's pleading here. The U.S.'s argument addresses the merits of the People's breach of contract claim, rather than its sufficiency as a matter of pleading. And on the merits, the U.S. is wrong: the Utilities made no "concession" regarding non-accrual of their contract claim, but rather made their argument in supporting claims made in the alternative for breach and anticipatory breach. The People likewise present claims in the alternative for breach and anticipatory breach, because the facts pleaded support either of the alternative theories as to the time the causes of action accrued, and in either case the claims are timely. II. FACTS A. The California Wholesale Markets During the 2000-2001 Energy Crisis

Beginning in 1996, the California legislature restructured the state's market for electric power. The People's First Amended Complaint for Damages and Declaratory Relief ("FAC") ¶ 16. As part of the State's restructuring plan, California's three "investor owned utilities"-- Pacific Gas & Electric ("PG&E"), Southern California Edison ("SCE"), and San Diego Gas & Electric Co. ("SDG&E") (collectively, the "Utilities")--which together meet the vast majority of the energy needs of California's residential and commercial energy users, were required generally to meet their customers' energy needs by purchasing wholesale electric power through a new centralized clearinghouse market for wholesale electric power operated by the California Power Exchange ("PX"). FAC ¶ 16. The PX operated day-ahead auctions in which buyers

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purchased power for the following 24-hour period, and hourly auctions that allowed buyers to make any necessary adjustments to their day-ahead purchases. FAC ¶ 21. The restructuring plan also created the California Independent System Operator ("ISO" or "CAISO") to operate the state's electricity transmission grid. To maintain proper operation of the grid, the ISO was required to maintain balance between energy being placed into and taken out of the system, and to resolve transmission congestion, by purchasing or limiting power at locations throughout the grid. FAC ¶ 19. To carry out these responsibilities, the ISO was empowered to operate its own wholesale energy market and to solicit energy directly from sellers for immediate needs in "out-of-market" ("OOM") transactions. FAC ¶¶ 19, 20. 22.2 Because the ISO and PX are "public utilities" as defined by the Federal Power Act ("FPA"), they are subject to FERC's exclusive regulatory jurisdiction. See 16 U.S.C. § 824(b), (d), (e) (2000). Accordingly, the ISO and PX operated under tariffs filed with and approved by FERC. FAC ¶ 20. The ISO and PX Tariffs governed all sales and purchases of power in those markets, including the mechanisms used to establish prices for all energy sales. The Tariffs required that each participant in these markets agree to comply with and abide by all rules, conditions, and provisions of the Tariffs. 3 FAC ¶¶ 20, 24. The Tariffs also prescribed how

A detailed description of the California markets and the Energy Crisis is found in Pub. Utils. Comm'n of Cal. v. FERC, 462 F.3d 1027, 1035-45 (9th Cir. 2006) ("CPUC"). The People hereby request judicial notice of the PX and ISO Tariffs, located at A1A1149 of the U.S.'s Appendix ("U.S. App."). Additionally, the People request judicial notice of the exhibits at A1150-A1159, A1171-79, A1182-A1184, A1209-A1210, A1221-A1238, A1284A1287, of the U.S. App.; and the exhibits at pages 32-914 of the People's Appendix ("App"). The Court may judicially notice these exhibits because they are "capable of accurate and ready determination by resort to sources whose accuracy cannot be questioned." Fed. R. Evid. 201(b). See 2 Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence §201.12 (2d ed. 2008) (listing categories of judicially noticeable materials, such as court orders and pleadings, administrative orders, and governmental records). For ease of reference, the People's Appendix also includes an "Index of Key ISO and PX Tariff Provisions," App. at 1-31, which provides -43

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market participants were to be invoiced and paid as a result of market transactions, and how to allocate payment defaults and other liabilities among market participants. FAC ¶¶ 26, 28-30; see also infra at 43-45. Buyers and sellers wishing to participate in the ISO and PX markets were required to sign agreements contractually binding themselves to comply with the Tariffs.4 B. FERC's Authority Over the ISO and PX Markets

Subchapter II of the FPA gives FERC exclusive jurisdiction over the sale of electricity at wholesale and the transmission of energy in interstate commerce. 16 U.S.C. § 824(b) (2000); see generally New York v. FERC, 535 U.S. 1 (2002). FERC's primary statutory responsibility under the FPA is to ensure that rates charged in the transactions it regulates are just and reasonable.5 FERC thus has exclusive authority to regulate the rates, terms, and conditions of sales made under the ISO and PX Tariffs and to correct such rates, terms, and conditions if FERC determines that they are not just and reasonable or are otherwise unlawful.6 Importantly, the ISO and PX Tariffs give market participants the right to petition FERC to review and modify rates

excerpts of key Tariff provisions in numeric order with pinpoint cites to the U.S.'s and the People's Appendices. ISO Tariff § 2.2.3.1; PX Tariff § 2.6.2(f). ISO market participants, called "Scheduling Coordinators," were required to sign a Scheduling Coordinator Agreement ("SC Agreement"), in which they explicitly agreed to abide by the terms and conditions of the ISO Tariff. Similarly, participants in the PX market, called "PX Participants," were required to sign a PX Participation Agreement ("PX Agreement"), in which they explicitly agreed to abide by the terms and conditions of the PX Tariff. The ISO and PX Tariffs were incorporated by reference into the SC and PX Agreements, respectively. See ISO Tariff Appendix B, SC Agreement §§ 2, 8; PX Tariff Appendix A, PX Participation Agreement §§ II, 8; see also FAC ¶¶ 17, 23, 24. 16 U.S.C. §§ 824d, 824e (2008). The FPA was amended by the Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005) ("EPAct 2005"). The FPA provisions discussed herein were in force during the Energy Crisis and at the time of the relevant FERC proceedings, prior to the passage of EPAct 2005. The Tariffs expressly reference FERC's regulatory authority. See, e.g., ISO Tariff § 18.1; PX Tariff § 18.1. See also FAC ¶¶ 33-36. -56 5 4

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charged in these markets. FAC ¶ 35. Should FERC determine that any rates charged under the Tariffs require correction, the Tariffs provide that charges may be recalculated and buyers' and sellers' accounts resettled. ISO Tariff § 19; PX Tariff § 13; FAC at ¶¶ 35, 36; see also 16 U.S.C. § 824e (2008), 16 U.S.C. § 824e(a) (2000), App. at 799. C. The Agencies Agreed to Abide by the Tariffs

To gain access to the ISO and PX markets, the Agencies signed written contracts that expressly incorporated the entire Tariffs as contract terms. FAC ¶¶ 17. 23, 24. See also U.S. App. at A1150, A1155 (BPA contracts), U.S. App. at A1221, A1226, A1235 (WAPA contracts). By those contracts, the Agencies agreed that the "obligations and liabilities" of the Tariffs were binding on them. In particular, the Agencies agreed that if they sold power in the ISO and PX markets, the prices they received would be set by the ISO and PX Tariff terms. FAC ¶¶ 23, 24. Market participants were put on notice that the Tariffs could be altered or amended by FERC.7 As a consequence, selling in these two markets exposed the Agencies to the very real possibility that FERC would step in and correct the extraordinarily high prices they were receiving under the Tariffs' pricing formulas and order the ISO and PX to recalculate and resettle their accounts. Those events would, in turn, trigger the contractual obligation of all sellers, including the Agencies, to refund the overcharges to their buyers. FAC ¶¶ 33-37. The contracts the Agencies entered into are unambiguous on these points. The ISO SC Agreement provides that the Agencies

The ISO Tariff provides, for example, that in signing SC Agreements, market participants agree "to comply with all ISO rules, protocols, and instructions, as those rules, protocols and instructions may be amended from time to time." ISO Tariff Appendix A, Master Definitions Supplement ("SC Agreement") (emphasis added). Similarly, the PX Agreement defines the PX Tariff as "the PX FERC Electric Service Tariff as amended from time to time...." PX Tariff Appendix A, PX Participation Agreement, § 1(B) (emphasis added). See also FAC ¶¶ 33, 36. -6-

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will abide by, and will perform all of the obligations under the ISO Tariff . . . in respect of all matters set forth therein including, without limitation, all matters relating to the scheduling of Energy and Ancillary Services on the ISO Controlled Grid, . . . [and] billing and payments . . . ." BPA ISO SC Agreement, U.S. App. at A1150, § 2(B). It further provides that "[t]he ISO Tariff is incorporated herein and made a part hereof." Id. § 8. The PX Agreement similarly provides that the Agencies: will abide by, and will perform all of the obligations under the PX Tariff in respect of all matters set forth therein including, without limitation, all matters relating to the trading of Energy by it through the PX Market, ongoing obligations in respect of bidding, Settlement, . . . billing and payments . . . ." BPA PX Agreement, U.S. App. at A1155, § II(B). The PX Agreement further provides that "[t]he PX Tariff is incorporated herein and made a part hereof." Id. § 8. D. The ISO and PX Auction Market Mechanisms

The ISO and PX did not buy electricity for themselves. The Tariffs explicitly state that the ISO and PX operated their respective markets not as principals, but on behalf of market participants, who were the counterparties to the sales transactions conducted in those markets.8 See infra at 46-47. Power sales in these markets were conducted as so-called "single price auctions." All sellers who sold electricity in a particular auction period received the same price (the "market clearing price") for their power, even if they had originally offered to sell at a lower price. FAC ¶¶ 20, 51, 62. As a consequence, when market dysfunction or manipulation inflated the market clearing price to unjust and unreasonable levels, all sellers--including the Agencies--received, and all buyers were forced to pay, the unjust and unreasonable prices. Id.

ISO Tariff § 2.2.1 provides that, in contracting for wholesale power, "the ISO will not act as principal but as agent for and on behalf of the relevant Scheduling Coordinators." The PX Tariff contains a similar provision stating that the PX will not be deemed a counterparty to any trades in the market. See PX Tariff § 3.1. See also FAC ¶ 18, 27. -7-

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Most market participants both bought and sold electric power in the ISO and PX markets. The ISO and PX were responsible for tracking how much power each market participant bought and sold and the price associated with each transaction in those markets. See ISO Tariff §§ 11.1, 11.2; PX Tariff §§ 3.1, 6.2; see also FAC ¶ 16. This function is called "settlement." For each "Settlement Period," the ISO and PX calculated each Scheduling Coordinator's and PX Participant's respective purchases and sales, netted out the credits and debits attributable to each buyer and seller, and prepared and distributed settlement statements and invoices reflecting the amounts payable and receivable by market participants in connection with their trades. ISO Tariff § 11.9; PX Settlement and Billing Procedures, App. at 675 ("PX PSABP"), § 5.4. Although the markets established market clearing prices for each auction period, the ISO and PX Tariffs create no expectation that amounts due to each seller are "final" once a sale is made. Even after an auction is completed and settled, the Tariffs provide mechanisms to correct any overpayments made to sellers and to refund the overpaid amounts to affected purchasers, including--as mentioned above--giving market participants the right to petition FERC to correct the prices. When FERC determines that sellers made improper overcharges, as happened here, the Tariffs provide for correction of the accounts of the buyers and sellers involved.9 The market participants, rather than the ISO or PX, bore the risks of trading in these markets. The Tariffs contain provisions to protect the ISO and PX from the consequences of any shortfall that might result if a market participant defaults on a payment, causing a shortage of total funds collected for distribution to the other market participants.10 If the funds collected are

ISO Tariff §§ 11.6.3.3, 11.18.1, 11.18.2; PX PSABP §§ 5.3.1, 5.3.4, 5.3.5; see also FAC ¶ 26.
10

9

ISO Tariff §§ 2.2.3.2, 11.8.2.2; PX PSABP §§ 2.1.2, 5.7.1, 5.7.2; see also FAC ¶¶ 28-

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insufficient, the ISO and PX pass through liability for shortfalls to the non-defaulting market participants that bought or sold power in the markets during a period for which there was a shortfall.11 E. Market Participants Have the Right, Under the Tariffs, to Bring Actions Directly Against Other Market Participants

The Tariffs leave no doubt that the market participants themselves may sue other participants to enforce contract obligations arising from market transactions. The ISO Tariff expressly gives market participants the right to bring suit against one another to enforce rights and obligations created by the Tariffs resulting from sales transactions.12 According to FERC, the Tariff "authorizes but does not require [the ISO] to seek payment from recalcitrant Scheduling Coordinators on behalf of sellers of energy. Nor is [the ISO] responsible for making payments to a seller if a Scheduling Coordinator defaults." San Diego Gas & Elec. Co., 109 FERC ¶ 61,218 at P 72 (2004), App. at 451 ("November 23, 2004 Order"); see also Pac. Gas & Elec. Co., 81 FERC ¶ 61,122 at 61,508-09 (1997), App. at 223 ("October 30, 1997 Order") ("[I]t should be the responsibility of Scheduling Coordinators to recover amounts that they are owed."); FAC ¶¶ 28-32. The PX Tariff also creates direct rights of action among market participants.13 See infra at 43-45.
11

See, e.g., ISO Tariff §§ 11.2.9, 11.16.1; PX Tariff, Schedule 2, §§ 5.2.4, 5.3; PX PSABP § 5.7.3; see also FAC ¶¶ 30.
12 13

See ISO Tariff §§ 11.19, 11.20.1, 11.20.2; PG&E FAC ¶¶ 28, 31.

If a PX Participant defaults on its obligations, the PX Tariff allows the PX to "chargeback" or allocate the unsatisfied amount to all non-defaulting participants in the PX markets. PX Tariff, Schedule 2, § 5.3. Upon effecting a chargeback, the PX Tariff requires the PX to "identify the defaulting Participant"--who otherwise would have remained anonymous-- "to all other affected PX Participants by the most expeditious means available," so that "nondefaulting Participants are able to seek recovery from the defaulting party." Cal. Power Exch. Corp., 92 FERC ¶ 61,096 at 61,379 (2000), App. at 266 ("July 28, 2000 Order") (emphasis added). -9-

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F.

May 2000 to June 2001: The Energy Crisis

Beginning in May 2000, the prices demanded by sellers in the ISO and PX markets skyrocketed to unprecedented levels and stayed there for the next year. As a result of the singleprice auction mechanism in the ISO and PX markets, these extremely high prices generated windfall profits for all sellers, including the Agencies. On the other hand, the two largest of California's three Utilities--expending funds to meet ratepayers' power needs at these exorbitant prices--by January 2001 lost their creditworthiness and became ineligible to purchase power through the ISO and PX. FAC ¶ 43. These events led to the collapse of reliable electricity service in California. The ISO ordered rolling blackouts throughout large areas of California to maintain the reliability of the transmission grid. As the crisis began to affect the safety and welfare of California citizens, the governor declared a state of emergency. The State of California was forced to begin purchasing power for California electric customers in place of the Utilities. FAC ¶¶ 42-45. The State legislature created CERS to carry out this function. As the crisis continued, the PX ceased operations on January 30, 2001. FAC ¶ 43. Beginning in January 2001, CERS made substantial purchases of energy through the ISO markets. FAC ¶ 45. The severity of the Energy Crisis abated on June 19, 2001, when FERC imposed price caps and other remedial measures on wholesale power sellers across the Western region. San Diego Gas & Elec. Co., 95 FERC ¶ 61,418 at 62,558 (2001), App. at 356. The bulk of the crippling costs of the crisis has been, or will be, passed through to and paid by the residential and commercial ratepayers of the State of California. Amounts recovered in this proceeding will ultimately benefit the California ratepayers who were subjected to the Agencies' and other sellers' overcharges. FAC ¶ 46. - 10 -

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G.

The People Seek Relief From FERC: The FERC Remedy Proceeding

On August 2, 2000, SDG&E filed a complaint with FERC under the FPA seeking remedies against all sellers of electricity in the ISO and PX markets. FAC ¶ 47. On August 23, 2000, FERC opened a broad investigation into whether sellers' rates were just and reasonable, which it consolidated with the above proceedings. San Diego Gas & Elec. Co., 92 FERC ¶ 61,172 at 61,603, 61,609 (2000), App. at 271. Collectively, these dockets are referred to as the "Remedy Proceeding." The Attorney General, PG&E, and SCE all intervened in the Remedy Proceeding. Id. The Agencies were respondents to the initial SDG&E Complaint, and also formally intervened as parties and gained full participatory rights in the Remedy Proceeding.14 H. FERC Remediates the Unlawful Market Prices

Throughout the Refund Period, FERC issued numerous orders in an attempt to remedy the effects of the dysfunction in the ISO and PX markets. These efforts culminated in a key July 25, 2001 Order that reset prices for sales made in the ISO and PX markets during the Refund Period. San Diego Gas & Elec. Co., 96 FERC ¶ 61,120 at 61,512, 61,516 (2001) ("July 25, 2001 Order"), App. at 408; FAC ¶¶ 48, 49. FERC adopted a methodology to recalculate retrospectively, on a market-wide basis, the maximum competitive energy prices that would have existed in the ISO and PX markets at any given time if sellers had charged just and reasonable rates. The corrected price is called the "Mitigated Market Clearing Price," or "MMCP." FERC's re-pricing methodology had the effect of revising the ISO and PX Tariffs to establish the corrected "market clearing prices that all market participants previously agreed to accept for their sales." July 25, 2001 Order, 96 FERC at 61,512 (emphasis added); FAC ¶¶ 48, 49. FERC

WAPA Motion to Intervene, FERC Docket Nos. EL01-1-000, et al., (Oct. 23, 2000), App. at 709; BPA Motion to Intervene, FERC Docket. Nos. EL00-95-000, et al., (Nov. 22, 2000), App. at 715; see also FAC ¶ 47. - 11 -

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established October 2, 2000 as the "refund effective date," after which prices set by the Tariffs became conditional and subject to retrospective correction. Id.; San Diego Gas & Elec. Co., 93 FERC ¶ 61,121 at 61,370 (2000), App. at 284; see also FAC ¶49. Prices that exceeded the MMCP during the Refund Period are subject to refund. FERC ordered the ISO and PX to apply the MMCP to sales for each auction interval during the Refund Period to recalculate the corrected charges that all sellers should have received, and to re-run their settlement and billing processes under their respective Tariffs. July 25, 2001 Order, 96 FERC at 61,513, 61,516-20; FAC ¶¶51-52. Pursuant to this direction, the ISO and the PX have recalculated the accounts of all sellers and buyers in their markets to reflect the corrected prices for the Refund Period. The ISO continues to make adjustments to accounts for certain cost offsets and interest calculations. FAC ¶ 52. I. The Discovery of Market Manipulation

In early 2002, documents surfaced indicating that Enron and numerous other sellers deliberately manipulated the ISO and PX markets to increase prices throughout the Energy Crisis. Following an investigation, FERC identified numerous potential market power abuses and tariff violations, many implemented with the willing cooperation of sellers, including BPA. See Fact-Finding Investigation of Potential Manipulation of Electric and Natural Gas Prices, FERC Docket No. PA02-2-000 (Mar. 26, 2003), App. at 564. See also CPUC, 462 F.3d at 103940 (explaining that evidence showed that many sellers artificially manipulated the markets, destabilizing the electric grid and increasing prices); FAC ¶¶ 58-62. J. FERC's Authority to Order the Agencies to Pay Refunds--The Bonneville Decision

FERC ruled in a series of decisions in the Remedy Proceeding that its power to enforce sellers' payment of refunds under the FPA extended to governmental entities such as the

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Agencies. BPA and a number of other governmental entities appealed this decision to the Ninth Circuit. On September 6, 2005, the Ninth Circuit ruled that FERC lacked statutory authority to enforce governmental entities' refund obligations directly. Bonneville Power Admin. v. FERC, 422 F.3d 908, 911, 920 (9th Cir. 2005) ("Bonneville"), cert. denied, 128 S.Ct. 804 (Dec. 10, 2007). The court noted, however, that market participants could obtain "the equivalent refund relief" by bringing claims in court directly against the governmental entities to enforce the contractual obligations created by the Tariffs and related agreements. Bonneville, 422 F.3d at 925-26. In support of its observation, the Ninth Circuit quoted approvingly from the district court and Eighth Circuit decisions in a closely similar case, Alliant Energy v. Nebraska Pub. Power Dist., 347 F.3d 1046 (8th Cir. 2003), aff'g No. 00-2139 ADM/FLN, 2001 WL 1640132 (D. Minn. Oct. 18, 2001) ("Alliant Energy"). In Alliant Energy, as discussed further below, infra at 34-38, plaintiffs prevailed on their claim that a governmental entity that participated in a market regulated by FERC was bound by its contract with the market to pay refunds to other market participants after FERC disapproved a charge under the agreement. Id. K. The People's Claims Against the Agencies and Denial of the Claims

After Bonneville foreclosed their pursuit of an administrative remedy for the Agencies' overcharges, the People served claims against the Agencies pursuant to the Contract Disputes Act ("CDA"). FAC ¶ 66. The Agencies denied the People's claims. Id. L. FERC's October 19, 2007 and November 19, 2007 Orders

On October 19, 2007, FERC issued an Order on Remand of the Bonneville decision. San Diego Gas & Elec. Co., 121 FERC ¶ 61,067 (2007), App. at 500 ("October 19, 2007 Order"). FERC subsequently clarified the October 19, 2007 Order in San Diego Gas & Elec. Co., 121

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FERC ¶ 61,188 (2007), App. at 534 ("November 19, 2007 Order"). Together, these Remand Orders address a number of issues that are directly relevant to this case. First, FERC confirmed that it had amended the Tariffs when it revised market prices in its July 25, 2001 Order. November 19, 2007 Order, 121 FERC ¶ 61,188 at PP 10-13 (confirming FERC "revised the pricing formulations contained in the CAISO/PX tariffs" to "reset[] the market clearing prices" for ISO and PX transactions during the Refund Period). Second, FERC held that, although it lacked authority under Bonneville to compel governmental entities to pay refunds, the ISO and PX nevertheless should finish calculating the governmental entities' refund liabilities. FERC determined that the shortfall resulting from those entities' failures to pay refunds would be re-allocated to other market participants, including CERS. October 19, 2007 Order, 121 FERC ¶ 61,067 at PP 38-39. FERC also recognized that market participants could pursue contractual remedies against governmental entities, including the Agencies, in civil actions. Id. at PP 37, 68, 76. M. The People's California Action

The People have been pursuing parallel relief in the California courts against the Los Angeles Department of Water and Power (LADWP), which--like the Agencies--sold power in the ISO and PX markets during the Energy Crisis. The People are pursuing their claims against LADWP under the same legal theories, in general, and are seeking the same kind of relief from those sellers as the People pursue in this case.15 LADWP demurred to the People's claims on most of the same grounds asserted by the U.S. here. That action is now consolidated in the Superior Court of Los Angeles with a similar action brought by the Utilities against LADWP and other governmental entities.
15

The People have agreed with the U.S. to remove the Seventh, Tenth, and Eleventh Claims from their First Amended Complaint. - 14 -

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On December 4, 2007, the Los Angeles Superior Court, after considering hundreds of pages of briefing, thousands of pages of judicially noticeable materials, and a day-long oral argument in the Utilities' action, overruled the defendants' demurrers virtually in their entirety, and: (i) held that the breach of contract cause of action was "properly pled under Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir. 2005), and under the contracts themselves which state that they are subject of FERC's authority"; (ii) held that the Utilities' anticipatory breach claim was properly pled and raised factual issues that could not properly be decided on demurrer; (iii) overruled demurrers arguing that the Utilities lacked standing to pursue these contract claims; and (iv) overruled the demurrers to all of the Utilities' declaratory relief claims, which are identical to the declaratory relief claims pled here.16 On January 4, 2008, after hearing argument on LADWP's identical demurrers to the People's claims, the California court overruled defendants' demurrers to all but one of the People's claims on the same grounds as in the Utilities' action. App. at 802. ARGUMENT I. THE MOTION TO DISMISS FOR LACK OF JURISDICTION MUST BE DENIED IF THE WELL-PLEADED ALLEGATIONS OF THE FIRST AMENDED COMPLAINT SUPPORT JURISDICTION The U.S. contends that "[i]f this Court's jurisdiction is challenged," a plaintiff cannot rely on the allegations of their complaint, but must instead put forward evidence to establish jurisdiction. U.S. Br. at 13. However, while some older Federal Circuit cases suggest that such proof may be necessary where a defendant has attacked the factual basis of the plaintiffs' jurisdictional allegations, Moyer v. United States, 190 F.3d 1314, 1318 (Fed. Cir. 1999); Cedars-

Order on Demurrers, Electric Refund Cases, JCCP 4512 (L.A. Sup. Ct., Dec. 4, 2007), App. at 32 ("Order on Demurrers"), modified in Minute Order (L.A. Sup. Ct., Jan. 3, 2008), App. at 34. - 15 -

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Sinai Medical Center v. Watkins, 11 F.3d 1573, 1583-84 (Fed. Cir. 1993), this principle is inapplicable here. Here, the U.S. offers only its own view of the undisputed underlying facts, and has demonstrated no conflict between plaintiffs' jurisdictional allegations and the record evidence. See infra at 38-47. Thus, the People's well-pleaded allegations are sufficient to establish jurisdiction. As the Federal Circuit recently stated: "A challenge to the Court of Federal Claims' jurisdiction may be overcome on the basis of well-pleaded allegations in the complaint." Acceptance Ins. Co. v. United States, 503 F.3d 1328, 1334 (Fed. Cir. 2007).17 In contract actions in particular, "the law is clear that, for the Court of Federal Claims to have jurisdiction, a valid contract must only be pleaded, not ultimately proven." Total Med. Mgmt. v. United States, 104 F.3d 1314, 1319 (Fed. Cir. 1997). "The general rule is that so long as the plaintiffs have made a non-frivolous claim that they are entitled to money from the United States because . . . they have a contract right, this court has jurisdiction to settle the dispute." Adarbe v. United States, 58 Fed. Cl. 707, 714 (2003) (internal quotation and citation removed). Accordingly, if the People have adequately pleaded the existence of a contract with the United States, the Court must deny the U.S.'s Rule 12(b)(1) motion. See Kawa v. United States, 77 Fed. Cl. 294, 298, 301-05 (2007) (denying 12(b)(1) motion because plaintiff had adequately pleaded a breach of contract claim); Nelson Constr. Co. v. United States, 79 Fed. Cl. 81, 96 (2007) (denying 12(b)(1) motion because plaintiff had adequately alleged standing as a thirdparty beneficiary). In determining whether the pleadings support jurisdiction, the Court must accept all of the People's undisputed allegations as true and must draw all reasonable inferences
17

See also Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997) (same); Spruill v. Merit Sys. Prot. Bd., 978 F.2d 679, 687 (Fed. Cir. 1992) ("Jurisdiction, therefore, is not defeated . . . by the possibility that the averments might fail to state a cause of action on which [the plaintiff] could actually recover.") (citing Bell v. Hood, 327 U.S. 678, 682 (1946)) (internal quotations omitted). - 16 -

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in the People's favor. See, e.g., Simmons v. United States, 71 Fed. Cl. 188, 190 (2006) (Smith, J.). The cases cited by the U.S., McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936), and Reynolds v. Army & Air Force Exchange Service, 846 F.2d 746 (Fed. Cir. 1988), serve only to demonstrate that it may be appropriate for courts to require a plaintiff to support the jurisdictional allegations of the complaint where, unlike here, those allegations are contradicted or are overly conclusory when confronted by a factual challenge. In McNutt, plaintiff's complaint was "destitute of any appropriate allegation as to jurisdictional amount save the general allegation that that matter in controversy exceeds $3,000." McNutt, 298 U.S. at 181. Similarly, in Reynolds, the U.S. had introduced evidence that called into question plaintiff's bare allegations that she held her position pursuant to an employment contract. Reynolds, 846 F.2d at 747.18 The People's allegations supporting jurisdiction, in contrast, are specific and factual. Accordingly, jurisdiction may be found based on the allegations in the People's First Amended Complaint. II. THE COURT HAS JURISDICTION OVER THE PEOPLE'S DECLARATORY RELIEF CLAIMS AND MAY GRANT THE REQUESTED RELIEF The U.S. contends that the Court lacks jurisdiction over the People's Fourth through Eighth Claims for declaratory relief because they seek "advisory opinions" about "hypothetical" events. U.S. Br. at 13, 16-18. As explained below, the U.S.'s contention is factually incorrect. More importantly for purposes of the U.S.'s motion under Rule 12(b)(1) of the Rules of the In other decisions in which the Federal Circuit has suggested that a plaintiff must provide evidence supporting jurisdiction, plaintiffs' allegations were similarly insufficient. See Moyer, 190 F.3d at 1319-20 (plaintiff's jurisdictional allegation that his resignation was involuntary was "completely contradicted" by the record evidence); Cedars-Sinai, 11 F.3d at 1584 (plaintiff made only "naked jurisdictional allegations"). - 17 18

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Court of Federal Claims ("RCFC"), this Court has jurisdiction over the People's declaratory relief claims because those claims seek interpretation of the parties' contractual rights and obligations. Accordingly, the U.S.'s challenge to the Court's jurisdiction over these claims must be denied. A. This Court Has Jurisdiction to Grant Declaratory Relief Regarding the Interpretation of Contracts

In Alliant Techsystems, Inc. v. United States, 178 F.3d 1260 (Fed. Cir. 1999), the Federal Circuit held that this Court's jurisdiction under the Tucker Act (28 U.S.C. § 1491(a)(2)) includes claims for declaratory relief, including, in particular, "claims requesting an interpretation of contract terms." Alliant Techsystems, 178 F.3d at 1270 (emphasis added). Here, the People seek the Court's interpretation of the parties' rights and obligations under the Tariffs. Accordingly, this Court has jurisdiction over the People's declaratory relief claims. The U.S.'s argument that the Court lacks authority to hear these claims because they seek "advisory opinions" concerning facts that "may or may not occur" (U.S. Br. at 17) confuses the question of whether the Court of Federal Claims has jurisdiction to entertain the People's complaint with the question of whether the court should grant relief on the merits. This Court has jurisdiction over declaratory claims seeking an interpretation of parties' contractual rights under future circumstances--even where those circumstances remain uncertain. For example, in Tiger Natural Gas, Inc. v. United States, 61 Fed. Cl. 287 (2004), the court found that it had jurisdiction over plaintiff's claim for a declaration that it had not provided the U.S. a contractual cost savings guarantee, even though it was uncertain whether the guarantee could or would ever be exercised by the U.S. during the remaining term of the contract. In Tiger, plaintiff Tiger had installed a propane gas system at a federal facility. When the U.S. failed to realize energy cost savings it contended Tiger had guaranteed, the U.S. made a

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claim against Tiger for damages and withheld payments due Tiger under unrelated contracts between Tiger and the U.S. Tiger brought suit contesting the U.S.'s claim and the setoff. After the case was filed, the government sought to resolve the dispute by paying Tiger the amounts it had taken as a setoff, and represented to the court that it would not assert a claim based on the alleged contractual guarantee for the period that had given rise to the litigation. The U.S. challenged the court's jurisdiction, contending that in light of this representation and its return of the funds in dispute, Tiger's remaining claim presented only "a theoretical dispute that may never rise to an actionable claim." 61 Fed. Cl. at 291-92. The court in Tiger held that the U.S.'s arguments raised merely prudential considerations that did not affect that court's jurisdiction to entertain Tiger's claim. The court noted that the Federal Circuit had rejected a similar argument by the U.S. in Alliant Techsystems--there, that accepting jurisdiction over plaintiffs' declaratory relief claim would lead to a multiplicity of actions. As the Tiger court noted, the Federal Circuit rejected the U.S.'s jurisdictional challenge, stating that "the `prudential consideration' that the government presses upon us cannot alter the jurisdictional lines that Congress has drawn." Tiger, 61 Fed. Cl. at 292 (quoting Alliant Techsystems, 178 F.3d at 1270 (quotation marks omitted). The U.S.'s arguments here are remarkably similar to its misplaced arguments in Tiger, and likewise improperly raise prudential considerations that go to the merits of the People's claims, not to this Court's jurisdiction. As in Tiger, the Federal Circuit's decision in Alliant Techsystems "stands squarely in the path of the government's argument that prudential considerations constrain this Court's jurisdiction . . . ." Tiger, 61 Fed. Cl. at 292-93. Plaintiffs' declaratory relief claims are properly before the Court.

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Here, the U.S. does not even acknowledge Alliant Techsystems or other decisions of this Court such as Tiger following it. Rather, the U.S. cites various Supreme Court cases for the unremarkable black-letter proposition that Article III jurisdiction is limited to "cases" and "controversies." U.S. Br. at 13-15. None of the cases the U.S. cites addresses this Court's jurisdiction to grant declaratory relief. In fact, most of the cases cited by the U.S. have nothing to do with contracts at