Free Motion to Dismiss - Rule 12(b)(1) - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

Nos. 07-157C, 07-167C (Senior Judge Smith)

PACIFIC GAS AND ELECTRIC COMPANY, SOUTHERN CALIFORNIA EDISON COMPANY, AND CALIFORNIA ELECTRICITY OVERSIGHT BOARD, Plaintiffs, v. THE UNITED STATES, Defendant.

SAN DIEGO GAS & ELECTRIC CO., Plaintiff, v. THE UNITED STATES, Defendant.

DEFENDANT'S MOTION TO DISMISS

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General JEANNE E. DAVIDSON Director

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OF COUNSEL: SEAN B. McNAMARA Trial Attorney Commercial Litigation Branch Civil Division Department of Justice 1100 L Street, N.W. Washington, D.C. 20530

MARK A. MELNICK Assistant Director Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 616-0475 Fax: (202) 305-7644

Peter Burger Attorney Bonneville Power Administration 905 NE 11th Avenue Portland, OR 97232 John D. Bremer Attorney Western Area Power Administration P.O. Box 281213 Lakewood, CO 80228-2802

February 7, 2008

Attorneys for Defendant

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TABLE OF CONTENTS PAGE(S) DEFENDANT'S MEMORANDUM.............................................................................................. 2 STATEMENT OF THE ISSUES.................................................................................................... 2 STATEMENT OF THE CASE....................................................................................................... 3 I. II. Background. ............................................................................................................ 3 The Power Crisis, FERC's Rulings, And Appellate Review.................................. 5 A. FERC's Prospective Price Cap, Retroactive Refund Order, And The Appellate Court's Reversal Of The Retroactive Refund Order's Applicability To The Government................................................. 5 1. 2. FERC's Prospective Price Cap And Retroactive Refund Order. .... 5 Appellate Reversal Of The Refund Order's Applicability To Government-Owned Sellers. ..................................................... 7

B.

Exclusions From FERC's July 25, 2001 Refund Order And Appellate Response............................................................................. 7 1. 2. FERC's Exclusions. ........................................................................ 7 Appellate Response To FERC's Exclusions................................... 8

III.

Current Claims In This Court. .............................................................................. 10 A. The IOUs' Claims. .................................................................................... 10 1. 2. B. Damages Claims. .......................................................................... 10 Declaratory Claims. ...................................................................... 11

The CEOB's Claim. .................................................................................. 11

ARGUMENT................................................................................................................................ 12 I. II. Standards For A Motion To Dismiss For Lack Of Jurisdiction............................ 12 The Plaintiffs Lack Standing To Sue. ................................................................... 13 -i-

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A.

The CEOB Lacks Standing To Be A Plaintiff In This Case Because It Does Not Even Claim To Be In Privity Of Contract With The Government................................................................ 13 The IOUs Also Lack Standing To Be Plaintiffs........................................ 15 1. Federal Law Should Govern The Substantive Issues In This Case........................................................................ 15 The IOUs Lack Privity Of Contract With BPA And WAPA Respecting Their Transactions On The PX...................... 22 a. The PX Tarrif Mechanism Does Not Establish Privity Of Contract Between The IOUs And The Agencies............................................ 22 FERC Has Adopted SCE's Position That There Is No Privity Of Contract Between The IOUs And The Agencies. ............................ 24 The Ninth Circuit Has Adopted SCE's Position That There Is No Privity Of Contract Between The IOUs And The Agencies. ............................ 26 The IOUs Are Estopped From Claiming That There Is Privity Of Contract Between The IOUs And The Agencies............................................ 28 The Court Should Defer To The Holdings Dictating That There Is No Privity Of Contract Between The IOUs And The Agencies. ............. 31 The IOUs Are Not Third Party Beneficiaries Of The Contracts Between The Agencies And The PX......... 33

B.

2.

b.

c.

d.

e.

f.

2.

The IOUs Lack Standing On Their Own To Bring Suit Upon ISO Transactions................................................................. 34

III.

The Court Should Dismiss Counts Four Through Six Of The Complaints, And Part Of Count Seven, All Of Which Seek Declaratory Relief, For Lack Of A Case Or Controversy Under Article III Of The Constitution. ............. 38

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A.

Counts Four, Five, And Part Of Seven, Seek Advisory Opinions About Hypothetical FERC Orders That May Or May Not Occur............. 41 Count Six Seeks An Advisory Opinion About Hypothetical ISO Or PX Orders That May Or May Not Occur. .................................... 44

B.

IV.

This Court Should Dismiss Plaintiffs' Final Two Claims Because They Were Not Presented To The Contracting Officers....................................... 44 A. B. Introduction ........................................................................................... 44

Plaintiffs' Claims Are Based Upon New Operative Facts. ....................... 46 1. 2. The Operative Facts Presented To The Contracting Officers. ...... 47 The Operative Facts Of Plaintiffs' Claims In This Court. ............ 48 a. b. Contractual Liability For Market Shortfall Claim. ........... 48 ISO And PX Accounts Claim. .......................................... 49

C. V.

Plaintiffs' Claims Are Based Upon New Legal Theories. ........................ 49

Count I Should Be Dismissed Because, As Plaintiffs Now Concede, It Fails To State A Claim Upon Which Relief May Be Granted Because No Contractual Obligation To Issue Refunds Has Arisen Yet. ............................ 51

CONCLUSION............................................................................................................................. 55

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TABLE OF AUTHORITIES CASES PAGE(S) AAB Joint Venture v. United States, 75 Fed. Cl. 414 (2007). .................................................................................................... 45 Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937)................................................................................................... 39, 40 Alaska v. United States, 32 Fed. Cl. 689 (1995). .................................................................................................... 14 Al-Kurdi v. United States, 25 Cl. Ct. 599 (1992). ...................................................................................................... 16 Alliant Techsystems, Inc. v. United States, 178 F.3d 1260 (Fed. Cir. 1999)........................................................................................ 45 Ammex, Inc. v. United States, 384 F.3d 1368 (Fed. Cir. 2004)........................................................................................ 29 Anderson v. United States, 344 F.3d 1343 (Fed. Cir. 2003)........................................................................................ 39 Arakaki v. United States, 71 Fed. Cl. 509 (2006). .................................................................................................... 13 Arkla, Inc. v. United States, 37 F.3d 621 (Fed. Cir. 1994)............................................................................................ 29 Bernstein Bros. Pipe & Machinery Co. v. Denver & R.G.W.R Co., 193 F.2d 441 (10th Cir. 1951). ........................................................................................ 20 Blonder-Tongue Lab. v. Univ. of Ill. Found., 402 U.S. 313 (1971)......................................................................................................... 28 Bonneville Power Administration v. FERC, 422 F.3d 908 (9th Cir. 2005), cert. denied, 2007 WL 2273650 (U.S. Dec. 10, 2007) (No. 07-155)....................................................................... 3, 5, 7, 10 Borough of Lansdale v. PP & L, Inc., 426 F. Supp. 2d 264 (E.D. Pa. 2006). .............................................................................. 29 -iv-

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Boston Edison Co. v. FERC, 441 F.3d 10 (1st Cir. 2006).............................................................................................. 31 Boyle v. United Technologies Corp., 487 U.S. 500 (1988)......................................................................................................... 17 Brunswick Leasing Corp. v. Wisconsin Central, Ltd., 136 F.3d 521 (7th Cir. 1998). .............................................................................. 36, 37, 38 In re: California Power Exchange Corp., 245 F.3d 1110 (9th Cir. 2001). ...................................................................................... 3, 5 Calpine Energy Servs. v. FERC, 471 F.3d 1054 (9th Cir. 2006). ........................................................................................ 31 Casa de Cambio Comdiv. S.A., de C.V. v. United States, 291 F.3d 1356 (Fed. Cir. 2001)........................................................................................ 38 Castle v. United States, 301 F.3d 1328 (Fed. Cir. 2002)........................................................................................ 13 Cerberonics, Inc. v. United States, 13 Cl. Ct. 415 (1987). ................................................................................................ 45, 49 Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420 (7th Cir. 1993). .......................................................................................... 30 Church v. Jamison, 143 Cal. App. 4th 1568 (2006). ....................................................................................... 53 Clearfield Trust Co. v. United States, 318 U.S. 363 (1943)......................................................................................................... 17 Cochran v. Cochran, 56 Cal. App. 4th 1115 (1997). ......................................................................................... 53 Contract Cleaning Maint., Inc. v. United States, 811 F.2d 586 (Fed. Cir. 1987).......................................................................................... 45 County of Cook v. MidCon Corp., 773 F.2d 892 (7th Cir. 1985). .......................................................................................... 28 DaimlerChrysler Corp. v. Cuno, 126 S. Ct. 1854 (2006)..................................................................................................... 39 -v-

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Data Gen. Corp. v. Johnson, 78 F.3d 1556 (Fed. Cir. 1996).......................................................................................... 30 Erickson Air Crane Co. v. United States, 731 F.2d 810 (Fed. Cir. 1984).......................................................................................... 15 Fireman's Fund Ins. Co. v. England, 313 F.3d 1344 (Fed. Cir. 2002)........................................................................................ 13 Franconia Assocs. v. United States, 536 U.S. 129 (2002)......................................................................................................... 51 Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., 528 U.S. 167 (2000)......................................................................................................... 40 German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220 (1912)......................................................................................................... 33 Glass v. United States, 258 F.3d 1349 (Fed. Cir. 2001).................................................................................. 33, 34 Gould v. United States, 67 F.3d 925 (Fed. Cir. 1995)............................................................................................ 13 Gutz v. United States, 45 Fed. Cl. 291 (1999). .................................................................................................... 16 J. Cooper & Assoc., Inc. v. United States, 47 Fed. Cl. 280 (2000). .................................................................................................... 46 Johnson Controls World Servs., Inc. v. United States, 43 Fed. Cl. 589 (1999). .................................................................................................... 49 Kiewit Constr. Co. v. United States, 56 Fed. Cl. 414 (2003). .............................................................................................. 45, 46 Klump v. United States, 38 Fed. Cl. 243 (1997). .................................................................................................... 29 Kuehne & Nagel, Inc. v. United States, 17 Cl. Ct. 11 (1989). ........................................................................................................ 16 Laidlaw Envir. Serv. (GS), Inc. v. United States, 43 Fed. Cl. 44 (1999). ...................................................................................................... 46 -vi-

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Lampi Corp. v. American Power Products, Inc., 228 F.3d 1365 (Fed. Cir. 2000)........................................................................................ 30 Long Island Savs. Bank v. United States, 503 F.3d 1234 (Fed. Cir. 2007)........................................................................................ 38 Manuel Bros., Inc. v. United States, 55 Fed. Cl. 8 (2002). ........................................................................................................ 45 McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178 (1936)......................................................................................................... 12 Mobil Exploration and Producing Southeast, Inc. v. United States, 530 U.S. 604 (2000)......................................................................................................... 38 Montana v. United States, 440 U.S. 147 (1979)......................................................................................................... 28 Nat'l Treasury Employees Union v. United States, 101 F.3d 1423 (D.C. Cir. 1996). .......................................................................... 40, 41, 43 O'Neill v. Dept. of Housing and Urban Dev., 220 F.3d 1354 (Fed. Cir. 2000)........................................................................................ 38 In Re Pac. Ry. Comm., 32 F. 241 (C.C. Cal. 1887)............................................................................................... 39 Padbloc Co., Inc. v. United States, 161 Ct. Cl. 369 (1963). .................................................................................................... 16 Palmer v. United States, 168 F.3d 1310 (Fed. Cir. 1999)........................................................................................ 12 Pub. Serv. Elec. and Gas Co. v. FERC, 485 F.3d 1164 (D.C. Cir. 2007). ...................................................................................... 31 Public Service Co. of Colorado v. United States, 5 Cl. Ct. 818 (1984). ........................................................................................................ 33 Public Utilities Commission v. FERC, 456 F.3d 1025 (9th Cir. 2006). ................................................................................. passim Raines v. Byrd, 521 U.S. 811 (1997)......................................................................................................... 39 -vii-

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Reg'l Rail Reorganization Act Cases, 419 U.S. 102 (1974)......................................................................................................... 40 Reliance Ins. Co. v. United States, 931 F.2d 863 (Fed. Cir. 1991).......................................................................................... 45 Renda Marine, Inc. v. United States, 71 Fed. Cl. 378 (2006). .................................................................................. 45, 46, 47, 49 Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43 (1993)........................................................................................................... 40 Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746 (Fed. Cir. 1988).......................................................................................... 12 Roedler v. Dept. of Energy, 255 F.3d 1347 (Fed. Cir. 2001)........................................................................................ 33 Romano v. Rockwell Int'l, Inc., 14 Cal. 4th 479 (1996). .................................................................................................... 53 Rothe Dev. Corp. v. Dept. of Def., 413 F.3d 1327 (Fed. Cir. 2005)........................................................................................ 40 S. Cal. Fed. Sav. & Loan Ass'n. v. United States, 422 F.3d 1319 (Fed. Cir. 2005).................................................................................. 13, 24 S. Pac. R. Co. v. United States, 168 U.S. 1 (1897)............................................................................................................. 28 S.R.A., Inc. v. Minnesota, 327 U.S. 558 (1946)......................................................................................................... 17 San Diego Gas & Elec. Co., 92 F.E.R.C. ¶ 61,172 (2000). ............................................................................................. 5 San Diego Gas & Electric Co., 95 F.E.R.C. ¶ 61,418 (2001). ............................................................................................. 6 San Diego Gas & Electric Co., 96 F.E.R.C. ¶ 61,120 (2001). ....................................................................................... 6, 53 San Diego Gas & Electric Co., 121 FERC ¶ 61,067 (2007). ............................................................................................... 7 -viii-

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San Diego Gas & Electric Co., 121 FERC ¶ 61,188 (2007). ............................................................................................... 7 Santa Fe Eng's., Inc. v. United States, 818 F.2d 856 (Fed. Cir. 1987).............................................................................. 45, 46, 48 Scheuer v. Rhodes, 416 U.S. 232 (1974)......................................................................................................... 12 Schism v. United States, 316 F.3d 1259 (Fed. Cir. 2002)........................................................................................ 38 Scott Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir. 2003).................................................................................. 45, 46 Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26 (1976)........................................................................................................... 39 So. Cal. Ed. Co. v. Lynch, 307 F.3d 794 (9th Cir. 2002). ........................................................................ 26, 27, 29, 30 Southern California Edison Co., 80 F.E.R.C. ¶ 61262 (1997). .......................................................................... 24, 25, 29, 32 Taylor v. Johnston, 15 Cal. 3d 130 (1975). ..................................................................................................... 53 Texas v. United States, 523 U.S. 296 (1998)................................................................................................... 41, 43 Thomas Creek Lumber Co. v. United States, 36 Fed. Cl. 220 (1996). .................................................................................................... 16 Trauma Serv. Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997)........................................................................................ 13 United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979)......................................................................................................... 17 United States v. Seckinger, 397 U.S. 203 (1970)................................................................................................... 17, 19 United States v. Utah Constr. & Mining Co., 384 U.S. 394 (1966)......................................................................................................... 28 -ix-

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Univ. of Tenn. v. Elliott, 478 U.S. 788 (1986)......................................................................................................... 28 Whitmore v. Arkansas, 495 U.S. 149 (1990)......................................................................................................... 40

STATUTES 16 U.S.C. § 824e. ........................................................................................................................... 5 28 U.S.C. § 1491.......................................................................................................................... 13 41 U.S.C. § 601(4). ...................................................................................................................... 13 41 U.S.C. § 605(a). ...................................................................................................................... 44 41 U.S.C. § 609............................................................................................................................ 13 Cal. Pub. Util. Code §§ 330-398.5................................................................................................. 3 Cal. Pub. Util. Code § 335(c)....................................................................................................... 14 Cal. Pub. Util. Code § 341(c)....................................................................................................... 14

MISCELLANEOUS 4 A. Corbin, Contracts § 959 (1951)............................................................................................ 51 13 Samuel Williston, A Treatise on the Law of Contracts, § 37:19 (4th ed. 2000)..................... 33 Restatement (Second) of Agency §§ 148, 187, 305 (1958). ........................................................ 37 Restatement (Second) of Contracts § 235(2) (1979). .................................................................. 51 Restatement (Second) of Judgments § 83 (1982). ....................................................................... 29 Restatement (Third) of Agency § 6.05(2) (2006). ....................................................................... 36

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ________________________________________________ ) PACIFIC GAS AND ELECTRIC COMPANY, ) SOUTHERN CALIFORNIA EDISON COMPANY, ) AND CALIFORNIA ELECTRICITY ) OVERSIGHT BOARD, ) ) Plaintiffs, ) ) v. ) No. 07-157C ) (Senior Judge Smith) ) THE UNITED STATES, ) ) Defendant. ) ________________________________________________) ) ) SAN DIEGO GAS & ELECTRIC CO., ) ) Plaintiff, ) No. 07-167C ) (Senior Judge Smith) v. ) ) ) THE UNITED STATES, ) ) Defendant. ) )

DEFENDANT'S MOTION TO DISMISS Pursuant to Rule 12(b)(1) of the Rules of the United States Court of Federal Claims ("RCFC"), defendant respectfully requests that the Court dismiss this case for lack of jurisdiction. First, the California Electricity Oversight Board ("CEOB") does not assert that it is in privity of contract with the Government and therefore does not possess standing to sue. Second, plaintiffs are not in privity of contract with any Government agency respecting their transactions on the California Power Exchange ("PX," "CPX," or "CalPX") and therefore do not

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possess standing to sue based upon those transactions. Third, plaintiffs do not possess standing to sue on their own respecting their transactions with the California Independent System Operating Corporation ("ISO" or "CAISO"). Fourth, counts four through six of the complaints, and part of count seven, should be dismissed for lack of a case or controversy under Article III, Section 2 of the Constitution. Fifth, counts six and seven of the complaints should be dismissed for failure to present a claim pursuant to the requirements of the Contract Disputes Act ("CDA"). Additionally, pursuant to RCFC 12(b)(6), defendant respectfully requests that, to the extent the Court determines it possesses jurisdiction to entertain it, count one be dismissed for failure to state a claim. Plaintiffs have now admitted that the alleged contractual performance obligation that the count claims was breached has not yet even arisen. In support of this motion, we rely upon the complaints filed in these cases, the following memorandum, and the accompanying appendix. DEFENDANT'S MEMORANDUM STATEMENT OF THE ISSUES 1. Whether the Court should dismiss the CEOB's claim for lack of jurisdiction,

given that it fails to allege that it is in privity of contract with the United States and therefore lacks standing to assert the contract claims at issue. 2. Whether the Court should dismiss all of the claims respecting PX transactions for

lack of jurisdiction given that the plaintiffs are not in privity of contract with the United States respecting those transactions and therefore lack standing to assert the contract claims at issue. 3. Whether the Court should dismiss all of the claims respecting ISO transactions

because plaintiffs lack standing to assert them on their own. 2

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4.

Whether the Court should dismiss counts four through six, and part of count

seven, for lack of a case or controversy under Article III, Section 2 of the Constitution, given that they seek purely advisory opinions based upon hypothetical sets of facts that may or may not ever happen. 5. Whether the Court should dismiss counts six and seven for failure to present a

claim under the CDA. 6. Whether the Court should dismiss count one for failure to state a claim upon

which relief may be granted because, as the plaintiffs admit, even if the tariff rates have been reset by the Federal Energy Regulatory Commission ("FERC"), no obligation to pay refunds has arisen under the tariff terms yet. STATEMENT OF THE CASE I. Background

As noted in prior filings, these cases arise from the California power crisis of 2000 through 2001. Explanations of the facts surrounding these cases can be found in Public Utilities Commission ("CPUC") v. FERC, 456 F.3d 1025, 1035-44 (9th Cir. 2006); Bonneville Power Administration ("BPA") v. FERC, 422 F.3d 908, 911-14 (9th Cir. 2005), cert. denied, 2007 WL 2273650 (U.S. Dec. 10, 2007) (No. 07-155); and In re: California Power Exchange Corp. ("CPX"), 245 F.3d 1110, 1114-19 (9th Cir. 2001). To summarize, in 1996 California enacted Assembly Bill 1890 ("AB 1890"). Cal. Pub. Util. Code §§ 330-398.5. That Act required California's three major electric investor-owned utilities ("IOUs") to divest themselves of substantial amounts of their power generation facilities. CPUC, 456 F.3d at 1035-36. Those utilities, Pacific Gas and Electric Co. ("PG&E"), Southern California Edison Co. ("SCE"), and 3

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San Diego Gas and Electric Co. ("SDG&E"), are now plaintiffs in these consolidated cases. Instead of generating their own electricity, under AB 1890 the IOUs were initially required to purchase all of their power from a new, centralized market called the PX. The PX ran a price auction in which purchasers and suppliers submitted bids that generated a single market clearing price necessary to meet the entire market's demands for electricity for a particular period of time. All bidders paid or received that single market clearing price for the time period. Because the PX was deemed a public utility pursuant to the Federal Power Act ("FPA"), its operations and transactions were governed by a tariff approved by FERC. CPUC, 456 F.3d at 1036-37. That tariff also provided the mechanism by which payments were made for the power transacted, with the PX generating settlement statements and invoices that billed participants for the amounts they owed. PG&E Complaint ¶ 26; SDG&E Complaint ¶ 23. AB 1890 also established the California Independent System Operator Corporation ("ISO"). Although the IOUs continue to own their electricity transmission facilities, the legislation required the IOUs to give operational control of these facilities to the ISO. The ISO operates the electricity transmission grid, directing necessary power to the loads of the IOUs as well as others. CPUC, 456 F.3d at 1037. To run the grid, the ISO is authorized to acquire the necessary power to balance it, known as "imbalance energy," as well as operating reserves, known as "ancillary services." Id. The ISO runs its own auction market to obtain these services in which it receives bids from suppliers and then, like the PX, sets a single price necessary to meet the market's demands for a particular time period. Like the PX, the ISO is regulated by FERC and therefore operates under a FERC-approved tariff. Also like the PX, the ISO tariff provides the mechanism for the ISO to generate statements and invoices to bill participants for 4

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the power and services purchased. CPUC, 456 F.3d at 1037; PG&E Complaint ¶ 26; SDG&E Complaint ¶ 23. II. The Power Crisis, FERC's Rulings, And Appellate Review

In the summer of 2000, California began to experience a power crisis. Prices in the PX markets spiked sharply. CPX, 245 F.3d at 1115-16. Accordingly, in August, 2000, SDG&E filed a complaint with FERC claiming the PX and ISO markets were producing unjust and unreasonable prices, and sought a price cap. FERC denied the request but initiated an investigation of those allegations under section 206 of the FPA (16 U.S.C. § 824e) on August 23, 2000. BPA, 422 F.3d at 912; San Diego Gas & Elec. Co., 92 F.E.R.C. ¶ 61,172, at 61,603 (2000). FERC's investigation led to several actions. A. FERC's Prospective Price Cap, Retroactive Refund Order, And The Appellate Court's Reversal Of The Retroactive Refund Order's Applicability To The Government 1. FERC's Prospective Price Cap And Retroactive Refund Order

Pursuant to section 206(a) of the FPA (16 U.S.C. § 824e(a)), whenever FERC determines that a public utility's rate for a sale, or contract affecting that rate, is unjust or unreasonable, it shall determine a new just and reasonable rate or contract to be thereafter observed by that public utility for its future sales.1 However, FERC's retroactive powers are more limited. Pursuant to section 206(b) of the FPA (16 U.S.C. § 824e(b)), FERC may only order a public utility to refund any amounts already paid to the utility upon previous sales that exceed the rate or contract that FERC has ordered to be thereafter observed. Thus, in contrast to its power under section 206 to

1

Significantly, a public utility is an investor-owned utility, not a government-owned 5

utility.

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prospectively modify a public utility's rates or contracts, FERC is not also empowered to retroactively modify those rates or contracts; it may only order public utilities to issue refunds.2 In purported accordance with these provisions, on June 19, 2001, FERC implemented a prospective price cap upon future ISO spot market sales, effective June 20, 2001, through September 30, 2002. CPUC, 456 F.3d at 1041-43; San Diego Gas & Electric Co., 95 F.E.R.C. ¶ 61,418, at 62,545-48 (2001). Respecting prior sales into the markets, on July 25, 2001, FERC set a Mitigated Market Clearing Price ("MMCP") and ordered sellers to refund the difference between the prices paid for sales occurring between October 2, 2000, and June 19, 2001, and what the prices would have been had the June 19 MMCP been in effect, with some modifications. CPUC, 456 F.3d at 1042, 1054; San Diego Gas & Electric Co., 96 F.E.R.C. ¶ 61,120, at 61,502, 61,516 (2001). This time frame is commonly referred to as the "Refund Period." FERC ordered the ISO and the PX to commence calculating the refund amounts due under MMCP from each seller in the exchanges and to rerun their settlement/billing process in accordance with the order. San Diego Gas & Electric Co., 96 F.E.R.C. at 61,516-17, 61,520; PG&E Complaint ¶ 56, SDG&E Complaint ¶ 50. That process has continued since then, with no final billing statements presented for payment. FERC's order included the unprecedented requirement that government-owned sellers, and not just investor-owned public utilities, pay refunds.

The refunds are limited to amounts paid for electricity sold after an "effective refund date," which is established by FERC pursuant to requirements contained in section 206(b). 6

2

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2.

Appellate Reversal Of The Refund Order's Applicability To Government-Owned Sellers

Various governmental entities that sold electricity into the PX and ISO markets, including BPA, challenged FERC's inclusion of governmental entities within the scope of its July 25, 2001 refund order. In a decision dated September 6, 2005, the United States Court of Appeals for the Ninth Circuit ruled that FERC lacked the authority to order governmental entities to issue refunds. BPA, 422 F.3d at 914. The Court ruled that Congress had limited FERC's refund authority to public utilities, which again means investor-owned utilities, not government-owned entities. The court of appeals remanded the matter to FERC for actions consistent with its decision.3 Id. at 926. As explained in more detail below, the IOUs now seek these same refunds in this suit. B. Exclusions From FERC's July 25, 2001 Refund Order And Appellate Response 1. FERC's Exclusions

FERC's July 25, 2001 refund order did exclude certain items from the scope of its MMCP methodology that had been sought by claimants. First, FERC declined to order relief for
3

Remand proceedings before FERC are continuing. On October 19, 2007, FERC issued an order holding, among other things, that the Commission had not previously "revised the pricing formulations contained in the CAISO/PX tariffs for the period to which the MMCP applies." San Diego Gas & Electric Co., 121 FERC ¶ 61067, at ¶ 36 (2007). This conclusion directly controverted the central premise of plaintiffs' claims in this Court, which is that plaintiffs are entitled to a contractual remedy because FERC has rewritten the tariffs. FERC did not, however, stand by its holding on November 19, 2007, following plaintiffs' request for "clarification," FERC reversed course entirely, and held that the Commission had, in fact, revised the prices contained in the tariffs. San Diego Gas & Electric Co., 121 FERC ¶ 61188, at ¶ 13 (2007). FERC's revised order did not address the agencies' arguments concerning, for example, the filed rate doctrine or the plain language of the Federal Power Act. Accordingly, the agencies moved on December 19, 2007, for reconsideration of FERC's order. FERC has yet to rule upon our motion for reconsideration. 7

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sales into the ISO or PX that occurred prior to October 2, 2000. CPUC, 456 F.3d at 1042. This period is commonly referred to as the "Summer Period." Second, FERC excluded sales into the ISO and PX that were for periods in excess of 24 hours. CPUC, 456 F.3d at 1054. Finally, FERC excluded Exchange Sellers from the refund proceedings. CPUC, 456 F.3d at 1057-58. In an exchange, the ISO would enter into a transaction with a first seller, the "Exchange Seller," which would agree to provide the ISO with an agreed upon amount of power, in exchange for which it would receive power back from the ISO at a later time, plus some additional amount. Later, the ISO would purchase power on the spot market from a second seller, the "Spot Seller," and use that power to pay back the Exchange Seller. FERC's July 25 refund order applied to mitigate the price paid by the ISO to the Spot Seller, but FERC declined to take action upon the transaction with the Exchange Seller to mitigate the value of the exchange with that entity. Id. 2. Appellate Response To FERC's Exclusions

As part of a comprehensive review of FERC's actions, in CPUC, the United States Court of Appeals for the Ninth Circuit reversed FERC respecting the Summer Period, the 24-hour sales, and the Exchange Sellers. CPUC, 456 F.3d at 1046, 1054, 1057. Respecting the Summer Period, the court of appeals agreed with FERC that section 206 of the FPA did not authorize FERC to order refunds for transactions occurring during the Summer Period because it predated the earliest date for which refunds could be ordered under that statute, the effective refund date of October 2, 2000. Accordingly, FERC could not order public utilities to issue refunds in response to any complaint under section 206 that the rates generated by the ISO and CPX during the Summer Period might have been unjust or 8

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unreasonable, as FERC did for the Refund Period. CPUC, 456 F.3d at 1044. The court of appeals did observe, however, that another provision of the FPA, section 309, authorizes FERC to order refunds for tariff violations stemming from market manipulation by certain participants, with no time limits. CPUC, 456 F.3d at 1044, 1046. The court held that it was arbitrary and capricious for FERC to categorically decide not to consider this remedy. Without prejudicing how FERC should address the merits, or whether any remedy under section 309 should be imposed at all, the court ruled that FERC could not simply refuse to entertain the issue; it had to address it upon the merits. CPUC, 456 F.3d at 1058-59. Thus, if any refunds are ultimately to be ordered by FERC for the Summer Period, they will not be based upon a mere determination under FPA section 206 that the ISO or PX generated unreasonable prices, but likely upon a very different finding under FPA section 309 that the public utility being ordered to issue the refund has engaged in a tariff violation resulting from market manipulation. Respecting transactions exceeding 24 hours, the court of appeals essentially ruled that FERC had not provided a reasonable explanation for limiting its refund order to transactions not exceeding that length of time. CPUC, 456 F.3d at 1057. Regarding Exchange Sellers, the court rejected FERC's suggestion that it was impossible to place a monetary value upon the exchanges to assess whether they were unreasonable. FERC had not performed an adequate analysis to support that conclusion. CPUC, 456 F.3d at 1059. No mandate has been issued yet in CPUC, and accordingly FERC has yet to commence any remand proceedings respecting the Summer Period, the transactions exceeding 24 hours, or the Exchange Sellers. There is no current schedule for FERC to do so either. As also explained in more detail below, the IOUs now seek declaratory rulings in this case that, should FERC 9

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ultimately determine that the amounts charged by BPA and WAPA for these types of transactions are unlawful, then the Government is contractually obligated to pay the refunds to them. III. Current Claims In This Court A. The IOUs' Claims 1. Damages Claims

The IOUs have now brought these consolidated contract claims in this Court, attempting to recover here from BPA and WAPA what the Ninth Circuit denied them in BPA v. FERC. The IOUs claim to be in privity of contract with BPA and WAPA as the purchasers from them of power they sold into the ISO and PX during the Refund Period. PG&E Complaint ¶ 42; SDG&E Complaint ¶ 36. The IOUs claim that the PX and ISO tariffs provide the contractual terms of sale. PG&E Complaint ¶ 18, SDG&E Complaint ¶ 12. Notwithstanding that FERC entirely lacks authority to order BPA and WAPA to issue refunds, the IOUs claim that FERC effectively required the agencies to do so anyway in its July 25, 2001 refund order by revising the tariffs and correcting the prices BPA and WAPA were entitled to receive, retroactively imposing new, lower rates upon these Refund Period power sales, reflecting FERC's MMCP price cap. Accordingly, the IOUs claim that BPA and WAPA have been contractually required by the retroactively amended tariffs to issue the same refunds to them that were ordered by FERC and nullified by the Ninth Circuit. They claim that BPA and WAPA have either breached that refund obligation or anticipatorily breached it. They seek damages for all amounts received by BPA and WAPA in excess of the revised prices. PG&E Complaint ¶¶ 55-56, 72-79; SDG&E Complaint ¶¶ 49-50; 64-71.

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2.

Declaratory Claims

The IOUs also seek the following declaratory rulings: 1) that BPA and WAPA owe the amounts sought for the Refund Period, PG&E Complaint ¶¶ 80-81, SDG&E Complaint ¶¶ 72-73, 78-84; 2) that at such time FERC rules that rates charged by BPA and WAPA for Refund Period exchange transactions, or transactions exceeding 24 hours, are unlawful, that the IOUs are entitled to recover the difference between what was charged and the lawful rates determined by FERC, PG&E Complaint ¶¶ 82-83, SDG&E Complaint ¶¶ 74-75; 3) that at such time FERC rules that rates charged by BPA and WAPA for Summer Period transactions are unlawful, that the IOUs are entitled to recover the difference between what was charged and the lawful rates determined by FERC, PG&E Complaint ¶¶ 84-85, SDG&E Complaint ¶¶ 76-77; 4) that, to the extent BPA and WAPA's failure to pay amounts due causes a shortfall in the IOUs' accounts, the United States is liable for any amount assessed against their accounts, and all other costs and expenses incurred as a result, PG&E Complaint ¶¶ 86-89, SDG&E Complaint ¶¶ 78-81; 5) alternatively, that the United States is contractually obligated to permit BPA and WAPA's accounts at the ISO and PX to be adjusted to reflect all pricing changes resulting from FERC's determinations, PG&E Complaint ¶¶ 90-92, SDG&E Complaint ¶¶ 82-84. B. The CEOB's Claim

The CEOB claims to be a creature of California statute that oversees the PX and ISO. PG&E Complaint ¶ 7. It quotes California Public Utility Code section 335 to declare that it must 11

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"`investigate any matter related to the wholesale market for electric power to ensure that the interests of California's citizens and consumers are served, protected, and represented in relation to the availability of electric transmission and generation and related costs, during periods of peak demand.'" PG&E Complaint ¶ 7. It claims to "join this action pursuant to its statutory authority to sue and to participate in all proceedings relevant to the purposes of the electricity restructuring provisions [in AB 1890], in order to protect the interests of the citizens of California in the subject litigation." Id. The CEOB does not claim to be in privity of contract with BPA and WAPA regarding their power sales into the ISO and PX, it does not claim that BPA and WAPA owe it anything, and it does not seek an order that they will owe it anything in the future. Accordingly, it does not claim to be entitled to any damages or other relief. ARGUMENT I. Standards For A Motion To Dismiss For Lack Of Jurisdiction

A challenge to the court's general power to adjudicate in specific areas of substantive law is properly raised by a 12(b)(1) motion. Palmer v. United States, 168 F.3d 1310, 1313 (Fed. Cir. 1999). In determining whether it has subject matter jurisdiction to entertain a plaintiff's complaint, the Court should presume all undisputed factual allegations to be true and construe all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236-37 (1974). If this Court's jurisdiction is challenged, a plaintiff cannot rely merely upon allegations in the complaint, but must instead bring forth relevant, competent proof to establish jurisdiction. See McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936). The plaintiff bears the burden of establishing the Court's jurisdiction by a preponderance of the evidence. Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988). 12

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II.

The Plaintiffs Lack Standing To Sue

The claims here should be dismissed for several reasons. The first is that plaintiffs lack standing. Standing is a jurisdictional issue. Castle v. United States, 301 F.3d 1328, 1337 (Fed. Cir. 2002); Arakaki v. United States, 71 Fed. Cl. 509, 521 (2006). These are contract claims purported to be brought pursuant to the Tucker Act, 28 U.S.C. § 1491, and the Contract Disputes Act ("CDA"), 41 U.S.C. § 609(a)(1). To possess standing to pursue a contract claim in this

Court under the Tucker Act, a plaintiff must be in privity of contract with the United States. S. Cal. Fed. Sav. & Loan Ass'n. v. United States, 422 F.3d 1319, 1328 (Fed. Cir. 2005); Arakaki, 71 Fed. Cl. at 521. Similarly, claims against the Government subject to the CDA may be brought by only a "contractor." 41 U.S.C. § 609. Under the CDA a "contractor" is a "party to a government contract other than the government." 41 U.S.C. § 601(4); Fireman's Fund Ins. Co. v. England, 313 F.3d 1344, 1351 (Fed. Cir. 2002). Additionally, multiple principals that have been bound to a contract by an agent lack standing to sue upon that contract individually. Here, the CEOB lacks standing because it does not claim to be in privity of contract. Further, the IOUs are not in privity of contract with the Government respecting PX transactions. Finally, even if the IOUs are in privity of contract respecting ISO transactions, they lack standing to sue as individuals concerning those transactions. A. The CEOB Lacks Standing To Be A Plaintiff In This Case Because It Does Not Even Claim To Be In Privity Of Contract With The Government

If a plaintiff fails to allege privity of contract, its complaint should be dismissed for a lack of subject matter jurisdiction. Trauma Serv. Group v. United States, 104 F.3d 1321, 1324 (Fed. Cir. 1997); Gould v. United States, 67 F.3d 925, 927 (Fed. Cir. 1995). Because the CEOB does

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not claim to be in privity with the Government respecting the contracts at issue, or to be a contractor within the definition of the CDA, it lacks standing to pursue these claims. Here, the CEOB does not claim to be in privity of contract with BPA and WAPA. The only parties claiming to be in privity of contract, and to be asserting entitlement to remedies upon those contracts, are the IOUs. The CEOB seeks no remedy for itself. It is simply attempting to participate as a plaintiff in some sort of status as an interested California regulatory agency. It claims standing to be a plaintiff here based merely upon the California legislative enactments creating it and dictating its functions. It quotes its mandate to "investigate" the wholesale electricity market to "ensure that the interests of California's citizens and consumers are served, protected and represented in relation to the availability of electric transmission . . . and related costs." PG&E Complaint ¶ 7 (quoting Cal. Pub. Util. Code § 335(c)). It then claims to join the suit based upon California's authorization that it may sue and be sued, and its separate authorization to "participate in proceedings" relevant to the purposes of California's electricity restructuring. Id.; see Cal. Pub. Util. Code § 341(c), (m). The fact that California has created a state entity to investigate the electricity market, clothed it with the power to sue and be sued, and to participate in "proceedings," does not, by itself, vest that entity with standing to participate as a plaintiff in proceedings against the Government in this Court, which is adjudicating the contract claims of the IOUs. California has no power to affect the jurisdiction of this Court. Only Congress may waive the sovereign immunity of the United States, Alaska v. United States, 32 Fed. Cl. 689, 697 (1995), and therefore determine the coextensive jurisdiction of this Court. As we have already 14

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demonstrated, the United States has only "consent[ed] to be sued . . . by those with whom it has privity of contract." Erickson Air Crane Co. v. United States, 731 F.2d 810, 813 (Fed. Cir. 1984). Because the CEOB does not claim to be in privity of contract with the United States respecting the contracts at issue in this case, it should be dismissed as a plaintiff from this case. B. The IOUs Also Lack Standing To Be Plaintiffs

As previously explained, the IOUs allege that FERC's July 25, 2001 refund order retroactively lowered the contractual rates dictated by the respective tariffs to be paid for power sold on the PX and ISO during the Refund Period, obligating governmental power sellers such as BPA and WAPA to refund the difference. The IOUs claim to be in privity of contract with BPA and WAPA respecting these Refund Period sales, as well as other PX and ISO transactions that they speculate will be the subject of future FERC orders, granting them standing to pursue these claims. PG&E Complaint ¶¶ 1, 30, 35; SDG&E Complaint ¶¶ 1, 24, 36. As we show below, the IOUs are not in privity of contract with BPA and WAPA regarding PX transactions, and even if they are in privity upon ISO transactions, they do not possess standing to sue on their own. Accordingly, all of their claims based upon PX and ISO transactions should be dismissed. As part of our discussion of this matter, we first address the law to be applied to the interpretation of the contracts at issue. 1. Federal Law Should Govern The Substantive Issues In This Case

To trade energy on the PX, BPA and WAPA executed standard "Participation Agreements" with the PX. Def. App. A14 (PX Tariff § 2.6.2(f)); Def. App. A1156. Among other things, those agreements provided that the PX tariff governed "all aspects of trading in and administration of the PX Market, including (without limitation), . . . bidding, [and] Settlement." 15

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Def. App. A1156. The agencies also promised the PX that their "status as a PX Participant [was] at all times subject to the PX Tariff," and that "[t]he PX Tariff [was] incorporated" into the Participation Agreement and "made a part" of it. Def. App. A1157-58. To sell energy to the ISO, or to trade with it, BPA and WAPA also executed written "Scheduling Coordinator Agreements" with the ISO. Def. App. A251 (ISO Tariff § 2.2.3.1(f)); Def. App. A1156, A1226. Like their agreements with the PX, the agencies promised the ISO that they would "schedule Energy and Ancillary Services on to the ISO Controlled Grid under the terms and conditions set forth in the ISO Tariff." Id. They also agreed that the ISO tariff was incorporated into the Scheduling Coordinator Agreement, and that the tariff governed in the event of a conflict. Def. App. A1153, A1229. The IOUs were not parties to any of these agreements either. We do not dispute that, in light of their incorporation into the Participation Agreements and Scheduling Coordinator Agreements executed by BPA and WAPA, the PX and ISO tariffs provide the contractual terms applicable to BPA and WAPA's electricity sales to the PX and ISO. However, prior to considering the meaning of those terms, the Court must first determine what jurisdiction's law governs its analysis. It is well established that contracts to which the Government is a party are governed by the federal common law of contracts. Padbloc Co., Inc. v. United States, 161 Ct. Cl. 369, 377 (1963); Gutz v. United States, 45 Fed. Cl. 291, 296 (1999); Thomas Creek Lumber Co. v. United States, 36 Fed. Cl. 220, 247 (1996); Al-Kurdi v. United States, 25 Cl. Ct. 599, 601 (1992); Kuehne & Nagel, Inc. v. United States, 17 Cl. Ct. 11, 18 n. 5 (1989). Federal law controls because the Government contracts "pursuant to authority conferred by federal statute and, 16

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ultimately, by the Constitution." United States v. Seckinger, 397 U.S. 203, 209 (1970). The obligations and rights of the United States under its contracts involve "`uniquely federal interests,'" dictating that they be "governed exclusively by federal law." Boyle v. United Technologies Corp., 487 U.S. 500, 504 (1988); see also United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979) (holding that "federal law governs questions involving the rights of the United States arising under nationwide federal programs"); Clearfield Trust Co. v. United States, 318 U.S. 363, 366 (1943) (declaring that state law is inapplicable to Government acts authorized by the Constitution or statutes of the United States). To put it simply, "[i]n determining the meaning and effect of contracts to which the United States is a party, the governing rules of law must be finally declared by the [Supreme Court of the United States]," not by the courts of another jurisdiction. S.R.A., Inc. v. Minnesota, 327 U.S. 558, 564 (1946). These principles require the application of federal law by the Court to the interpretation of the tariffs in this case, just as in all other cases involving a contract to which the Government is a party. To the extent that plaintiffs may suggest that the language of the tariffs dictates otherwise, that suggestion should be rejected. Clearly, nothing in the PX tariff indicates otherwise, given that it plainly states that "if a party is a federal entity that party shall be governed by applicable federal law." Def. App. A39 (PX Tariff § 19.6). Given the consistency between the applicable law and the language of the PX tariff, there can be no dispute that all of the issues in this case relating to the PX tariff are governed by federal law. Unfortunately, the ISO tariff is not so simply drafted. Section 20.7 states the following: This ISO Tariff shall be governed by and construed in accordance with the laws of the State of California, except its conflict of laws provisions. Market Participants irrevocably consent that any legal 17

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action or proceeding arising under or relating to this ISO Tariff . . . shall be brought in any court of the State of California or any federal court of the United States of America located in the State of California. Def. App. A561-62 (ISO Tariff § 20.7). Section 20.8(a) follows with this: Nothing in the Tariff shall compel any person or federal entity to: (1) violate federal statutes or regulations; or (2) in the case of a federal agency, to exceed its statutory authority, as defined by any applicable federal statutes, regulations, or orders lawfully promulgated thereunder. If any provision of this Tariff is inconsistent with any obligation imposed on any person or federal entity by federal law or regulation to that extent, it shall be inapplicable to that person or federal entity. No person or federal entity shall incur any liability by failing to comply with a Tariff provision that is inapplicable to it by reason of being inconsistent with any federal statutes, regulations, or orders lawfully promulgated thereunder; provided, however, that such person or federal entity shall use its best efforts to comply with the Tariff to the extent that applicable federal laws, regulations, and orders lawfully promulgated thereunder permit it to do so. Def. App. A562 (ISO Tariff § 20.8 (a)). Thus, the ISO tariff states that it is to be construed in accordance with California laws. However, it also states that, to the extent any provision of the tariff is inconsistent with the federal law applicable to any federal entity, "it shall be inapplicable to that . . . federal entity." Here, the ISO tariff provision purporting to apply California law is inconsistent with the cited binding federal precedent requiring federal law to govern the Government's contracts. Therefore, under the tariff's terms, the California law provision is inapplicable. Additionally, given that the requirement to apply federal law flows from the fact that "the contract was entered into pursuant to authority conferred by federal statute and, ultimately, by the Constitution," Seckinger, 397 U.S. at 209, agency contracting personnel could not have disregarded that

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requirement on their own to bind the Government to the law of an entirely different sovereign without express statutory authorization to do so. We are unaware of any authorization to the agencies to depart from federal law. Accordingly, the Court should apply federal law to all of the issues in this case relating to the ISO tariff. Even if the Court follows the California law provision contained in the ISO tariff, as plaintiffs have conceded and advocated themselves in other litigation, this provision applies only to narrow issues going to the proper interpretation of the ISO tariff's language at the margins, not to any substantive issues of law, which remain federal. The plaintiffs readily admit that the primary issues that will be presented here, such as whether those bound to the tariff's terms have actionable contractual responsibilities to one another or only to the ISO, remain questions of federal law. Prior to filing suit here, all of the plaintiffs filed a similar lawsuit in the United States District Court for the Eastern District of California against local municipalities that, like BPA and WAPA, sold power into the ISO and PX. As they are doing here, the plaintiffs claimed that FERC's July 25, 2001 refund order contractually obligated these municipalities to pay refunds to the IOUs for Refund Period transactions on the PX and ISO. Def. App. A1366. (Complaint at 2, Pac. Gas and Elec. Co. et al. v. Ariz. Elec. Power Coop., Inc. et al., Nos. 2:06-CV-0559-MCEKJM, 2:06-CV-0592-MCE-KJM (E.D. Cal. March 16, 2006)). In responding to the municipalities' ultimately successful motion to dismiss the suit for lack of jurisdiction, the plaintiffs carefully explained the limitations of the California law provision contained in the ISO tariff. Plaintiffs began by correctly noting that FERC-approved tariffs are "contracts . . . not only regulated by, and subject to the approval of, a federal agency 19

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under standards prescribed by federal law, but each Tariff literally `is federal law' with the same legal effect as a formally promulgated federal regulation." Def. App. A1401 (California Parties' Consolidated Memorandum of Points and Authorities in Opposition to Defendants' Preliminary Motions at 51, Pac. Gas and Elec.Co. et al. v. Ariz. Elec. Power Coop., Inc. et al., Nos. 2:06-CV0559-MCE-KJM, 2:06-CV-0592-MCE-KJM (E.D. Cal. Aug. 4, 2006) (emphasis in original)). Subsequently, they quoted Bernstein Bros. Pipe & Machinery Co. v. Denver & R.G.W.R Co., where it stated "[e]very question of the construction of an interstate tariff is a question of Federal law." 193 F.2d 441, 444 (10th Cir. 1951). Def. App. 1402. Plaintiffs proceeded to describe the substantive questions presented, which are among those presented here, by stating: The most cursory review of the substantive disputes that have already surfaced reveals numerous disagreements about what these Tariffs these federal laws mean. The parties disagree about such basic interpretational questions as: · Whether the language of the Tariffs requires all participants in the market to refund their overcharges when prices are corrected. Whether the language of the Tariffs creates obligations that run from one participant in the market to another or only obligations that run to the ISO or the PX. Whether the language of the Tariffs exhibits an intention to allow Creditors (as that term is defined in the Tariffs) to sue Debtors (as also defined in the Tariffs).

·

·

These questions of Tariff interpretation are salient not just to the parties in the dispute, but to any participant in the ISO or PX markets, including those that are within FERC's jurisdiction to compel payment of refunds. And these questions are, therefore, of 20

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considerable importance to FERC itself. Id. at 53. Plaintiffs correctly advanced the following conclusion about the applicability of the California law provision, if it is to be applied at all: To be sure, the Tariffs, themselves, provide that ancillary rules of contract interpretation are "governed by and construed in accordance with the laws of the State of California." ISO Tariff § 20.7: . . . . FERC itself affirmatively adopted that provision when it approved the rest of the Tariffs. And it means that when any tribunal interprets these Tariffs whether it be this Court, the Court of Appeals, or FERC the tribunal follows interpretive principles prescribed by California law. Contrary to Defendants' assertion, . . . this does not turn the key substantive federal questions into questions of state law. California law does not answer any of the substantive questions enumerated above, or any other substantive issue that will be before this Court; only the language of the federal law at issue the Tariffs can answer those questions. California law serves only the limited role of prescribing a body of interpretive rules such as how to resolve ambiguities, when extrinsic evidence is permissible, and so forth. The questions of Tariff interpretation before this Court do not lose their essentially federal nature just because they import the California rulebook governing interpretive disputes at the margins . . . . Id. at 52-53 (record citations omitted). Accordingly, plaintiffs concede that, if the California law provision is to be applied at all, it should be narrowly, and only to resolve questions of interpretation "at the margins." Federal, and not California, law continues to govern the primary issues presented, including the nature of the obligations imposed by the ISO tariff and to whom they are owed, as well as who possesses standing to sue upon its terms. If the California law provision contained in the ISO tariff is to be applied at all, we agree with the plaintiffs that it should be so limited.

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2.

The IOUs Lack Privity Of Contract With BPA And WAPA Respecting Their Transactions On The PX a. The PX Tariff Mechanism Does Not Establish Privity Of Contract Between The IOUs And The Agencies

As explained in its tariff, the PX is a non-profit corporation that provided an energy auction to suppliers and purchasers of electricity in California to meet the loads of market customers at market prices.4 Def. App. A7 (PX Tariff Introductory Statement). A review of the PX procedures and applicable precedent demonstrates that it performed this service by contracting with sellers to obtain electricity from them, and then with buyers to provide it to them. The PX did not form contracts for the sale of electricity directly between buyers and sellers. Accordingly, although the IOUs are essentially correct that the PX provided "the mechanism through which market participants bought and sold electric power," their suggestion that "[f]inancial obligations created by market transactions . . . were owed by one market participant to another," is incorrect. PG&E Complaint ¶ 35; SDG&E Complaint ¶ 29. Financial obligations were owed only by or to the PX. As previously noted, any party participating as either a buyer or seller in a PX transaction entered into a "Participation Agreement" solely with the PX. Both BPA and the relevant WAPA entities doing business with the PX executed such agreements. Def. App. A1156