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California’s energy crisis, with its skyrocketing utility bills, rolling blackouts and bankruptcies — not to mention a little mess called Enron — seemed like an easy plaintiffs’ case. Indeed, California’s top plaintiff firms and state Attorney General Bill Lockyer filed lawsuits and refund requests against dozens of energy companies alleging they took advantage of the newly deregulated market to the detriment of ratepayers. So far, Lockyer’s energy task force has negotiated a handful of settlements that add up to about $2.6 billion. And federal regulators have ordered at least $3 billion more in refunds. Lockyer and the plaintiff lawyers want billions more. But their cases are running into a wall at the Ninth Circuit U.S. Court of Appeals. In recent months, the circuit has decided a series of energy cases that, with one notable exception, have gone against ratepayers. Nearly all the decisions lean on two linked legal concepts: the filed rate doctrine and federal pre-emption. “We understood from the beginning that there were potential impediments to getting anywhere,” said acting Senior Assistant Attorney General Kenneth Alex, who leads Lockyer’s energy task force. Now, the fight appears headed to the U.S. Supreme Court. The first request for certiorari in a California power case was recently filed, and more could be on the way. “There is quite a lot of precedent for the proposition that claims are not pre-empted, and we are very disappointed that the Ninth Circuit decided otherwise,” said Barry Himmelstein, a Lieff Cabraser Heimann & Bernstein partner. “We intend to pursue the matter all the way to the Supreme Court if and when we get such an opportunity.” Himmelstein isn’t quite ready yet. His case, a class action originally filed in state court in San Diego and now stuck in a procedural quagmire, is pending at the circuit. Instead, another case could set the bar for recoveries in connection with the power crisis. Public Utility District No. 1 of Snohomish v. Dynegy Power, 04 C.D.O.S. 8358, was filed by a Washington state utility that bought power on California’s volatile market. The case seeks antitrust damages from some of the biggest names in the power business, including Sempra Energy Trading Corp., Mirant Corp. and PG&E Energy Trading Holding Corp. Snohomish alleges that generators and traders manipulated California’s power market and restricted supplies to cause artificially high prices. The plaintiff wants treble damages and injunctive relief. But on Sept. 10, a unanimous Ninth Circuit panel led by Chief Judge Mary Schroeder ruled that Snohomish’s claims were precluded by the filed rate doctrine and other federal laws governing the utilities market. The filed rate doctrine was created by the U.S. Supreme Court in the 1920s and was meant to stop consumers from challenging rates that were already filed with a regulatory agency. The idea is that you can’t sue someone who’s already had the rates they charge consumers vetted and approved by the government. In the case of the power companies, that would be the Federal Energy Regulatory Commission. In Snohomish and a handful of other cases, Ninth Circuit judges have said that because FERC has jurisdiction over the power companies, there isn’t much courts can do. That means plaintiffs will have to count on getting money out of FERC, which is governed by a five-member commission appointed by the president. Himmelstein said the prospect “continues to look like an uphill battle.” The plaintiffs in Snohomish have now filed a cert petition with the U.S. Supreme Court. In it, lawyer Steve Berman of Seattle’s Hagens Berman warns that allowing the Ninth Circuit decision to stand will spell the end of plaintiff recovery in the utilities suits. “The Ninth Circuit’s pre-emption finding will impact hundreds of cases resulting from the West Coast energy crisis and many more in the years to come as deregulation continues or even accelerates,” the petition reads. According to the petition, the doctrine should not apply because rates were not correctly filed and, therefore, FERC has not properly exercised its duty to regulate the power companies. But Joel Kleinman, a partner in the Washington, D.C., office of Dickstein Shapiro Morin & Oshinsky who represents Duke Energy Trading and Marketing in other utilities litigation, said the Ninth Circuit’s decision should be allowed to stand. “FERC’s job is to balance a number of factors, not just the lowest rate, but other factors needed to encourage investment,” Kleinman said. “Those are public policy decisions, not jury trial decisions.” Himmelstein said defendants are already using the Ninth Circuit’s holding in Snohomish to ask courts to dismiss claims. The Ninth Circuit itself has relied upon Snohomish to decide other cases, including a matter filed by the people of California against Reliant Energy Inc. and Mirant. But there is a spark of hope for those hoping to recover money from power companies, according to attorneys on both sides of the suits. In the midst of the anti-plaintiff decisions, the Ninth Circuit also ruled that FERC had to reconsider refunds to California. On Sept. 9, a unanimous panel led by Judge Sidney Thomas decided that although FERC complied with federal law in the refund case, it abused “its administrative discretion by declining to order refunds for violations of its reporting requirements,” according to the opinion. Previously, FERC had only agreed to consider refunds for energy trading that occurred in a narrow window of time in the summer of 2000. “[ State of California v. FERC] says they have to think about it again,” said Alex of the state energy task force. The decision takes away some of FERC’s ability to dodge refunds by claiming the protection of the filed rate doctrine, Alex said. Although the ruling won’t directly help Himmelstein in his pending Ninth Circuit case — a class action that has bounced between state and federal court — he shared Alex’s elation because the decision “opens up the generators to claims for refunds pre-dating the October 2000 starting point that FERC previously established,” he said. “[It] is the one bright spot in the recent spate of Ninth Circuit rulings,” Himmelstein said. Energy companies have asked the Ninth Circuit to reconsider its ruling, Alex said. Even Kleinman, the energy company lawyer, pointed to State of California v. FERC, 04 C.D.O.S. 8316, to bolster his argument that plaintiffs need to work within federal regulatory law. “I do think that the unifying principle of all the Ninth Circuit decisions is that FERC has exclusive jurisdiction in this area to decide remedies,” Kleinman said. There is a group of other consolidated FERC refund cases still pending at the circuit. FERC had also used the filed rate doctrine to dodge the refunds. But now, because of State of California v. FERC, Alex believes that could change. “At this juncture, we’re feeling like things have started to turn around,” Alex said.

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