Opinion
CV 01-1083-RSWL (SHx)
May 2, 2001
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
I. INTRODUCTION
Pacific Gas Electric Co. ("Plaintiff") brought the instant action against Loretta M. Lynch, Henry M. Duque, Richard A. Bilas, Carl W. Wood, and Geoffrey F. Brown ("Defendants") in their official capacities as Commissioners of the California Public Utilities Commission ("CPUC"), alleging violations of federal statutory and constitutional law in Defendants' interpretation and implementation of California Assembly Bill 1890, the state law passed in 1996 which deregulated parts of California's electricity market. Before the Court is Defendants' Motion to Dismiss Plaintiff's First Amended Complaint. Intervenor the City and County of San Francisco and Amicus Curiae the People of the State of California filed briefs in support of the Motion. Intervenor The Utility Reform Network also supports the Motion but did not file a separate brief.
The matter came on for hearing on March 19, 2001, at which time the Court heard oral argument and took the matter under submission. After reviewing all papers filed in support of and in opposition to the Motion and the arguments of counsel, the Court hereby GRANTS defendants' Motion to Dismiss.
II. BACKGROUND
In 1996, California enacted Assembly Bill ("AB") 1890, legislation that was designed to facilitate the development of "wholesale and retail competition in the electric generation market." Cal. Pub. Util. Code § 330(k). Historically, the CPUC had established retail rates based upon its determination of the reasonable costs of providing service, including the cost of generating electricity. This is referred to as "cost-based" rates. Under AB 1890, the cost of generating electricity would be determined by a competitive market ("market-based" rates). The transmission and distribution of electricity were to remain fully regulated.
The CPUC is an agency of the State of California and is authorized to regulate, inter alia, intrastate electricity rates charged to retail customers.
AB 1890 created two new market institutions: the Power Exchange ("PX") and the Independent System Operator ("ISO"). Prior to January 31, 2001, the PX ran auctions for wholesale electricity. See Cal. Pub. Util. Code § 355. The ISO operates the electric grid and purchases power as necessary to ensure the reliable operation of the transmission grid. Id. §§ 330(m), 345. If PGE's demand is not met by scheduled supplies into the PX, state law and CPUC and FERC orders require the ISO to procure additional electricity in real time on behalf of PGE. PGE must accept the ISO's allocated costs of acquiring such electricity.
Utilities such as PGE are required to purchase electricity on behalf of all retail customers that do not affirmatively elect to purchase power elsewhere. Prior to August 3, 2000, the CPUC required PGE to fulfill this duty by procuring electricity solely through the PX, plus additional power procured on PGE's behalf by the ISO. After August 3, 2000, however, PGE was authorized to enter into bilateral contracts outside the PX and ISO markets. Yet, the total amount of energy PGE could procure through any combination of bilateral contracts and the PX's Block-Forward Market remained limited to PGE's "monthly net open position" — approximately 3000 megawatts.
AB 1890 temporarily froze the utilities' retail rates at the levels in effect on June 10, 1996, subject to an additional 10% rate reduction for residential and small commercial customers. The purpose of the rate freeze was to contribute to the utilities' recovery of their "stranded costs," i.e., their historic investments in generation plants (such as nuclear power plants), pre-existing contracts to purchase power, and other generation-related costs that might become unrecoverable as a result of the introduction of competition into generation markets. Because the utilities' ongoing operating costs were expected to decline, the difference between such costs and the frozen rates was intended to contribute to the utilities' recovery of their stranded costs. The rate freeze is to remain in effect until March 31, 2002, or until the utility has fully recovered enumerated "stranded" generation costs, whichever is earlier. The CPUC has not yet declared PGE's rate freeze to have ended.
PGE alleges that under AB 1890 and the CPUC's existing accounting rules, PGE's rate freeze ended no later than August 2000. Plaintiff further alleges that the CPUC's refusal to terminate the rate freeze and to take any action on PGE's proposed post-rate freeze tariffs is all in an effort to willfully avoid the rate increase required by federal preemption and takings principles.
1. The CPUC Decisions Interpreting AB 1890
The CPUC has rendered a number of decisions implementing AB 1890. Among other things, the CPUC required the utilities to establish a number of regulatory tracking accounts to record various categories of costs. The Transition Revenue Account ("TPA") is one such account. It records all of PGE's retail revenues, and deducts all of PGE's authorized operating costs other than stranded costs, that is, charges imposed by the PX and ISO, transmission rates authorized by the Federal Energy Regulatory Commission ("FERC"), and distribution and other rates authorized by the CPUC. If those charges and rates exceed PGE's retail revenues for a given month, PGE records an undercollected balance in its TRA.
The CPUC directed the utilities to file proposals for the establishment of retail rates after the end of the rate freeze period. PGE made a proposal that would allow post-freeze rates to be set to recover the operating costs, including PGE's interstate transmission and wholesale power procurement costs, that had been incurred but not yet recovered from ratepayers by the end of the rate freeze. Specifically, PGE proposed to "carry over" any undercollected balance in its TRA remaining at the end of the rate freeze period for recovery in post-freeze retail rates.
The CPUC rejected this aspect of PGE's application on October 21, 1999, in Decision No. 99-10-057. The CPUC ruled that AB 1890 prohibited carrying over any costs incurred during the rate freeze period for recovery after the end of the freeze. The CPUC did not distinguish between energy procurement and transmission costs that PGE incurs pursuant to FERC-approved tariffs and the stranded costs that are recorded in a separate account. Under the CPUC's interpretation, neither the former nor the latter can be recovered after the end of the rate freeze period. The CPUC subsequently denied PGE's application for rehearing of this aspect of its decision on March 16, 2000, in Decision No. 00-03-058.
Since the CPUC rendered these decisions in late 1999 and early 2000 (hereinafter referred to as the Post-Transition Electric Ratemaking ("PTER") Decisions), wholesale power costs have unexpectedly and inexplicably exploded. As a result, PGE was forced to procure wholesale power at astronomical prices but resell the power at frozen rates far below the cost of procurement. PGE alleges that as of December 31, 2000, it had an undercollection deficit of $6.6 billion; that is, PGE's operating costs of wholesale electricity purchases, interstate transmission, distribution, and other rates and charges authorized by the CPUC exceeded its retail revenues by 6.6 billion.
The CPUC decisions foreclosed any possibility of PGE recovering this difference in post-freeze retail rates. Thus, PGE has amassed several billions of dollars of debt. In interim orders since the PTER decisions, the CPUC has continued to refuse to permit PGE to pass through wholesale procurement costs in current retail rates. For example, Plaintiff alleges that in Decision No. 01-01-018, issued on January 4, 2001, the temporary rate increase the CPUC ordered would only be sufficient to purchase electricity for less than a week at market prices. Plaintiff alleges that it filed a timely application for rehearing of this decision, but the CPUC has not yet acted, and "[g]iven defendants' course of conduct over the past few months, PGE is informed and believes that waiting for the CPUC to act would be futile, in that there is no reasonable prospect that the CPUC will alter its course and award PGE the relief it has requested." Complaint. ¶ 39.
Plaintiff also alleges that another interim order of the CPUC has the effect of trapping additional wholesale costs at the utility. On January 19, 2001, the State of California enacted legislation granting to the California Department of Water Resources ("CDWR") interim authority to spend up to $400 million to purchase wholesale electricity on behalf of PGE customers. The CDWR also conducted a power auction in late January and is involved in ongoing longer-term contract negotiations.
On January 31, 2001, in Decision No. 01-01-061, the CPUC issued an interim order implementing cost and accounting procedures related to CDWR purchases of electricity. That order requires Plaintiff to collect monies from ratepayers in trust for CDWR, and then remit to CDWR a certain percentage of the total amount collected from ratepayers under the current rate freeze. The CPUC also required Plaintiff to pay any shortfall between the amount it remits to the CDWR and the purchase price the CDWR paid on the wholesale market. The CPUC, however, has since modified this order in a final decision, eliminating the requirement that Plaintiff pay for any such shortfall. See Decl. of D. Long ¶ 22, Ex. O (Decision No. 01-02-077).
2. Federal Regulation of the Wholesale Electric Power Market
Pursuant to section 201 of the Federal Power Act, 16 U.S.C. § 824, FERC has exclusive jurisdiction to regulate the sale of electric energy at wholesale in interstate commerce. See 16 U.S.C. § 824. The Federal Power Act requires all entities engaging in wholesale power sales to file schedules — also referred to as "tariffs" — showing all rates and charges for such sales. Because the power transactions conducted by the PX and the ISO are sales for resale (wholesale sales), FERC has exclusive jurisdiction over the rates, terms, and conditions under which such sales take place, which must be set forth in tariffs filed with FERC.
AB 1890 recognizes FERC's jurisdiction and directs both the PX and the ISO to seek FERC approval for their creation and operation. See Cal. Pub. Util. Code §§ 346, 360, 365(a). The CPUC has acknowledged that the new regulatory framework has afforded FERC exclusive regulatory authority in this area:
The Federal Power Act confers exclusive jurisdiction over rates, terms, and conditions for resale (wholesale sales) on the FERC. Retail sales, even if the power originates out-of-state, are subject to exclusive state jurisdiction. Because the power bid into the PX may be sold for resale, pricing mechanisms, including bidding protocols, will be subject to FERC's oversight.
CPUC Decision No. 95-12-063, as modified by Decision No. 96-01-009.
FERC also establishes the transmission rates that PGE may charge in the restructured marketplace. See 16 U.S.C. § 824; see also CPUC Decision No. 97-08-056 (indicating CPUC's deference to FERC's authority over transmission rates). Pursuant to FERC's exclusive authority, FERC may determine whether rates charged on the wholesale market are unjust, unreasonable, or unduly discriminatory.
a. California's Power Exchange
The PX operates pursuant to tariffs filed with and approved by FERC. The PX conducts wholesale auctions for electricity, matching bids by suppliers of electricity with demand bids submitted by purchasers of electricity. The PX has developed, and FERC has approved, detailed auction processes, bidding protocols, and related rules that buyers and sellers of energy must follow when participating in the auctions. The PX tariff establishes, for example, a "Day-Ahead Market" into which buyers and sellers offer bids for energy to be used during designated hours on the next day. The tariff also contains a detailed set of rules through which the PX, based on the bids received, establishes the "market clearing price" that successful bidders must pay for energy for each hour of each day.
b. California's Independent System Operator
FERC has also approved tariffs filed by the ISO. The ISO's tariffs set forth the rates and terms under which it provides interstate transmission services. The ISO is also authorized to purchase electricity or reduce loads to balance supply and demand in real time. If insufficient supplies of electricity are scheduled through the PX, the ISO procures additional power on behalf of PGE to meet its retail customers' immediate requirements for electricity. The ISO also procures reserve generation capacity that can be called upon when needed in order to maintain proper transmission system stability and reliability and to assure adequate supply of power to customers. If the utilities' demand for electricity is not satisfied by supplies that have been scheduled by the PX, the ISO is authorized by state law and CPUC and FERC orders to procure additional electricity in real time in order to maintain the reliability of the transmission grid.
Utilities such as PGE are ultimately responsible for paying for such "imbalance energy" at rates that are established through the cost and pricing provisions set forth in the ISO's tariff. The ISO bills the PX for these imbalance energy charges and the PX passes the charge on to PGE.
3. Plaintiff's Claims
Plaintiff alleges ten claims for relief: The first three are for preemption, but are pleaded as separate claims according to different time periods. The fourth claim is also for preemption, but relates to CDWR purchases to the extent any such purchases are billed to PGE. Plaintiff also alleges claims for violations of the Takings, Due Process, Commerce, and Equal Protection Clauses. Plaintiff's final claim is for declaratory relief.
The first preemption claim relates to interstate transmission and wholesale procurement costs incurred prior to August 3, 2000; the second relates to costs incurred from August 3, 2000, to December 31, 2000; and the third relates to costs incurred after December 31, 2000.
III. DISCUSSION A. Judicial Notice 1. Legal Standard
Pursuant to Federal Rule of Evidence 201(a), the Court may take judicial notice of adjudicative facts only. "[A]djudicative facts are those to which the law is applied in the process of adjudication." Advisory Notes to Fed.R.Evid. 201 (quoting Kenneth Davis, 2 Administrative Law Treatise at 353). "A judicially noticed fact must be one not subject to reasonable dispute. . . ." Fed.R.Evid. 201(b). The fact to be noticed, however, must be relevant. See 21 Wright Miller, § 5104.
"A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b). A court must take judicial notice if a party requests it and supplies the court with the requisite information. Fed.R.Evid. 201(d).
The Court may take judicial notice of pleadings, orders and statutes from other jurisdictions if the documents are public records and capable of accurate and ready confirmation by sources that cannot reasonably be questioned. See Papai v. Harbor Tug and Barge Co., 67 F.3d 203, 207, n. 5 (9th Cir. 1995) (upholding judicial notice of orders and decisions by other courts), rev'd on other grounds, 520 U.S. 1055 (1996); United States ex rel. Robinson Rancheria v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (holding court may take judicial notice of "proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue"); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (holding courts may take judicial notice of matters of public record outside the pleadings).
2. Defendants' Request for Judicial Notice
Defendants request that the Court take judicial notice of several items: (1) PGE's Application for Rehearing of Decision 99-10-057 of the CPUC; (2) PGE's petition for writ of review from the California Court of Appeal requesting review of the CPUC's decision denying PGE's Application for Rehearing; (3) the California Court of Appeal's denial of PGE's petition for writ of review; (4) copy of PGE's petition for review before the California Supreme Court of the CPUC's decision denying PGE's Application for Rehearing; (5) PGE's reply brief before the California Supreme Court (dated October 20, 2000); (6) the California Supreme Court's denial of PGE's petition for review; and (7) this Court's February 15, 2001, Order Denying Edison's Motion for Preliminary Injunction. Defendants have provided these documents to the Court, and they are public records that are related to the instant litigation. The Court therefore GRANTS Defendants' Request for Judicial Notice.
3. Plaintiff's Request for Judicial Notice
PGE requests judicial notice of two items: (1) a report submitted by the CPUC and the California Electricity Oversight Board (a state agency created by Cal. Pub. Util. Code section 335) to Governor Gray Davis on August 2, 2000; and (2) a decision issued by FERC. Because both are matters of public record, the Court hereby GRANTS Plaintiff's request for judicial notice.
4. People of the State of California's Request for Judicial Notice Notice
The People of the State of California request judicial notice of two items: (1) Governor Gray Davis's January 17, 2001, Proclamation of a State of Emergency, and (2) Administrative Law Judge's Ruling Setting a Schedule for Developing an Interim California Procurement Adjustment and Soliciting Information on Baseline Usage. As a matter of public record containing information relevant to this litigation, the Court hereby GRANTS the People's request for judicial notice of these items.
B. Motion to Dismiss Pursuant to Rules 12(b)(1) 12(b)(6)
Defendants argue that Plaintiff's claims should be dismissed pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that (1) Plaintiff is barred by the doctrine of res judicata from bringing this action; (2) this Court lacks subject matter jurisdiction under Article III of the United States Constitution because Plaintiff's claims are not ripe for adjudication; (3) this Court should abstain under the primary jurisdiction and the Burford doctrines; (4) Plaintiff failed to exhaust its administrative remedies with respect to its preemption claims; (5) the Johnson Act, 28 U.S.C. § 1342, divests this Court of jurisdiction over Plaintiff's claims; and (6) Defendants are immune from suit under the Eleventh Amendment to the United States Constitution.
Intervenor City and County of San Francisco joins in the Motion to Dismiss and separately argues that Plaintiff's action cannot meet the threshold "case or controversy" requirement of Article III of the United States Constitution because its claims are not yet ripe. It also urges this Court to abstain under both the Burford and Pullman doctrines. Amicus Curiae the People of the State of California argues that Plaintiff's action is barred by the Eleventh Amendment.
1. Res Judicata
Res judicata, or claim preclusion, bars courts from hearing claims that should have been raised and resolved in earlier litigation between the same parties. See Communications Telesys. Int'l v. Cal. Pub. Util. Comm'n, 196 F.3d 1011, 1015-16 (9th Cir. 1999). Generally, a claim is barred under this doctrine if the earlier litigation (1) concerned the same claim as the current action, (2) reached final judgment on the merits, and (3) involved the same parties. Id. at 1017.
Only proceedings that afford a party a "full and fair opportunity to litigate the claim" qualify for preclusive effect. A state administrative procedure provides a "full and fair opportunity" to litigate only if it includes some form of judicial review. Id. at 1018 (citing Wehrli v. County of Orange, 175 F.3d 692, 693 (9th Cir. 1999)). Under California law, the California Supreme Court's summary denial of a petition for review is a final decision on the merits with res judicata effect. Id. (citing Consumers Lobby Against Monopolies v. Cal. Pub. Util. Comm'n, 25 Cal.3d 891, 901 (1979)). This is because the California Supreme Court has no discretion to refuse to consider petitions for review of CPUC decisions. Id.
Defendants argue that the gist of PGE's FAC is that the CPUC has allegedly prevented PGE from recovering all of its costs in providing electric service to its customers. According to Defendants, this is also the gist of PGE's unsuccessful petition for writ of review in the California Court of Appeal and the California Supreme Court. By the time PGE filed its petition for review with the California Supreme Court in October 2000, PGE was alleging that it already had an undercollection of more than $2.2 billion due to the difference between the frozen retail rates and the costs of providing electric service. Indeed, PGE sought review of the CPUC's final PTR decision (No. 99-10-057) that both PGE and Southern California Edison challenge in their respective cases now before this Court.
PGE argues first that it made an effective reservation of federal issues in the California Supreme Court, and second, that the federal issues now presented to this Court were not presented to the state courts.
Under England v. Louisiana State Board of Medical Examiners, 375 U.S. 411 (1964), the Supreme Court held that a party who presents federal issues to a state court and receives an adjudication of those issues is precluded from raising them a second time in federal court. Id. at 419. When the litigant explicitly reserves his or her right to return to federal court to pursue federal claims, that right will be preserved. Id. at 421-22. The Supreme Court stated that to make an effective reservation of federal issues, the party must "inform" the state court of its intent to reserve federal issues. The Court, however, did not discuss further the elements of an effective reservation.
The Ninth Circuit subsequently reached this issue in Lurie v. State of California, 633 F.2d 786 (9th Cir. 1980). Plaintiffs in that case asserted that they reserved their federal issues in a footnote appearing on page 149 of their motion for a peremptory writ of mandate filed in the state trial court. A shorter paragraph to the same effect appeared within a footnote to the brief plaintiffs submitted to the California Court of Appeal. The footnotes explained that the federal district court proceeding was pending and that the only issues submitted to the state courts involved state law. Id. at 787-88. The Ninth Circuit found this reservation to be ineffective:
To accept plaintiffs' argument that a reservation buried on the 149th page of a motion can preserve federal claims would undermine res judicata. A reservation serves the practical purpose of informing the court that certain issues are not before it. We refuse to turn it into a talisman which, when secreted as it was here, insulates adjudicated issues from the doctrine of res judicata. Fairness demands that, to be effective, a reservation be brought to the court's attention. The reservation in this case failed to meet this standard.
Id. at 788.
The Ninth Circuit has again confronted the issue of an England reservation in a footnote in a state court petition for a writ of review. In United Parcel Service, Inc. v. California Public Utilities Commission, 77 F.3d 1178 (9th Cir. 1996), United Parcel Service, Inc. ("UPS") brought an action against the CPUC challenging a CPUC decision that UPS contended violated its state and federal constitutional rights. After filing an unsuccessful request for rehearing with the CPUC, UPS filed a petition for writ of review in the California Supreme Court, making an England reservation in a footnote in its petition. On the same day, UPS filed an action in federal court. The district court dismissed UPS's action on res judicata grounds.
On appeal, the Ninth Circuit held that the district court erred and res judicata did not bar UPS's action. Rather, UPS made an effective England reservation in a footnote on the first page of the petition. The court distinguished UPS's action from that in Lurie:
One of the difficulties inherent in the England process is that a plaintiff walks a fine line between saying too little and saying too much. In Lurie v. State of California [citations omitted], this court held that a footnote reservation "buried on the 149th page of a motion" does not sufficiently inform a state court of the party's intent for England purposes. We hold that UPS's footnote reservation, made on the first page of a nine page motion, suffices for purposes of England reservation in this case.
In the case at bar, Plaintiff did not reserve its federal claims in its petition for writ of review to the California Court of Appeal. Instead, it reserved them in a footnote on page three of a twenty-two page petition to the California Supreme Court. Contrary to Defendants' argument, PGE did not litigate its federal claims in state court; it merely apprised the supreme court of them. While it is true that the same facts give rise to Plaintiff's state and federal claims, Plaintiff's England reservation was sufficient to preserve Plaintiff's federal claims for adjudication in a federal forum. Thus, res judicata does not bar Plaintiff from litigating its claims in this forum.
PGE stated, "Indeed, not only is pass-through of utility wholesale power procurement costs in retail ratemaking customary, it is mandated by federal law. PGE hereby advises this Court that it reserves its right to present its federal claims, including any and all claims arising under the Supremacy, Takings or Commerce Clauses of the United States Constitution, under the Federal Power Act, and under any other applicable federal authority, to a federal district court for adjudication, under the authority of England v. Louisiana State Bd. of Med. Examiners, 375 U.S. 411 (1964)." Defs' Request for Judicial Notice, Exh. E at 4 n. 6.
2. Preemption
Plaintiff asserts its claims for preemption under sections 1331 and 1343 of Title 28 and section 1983 of Title 42 of the United States Code.
Defendants argue that this Court lacks subject matter jurisdiction over Plaintiff's preemption claims because Plaintiff has failed to exhaust administrative remedies, as required in § 1983 actions. Defendants further argue that Plaintiff's preemption claim cannot be brought pursuant to 42 U.S.C. § 1983 because the claim only asserts a violation of the Federal Power Act, which does not give Plaintiff an enforceable private right.
b. Supremacy Clause as Basis for § 1983 Claim
The preemption of state law under the Supremacy Clause, at least if based on federal occupation of the field or conflict with federal goals, will not support a § 1983 action. See White Mountain Apache Tribe v. Williams, 810 F.2d 844 (9th Cir. 1987).
The Supreme Court has delineated three different types of preemption: (1) express preemption, where Congress explicitly defines the extent to which its enactments preempt state law; (2) field preemption, where state law attempts to regulate conduct in a field that Congress intended the federal law exclusively to occupy; and (3) conflict preemption, where it is impossible to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. See English v. General Elec. Co., 496 U.S. 72, 78-79 (1990). The Ninth Circuit has recognized these types of preemption. See Williamson v. General Dynamics Corp., 208 F.3d 1144, 1149 (9th Cir. 2000).
The instant case does not present an example of field preemption. Congress did not reserve the regulation of electricity exclusively to itself; rather, it left intrastate regulation of electricity to the States. It also does not present a case of an actual and direct conflict — the challenged decisions of the CPUC do not facially conflict with the FPA. The conflict is instead indirect: the CPUC decisions stand as obstacles to the accomplishment and execution of the full purposes and objectives of Congress in enacting the FPA. Pursuant to White Mountain Apache Tribe, this type of conflict preemption will not support an action under § 1983.
b. Private right of action under the Federal Power Act as basis for § 1983 claim
The more crucial question, however, is whether the Federal Power Act creates rights enforceable by public utilities such as Plaintiff under § 1983.
In determining whether a particular statutory provision gives rise to a federal right, the Supreme Court has traditionally focused on three factors. First, Congress must have intended the provision in question to benefit the plaintiff. Second, the plaintiff must demonstrate that the right assertedly protected by the statute is not so "vague and amorphous" that its enforcement would strain judicial competence. Third, the statute must unambiguously impose a binding obligation on the government unit rather than merely expressing a congressional preference for a certain kind of conduct. See Blessing v. Freestone, 520 U.S. 329, 340-41 (1997); Legal Servs. of N. Cal. v. Arnett, 114 F.3d 135, 138 (9th Cir. 1997). In carrying out this inquiry, the court is to examine whether particular statutory provisions create specific enforceable rights, rather than considering the statute and purported rights on a more general level. See Id. (citing Blessing, 520 U.S. at 342-43).
Even if Plaintiff establishes a federal right under a federal statute, dismissal is proper if Congress "specifically foreclosed a remedy under § 1983." Smith v. Robinson, 468 U.S. 992, 1005 n. 9 (1984). Congress may do so expressly, by forbidding recourse to § 1983 in the statute itself, or impliedly, by creating a comprehensive enforcement scheme that is incompatible with individual enforcement under § 1983. Livadas v. Bradshaw, 512 U.S. 107 (1994). The burden to demonstrate that Congress has expressly withdrawn the remedy is on the defendant. Golden State Transit Corp. v. City of Los Angeles, 493 U.S. 103, 106 (1989).
In enacting the Federal Power Act, Congress intended to delineate a bright line between federal and state regulatory authority over electricity. See City of Gainesville v. Florida Power Light Co., 488 F. Supp. 1258 (S.D. Fla. 1980); Kyle Chadwick, Crossed Wires: Federal Preemption of States' Authority over Retail Wheeling of Electricity, 48 Admin. L. Rev. 191, 198-99 (1996). The ultimate purpose, however, was to benefit ultimate consumers of electricity from excessive rates. See City of Gainesville, 488 F. Supp. at 1274; see also Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578 n. 7 (noting that the relevant provisions of the Federal Power Act and Natural Gas Act are "in all material respects substantially identical" and thus decisions interpreting pertinent sections of the two statutes may be cited interchangeably); Federal Power Comm'n v. Interstate Natural Gas Co., 336 U.S. 577, 581 (1949) (stating that the aim of the Natural Gas Act was to protect ultimate consumers from excessive charges).
The Court thus finds that Congress did not intend to benefit public utilities such as Plaintiff in enacting the Federal Power Act. Consequently, Plaintiff may not assert a private right of action either directly under this Act or indirectly under § 1983.
This conclusion, however, does not divest this Court of subject matter jurisdiction over Plaintiff's preemption claims. A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is preempted by a federal statute which, by virtue of the Supremacy Clause of the Constitution, must prevail, presents a federal question over which the federal courts have jurisdiction pursuant to 28 U.S.C. § 1331. Shaw v. Delta Airlines, Inc., 463 U.S. 85, 96 n. 14 (1983); Southern Pac. Trans. Co. v. Pub. Util. Comm'n, 716 F.2d 1285, 1288 (9th Cir. 1983).
This Court therefore has subject matter jurisdiction over Plaintiff's claims for preemption pursuant to 28 U.S.C. § 1331.
3. Abstention a. Burford
To the extent that there are a finite number of established abstention doctrines, the Court will examine each in the interest of a full adjudication of the issue of abstention.
Under the Burford doctrine, where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies when (1) there are "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar"; or (2) the "exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern." See New Orleans Public Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 361 (1989) Abstaining on Burford grounds requires dismissal of the federal court action.
The Ninth Circuit has been "careful to avoid extending Burford." International Brotherhood of Elec. Workers v. Pub. Serv. Comm'n of Nev., 614 F.2d 206, 211 (9th Cir. 1980). The court in International Brotherhood noted that it found Burford abstention inapplicable in three then-recent cases challenging zoning regulations or land use plans. Although zoning and land use schemes may be complex and involve essentially local issues, the court found Burford inapplicable because, first, the State had not chosen to concentrate such suits in any particular court, whereas in Burford, Texas had confined challenges to orders of the regulatory commission to the district court of a single county to provide specialized and uniform adjudication. Second, Burford was inapplicable because the federal issues could easily be separated from questions of state law. See id. In one of the cases, the court noted that Burford was inapplicable because federal review would not disrupt state efforts to establish a coherent zoning policy.
The Ninth Circuit noted, however, in passing that Burford abstention is "particularly questionable" when the basis of the plaintiff's claim is preemption:
The purpose of Burford abstention is to avoid federal intrusion into matters which are largely of local concern and which are within the special competence of local courts. A preemption claim alleges in essence that Congress has determined that particular matters are of national concern and should be administered by national, rather than local, institutions. If a preemption claim is well-founded, therefore, Burford abstention cannot be appropriate. Hence, a court cannot abstain under Burford in a preemption case without implicitly ruling on the merits of the action.
Id. at 212 n. 1.
Since International Brotherhood, the Ninth Circuit has made stronger yet very generalized statements expressing the inapplicability of Burford to preemption cases: "Burford and Pullman abstentions are generally inappropriate when the case concerns preemption. . . . Burford abstention is not appropriate because a decision to abstain so as not to interfere with a state regulatory scheme would be an implicit ruling on the merits." Hotel Employees Restaurant Employees Int'l Union v. Nevada Gaming Comm'n, 984 F.2d 1507, 1512 (9th Cir. 1993).
The Supreme Court has also reduced the effectiveness of Burford in the preemption context. In New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350 (1989) ["NOPSI"], an electric utility sought injunctive and declaratory relief against the Council of the City of New Orleans on the grounds that the Council's refusal to permit the utility to pass through in retail rates FERC-allocated wholesale costs was preempted by federal law. The Court held that Burford abstention was inappropriate because the utility could separate its federal preemption claim from state law issues: "[Where] [the public utility]'s primary claim is that the Council is prohibited by federal law from refusing to provide reimbursement for FERC-allocated wholesale costs . . . federal adjudication of this sort of preemption claim would not disrupt the State's attempt to ensure uniformity in the treatment of an `essentially local problem.'" Id. at 362.
The instant case presents circumstances somewhat different from those in NOPSI and International Brotherhood.
First, in NOPSI, the plaintiff's federal claim was not entangled in a web of state law but instead was quite separable from any state law issues. In the case at bar, Plaintiff argues that as in NOPSI, its federal action is not entangled in state law because instead of arising under or implicating state law, it is asserting the supremacy and preemptive effect of federal law over actions of the CPUC. The instant dispute, however, is not so easily likened to NOPSI. Here, there are issues of state law that must be sorted through before rendering any substantive ruling on Plaintiff's preemption claim. Mainly, this Court would be required to examine comprehensively AB 1890 to the extent that it introduced deregulation of the wholesale market for electricity, and the attending requirements it imposed upon public utilities such as PGE in the transition period. This Court has serious doubts about the propriety of such an undertaking.
Second, International Brotherhood involved a preemption claim that was based on the supremacy of the National Labor Relations Act ("NLRA"), 29 U.S.C. § 151 et seq., over the challenged action of the Public Service Commission of Nevada ("Commission"). Specifically, the International Brotherhood of Electrical Workers, Local Union No. 1245 ("Union") sought injunctive and declaratory relief against the Commission's order eliminating employee discounts on utility rates which the Union had obtained from the employer-utility company. The Union argued that the Commission's order was preempted by the NLRA because the discounts were a mandatory subject of collective bargaining under the NLRA. In reviewing the district court's alternative holding, the Ninth Circuit concluded that abstention under Burford was inappropriate because there was no evidence that the Commission's order "was issued in pursuit of an established policy," or that if it was, federal review would substantially disrupt Nevada's efforts to establish a coherent policy on discounted electricity rates. 614 F.2d at 212.
In contrast, it is undisputed that the CPUC's decisions refusing to permit a post-freeze pass-through of wholesale procurement costs apply equally to the public utilities whose rates are still frozen under AB 1890 — PGE and Southern California Edison Co. Moreover, the State of California has a strong interest in establishing a coherent energy policy, particularly in light of the State's augmented role in the current power crisis. Again, the Court reiterates that it has grave doubts about the propriety of treading on the State's unique interests in this area and the potential but substantial disruption a decision in PGE's favor could have on the State's efforts to establish a coherent and equitable policy on the ongoing process of resolving the bungled effects of deregulation.
Nonetheless, this Court is mindful of statements from the Ninth Circuit regarding the impropriety of invoking the Burford doctrine to abstain from ruling substantively on an action when the action involves a preemption claim. As a matter of logic, the Court recognizes that abstaining from ruling on a preemption claim is an implicit ruling on the merits. Therefore, the Court finds that under controlling law, Burford abstention is not appropriate.
b. Younger
The doctrine of abstention established in Younger v. Harris, 401 U.S. 37 (1971), requires that a federal court not interfere with an ongoing state judicial proceeding that implicates important state interests where there is an adequate opportunity to raise federal claims in the state proceeding. The invocation of Younger requires the court to dismiss the action.
In NOPSI., the Supreme Court also confronted the issue of Younger abstention in the electric utility's case against the Council of the City of New Orleans. The Court found that the state's interest in the regulation of its local utilities was beyond question, but nevertheless, it determined that the ratemaking proceedings of the Council which the utility challenged were legislative rather than judicial. Thus, Younger was inapplicable. NOPSI, 491 U.S. at 371 (finding that "ratemaking is an essentially legislative act").
Similarly, Younger is inapplicable to the instant case because the challenged proceedings are ratemaking decisions, which are legislative rather than judicial in nature.
c. Pullman
The Pullman doctrine states that a federal court should abstain from exercising its jurisdiction where the resolution of unclear issues of state law may eliminate the need to decide a federal constitutional issue. Railroad Comm'n of Tex. v. Pullman Co., 312 U.S. 496 (1941). Unlike Burford and Younger, applying Pullman does not require dismissal. Instead, the court retains jurisdiction over the action, to be exercised at a later date, if necessary. See Harrison v. NAACP, 360 U.S. 167, 177 (1959); Clinton A. Vince John S. Moot, Energy Federalism, Choice of Forum, and State Utility Regulation, 42 Admin. L. Rev. 323, 349 (1990).
The Ninth Circuit has expressly held that Pullman does not apply to a preemption claim because preemption is not a constitutional issue. See Hotel Employees Restaurant Employees Int'l Union v. Nev. Gaming Comm'n, 984 F.2d 1507, 1512 (9th Cir. 1993); Knudsen Corp. v. Nev. State Dairy Comm'n, 676 F.2d 374, 377 (9th Cir. 1982).
Based on these explicit, controlling statements from the Ninth Circuit, the Court finds that abstention under Pullman is inappropriate.
d. Colorado River
Under Colorado River, a federal court may dismiss or stay an action for reasons of "wise judicial administration," to avoid duplicative litigation where there is a parallel action pending in state court. Colorado River, 424 U.S. 800 (1976).
This final abstention doctrine is not implicated in the present case because there is no parallel action pending in any California state court.
6. Johnson Act
The Johnson Act, 28 U.S.C. § 1342, provides that a district court shall not enjoin the operation of or compliance with "any order effecting rates chargeable by a public entity and made by a State administrative agency. . . ." The Act operates, however, only where each of the following conditions is met:
(1) Jurisdiction is based solely on diversity of citizenship or repugnance of the order to the Federal Constitution; and,
(2) The order does not interfere with interstate commerce; and,
(3) The order has been made after reasonable notice and hearing; and,
(4) A plain, speedy, and efficient remedy may be had in the courts of such State.
Id.
Defendants claim that the four constitutional claims Plaintiff asserts are barred by this Act. The thrust of Defendants' argument is that the Act requires dismissal of claims whose jurisdiction is premised solely on the repugnance of the order to the Federal Constitution. Plaintiff responds that the Act does not bar consideration of constitutional claims when they are joined in the same case as claims that are premised on different jurisdictional grounds, such as preemption.
The Ninth Circuit has determined that the word "solely" in the statute is determinative of this dispute: "The key to the solution of the puzzle with which we are confronted is provided by the word `solely.' Giving the word its normal meaning we conclude that the Act withdraws federal jurisdiction only when it rests exclusively on `repugnance of the order to the Federal Constitution.'" International Brotherhood of Elec. Workers v. Public Serv. Comm'n of Nevada, 614 F.2d 206, 210-11 (9th Cir. 1980) (concluding that although a challenge to a rate order based on preemption may be regarded as constitutional for some purposes, it provides no basis for invoking the Johnson Act to deprive the district court of jurisdiction).
Under controlling Ninth Circuit law, the Johnson Act does not require dismissal of Plaintiff's constitutional claims because federal jurisdiction in this case is not premised solely upon the repugnance of the CPUC orders to the Federal Constitution.
In addition, taking the facts as Plaintiff has alleged as true, the orders of the CPUC have had an effect on interstate commerce: They have significantly inhibited PGE's and Edison's ability to purchase power on the wholesale market. This conclusion further bolsters the conclusion that the Johnson Act does not require dismissal of Plaintiff's constitutional claims.
7. Eleventh Amendment Immunity
The Eleventh Amendment to the United States Constitution provides:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens of any Foreign State.
The Eleventh Amendment embodies the principle of sovereign immunity, and thus bars a federal court from hearing claims by individuals against dependent instrumentalities of the state, their agencies, or the officials of those agencies unless the State consents to suit, or Congress has expressly abrogated the State's immunity. See Seminole Tribe v. Florida, 517 U.S. 44 (1996); Hafer v. Melo, 502 U.S. 21 (1991); Pennhurst State Sch. Hosp. v. Halderman, 465 U.S. 89 (1984). A state is not a "person" within the meaning of 42 U.S.C. § 1983 and therefore may not properly be named as a defendant in a § 1983 action. See Will v. Michigan Dep't of State Police, 491 U.S. 58, 71 (1989). This principle extends to state agencies and to state officers named in their official capacities. See id.; Emma C. v. Eastin, 985 F. Supp. 940, 946 (N.D. Cal. 1997).
The Eleventh Amendment does not, however, bar a federal court from granting prospective injunctive relief against an officer of the state who acts outside the bounds of his authority, Cerrato v. San Francisco Cmty. Coll. Dist., 26 F.3d 968, 973 (9th Cir. 1994), or against state officers sued in their individual capacities, id.; Doe v. Lawrence Livermore Nat'l Lab., 131 F.3d 836, 839 (9th Cir. 1997). This is the "stripping doctrine" of Ex Parte Young, 209 U.S. 123 (1908). This doctrine applies only where the state officials are allegedly violating federal law; it does not reach suits seeking relief against state officials for violations of state law. See Pennhurst., 465 U.S. at 106.
Defendants essentially argue that although Plaintiff has sued Defendants in their official capacities for prospective injunctive and declaratory relief only, the "stripping doctrine" announced in Ex Parte Young, 209 U.S. 123 (1908), does not apply because Plaintiff's claims implicate strong state sovereign interests concerning state regulation of energy. For this argument, Defendants rely on the Supreme Court's decision in Idaho v. Coeur d'Alene Tribe, 521 U.S. 261 (1997).
Plaintiff argues that Defendants misread Coeur d'Alene Tribe. Plaintiff concedes that Coeur d'Alene Tribe narrowed the stripping doctrine of Ex Parte Young. The Ninth Circuit, however, recently discussed Coeur d'Alene Tribe's impact on the stripping doctrine. In Agua Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d 1041 (9th Cir. 2000), cert. denied, 121 S.Ct. 1485 (2001), the court stated that "the question posed by Coeur d'Alene is not whether a suit implicates a core area of sovereignty, but rather whether the relief requested would be so much of a divestiture of the state's sovereignty as to render the suit as one against the state itself." Agua Caliente, 223 F.3d at 1048 (emphasis in original). With this framework, the court went on to hold that the relief the plaintiffs requested would not substantially infringe on California's sovereignty as to be a suit against the state itself. See id. at 1049.
The question is therefore whether the circumstances of the instant case are more akin to Coeur d'Alene or Agua Caliente. In Coeur d'Alene, the plaintiffs disputed title to lands submerged below a lake. They sued state officers, seeking declaratory and injunctive relief to guarantee their right of quiet enjoyment of the lands. The Supreme Court determined that the suit could not proceed under Ex Parte Young because it was "the functional equivalent of a quiet title action that would have divested the state of substantially all regulatory power over the land at issue." Agua Caliente, 223 F.3d at 1048. The "requested injunctive relief would bar the State's principal officers from exercising their governmental powers and authority over the disputed lands and waters." Coeur d'Alene, 521 U.S. at 282.
In Agua Caliente, the plaintiffs were a federally-registered Indian tribe and a federally-chartered tribal governmental corporation. They brought suit against various California officials, seeking a declaratory judgment that federal law precludes the State of California from imposing sales and use tax on food and beverage purchases by non-tribal members at a tribal resort on reservation land. The Ninth Circuit reversed the district court's dismissal of Plaintiff's action on Eleventh Amendment immunity grounds. The court noted that while the plaintiffs' suit concerned the state's interest in taxation, "an important aspect" of state sovereignty, "there are preemption considerations and competing sovereignty interests" in the context of taxation of Indian tribes. 223 F.3d at 1048 (emphasis in original). Distinguishing Coeur d'Alene, the court held that the plaintiff's requested relief would not intrude into California's sovereignty interests "to such `a degree fully as intrusive as almost any conceivable retroactive levy upon funds in its Treasury,' but would only ensure that the state sales and use tax be applied by state officials in a manner consistent with federal law." Id. at 1049 (quoting Coeur d'Alene, 521 U.S. at 287).
The situation presented in the case at bar is more akin to Agua Caliente. California's interest in the intrastate regulation of electricity represents one half of the dual regulatory system created by Congress through the Federal Power Act. The other half is the federal regulatory system, and, where the two conflict, the former must yield to the latter. Thus, here, as in Agua Caliente, there are preemption considerations and competing sovereignty interests. Should Plaintiff ultimately prevail, the relief requested would not prevent the State from continuing to regulate electricity on an intrastate basis; rather, it would ensure that Defendants apply state law in a manner that is consistent with federal law. For these reasons, the Eleventh Amendment does not shield Defendants from the instant suit.
Plaintiff's request for relief is not for retrospective monetary relief; it does not call for payment of funds from the State's treasury.
The Court's earlier statements regarding Eleventh Amendment immunity to which Defendants and Amicus cite were made in the context of Southern California Edison's request for a preliminary injunction. The statements pertained to a different case on a different complaint, and were made in a dissimilar procedural context without the benefit of full briefing on this issue. They do not control the instant determination.
8. Ripeness
Ripeness depends upon the "fitness" of the issues for immediate review and the "hardship" to the litigant in postponing judicial intervention. See Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967). A case is "fit for judicial decision" where the issues raised are purely legal ones and where the agency rule or action giving rise to the controversy is final and not contingent upon future uncertainties or intervening agency action. Id. at 149.The First Circuit discussed the issue of ripeness in a similar context as the instant case. In Public Service Co. of New Hampshire v. Patch, 167 F.3d 15 (1st Cir. 1998), the court found that ripeness was the least plausible objection to an injunction enjoining the state public utility commission from implementing a plan to deregulate New Hampshire's electric utility industry. First, the court determined that the issues were fit for judicial review because the commission had issued deregulation implementing orders and had denied requests for reconsideration. Second, the court found that the utility company would suffer imminent default on lines of credit and face bankruptcy if the commission were allowed to proceed with deregulation.
The instant case presents a somewhat similar situation with respect to the PTER decisions PGE challenges. Defendants argue that although the PTER decisions will not go into effect until after the rate freeze is over, the decisions are having a devastating effect on PGE's current financial stability. Lenders no longer have security that they will be able to recoup their investment. However, there is no longer the same urgency that existed prior to the State of California stepping into the situation to procure power from wholesalers to supply power to California residents on behalf of the public utilities. Thus, PGE's undercollection is no longer growing by leaps and bounds on a daily basis.
Moreover, PGE makes clear in its FAC and in its opposing papers that it is not simply challenging only the PTER decisions or other particular CPUC decisions. Rather, it is challenging the CPUC's "ongoing interpretation and implementation" of state law. That is, it is admittedly challenging non-final interim orders of a state agency. Under California law, the "final" administrative decision is the one made on an application for rehearing, not the original decision. See Cal. Pub. Util. Code § 1731(b); Communications Telesys. Int'l v. Cal. Pub. Util. Comm'n, 196 F.3d 1011, 1016 (9th Cir. 1999). If the CPUC decisions are as integral to PGE's claims as they say they are, PGE's claims are thus not ripe for review.
In NOPSI, the Supreme Court held that abstention under either Burford or Younger was inappropriate but it stated that if state court review of a rate order was an extension of the legislative process rather than a judicial act, the challenge to the Council's ratemaking order should have been dismissed as unripe. However, the Court determined that the state court review was not a continuation of the legislative process, and thus the utility's preemption claim was ripe for federal review when the Council entered its ratemaking order. NOPSI., 491 U.S. at 372.
The Court discussed its holding in Prentis v. Atlantic Coast Line Co., 211 U.S. 210 (1908), in which several railroads requested a federal circuit court to enjoin the Virginia State Corporation Commission from publishing or taking any steps to enforce a particular order fixing passenger rates on the ground that the proposed rates were confiscatory. In Prentis, the Court found the agency proceeding to be legislative in character but "nonetheless held equitable intervention inappropriate because . . . the attack on the rate order was premature" — the legislative process had not yet concluded. NOPSI, 491 U.S. at 371. The Court expressed concern in preserving the integrity of a "still-to-be-completed legislative process." Id. at 372. The ratemaking proceeding in NOPSI did not present the same circumstances. The legislative proceedings in that case were completed rather than ongoing; thus, the utility's suit did not represent "the interference with an ongoing legislative process against which our ripeness holding in Prentis was directed." Id.
In the instant case, many of the decisions to which PGE refers in its FAC as violating federal law are non-final interim orders that will only become final upon a grant or denial of rehearing. In fact, one of the orders Plaintiff cites in its FAC has already been reversed by the CPUC when it issued the final decision. See Decl. of Douglas Long, ¶¶ 12-22, Exhs. F-O. Defendants assert that they currently have before them, inter alia, the issue of altering accounting methods. A final decision on this issue could result in alterations in the way revenue is tracked, which could ultimately fix the issue of undercollection in PGE's and Edison's TRA accounts. Also, PGE alleges that the CPUC continues to interpret AB 1890 in interim orders as prohibiting a pass-through of wholesale power procurement costs, in direct violation of the federal filed rate doctrine. Because review of the CPUC actions that PGE challenges in its FAC would constitute interference in an ongoing legislative process, PGE's claims are not yet ripe for review. Accordingly, the Court hereby GRANTS Defendant's motion to dismiss Plaintiff's FAC without prejudice. PGE may refile its action once the CPUC interim orders it challenges become final decisions.
The Court is also aware that the CPUC has pending before it the issue of whether the retail rate freeze has ended. In its FAC, PGE alleges that the freeze ended on or before August 3, 2000. See Complaint ¶¶ 52, 55. The CPUC has primary authority to decide this issue, and until it does so, Plaintiff's claims are not fit for review.
The Court sees little, if any, hardship that will result to Plaintiff as a consequence of postponing judicial review. The California Legislature has responded to the crisis by intervening in the wholesale power purchasing business on behalf of the public utilities, thus substantially halting the utilities' mounting debts. Moreover, during the pendency of this motion, Plaintiff voluntarily sought protection from creditors by filing a Chapter 11 petition for bankruptcy.
IT IS SO ORDERED.