1. Claims of Federal Preemption
The parties' preemption claims misunderstand the nature of the RA-based must-offer obligation imposed in the Decision. The Commission has clear authority to impose "regulatory requirements" on "LSEs that fall under the Commission's jurisdiction." (D.05-10-042, at p. 14.) And the must-offer obligation imposed in the Decision is just such an obligation: a state-imposed requirement that state-regulated LSEs must follow to the extent they wish to use their contracts to satisfy RA obligations. The imposition of such a requirement in the context of an RA program has no effect on the parallel FERC-approved mechanism. The RA-based MOO is a separate requirement, with different characteristics and imposed under different authority. In order to differentiate more clearly between the RA-based offer obligation and the FERC-imposed MOO, we will modify the Decision to clearly refer to either an "RA-MOO" or a "FERC-MOO." We will also ensure the Decision clearly articulates the LSE-based nature of the RA-MOO.
When the RA-MOO is properly understood as an LSE-based requirement, FPL's preemption claims fail. The Court of Appeal for the Second Appellate District has summarized the limited circumstances where federal preemption can occur as follows:
Federal statute or regulation may preempt state law in three situations, commonly referred to as (1) express preemption, (2) field preemption, and (3) conflict preemption. First, Congress can define explicitly the extent to which its enactments pre-empt state law. Second, in the absence of explicit statutory language, state law is pre-empted where it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively. Finally, state law is pre-empted to the extent that it actually conflicts with federal law. Federal regulations have no less pre-emptive effect than federal statutes. (Southern Cal. Edison v. Public Utilities Com. (2004) 121 Cal.App.4th 1303, 1309-1310 (internal quotation marks and citations omitted).)
FPL's application concludes, without analysis or explanation, that the RA-MOO is an "impermissible intrusion on FERC jurisdiction[,]" and that we are "without jurisdiction" to impose an RA-MOO.16 (FPL's Rehearing Application, at pp. 4, 5.) An analysis of the three types of preemption (express preemption, field preemption, and conflict preemption) shows, in fact, that none of the requirements under which state laws or regulations may be preempted has been met.
First, because the RA-MOO is a reliability requirement imposed on California-regulated LSEs, and the express provisions of the Federal Power Act allow for state regulation of those who sell electricity to retail customers, there is no express
preemption. FERC only has jurisdiction over, "the sale of electric energy at wholesale in interstate commerce...." Except in specific situations involving interconnections and wheeling, FERC's jurisdiction, "shall not apply to any other sale of electric energy...." (16 U.S.C., § 824, subd. (b) (section 201 of Federal Power Act).) Long established precedent holds that, "Congress meant to draw a bright line, easily ascertained, between state and federal regulation...." (Federal Power Com. v. Southern Cal. Edison (1964) 376 U.S. 205, 215-216 [11 L.Ed.2d 638, 646].)
The RA-MOO specifically does not intrude on any of the areas set aside for federal regulation under the Federal Power Act. The Decision makes clear that, "the adopted RAR framework establishes an LSE-centered obligation under which the regulatory requirements apply to LSEs that fall under the Commission's jurisdiction." (D.05-10-042, at p. 14.)17 We specifically deferred to the CAISO's FERC tariff process any elements of the RA-MOO that involve wholesale transactions. The Decision states, "...we hereby adopt those portions of the Staff/CAISO proposal that we have control over-the LSE RAR obligations and penalties for non-compliance." (D.05-10-042, at p. 17.) The Decision makes it clear that other issues, "will be addressed in the CAISO tariff and/or protocols implementing its new market redesign." (Ibid.) Because we are only requiring that capacity contracts which count towards meeting RA obligations to serve retail load contain certain requirements, including the RA-MOO, the Decision falls
squarely within the jurisdiction allocated to us by Congress. As discussed below, FERC has, in fact, recognized that the current FERC-MOO "is different from" an RA-based MOO and appears to accept the legitimacy of an RA-based MOO. (Order Accepting and Modifying Tariff Filing (2006) 114 FERC ¶ 61, 026, 2006 FERC LEXIS 65 at p. *25, fn. 30.)
Second, claims of field preemption are clearly without merit. Field pre-emption occurs when Congress does not expressly preempt state laws or regulations but nevertheless intends the federal government to "occupy exclusively" the field of regulation so that there is "no room for supplementary state regulation." (Southern Cal. Edison v. Public Utilities Com. (2004) 121 Cal.App.4th 1303, 1309-1310.) Because the Federal Power Act creates a "bright line" division between state authority over retail sales and federal authority over wholesale sales, field preemption arguments against the RA-MOO must fail. (See Federal Power Com. v. Southern Cal. Edison, supra, 376 U.S. at pp. 215-216 [11 L.Ed.2d at p. 646].) The federal scheme is not so comprehensive that our regulation of retail sales service is impermissible. In fact the opposite is true: both state and federal regulators have a role to play in controlling electricity markets, with the states controlling retail sales.
Third, there is no conflict created by the CPUC's adoption of the RA-MOO and the existence of the FERC-MOO, or any other federal law, and the parties fail to demonstrate any such conflict. FPL's rehearing application asserts that the RA-MOO conflicts with federal law because FERC has concluded that, in the future, when the CAISO's MRTU becomes effective,18 neither a day-ahead nor a real-time MOO should be implemented; instead, FERC has suggested that the MRTU include either no offer obligation or a "flexible" obligation. (FPL's Rehearing Application, at pp. 3-4.) In
support, FPL's Rehearing Application and WPTF's response cite two FERC decisions, the "September 2004 Order" (Rehearing of The Cal. ISO's Market Redesign (2004) 108 F.E.R.C. ¶61, 254, 2004 FERC LEXIS 1296) and the "June 2004 Order" (Order On Further Development Of The California ISO's Market Redesign And Establishing Hearing Procedures (2004) 107 FERC ¶61,274, 2004 FERC LEXIS 1228.)19
As an initial matter, FPL's argument proposes a future conflict between the RA-MOO and federal law, not a current conflict. Since MRTU has not been implemented and RAR is transitional for 2006-2008, only a hypothetical future conflict might exist between state and federal regulation. Such a hypothetical conflict does not result in federal preemption. (Pacific Legal Foundation v. Resources Conservation and Development Com. (9th Cir. 1981) 659 F.2d 903, 925, fn. 35, affd. sub nom. Pacific Gas and Electric Co. v. Energy Resources Conservation and Development Com. (1983) 461 U.S. 190, 203-204 [75 L.Ed. 752, 765], quoting Goldstein v. California (1973) 412 U.S. 546, 554 [37 L.Ed.2d 163, 173].)
Second, even once MRTU is implemented, and the RA-MOO continues, there will be no conflict with federal law, regardless of whether there is no FERC-MOO, or an alternative FERC-ordered MOO in place. FPL and WPTF misconstrue FERC's orders on these issues. In the June 2004 Order, FERC expressed concerns with the compensation terms of the FERC-MOO (which is FERC's primary concern with the FERC-MOO), and instructed the CAISO to consider a flexible-offer obligation as an alternative to continuing the FERC-MOO in the MRTU, but only if the CPUC's RAR was insufficient to meet the CAISO's operational needs. Significantly, the June 2004 Order expressly acknowledged the possibility of a voluntary, contractual obligation, i.e., an RA-based MOO. That Order implied that such a contractual obligation would resolve its compensation concerns regarding the existing FERC-MOO:
The Commission believes that participation in the CAISO day-ahead market should be voluntary absent a contractual obligation requiring participation in the day-ahead market, i.e., sellers should have the choice of making sales bilaterally or selling into the CAISO market. A day-ahead must offer [the CAISO's proposal to extend the FERC-MOO into MRTU] would preclude the possibility of bilateral sales by sellers after the close of the day-ahead market. A resource adequacy product, with a capacity payment, would compensate for taking away this choice and would obligate sellers to participate in the market, satisfying the CAISO's [operational] and Commission's [compensation] objectives.
(Order On Further Development Of The California ISO's Market Redesign And Establishing Hearing Procedures, 107 FERC ¶ 61,274, 2004 FERC LEXIS 1228 at p. *22.) FERC then affirmed this decision in the September 2004 Order cited by FPL and WPTF. Nowhere in these orders does FERC suggest that an RA-based MOO would be inappropriate, or conflict with its own determinations regarding must-offer obligations. In fact, these orders implicitly approve of such an RA-based product, on the basis that an RA capacity payment would compensate generators for the must-offer obligation.
Approximately fifteen months later, in another proceeding, FERC again recognized that a voluntarily accepted must-offer obligation, through RAR, would resolve its compensation concerns with the current FERC-MOO, and that the FERC-MOO and an RA-based MOO were different products: "We note that the current must-offer obligation in California (and the WECC), which lacks a separate capacity payment [FERC-MOO], is different from a must-offer obligation where sellers, as part of a resource adequacy program, voluntarily accept a must-offer obligation in exchange for a capacity payment [RA-MOO]." (Order Accepting and Modifying Tariff Filing, supra, 2006 FERC LEXIS 65 at p. *26, fn 30.)
Contrary to FPL's and WPTF's representations, FERC has expressed no objection to the continuation of either a day-ahead or real-time MOO "beyond implementation of a Resource Adequacy Requirement ("RAR") Program in California[,]". (Compare, FPL's Rehearing Application, at p. 4, WPTF's Response, at p. 2.) Rather, FERC's orders demonstrate that it is opposed to the continuation of the existing FERC-MOO in the tariff implementing the MRTU because of its concerns that the FERC-MOO does not adequately compensate generators. Further, the cited FERC Orders reveal that FERC would likely welcome an RA-based MOO as a replacement for any FERC-ordered MOO. Thus, there is no evident conflict with federal law; in fact, the situation is quite the contrary. Additionally, once the FERC orders are properly understood, parties' claims that the RA-MOO conflicts with the FERC-MOO simply because the RA-MOO is different from the FERC-MOO are shown to be without merit. (FPL's Rehearing Application, at p. 4.) The RA-MOO is necessarily different from the FERC-MOO, most significantly because generators will be compensated for their capacity under the RA-MOO, but also because it stems from different authority, with the obligation being placed on LSE.
Ultimately, the parties' preemption claims may simply result from the fact that the Decision's discussion of the FERC-MOO in section 4.3 is unclear, and in one place mistakes a position taken by the parties as a position taken by FERC. Section 4.3 is designed to explain our view of the current FERC-MOO in response to a suggestion from parties that we should declare RAR to be "fully implemented" in order to give FERC an indication that it could terminate the FERC-MOO now. Section 4.3 gives our views on this suggestion and does not extend or establish any regulatory requirements. Because the current RA framework contains a transition period and the MRTU is not effective we want to make this point clear by modifying this section.
16 The only support for this claim is a reference to FERC decisions discussing the CAISO's Market Redesign and Technology Update (MRTU) and sections 205 and 206 of the Federal Power Act, which do not address that statute's allocation of authority between the federal government and the states. See Commission Rules of Practice and Procedure, Rule 86.1, Cal. Code Regs., tit. 20, § 86.1.
17 In this context it is important to understand that, because it stems from state authority, the RA-MOO is different from the federally-imposed MOO in two respects. First, the RA-MOO does not create a regulatory obligation that applies to generators. Instead, the RA-MOO requires LSEs to procure resources that are contractually obligated to do certain things. Generators can choose to enter into such contacts or not. Second, while the FERC-MOO requires generators to sell to the CAISO and fixes the compensation, the RA-MOO is silent as to compensation issues. This is because the RA-MOO is a requirement LSEs must follow, and the Decision relies on voluntary, negotiated agreements to create an obligation for generators. Since the compensation that will be associated with these provisions will be voluntarily agreed to by the generators and LSEs, there is no issue as to whether or not this compensation is fair. These points explain why Constellation's concerns, summarized at footnote 15, do not show the Decision to be in error.
18 With the MRTU the CAISO proposes to change the way the energy markets in California work, and to implement new technology to support new markets.
19 WPTF cites cases where FERC has asserted its supremacy in the face of conflicting state regulation. However, those cases are inapposite because the pleadings fail to demonstrate that the RA-MOO conflicts with federal law.
