Court: FERC Wrong to Replace California Energy Board

A federal appeals court, siding with former Gov. Gray Davis (search) in a political fight, strongly rebuked federal energy regulators for their attempt to replace the board that manages California's electricity grid.

The move by the Federal Energy Regulatory Commission (search) in 2002 was an "unprecedented invasion of internal corporate governance," the U.S. Court of Appeals for the District of Columbia Circuit (search) ruled Tuesday.

The decision overturns FERC's order that the California Independent System Operator (search) disband and create a new governing structure. FERC contended the ISO was not independent because California's governor appointed all its members.

The move infuriated Davis, a Democrat who was governor at the time, and his appointees on the ISO never complied with the order, voting instead to ignore it.

The stinging, 16-page ruling vindicates Davis' position. He subsequently was ousted in a recall election.

"FERC has done nothing less than order a public utility subject to its regulation to replace its governing board," the court said.

"While the petitioners offer several grounds for setting aside that action, chief among those grounds is the argument by petitioners that FERC simply has no authority to do such a thing. ... We agree with petitioners on that basis."

The ruling is not directly related to the ongoing dispute before FERC and in federal court in California over the $9 billion in refunds the state contends it is owed from energy sellers who overcharged during an energy crisis there. But it could bolster arguments by California officials that FERC has acted improperly in its response to that crisis in 2000-2001.

California suffered spiking wholesale prices and six days of blackouts during the crisis. Subsequent investigations by FERC and California officials found that energy sellers manipulated the market and took advantage of the state's flawed deregulation scheme.