Sacramento Municipal Utility District, the Imperial Irrigation District, the City and County of San Francisco, and the San Diego Gas & Electric Company appealed to the D.C. Circuit.  The appeals related to three areas: (i) the incorporation of marginal loss charges into locational marginal prices, (ii) a new local resource adequacy requirement, and (iii) a congestion revenue rights mechanism. 

The DC Circuit turned away appeals, upholding FERC’s orders approving the changes embodied in the MRTU initiative.  The Court generally deferred to FERC’s findings and considerations of the various arguments put forth.  The full decision can be obtained at www.pacer.cadc.uscourts.gov/common/opinions/201007/07-1208-1256931.pdf

In April, however, the Court lost its quorum to decide the case after a last-minute recusal by an eighth judge on the 16-judge panel created uncertainty on whether the Court could consider the appeal further.  Last Friday, the Court resolved that uncertainty by ruling the vacatur of the three-judge panel decision remains in place, but the loss of the quorum left the Court with no choice but to dismiss the appeal.  

The continued vacatur of three-judge panel’s decision is the remarkable win for industry.  It means the district court’s decision—which held that property owners did not have standing to sue for climate change and that climate change was a “political question” for Congress—stands as good law.  For now, in the Fifth Circuit at least, property owners are not permitted to seek state-law tort damages for industrial emissions of carbon dioxide.

Background: The Tort Claims in Comer v. Murphy Oil

In Comer, plaintiffs filed a putative class action against a wide range of energy, fossil fuel, and chemical companies, claiming they (a) generated greenhouse gases (b) which caused global warming, (c) which increased global surface air and water temperatures, (d) which in turn caused a rise in sea levels and strengthened Hurricane Katrina, and (e) which all then combined to damage their homes and property.   On August 30, 2007, in a two-page order, Judge Louis Guirola, Jr. dismissed plaintiffs’ claims for lack of standing.  But in his ruling from the bench, Judge Guirola also held the plaintiffs’ claims were barred by the “political question” doctrine, the concept that Congress and state legislatures are better equipped to make decisions involving policy issues such as climate change, especially given the national and international implications of the issues involved. 

On October 16, 2009, a three-judge panel of the Fifth Circuit Court of Appeals reversed Judge Guirola, holding that the plaintiffs did in fact have standing to sue industry for their Hurricane Katrina damages allegedly caused by climate change.  The panel also held that issues of climate change were not barred by the “political question” doctrine.   

On February 26, 2010, the Court granted rehearing en banc to address the political question and standing issues.  The Court’s decision to grant rehearing en banc was based on a 6-3 vote of the remaining nine judges on the Fifth Circuit who, at the time, were not recused for various reasons. 

In late April, with most of the briefing already submitted and a hearing scheduled for May 24, 2010, the Court issued an order stating that because another judge was recused, only eight judges were left to hear the merits of the appeal, which meant the court no longer had a majority of the 16-judge Fifth Circuit.  Confronting the dwindling number of judges, the court requested additional briefing on what it should do. 

Recusal Math: The Reason for the Comer Dismissal 

After considering a wide range of arguments, a majority of the remaining non-recused members of the Fifth Circuit held that it had no quorum and it could not hear the case en banc, as it had initially decided that it would do on February 26, 2010.  After considering arguments by parties and amici over the past few weeks, five of the eight remaining non-recused judges rejected all of the theories on how to fix the problem—(1) having the Chief Justice appoint a judge from another Circuit; (2) declaring a quorum of the non-recused judges; (3) adopting a “rule of necessity”; (4) “dis-enbancing” the case or reinstating the three-judge panel’s decision; and (5) holding the case in abeyance until the composition of the court changed.  None of these fixes worked, the Fifth Circuit held, because “a court without a quorum cannot conduct judicial business.”

Ironically, the three judges dissenting from the Court’s dismissal of the appeal were the same three judges constituting the three-judge panel which initially overturned the district court’s opinion.  In separate dissents, Judge Davis, joined by Judge Stewart and Judge Dennis, believed the court should decide the merits of the case.  For these judges, it made no sense to allow a vote to take a case en banc to dictate the results on the merits.  For Judge Davis, it made no sense that a majority of the eight unrecused judges could dismiss the appeal, but they could not hear the merits.  For Judge Dennis, the decision was “injudiciously mechanistic and arbitrary.”  If the most recently recused judge had become recused three months earlier, he noted, the outcome would have been precisely the opposite—the court would not have been able to grant the rehearing, which meant the three-judge panel’s reversal of the district court’s opinion would have remained in effect.

Bottom Line: The District Court’s Decision Rejecting Tort Claims Against Industry for CO2 Emissions Stands as Good Law

As for the controlling law, the five remaining unrecused members of the Court specifically held that it could not undo its vacatur of the earlier three-judge panel’s decision.  Under its Local Rule 41.3, the grant of rehearing en banc “vacate[d] the panel opinion and judgment of the court and stay[ed] the mandate.”  Applying this rule, the Court held that even though it did not have a quorum to hear the merits of the appeal en banc, the vacatur of the three-judge panel’s October 16, 2009 decision was made by a then-proper quorum, even if that quorum later evaporated because of a recusal.  With that decision, the three-judge panel’s reversal of the district court’s opinion remained vacated.  This is the good news for industry.

How Does the Fifth Circuit’s Dismissal of Comer Affect the Other Key Climate Change Case, Connecticut v. AEP?

Strange as it may seem, with the Fifth Circuit’s dismissal of Comer and the reinstatement of the district court’s rejection of the property owners’ claims against industry, there is now a conflict—to the extent the Fifth Circuit’s dismissal in Comer represents a substantive decision—between the Fifth and the Second Circuits on standing and political question in climate change tort cases.  The Comer dismissal could strengthen industry’s appeal of the adverse Second Circuit decision in Connecticut v. AEP (see March 12, 2010 edition of the WER).

In Connecticut v. AEP, which involved carbon dioxide emissions from coal-fired electric utilities, the Second Circuit held that a group of states could sue to abate climate change under a theory of public nuisance.  In its decision, issued on September 21, 2009, the Second Circuit also found that tort litigation over climate change was not barred by the political question doctrine. But unlike the Fifth Circuit in Comer, which agreed to rehear the matter en banc, on March 5, 2010 the Second Circuit denied a motion for rehearing en banc.  Certiorari petitions to the Supreme Court in Connecticut v. AEP are due June 3, 2010, and the Supreme Court is likely to determine whether it will grant certiorari by the end of the year.

Long term, many view Comer as the more important case because the plaintiffs are private property owners seeking property damages for climate change, not States, as in Connecticut v. AEP, who may have standing to litigate climate change as a public nuisance by virtue of their “special solitude” as states.  And unlike Connecticut v. AEP, which was largely about forcing air quality controls on electric utilities, the plaintiffs in Comer seek money damages. 

Will the United States Supreme Court Grant Certiorari to Decide Whether Climate Change is a “Political Question”? 

For Comer, the procedural math determined the substantive outcome.  Of the 16 judges on the Fifth Circuit, eight were recused for various reasons, and five of the remaining eight unrecused judges voted to dismiss the appeal without ever considering the merits of the appeal.  That procedural vote by five judges determined the substantive outcome of the case.  As Judge Dennis suggested in his dissent, the dismissal by the unrecused judges means the plaintiffs, who claim that Hurricane Katrina was caused by industrial emissions, not the industry itself, will now be appellants on the standing and political question issues.

On certiorari in both Comer and in Connecticut v. AEP, the ultimate question for the Supreme Court is whether industry should be liable for climate change.  More fundamentally at issue is whether private property owners can sue industry simply because it emits carbon dioxide, a question important not only for the legal system, but for the U.S. economy itself. 

The Fifth Circuit opinion is available at http://www.ca5.uscourts.gov/opinions/pub/07/07-60756-CV2.wpd.pdf.

Station power is the electricity generators use to heat, cool, light, and power their on-site equipment.  Previously, when utilities were vertically integrated, generators that provided their own station power would treat the electricity consumption as negative generation by netting any station power they had provided themselves against their generation.  After Order No. 888 directed utilities to unbundle their services, several utilities sold their merchant generating facilities.  As a result, when merchant generators now use station power, even if it is self-supplied, it is arguably considered a retail sale of energy, which falls under state jurisdiction.

Previously, FERC held in 2001 that generators could net their station power on an hourly basis.  In the aftermath of FERC’s 2001 order, both the PJM Interconnection, LLC (“PJM”) and New York Independent System Operator (“NYISO”) eventually revised their tariffs to adopt one-month netting provisions.  These actions allowed generators to possibly avoid any retail charges within a month and thus, lower their costs.  In 2006, the DC Circuit affirmed that FERC had the authority to approve these netting provisions in Niagara Mohawk Power Corp. v. FERC. 

Meanwhile, FERC ordered CAISO in 2004 to revise its tariff to implement a one-month netting time requirement, as opposed to an hourly netting of energy.  FERC said that the requirement was necessary to be consistent with monthly netting used in PJM and NYISO.  SCE, an investor-owned utility, contested FERC’s decision.  SCE argued that states, and not FERC, have jurisdiction over retail energy sales.  FERC concluded however, that if a generator netted electricity within a one-month period, no retail sale of power had occurred to give states rate authority.  Eventually, the DC Circuit decided to hear SCE’s appeal of FERC’s decision.

In reaching its decision, the DC Circuit first noted that it could not rely on Niagara Mohawk.  In Niagara Mohawk, FERC’s authority was already conceded by the time the case came to the DC Circuit; the only issue was whether a one-month netting period or a one-hour netting period should be required.  The DC Circuit stated that SCE, on the other hand, has consistently disputed FERC’s authority.  As such, the jurisdiction question was squarely before the DC Circuit.  Second, the DC Circuit found FERC’s implicit reasoning that the length of the netting period determines whether a retail sale occurs to be arbitrary and unprincipled.  Third, the DC Circuit did not understand how FERC could determine a retail sale had not occurred unless it concluded that the transaction was a wholesale sale or transmission.  Finally, the DC Circuit did not see a conflict arising from using different netting periods for station power while still allowing FERC to maintain netting periods for transmission.

By vacating and remanding for further proceedings, the DC Circuit gives FERC a possible opportunity to justify its station-power netting policies on remand.  The full DC Circuit opinion is available at http://pacer.cadc.uscourts.gov/common/opinions/201005/05-1327-1243067.pdf.

 The 2nd Circuit issued an opinion in Connecticut on Sept. 21, 2009, ruling that eight states, New York City and environmental groups could bring a public nuisance lawsuit against utilities over their GHG emissions.  The decision, along with the Comer and Kivilina cases, is considered a key test of the limits of climate change litigation and whether individuals have standing to sue businesses over their GHG emissions.  In Kivalina, the U.S. District Court for the Northern District of California ruled in October that a coastal village in Alaska could not sue energy companies for damage caused by global warming.  The ruling explicitly challenged the 2nd Circuit’s opinion in Connecticut.  The Plaintiffs in Kivalina have appealed the decision to the 9th Circuit, and opening briefs were due March 11th.

The defendants in the Connecticut v. American Electric Power case are likely to ask the Supreme Court to review the case.  If the 5th Circuit, on rehearing, decides to overturn its previous decision, there will be a split in the circuits on whether GHG-emitters can be used in court, thus increasing the chances the Supreme Court will accept review.

The Plaintiffs, citing a study commissioned by state regulators which indicated that pollution levels could exceed federal limits at the Northern Cheyenne Indian Reservation, had argued that the coal plant would violate the Clean Air Act’s Best Available Control Technology (”BACT”) requirement by using outdated technology, causing added harm to the environment and human health.  The state and Basin Electric argued that the Dry Fork plant’s contribution to the Reservation area’s pollution would be extremely small and that granting the air permit would be consistent with long-standing practices of the Wyoming Department of Environmental Quality and the U.S. Environmental Protection Agency’s interpretation of relevant laws.

The court questioned some of the state’s methodology but ruled that awarding the permit was proper because the agency had “some discretion.”  The justices also ruled that the state correctly applied rules for using BACT and did not have to require BACT for reducing carbon dioxide emissions.