On July 11, 2025, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued an opinion in Pacific Gas & Electric Company v. FERC, addressing a challenge by Pacific Gas & Electric Company (“PG&E”), Southern California Edison, and San Diego Gas & Electric Company (collectively, the “California Utilities”) to a Federal Energy Regulatory Commission (“FERC”) order denying PG&E’s request for an “RTO Adder” for its participation in the California Independent System Operator Corporation (“CAISO”). The Utilities argued that they were entitled to this incentive under section 219(c) of the Federal Power Act (“FPA”), but FERC determined that their participation in CAISO was not voluntary due to California law mandating their participation, and thus they were ineligible for the adder. On appeal, the Ninth Circuit affirmed FERC’s order.
On December 29, 2023, FERC addressed PG&E’s request for a 50-basis point RTO Adder to its return on equity for continued participation in CAISO. FERC evaluated the request under Section 219(c) of the FPA, which directs FERC to provide incentives to each utility that joins a regional transmission organization (“RTO”) or independent system operator (“ISO”). In implementing and interpreting Section 219(c) through Order No. 679, FERC has established that such incentives, including the RTO Adder, are available only when a utility’s participation in an RTO or ISO is voluntary. In its December 29 Order, FERC found that, following amendments to California law, PG&E and similarly situated utilities are now required by state law to participate in CAISO and cannot unilaterally withdraw. FERC therefore concluded that this statutory mandate rendered PG&E’s participation in CAISO involuntary, and found that PG&E was no longer eligible for the RTO Adder under Order No. 679’s voluntariness requirement. On rehearing, FERC continued to reach the same result.
On appeal, the California Utilities advanced several arguments. First, the California Utilities contended that even if California law rendered their participation in CAISO involuntary, such a requirement was preempted by federal law, as it conflicted with the FPA and FERC’s authority. The California Utilities also argued that the plain text of Section 219(c) of the FPA entitled them to the RTO Adder regardless of whether their participation in CAISO was voluntary or compelled by state law, and that FERC’s interpretation improperly read a voluntariness requirement into the statute. The California Utilities further asserted that the incentive was intended to promote capital investment in transmission infrastructure, not merely to encourage voluntary RTO membership.
The Ninth Circuit rejected the California Utilities’ arguments and affirmed FERC’s order. The court held that California’s mandate for utility participation in CAISO was not preempted by federal law, as it did not make compliance with both state and federal law impossible, nor did it frustrate the purposes of the FPA. The court also found that the best reading of Section 219(c) is that the incentive adder is intended to induce voluntary RTO membership, and that an incentive cannot induce conduct that is already legally required. Thus, the Ninth Circuit held that FERC did not act arbitrarily or contrary to law in denying the California Utilities’ request for the adder, as their participation in CAISO was not voluntary under California law.
A copy of the Ninth Circuit’s opinion is available here.
