A FERC administrative law judge (ALJ) urged the full Commission last Thursday to dismiss a series of complaints brought by power companies in Nevada, California and Washington seeking to reform above-market electric contracts that they entered into with generators during the height of the western energy crisis in 2000 and 2001.

The complainants — Nevada Power, Sierra Pacific Power, Southern California Water Co. and the Snohomish public utility district in Washington — failed to show that the contract rates in question adversely affected the public interest as required under the Mobile-Sierra doctrine, which ALJ Carmen Cintron said was the “applicable standard for use in this case.”

Moreover, under the public interest standard, “complainants failed to prove that the Cal-ISO and [Cal-PX] spot markets adversely affected the long-term bilateral markets,” the judge said in a 100-plus page initial decision . “As a result, it is concluded that the contracts at issue in this case should not be modified,” and the complaints are to be dismissed [EL02-28, EL02-33, EL02-38].

The complaints alleged that dysfunctions in western power markets in late 2000 and early 2001 tainted prices for sale into forward markets, making the rates in the challenged contracts “unjust and reasonable” because they were higher than forward market prices after mid-2001. But Cintron pointed out that proving the high-priced contracts were “unjust and reasonable” was not enough. Nevada Power and others had to show the contracts ran afoul of the higher public-interest standard.

“The public-interest standard has been characterized as ‘practically insurmountable,’ and can be overcome only in extreme circumstances, such as when the existing terms of the contract ‘might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory,'” the judge said.

“Commission and court precedent clearly establish that ‘the fact that a contract has become uneconomic to one of the parties does not necessarily render the contract contrary to the public interest. Allegations that contracts may be uneconomic by the passage of time does not render them unjust and unreasonable, nor contrary to the public interest.”

The evidence in the case revealed the contract prices for Nevada Power and Sierra Pacific were “at or below prevailing market prices,” and that the utilities’ consumers did not face an “excessive burden.” In fact, Nevada Power and Sierra Pacific said they planned to seek a decrease of 20% in their base energy rate in November of this year, the ALJ ruling said.

Moreover, the evidence showed the two utilities had financial difficulties “even before the contracts at issue in this case were signed,” said Cintron. Any additional financial distress suffered by Nevada Power and Sierra Pacific “stems from the decision of the [Public Utilities Commission of Nevada] in March 2002 to disallow recovery of costs associated with contracts not at issue in this proceeding.”

The complaints targeted contracts with a number of suppliers: Duke Energy Trading and Marketing, Enron Power Marketing, El Paso Merchant Energy, American Electric Power Services, Calpine Energy Services, Reliant Energy Services, Mirant Americas Energy Marketing, BP Energy, Allegheny Energy Supply and Morgan Stanley Capital Group.

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