The U.S. Circuit Court of Appeals for the Ninth Circuit in San Francisco last week rejected a petition by the California Power Exchange (Cal-PX) to stay three critical elements of the Federal Energy Regulatory Commission's Dec. 15 order, which mapped out a series of reforms for chronic problems in the California wholesale power market.
The Cal-PX sought a "writ of mandamus" to stay FERC's decisions to: 1) terminate the PX's wholesale tariff and CTS forward market rate schedule, effective May 1; 2) prohibit the investor-owned utilities (IOUs) from selling power on a voluntary basis into the Cal-PX markets; and 3) impose a $150/MWh "soft" price cap in the PX's core markets [Cal-PX vs. FERC, No. 01-70031].
Also rejected was a petition for mandamus by the city of San Diego asking the court to order FERC to immediately address the issue of California customer refunds for the period from Oct. 2, 2000 to Dec. 31, 2000.
"We are unconvinced that Cal-PX has presented a 'clear and certain' claim that FERC violated Section 206(a) [of the Federal Power Act] by terminating its tariff and rate schedules," even though its action was "perhaps unprecedented," said Circuit Judge Diarmuid F. O'Scannlain in writing the opinion for the three-judge court. The Commission "reasonably concluded that termination of the Cal-PX tariff and rate schedules was necessary to facilitate forward contracting by the IOUs free from the chilling effect produced by the [California Public Utilities Commission's] continuing reliance on the Cal-PX spot markets as the benchmark" against which to measure the "prudence" of the IOU's long-term contracts, the court noted.
The Cal-PX argued that FERC's decision to prohibit IOUs from selling all but their surplus generation into the Cal-PX markets was both "unduly discriminatory" and "arbitrary," but the court said the claims were unfounded. By its actions, "FERC intended to reduce by approximately 60% the IOUs' exposure to the volatile spot market during peak periods and to obviate the need for the IOUs to turn to the spot markets at all during off-peak periods. Thus, the measure was squarely addressed to the fundamental problem identified by FERC as distorting California wholesale electricity rates [and] over-reliance on the spot market."
Also lost on the court was the Cal-PX's argument that the $150/MWh "soft" price cap, which was imposed on the Cal-PX core and California Independent System Operator's (Cal-ISO) real-time imbalance markets, discriminated against the PX in favor of other competing markets.
"Cal-PX overlooks the fact that it has been the largest and only mandatory exchange in California and that FERC specifically found that flaws in the rules and policies of Cal-PX (as well as the Cal-ISO) contributed to unjust and unreasonable short-term electricity rates under certain conditions. No other electricity exchange was found to have contributed to the problem. FERC thus had reason to focus its remedial efforts on Cal-PX," the court said.
Further, it noted that the Commission imposed the "soft" price cap as a "middle ground between the need for temporary price mitigation and the realization that competition must exist for the California energy market to survive in the long run." This remedy, "considering the competing interests involved, is neither arbitrary nor discriminatory," according to the court.
The appellate court also sided with FERC on the city of San Diego's request for immediate refund relief. "While FERC has not yet addressed refund requests for the Oct. 2, 2000 to Dec. 31, 2000 period, we are confident that it will do so in due course...Its decision to give higher priority to structural remedies over retroactive refund determinations does not in any way entitle the city to the mandamus relief it requests."
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