Williams Market-Based Rate Power Challenged

California regulators and others are seeking a suspension of Williams Energy Marketing & Trading Co.'s authority to charge market-based rates for wholesale power transactions in the western region, claiming that the marketer possesses market power and is flagrantly abusing it.

"Williams has market power" in California and in the other states that make up the Western Systems Coordinating Council, the California Public Utilities Commission (CPUC) flatly told FERC, and the company failed to prove otherwise in a recent market-power update that it submitted to the Commission. If the suspension request is denied, the CPUC has asked FERC to set the issue for hearing. Also challenging Williams' market-based authority are the California Independent System Operator (Cal-ISO), Pacific Gas and Electric and Southern California Edison.

"The time has come for FERC to disregard its philosophical predilection for unfettered markets, and do its statutory duty" by stripping Williams of its power to charge customers market-bearing prices. "Neither Williams nor any other supplier is entitled to market-based rates as a matter of right," the CPUC said [ER99-1722-004].

While the Commission's March 9 order addressing potential refunds in California was "woefully lacking," it revealedthat "even FERC's cramped view of what constitutes market power recognizes that Williams does possess, and has exercised, market power," the state commission said (See NGI, March 12). In that order and in a subsequent refund order (March 16), FERC put Williams on notice that it could owe up to $29 million in refunds in California as a result of "unjust and reasonable" prices charged to customers (See NGI, March 19). Williams' share represents about one-quarter of all refunds that suppliers may have to pay out.

"If any doubt remains, however, as to whether Williams has (and is willing to exercise) market power, it is undone by FERC's recent show-cause order" issued last month, the CPUC said. The Commission ordered Williams and AES Southland Inc. to show cause why they should not be found in violation of the Federal Power Act (FPA) for allegedly engaging in actions that drove up power prices in the California bulk market and potentially compromised the reliability of the transmission network (See NGI, March 19).

In the event Williams and AES can't successfully refute the charges, the Commission could order the two companies to return profits of more than $10.8 million, and it could condition their future market-based rate authority. They have until mid-April to show cause why they should not be held in violation of the FPA.

If the refund and show-cause orders aren't enough, the Cal-ISO provided the "missing link" in a study that it submitted to FERC on March 22, according to the CPUC. It showed the manner in which in-state owners of divested generation, including Williams, manipulated their bids to exercise market power, the state agency noted. The CPUC also pointed to Williams' walloping profits last year as a show of market power. Williams Energy Services, which includes the Williams Energy Marketing & Trading division, reported profits of $1.56 billion for 2000, compared to $529 million in 1999, an increase of more than 300%, state regulators noted. In the fourth quarter 2000 alone, Williams Energy Services saw profits of $630 million, which was equal to three-quarters of its parent company's profits for the entire year.

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