Williams Ordered to Pay $8 Million to Cal-ISO

Williams Energy Marketing & Trading has been ordered by FERC to refund $8 million to the California Independent System Operator (Cal-ISO) and to foot the bill for replacement service if generation plants required to serve the Cal-ISO are unavailable due to forced power outages, according to a stipulation and consent agreement adopted by the Commission Monday.

The stipulation and consent agreement was in response to a mid-March order in which the Commission directed Williams Energy and AES Southland Inc. to show cause why they should not be held in violation of the Federal Power Act (FPA) for allegedly engaging in actions that drove up prices in the California bulk market and potentially compromised the reliability of the transmission network.

The agreement, which was entered into between FERC's Market Oversight and Enforcement Section and the two companies, resolves all the issues in the show-cause order. However, it made no findings on the merits of the charges against the two companies, nor did it require Williams Energy or AES to admit any wrongdoing [IN0I-3-001].

Specifically, the agreement calls for Williams Energy to refund $8 million of the $10.85 million in additional revenues (after costs) that it received when two AES generation units, designated as reliability must-run (RMR) units, failed to provide immediate service to the Cal-ISO during the April-May period last year. As a result, the Cal-ISO was forced to call upon other non-RMR AES units for replacement service, and pay a much higher price (near or at $750/MWh) to Williams Energy. Williams Energy is the exclusive marketer for power from the two AES plants at issue --- AES Alamitos LLC and AES Huntington Beach LLC in southern California.

The Commission also conditioned Williams Energy's market-based authority such that it will have to bear the financial risk for one year in the event an RMR unit at either the Alamitos or Huntington Beach plants is unavailable to the Cal-ISO due to a forced outage. Under this provision, the Cal-ISO will be able to call upon a non-RMR unit at both plants to provide replacement service at a price equal to that which it would pay for service from a designated RMR unit.

Significantly, the stipulation and consent agreement does not find that either Williams Energy or AES abused their market power in California. Consequently, the Commission rejected the California Public Utilities Commission's (CPUC) request to impose penalties --- over and above refunds --- on the two companies to deter abusive behavior in the market.

Moreover, the agreement does not terminate the "formal, non-public investigation" that FERC ordered in mid-March into any and all violations by Williams Energy and AES -- or their parents, subsidiary companies and affiliates -- with respect to the operation, maintenance and sales of power from the Alamitos and Huntington Beach generation plants in 2000 and 2001. "The order does not affect that investigation, except that the formal investigation will not address the matters settled by the agreement."

In a concurring opinion, Commissioner William Massey said he agreed with the CPUC's request for penalties against the two companies. "Our enforcement staff and the Commission as a whole must insist upon remedies that are aggressive enough to act as a deterrent to anti-competitive actions. In this respect, this settlement is not as strong as I would have preferred," he noted.

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