As Price Caps Wane, Generator Refunds Take Center Stage In DC

FERC's widely-anticipated move last week to extend price controls on bulk electricity transactions to the entire Western region around the clock blew through Washington with hurricane force, shifting the political winds away from price caps in the Senate. However, just as the volatile issue of price caps began to subside somewhat on Capitol Hill, a new debate emerged in Congress over whether the agency should be more aggressive in ordering generators to provide refunds for overcharges that California Gov. Gray Davis said run into the billions of dollars.

In the wake of last week's FERC order enacting price relief for bulk power transactions in the entire West and 24/7 (see related story), western senators last week halted legislation that sought to push the agency into capping prices or returning to cost-based rate regulations. At a hearing before the Senate Energy and Natural Resources Committee last Tuesday, at which all five commissioners testified, senators gave the agency a passing mark for its long-sought action.

The Commission "may not call it cost-based rates, but it is very similar to what Sen. Gordon Smith (R-OR) and I asked for in our bill," seeking either cost-based rates or price-cap relief, said Sen. Dianne Feinstein (D-CA). Commissioner Pat Wood agreed with her assessment. In comparing cost-based rate regulation to the Commission's expanded price-mitigation plan, he said, "I don't think that there's a dramatically different outcome as far many dollars are going out" of electric customers' pockets. "I want to join Sen. Feinstein in saying `I believe this order goes a long way'" and renders "substantially moot [the] legislative effort we were pursuing," noted Smith, who added that the Commission's price relief was long overdue. "[Y]our intervention has been needed for some time" in the "broken" energy markets in the West.

While price caps may now be a non-starter in the Senate, Democrats in the House of Representatives this week are gearing up for a battle that could force consideration of energy price cap legislation on to the House floor. At issue is legislation sponsored by Rep. Jay Inslee (D-WA) that would instruct FERC to implement short-term, cost-of-service based energy rates that would sunset on March 1, 2003. The bill exempts new generation facilities from the rate limits in order to encourage new energy generation. Under Inslee's approach, if FERC ignores the will of Congress, states would have the right to appeal to federal courts. A Capitol Hill aide told NGI last week that House Democrats expect to introduce a discharge petition related to Inslee's bill on Wednesday. The petition, if successful, would take Inslee's bill out of the House Energy and Commerce Committee and move it directly to the House floor for consideration.

FERC's rehearing action last week expanded on its April 26 order, which had offered price-mitigation relief for power sold only in California, and only during Stage I, II and III emergency reserve shortages. The initial order did not apply to imported power, which prompted charges that some in-state suppliers were selling their power out of state and then importing it back into California to avoid being subject to the price controls. However, the new order, in expanding the price mitigation to the entire western region, is expected to close that loophole.

Meanwhile, the executive director of California's small generator trade association last week noted that several questions remain unanswered related to FERC's latest mitigation efforts (see related story). Among other things, Jan Smutny-Jones, executive director of the California Independent Energy Producers Association (IEP), raised the issue of how the order will impact the overall ability of power plants to operate in the western states. "It will probably take several weeks to see how it plays out."

What won't take weeks to determine is how Davis and several other politicians feel about the issue of generator refunds. Appearing on Capitol Hill last week, the California governor argued that FERC must order power generators to refund his state billions of dollars worth of what he said were overcharges for power supplied to the state. "FERC must order these energy companies to give us back our money," Davis told the Senate Governmental Affairs Committee at a hearing looking at the role of FERC and the restructuring of energy industries.

Davis noted that the California Independent System Operator (Cal-ISO) has estimated that from May 2000 to February 2001 power generators charged California residents $6.7 billion more than a competitive marketplace would otherwise warrant. According to Davis, recently updated Cal-ISO figures through May peg generator overcharges at $8.9 billion. But he pointed out that "not a single penny in refunds" has been returned to California. "I believe it is unconscionable if generators are allowed to keep these egregious charges," the governor told the panel chaired by Sen. Joseph Lieberman (D-CT).

Davis hinted that Pat Wood III, one of FERC's newest commissioners and a potential replacement for current Chairman Curt Hebert, is keeping an open mind when it comes to the issue of refunds. "I've had three conversations with him. I find him to be a very reasonable person, and he suggested to me that he thought a more aggressive approach to refunds might be in order, so I think he might be sympathetic."

As part of its expanded mitigation order, FERC also announced that it will hold a settlement conference before one of its administrative law judges to discuss resolving refund issues for past periods. Lieberman, noting that the settlement conference will only span 15 days, asked Davis if he has had enough time to determine whether this is an adequate forum in which to try to obtain generator refunds. "I don't know if 15 days is enough time to resolve this issue, but I do believe the FERC should get a clear signal from this committee that refunds are part of its function," Davis said.

Davis suggested to Lieberman that at the end of the 15-day settlement period, the Governmental Affairs Committee call back FERC commissioners to determine what progress has been made, whether states have been given the opportunity to make their case and what will happen in the area of refunds. Lieberman seemed sympathetic to Davis' suggestion. "Let me just say that it's my intention, though the committee has a lot on its agenda, that this is an important enough crisis and it is a crisis obviously that affects the West, but it sets a precedent for how energy price and supply crises will be responded to by the federal government, so I intend to continue to exercise, on an ongoing basis, the oversight authority of this committee with regard to FERC."

The California governor further asserted that FERC should turn its attention to natural gas. He noted that until very recently, California natural gas prices were two to three times higher than the national average and for a while were eight times higher. That was due in part to an affiliate of El Paso Natural Gas controlling a "significant portion" of the pipeline capacity into Southern California, Davis argued. "It was not until that contract expired and was divided essentially to 30 other energy companies that the price started to come down to get close to what the rest of the country is enjoying." Davis said FERC needs to exercise its responsibility to enforce laws against manipulation on interstate pipelines to California. FERC earlier this month set for hearing allegations that El Paso Natural Gas rigged the bidding process for transportation capacity on its system to favor its merchant power generation subsidiaries (see NGI, June 18).

On the same day that Davis was making his case for generator refunds in Washington, Sen. Barbara Boxer (D-CA) introduced the "Electricity Gouging Relief Act of 2001." The legislation would require FERC to order refunds for past electricity purchases in cases where the Commission determined that prices were unjust and unreasonable and would affect electricity sales that took place between June 1, 2000 and June 19, 2001. "My bill helps to right past wrongs by providing rebates in cases where companies were engaged in gouging," Boxer said.

Adding fuel to the refund fire, Senators from Oregon and Washington State last week questioned why FERC's expanded mitigation order does not allow Pacific Northwest electricity customers to seek refunds for past overcharges dating to last summer. Washington Sens. Maria Cantwell (D) and Patty Murray (D), and Oregon Sens. Smith and Ron Wyden (D) cited their concern in a June 20 letter to FERC Chairman Curt Hebert, which otherwise endorsed the Commission's action.

"...[W]e are very concerned about the absence of a mechanism allowing electricity customers in the Pacific Northwest to seek refunds for past overcharges, dating to last summer, that have been unjust and unreasonable," the senators wrote. They asked FERC to reconsider an earlier decision in which it denied a complaint filed by Puget Sound Energy under Section 206 of the Federal Power Act, and to establish a refund effective date consistent with Puget Sound Energy's October 2000 rate filing. "We believe ratepayers in the Northwest need to be treated with the same fairness and standards as California ratepayers."

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