Senator: FERC Refund Policy Must Not Harm NW Utilities

Sen. Maria Cantwell (D-WA), in a recent letter to FERC Chief Administrative Law Judge Curtis L. Wagner, argued that any refund policy adopted by the Commission must not disadvantage utilities in the Pacific Northwest because of the contractual mechanisms that they have used to acquire power to serve their customers. She also asserted that Northwest entities that have been hurt by California's energy crisis should be eligible for refunds.

"I believe that FERC must work toward a comprehensive settlement that addresses the claims of not just California consumers, but the Northwest's as well," Cantwell wrote. "And in order to reach an equitable solution, it must acknowledge the fundamental differences in the California and Northwest markets."

Cantwell wrote to Wagner on July 12, the same day that the ALJ sent a report and recommendations to the full Commission related to just-concluded settlement talks over refunds potentially due to California. Wagner concluded, among other things, that California's assertion that it's owed $8.9 billion on electricity overcharges for the May 2000-May 2001 period "has not and cannot be substantiated."

Cantwell pointed out that one crucial difference that exists between California and the Pacific Northwest relates to the fact that the Northwest does not take a spot market approach. "Whereas California utilities were forced, under the state's restructuring law, to make all of their purchases in a centralized hour-ahead or day-ahead market, we have no such centralized market in the Northwest." While the region does have bilateral short-term markets, Northwest utilities have traditionally only used them to balance the difference between forecasted and actual loads, streamflows, weather and other factors.

Northwest utilities rely heavily on forward or long-term contracts that last for periods varying from month ahead to quarterly or longer, Cantwell wrote. "But these contracts have been closely affected by the skyrocketing spot market prices in California." It is thus "absolutely critical" that for purposes of its refund proceeding, FERC recognize that power prices throughout the West, and not just in spot markets, but in forward contracts as well, are unjust and unreasonable.

"Simply put, any refund policy must not disadvantage the utilities of the Northwest because of the contractual mechanisms they have used to acquire power to serve their customers," Cantwell told Wagner. "It is a matter of simple fairness -- especially since the long-term planning practices of Northwest utilities have actually helped bolster price stability in the West by removing load from volatile spot markets.

"My state's utilities should not be unduly penalized for sales into California when they have been forced to purchase this same power at similarly unjust rates -- but in different markets, and for longer periods of time," Cantwell said. "And further, the Northwest entities that have been harmed directly by the California market failure should be eligible for refunds."

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