FERC Sets CA, Pacific NW Refund Hearings

FERC last Wednesday established evidentiary hearing procedures related to collecting data needed to determine the amount of refunds due to California for electricity overcharges. Among other things, the order concludes that transactions subject to refund are limited to spot transactions through the California Independent System Operator (Cal-ISO) and the state's power exchange from Oct. 2, 2000 through June 20, 2001. On a related track, the Commission established a separate, preliminary evidentiary proceeding on the issue of refunds in the Pacific Northwest.

The action came in response to a recent report and set of recommendations forwarded to the Federal Energy Regulatory Commission by Chief Administrative Law Judge (ALJ) Curtis Wagner. FERC adopted a methodology similar to the one recommended by Wagner. The order establishes evidentiary hearing procedures that will be limited to collecting data needed to determine the amount of refunds. The order also requires the Cal-ISO to provide certain information to the Commission within 15 days. Within 45 days after receiving the data, a FERC ALJ must certify the record and findings of fact to the full Commission.

In addition, the order establishes a separate, preliminary evidentiary proceeding on the issue of refunds in the Pacific Northwest. FERC will give the relevant parties 15 days to provide information to an ALJ, at which time a new 30-day period will be established for the judge to make findings of fact and conduct a proper cross-examination and discovery. There will then be a seven-day period for the judge to provide FERC with a report.

FERC also decided to extend a potential refund obligation to sellers into California spot markets that are non-jurisdictional public utilities such as municipal power entities. A decision that drew criticism from Commissioners William Massey and Linda Breathitt at the meeting.

"The order concludes that while (quote) 'we do not have direct regulatory authority over power sales by non-public utilities, we do have authority to order them to abide by the market rules we establish to make refunds of unjust and unreasonable rates for sales pursuant to those market rules,'" said Massey, adding that although this rationale is appealing to him, "I have not yet become comfortable enough with it as a legal matter."

"The refund rules of section 206 of the Federal Power Act are rather specific," he continued. "If Congress had wanted this agency to have refund authority over non-jurisdictional sellers it could have easily spelled that out." Massey said that the conclusion that FERC has the power to tell non-jurisdictional companies to pay money back "will come as a shock to most observers, I think."

"I support most of this order, but I will be joining Commissioner Massey in his dissent with respect to the majority's decision that requires non-FERC jurisdictional entities to pay refunds," Breathitt said.

Massey also noted that he disagrees with certain aspects of guidance included in the order on how refunds are to be calculated back to Oct. 2, 2000. "My first area of disagreement is in the use of daily spot gas prices as reported in various publications to determine the fuel cost component of the mitigated market clearing prices," Massey said. "It simply is not clear to me that generators purchased gas at those spot prices to replace the gas used to generate electricity for sale into the spot markets and we don't have to guess at whether they did or not." The Commissioner pointed out that FERC is dealing with an "historical, locked-in period" for which expenses ought to be known or knowable.

Massey also said he was concerned that FERC "still fails to squarely address the issue of generation withholding during the refund period and beyond." He said that the market-clearing prices for the refund period are determined by a method that uses the dispatch that actually occurred. "As some parties suggest here, the actual dispatches may reflect the withholding of more efficient units that drove the market clearing price up and I would add that the record in this case contains studies indicating that withholding did occur.

"A separate concern is what could the Commission do if we found deliberate withholding in the California spot markets or anywhere else for that matter," Massey continued. He said that there's a section of the order dealing with whether FERC can go back before the Oct. 2 date for a refund liability. "The order says that we cannot because we can do so only if the seller (quote) 'did not charge the filed rate or violated statutory or regulatory requirements or rules in applicable rate tariffs,'" he added.

Although Massey said that this language is probably a correct statement of the law, he quizzed FERC staff as to whether the Commission would have to find that conditions of tariffs were violated in order to require refunds or take other actions against sellers that deliberately withheld power from the market. A FERC deputy general counsel said that if the Commission could find a violation of a tariff provision, or a contract on file at FERC or a violation of market rules that were in effect at the time, then the Commission would have the legal authority to go back and take remedial action. "But I think short of that, it would be very difficult to do," the deputy general counsel said.

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