FERC Gets Earful on CA Refund Order

Efforts by FERC to get a handle on how much California is due for possible electricity overcharges by generators are coming under fire from a number of quarters. Public power entities are arguing that the Commission has no right to assert authority over municipals, while several power marketers question why those parties that are potentially on the hook for refunds have never been given the chance to defend themselves and offer evidence as to whether refunds should have been ordered in the first place.

The Federal Energy Regulatory Commission in July established evidentiary hearing procedures related to the collection of data needed in order to determine the amount of refunds due to California for electricity overcharges. The order concluded 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.

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, which recently drew the ire of the American Public Power Association (APPA).

APPA argued in an Aug. 24 filing that FERC's effort to assert jurisdiction over municipals and to require them to make refunds of sums collected for the sale of power and energy contravenes the language and intent of the Federal Power Act (FPA), exceeding the scope of jurisdictional authority afforded to the Commission by relevant provisions of the FPA. "The governing provisions of the Federal Power Act unambiguously and explicitly confine the Commission's jurisdiction to non-municipal utilities."

APPA further noted that FERC has been particularly adamant in asserting its lack of authority over municipal power sales when dealing with market-based rates. In a case involving New West Energy Corp., APPA pointed out that the Commission said that the legislative history of the FPA clearly shows that Congress was deliberate and careful in its efforts not to impose FPA public utility regulations on states and municipalities. "Given that the California market mechanism involves market-based rates, municipal entities in California had absolutely no reason to suspect that their participation in a market-based structure would subject them to potential refund liability."

Similarly, the Bonneville Power Administration (BPA) told FERC in a separate request for rehearing that the Commission may not order BPA to pay refunds for sales in the California spot market. Specifically, BPA said that statutory sections of the FPA "unambiguously provide that the Commission has jurisdiction only over public utilities, and that neither BPA nor any other governmental entity is subject to its jurisdiction."

BPA also took issue with FERC's belief that governmental utilities were "on notice" that the Commission might require refunds in the California market and that because the centralized California spot market did not exist prior to FERC authorization, participants in the market had to recognize the controlling weight of the agency's authority. "In essence, the Commission's position is that it has jurisdiction over governmental sellers in the California market because they should have anticipated that the Commission intended to assert jurisdiction."

For its part, the Electric Power Supply Association (EPSA) took the position that FERC's ordering retroactive refunds to Oct. 2, 2000 is legally flawed and inappropriate. Specifically, EPSA said that the Commission made no findings in its order to explain why refunds are required for all hours for the period from Oct. 2, 2000 through June 20, 2001. FERC "clearly did not find" in its July order or any previous order in this proceeding that market power could be exercised in a non-reserve deficiency situation, EPSA added.

Moreover, the association said that FERC cannot support ordering refunds because competitive suppliers have not been given the opportunity to put forward an adequate defense against those refunds. "When almost $9 billion in refunds are claimed, fundamental fairness dictates that prior to making any final determination on refunds, competitive suppliers must be given the opportunity to test the allegations of those seeking refunds and present their own evidence."

The Commission also heard from a coalition of 17 sellers of electricity into Western markets, which filed a request for rehearing of the refund order at FERC on Aug. 24. Companies in the coalition include Avista Energy, Enron Power Marketing, El Paso Merchant Energy and Coral Power LLC.

The power marketers said that much of the defects of FERC's order stem from the application of incorrect standards to the issues presented, which limit the scope of the hearing to a determination only of the extent of the refunds, rather than considering the factual, equitable and legal questions of whether refunds should or may be required. "The problem with this, of course, is that the Commission never has afforded those parties that would be subject to a refund order any opportunity to defend themselves and present evidence on whether refunds should be ordered, in the first instance."

Meanwhile, Portland, OR-based PacifiCorp argued that generators that sold power through Cal-ISO and the state's PX were not given a reasonable opportunity by FERC to show that their rates were just and reasonable. "The abrupt change in the Commission's stated policies regarding refund liability during the course of these proceedings was so great as to deny PacifiCorp any reasonable opportunity to avoid refund liability or otherwise protect its interests," the power company told FERC.

In contrast, California's grid operator made the pitch that the parameters laid out in the refund order are too narrow because they excluded, among other things, spot transactions by the California Department of Water Resources. "This error, if uncorrected, could harm California end-users by more than a billion dollars," Cal-ISO told FERC.

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