FERC Chief Administrative Law Judge Curtis L. Wagner’s proposal to make the pricing formula outlined in the Commission’s June mitigation order retroactive to Oct. 2, 2000 is unfair and would add to the uncertainty already seen in California’s power markets, argue Enron Power Marketing Inc. and Enron Energy Services. If Wagner follows through on this, the ALJ also should urge the Federal Energy Regulatory Commission to rule that all rates charged by generators prior to the Oct. 2 cutoff are just and reasonable and are not subject to refund, the Enron affiliates said in preliminary comments made at the Commission.

Wagner signaled his intent at the tail end of failed settlement talks earlier this week on refunds for California electric customers (see Daily GPI, July 10). He indicated that not only does he plan to propose that FERC’s price-mitigation order be made retroactive to Oct. 2, but he will recommend that the full Commission make changes to the complex pricing formula for limiting electric prices in the West — specifically with respect to the gas prices used and the heat-rate factor. His proposal would differentiate between the natural gas prices for the northern and southern zones of California, and it would allow for the use of actual hourly heat rates.

Enron said that not only does it oppose the retroactive application of FERC’s June 19 order, but it also believes that refunds are not due in the absence of specific findings of illegal conduct by individual participants. If FERC had implemented this on Oct. 2, marketers such as Enron would have been on notice as to the application of the pricing method and could have come to an informed decision as to whether or not to participate in this market, Enron added.

By proposing to apply this formula to all spot market sales in California, Wagner is imposing on all marketers a pricing methodology that was not foreseeable and could not be factored into the commercial decisions that were made at the time, Enron argued. “Such a retroactive rule change is unfair, not to mention destructive to commercial markets, and adds to the uncertainty already existing in California.” In addition, to the extent that marketers’ sales in the spot market from Oct. 2 through June 19 exceeded this newly defined price cap, marketers will be subject to potential refund exposure, without the ability to justify their bids that exceeded the price cap. California “must take responsibility for the dysfunctional spot market, and has further exacerbated the problem by ignoring Commission orders.” Since many marketers were price takers in the market and incapable of exercising market power, refund obligations under these circumstances would be “especially egregious.”

If Wagner proposes the retroactive implementation of the June 19 order’s methodology, Enron asserted that the recommendation should also include a number of additional findings. First, by virtue of making a determination that refunds are due only from Oct. 2 forward, Wagner in essence determined that all rates charged prior to this time are not subject to refund. Consequently, Wagner should urge FERC to explicitly state that these prior rates, which are within the Commission’s exclusive jurisdiction, are just and reasonable and are not subject to refund. Second, in recommending that the June 19 methodology be used for all spot market sales since Oct. 2, the judge should explicitly specify to FERC that the new rates that result from the application of this methodology are just and reasonable and will not be subject to further refund liability for this period.

Enron further argued that if refunds are to be ordered, then all buyers from the California Independent System Operator (Cal-ISO) and California Power Exchange (Cal-PX) markets must receive their rightful share of the ordered refunds. “California assumes that it is the sole buyer, but that is far from the truth.” Enron noted that it has been a net buyer to fulfill its obligations as a California registered electric service provider. As such, Enron feels it is entitled to refunds under Wagner’s proposed refund methodology. Wagner’s recommendation to FERC should specify that refunds must be provided to the actual buyers and not solely to California or its three investor-owned utilities, Enron said.

Enron planned to make a more detailed filing in response to Wagner’s recommendation yesterday at FERC.

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