Firing back at a request by a Washington state public utility district for FERC to void a long-term power supply contract it has with American Electric Power Service Corp. (AEP), the Electric Power Supply Association (EPSA) last week filed a motion to intervene, charging the request attempts to “piggyback” on a “wave of complaints” to abrogate western contracts, which now threaten to overwhelm FERC and the power industry [Docket No. EL02-100-000].

The Public Utility District No. 1 of Snohomish County, WA, filed its complaint against AEP at the Federal Energy Regulatory Commission last month, charging that its long-term power supply contract was a product of market manipulation. It is seeking relief from the “excessive” $150/MWh price and five-year term.

EPSA, which represents competitive power suppliers, noted that FERC has already found the parties seeking to overturn “voluntary, market-based bilateral contracts will have a ‘heavy burden.'” FERC also has concluded that, “based on the evidence contained in the complaints, the parties have failed to meet that burden.”

EPSA noted that “it is now apparent that the Commission has opened a floodgate that threatens to overwhelm the resources of the Commission and the industry, and calls into question the sanctity of any contracts in the entire wholesale market entered into by any part in the West.” In fact, noted EPSA, “the Commission’s action suggests it would be irresponsible for any buyer not to challenge their contracts and take their chances before FERC.”

The association’s complaint also noted of “particular interest” the utility district’s “attempt to focus on the Commission’s June 19, 2001 Mitigation Order as unfairly favoring customers of the spot market.” Snohomish argues in its complaint that FERC “cannot grant relief only to those consumers dealing in the spot market, but also to those like Snohomish who, heeding the Commission’s advice, signed forward contracts that are now unjust and unreasonable because the current prices fall far below those of the contracts in question.”

EPSA noted in its motion that the FERC-imposed mitigation order “did not have the direct result of lowering prices that Snohomish would have the Commission believe, in its attempt to abrogate these contracts…Snohomish is in the same position as any other party that enters in a forward contract and then finds spot market prices lower than they expected. Certainly in that situation, the Commission would not abrogate any contracts.”

EPSA said abrogating the contracts would also send a “terrible signal to the market,” and would create a “vicious cycle where parties continuously attempt to look to FERC to correct any risk management scenario that does not result in low prices, attempting to utilize Commission intervention rather than properly manage risk on behalf of their customers. The Commission needs to break this cycle.”

Another “new” aspect of the Snohomish complaint, said EPSA, is that “without any explanation or showing of market power abuse by AEP,” the utility district wants AEP’s market-based rate authority revoked. Only three power suppliers responded to Snohomish’s Dec. 22, 2000 Request for Proposals to 17 potential sellers seeking 75-100 MW of power, said EPSA, and this response “forced” Snohomish to contract with those three responding sellers, including AEP. EPSA said Snohomish’s “alleged ‘lack of bargaining power’ and the dysfunctionality of the California and West-wide market in late 2000 are posited as the only proof that AEP engaged in anti-competitive behavior and exerted market power.”

In the motion to intervene by EPSA, the association urged FERC to dismiss Snohomish’s complaint. “Ripple claims are already being filed and more litigation will be a direct result of the Commission’s approach. These floodgate concerns are now a reality — the inevitable result of the Commission’s actions in the prior cases. That error should not be compounded here.”

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