FERC last Tuesday issued an order accepting a global settlement reached between Duke Energy, several California parties and Commission staff resolving matters stemming from the 2000-2001 California energy crisis as they relate to Duke.
“The Commission’s action in approving this settlement will benefit customers by resolving claims against Duke for refunds, price adjustments or other remedies for actions arising out of Duke’s sale of electricity and natural gas into California during the period defined in the settlement agreement,” FERC said. “Approval will avoid further costly litigation, eliminate regulatory uncertainty and bring to a close a number of disputes stemming from the California market disruptions during 2000 and 2001 as they relate to Duke.”
The settlement, which was filed in October, casts a wide net in terms of the number of dockets it covers at FERC. Specifically, it resolves all refund issues in docket nos. EL00-95-0005 and EL00-98-000 and in the EL01-10 proceeding. The settlement also resolves claims against Duke in docket nos. PA02-2, IN03-10 and the Commission’s physical withholding investigation.
It also resolves related appellate proceedings insofar as these proceedings pertain to Duke’s sales in the California Independent System Operator (CAISO) and/or California Power Exchange (CalPX) markets and/or sales to the California Department of Water Resources’ Electric Power Fund (CERS) from Jan. 1, 2000 through June 20, 2001.
The settling parties also have agreed to mutual releases of past, existing and future claims arising at the Commission and/or under the Federal Power Act (FPA) with respect to rates, prices, and terms or conditions for energy, ancillary services, or transmission congestion in the western electricity or western natural gas markets during the period from Jan. 1, 2000 through June 20, 2001.
Also, the settlement resolves all claims against Duke that are based on the factual or legal contentions underlying the appeal to the U.S. Court of Appeals for the Ninth Circuit in Lockyer v. FERC. Upon approval of the settlement, California Attorney General Bill Lockyer and other California Parties in that litigation have agreed to file with the Commission requests to withdraw all claims against Duke in the Lockyer proceedings and will ask that the Commission dismiss Duke as a party to that proceeding.
The settlement provides an opportunity for all other parties to these proceedings to join the settlement as settling participants and it provides a period of five days following a Commission order approving the settlement for parties to make such an election. The settling parties said that those electing not to join will not be affected by the settlement, but they also pointed out that they will not share in the benefits of the agreement.
The settlement is based upon a calculation of Duke’s total estimated refund amounts for spot sales in the CAISO and CalPX markets in the FERC refund proceeding and allocating them between two time periods: the period from Oct. 2, 2000 through June 20, 2001 — the refund period — and the period from Jan. 1, 2000 through Oct. 1, 2000.
Under the settlement, Duke will provide a total of $207,500,000 in monetary consideration, consisting of:
The settlement calls for the settling parties and settling participants not to contest refund liability or offsets as they pertain to Duke, but would allow them to continue to assert their respective litigation positions for periods after the refund period. Once the settlement is effective, Duke will withdraw its claims against Pacific Gas & Electric (PG&E) in the PG&E bankruptcy proceedings.
Duke and the California parties will release each other from all past, existing and future claims arising at the Commission or under the FPA arising from the refund proceeding and from the claims of market manipulation and economic or physical withholding discussed in the final FERC staff report in Docket No. PA02-2 from the beginning of the pre-October period through the end of the refund period.
Duke has also agreed to certain non-monetary terms. Prospectively, Duke will implement the Commission’s market rules established in Docket No. EL01-11822 and will continue to comply with CAISO tariff provisions regarding must-offer obligations until such time as the Commission approves the termination of such obligations.
Duke will retain at its own expense an independent engineering company to perform semiannual audits of the technical and economic basis, justification and rationale for outages that occur at Duke’s generating facilities in California during the preceding six months. The results of these audits will be provided to FERC’s OMOI without prior review by Duke.
As was the case in Williams and Dynegy settlement proceedings, CalPX asked that the Commission hold it, its officers, directors and professionals harmless from any liability resulting from steps the CalPX takes to implement the settlement. CAISO also asked that the Commission provide a “hold harmless” determination for actions taken by the CAISO, its officers, directors, employees and consultants to implement the settlement.
“The Commission finds that both the CalPX and the CAISO have provided the Commission with compelling justification as to why they should be held harmless, along with their officers, directors, employees and contractors, for the steps taken to implement the settlement,” FERC said on Tuesday.
“Particularly persuasive is the fact that, although both CalPX and CAISO will be disbursing substantial sums of cash under the terms of the settlement, they are not protected by the same indemnities that article VII of the settlement agreement provides for the settling parties. Their own tariffs provide hold harmless protection for meeting their obligations under their respective tariffs, so the Commission finds that this same protection is warranted for CAISO and CalPX as they implement the settlement.”
FERC thus determined that CalPX and CAISO shall be held harmless for actions taken to implement the settlement.
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