California customers may expect to collect as much as $3.3 billion in power refunds, slightly more than the $3 billion the state still owes to power generators but up from original calculations of $1.8 billion, under a decision Wednesday by FERC to recalculate its market cap for power sold during the western power crisis in 2000-2001. The refund amount is considerably less than state claims of $9 billion.

Wednesday’s order followed along the Commission’s proposal last August to use spot gas prices from the producer basins, plus transportation, rather than California border prices to calculate the level of the power cap. However, generators who actually paid the higher gas prices will be able to cover those gas costs if they submit verifiable bills.

FERC’s original report gave an example of how staff’s proposed formula would work, using prices on Dec. 12, 2000. Under the original market cap calculation using the California delivery price of $32.75/MMBtu when the marginal unit that cleared the market was in Southern California, and assuming a marginal heat rate of 15,000 MBtu/MWh, the methodology produces a price of $497/MWh (including a $6/MWh operation and maintenance allowance). Using an average producer basin price for that day of $8.84/MMBtu, plus $0.977/MMBtu for total transportation costs, produces a market cap of $153/MWh (see Daily GPI, Aug. 15, 2002).

The Commission based the change on its determination that the California gas market was manipulated and the border prices reported by the trade press and used in the market cap formula reflected that manipulation. The goal is to “protect consumers and suppliers,” Commissioner Nora Brownell said of the two part order. After rehearing, the refund cases will be directed back to the administrative law judge (ALJ) to rerun the settlement numbers based on the new formula. In the meantime, the Commissioners suggested nothing is likely to change on rehearing, and power generators can start sending in their gas cost bills.

Before the ink was dry and the meeting concluded by FERC, California’s Gov. Gray Davis fired off a prepared statement: “It took two years for FERC to confirm what we knew all along — there was widespread market manipulation and a massive ripoff of California ratepayers. Now the question is whether the FERC Commissioners will have the grit to order the remedies that are necessary (up to $9 billion in refunds).”

Davis said he will continue to press until the state gets all of its refund monies back. He told news reporters he wants to be thought of as a “bulldog” who won’t let go until the refunds are paid. He is now publicly promising utility ratepayer refunds late this year and next year.

Commissioner William Massey said he did not believe the Commission had the jurisdiction to impose a refund obligation on non-jurisdictional entities, such as municipals like the Los Angeles Department of Water and Power.

A FERC staffer said the refunds are expected to go to the CAISO and the Cal-PX, so it is unclear when and how California customers will receive the money.

The decision Wednesday basically upheld an earlier decision by an ALJ, but simply changed the formula for the calculation (see Daily GPI, Dec. 13, 2002).

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