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 decision followed along the lines of 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 that 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.

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.

California’s Gov. Gray Davis immediately 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.”

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 NGI, Dec. 16, 2002).

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