FERC asks court to reject Southern California Edison petition

Jan. 2, 2001
Southern California Edison Co.'s petition asking a Washington, DC, appeals court to order the Federal Energy Regulatory Commission to institute cost-based electricity rates should be rejected as unworkable and not in the public interest, the agency said Tuesday. Resolution of Southern California Edison's asserted financial woes now lie with state regulators, FERC said in response to a writ of mandamus filed Dec. 26 with the US Court of Appeals for the District of Columbia Circuit.


Southern California Edison Co.'s petition asking a Washington, DC, appeals court to order the Federal Energy Regulatory Commission to institute cost-based electricity rates should be rejected as unworkable and not in the public interest, the agency said Tuesday.

Resolution of Southern California Edison's (Edison) asserted financial woes now lie with state regulators, FERC said in response to a writ of mandamus filed Dec. 26 with the US Court of Appeals for the District of Columbia Circuit.

Joined by the California Public Utilities Commission (PUC), Southern California Edison, a unit of Edison International, asked the court to order FERC to "... fix by order just and reasonable cost-based rates ... for sales in the markets operated by the California Independent System Operator Corp. and the California Power Exchange."

FERC said neither Southern California Edison Co. nor the PUC have acted to implement its November and December orders and recommendations that would shift Edison's heavy reliance on the spot market to a portfolio that combines forward and spot purchases as a means of managing risk.

Instead, Edison seeks to continue purchasing practices, "established by the California restructuring law and implemented by the CPUC, that primarily rely on spot market purchases through a single price auction to fulfill virtually all California IOU (investor-owned utilities) electricity generation needs.

"It is simply unheard of for any utility, much less all IOUs in a state, to rely on spot purchases for all its needs," FERC says.

Southern California Edison and Pacific Gas and Electric Co., a unit of PG&E Corp., say their financial health is at stake. They have accumulated $8 billion in debt through the end of October. By the end of December, this debt was expected to climb to $11 billion.

The debt was incurred after the utilities bought high-priced wholesale power without being able to pass the full cost to their retail customers. The two utilities are operating under a rate freeze that is supposed to last until the end of March 2002 or until the companies pay off their stranded costs whichever comes first.

Three remedies
Other than cost-based rates, Edison has three potentially adequate remedies, according to FERC.

With approval by the PUC, Edison could make direct sales to its customers from its own generation sources at cost and enter into long-term contracts saving money, FERC explained. Taking Edison's own generation out of the California Power Exchange buy/sell requirement and pricing it at cost for its retail customers would immediately reduce Edison's claimed undercollection by 56% to $1.4 billion, according to FERC attorneys Dennis Lane and Judith A. Albert.

PG&E Corp. and Edison have also filed for electricity rate hikes of 26% and 30% respectively with the PUC, which is expected to make a decision Thursday. FERC said a rate hike could obviate the need for the court to act by allowing Edison to recover all or some portion of its claimed undercollection.

Third, FERC said, Edison could take advantage of the refund protection period adopted by the agency in its November order to seek recovery of any unjust and unreasonable amounts it believes it has been charged by individual generators.

Moreover, even if the commission instituted cost-based rates how they would be determined is problematic and there is a question of whether they would give Edison the relief it is seeking, FERC lawyers argue. Among the questions raised is whether cost of service rates should be set on a per seller or per unit basis and whether these rates should apply at differing demand levels.

FERC said it previously rejected cost-based rates to insure adequate supply for consumers at reasonable costs. Between 1996 and 1999, California's peak load grew by 5,500 Mw, while only about 700 Mw of capacity was added in the state.

Given California's current critical supply deficiencies, an important public interest consideration is providing incentives to attract new suppliers to avoid supply disruption, FERC said.

"In sum, the quick fix that Edison seeks from this Court may be neither quick nor a fix," FERC argues. "Equally troubling, it is unclear whether this fix would benefit consumers with lower prices, and it could interfere with the development of much-needed generation. Finally, if Edison's proposed fix were to replace the plan adopted by FERC, Edison could maintain its heavy dependence on the spot market, thus virtually guaranteeing a recurrence of these same problems."