California utilities file with FERC seeking a return to cost based rates

In filings to Federal Energy Regulatory Commission, Southern California Edison Co. and San Diego Gas & Electric Co. advocate a return to cost based rates and refunds to customers who paid high electricity prices last summer in California�s deregulated electricity market. The utilities made the filings Nov. 22, the last day that FERC would accept comments on its Nov. 1 order proposing remedies for the California electricity market problems.


In filings to Federal Energy Regulatory Commission, Southern California Edison Co. and San Diego Gas & Electric Co. advocate a return to cost based rates and refunds to customers who paid high electricity prices last summer in California�s deregulated market.

The utilities made the filings Nov. 22, the last day that FERC would accept comments on its Nov. 1 order proposing remedies for the California electricity market problems. In its proposed order, FERC did not find evidence of market power abuse at the root of the high prices and could not find a legal basis to order retroactive refunds although it did conclude that prices were unreasonably high. FERC also proposed a �soft cap� on wholesale generation prices allowing the highest bid price under $150/Mw-hr to set a market clearing price. Any bids over $150/Mw-hr would be paid to an individual generator only after FERC reviewed the cost data and determined the bid was not abusive.

Both utilities won�t give up the prospect of refunds. Citing legal precedents, they statedin their filings that refunds are possible..

�FERC, supported by case law in the federal courts, has ordered retroactive refunds when sellers have collected charges in excess of just and reasonable levels either by error or through the exercise of market power,� SCE�s filing stated

San Diego Gas & Electric also called on FERC to investigate again the idea that sellers of wholesale electric power exercised market power.

�If rates were not the result of legitimate market forces and not authorized by the commission, then the commission must order wholesale sellers to disgorge revenues derived from unauthorized and unlawful sales,� SDG&E stated in its filing.

SCE went a step further and said it has evidence that sellers have collected charges above competitive levels. The utility cited a study by economists Paul Joskow and Edward Kahn that included empirical evidence that sellers strategically withheld capacity from the market in order to exercise market power and inflate prices.

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