FERC accuses Williams and AES of withholding power

Federal regulators Wednesday accused units of Williams and AES Corp. of withholding electricity from two California power plants during April-May 2000 and running more profitable plants instead. The Federal Energy Regulatory Commission (FERC) ordered Williams Energy Marketing & Trading Co. and AES Southland to explain why they shouldn�t return $10 million in profits from the alleged scheme to withhold power from units designated reliability must-run (RMR) plants.


By the OGJ Online Staff

HOUSTON, Mar. 14�Federal regulators Wednesday accused units of Williams and AES Corp. of withholding electricity from two California power plants during April-May 2000 and running more profitable plants instead.

The Federal Energy Regulatory Commission (FERC) ordered Williams Energy Marketing & Trading Co. and AES Southland to explain why they shouldn�t return $10 million in profits from the alleged scheme to withhold power from units designated reliability must-run (RMR) plants.

The companies have 20 days to �show cause� why the commission should not demand a return of the profits. The commission said it also has begun an investigation into the operation, maintenance, and sales of power from the same units for other periods in 2000 and 2001, and warned it will release certain nonpublic information in 5 days, unless the companies can justify the need for continued confidentiality.

"We're reviewing the FERC show-cause order, but because it is a lengthy document, we will not be able to comment on it today [Wednesday] in any detail," said Bill Hobbs, president of Williams Energy Marketing & Trading.

"What we can say today, however, is that once all the facts are on the table, we are confident it will be clear that Williams conducts business legally, within the terms of our contracts and tariff obligations. We plan to continue being part of the solution to restoring health to California's power markets."

AES Southland did not return phone calls.

A RMR plant is a generating facility that the California Independent System Operator (ISO) can call upon to provide energy essential to the reliability of the system. The tariff of an RMR plant includes a fixed payment to compensate for availability and a second variable payment to compensate for cost-based rates, if the unit is not participating in the market.

Tolling agreement
Williams has a tolling agreement with AES which owns and operates the plants in question. Williams markets the power from the Alamitos 4 and Huntington Beach 2 plants designated as RMR plants by the ISO. Williams has a right to dispatch any unit as long as AES says it�s available for service. AES pays operation and maintenance costs. The two companies are supposed to coordinate timing of outages, according to the tolling agreement.

The plants are operated under an ISO tariff for RMR plants which means Williams is paid the greater of its contract price or marginal cost for operating RMR units. If the units are not available, however, then the ISO must dispatch a non-RMR unit to provide the service.

During April and May, the ISO tried to dispatch units designated RMR but was told they were unavailable, according to the commission order. The ISO was forced to dispatch other units potentially compromising the reliability of the transmission network, FERC alleged.

If the RMR units had run, Williams would have received either the market revenue from the units and no RMR payment from the ISO, or it would have received the variable cost for operating the RMR, less the market revenue form the units' output.

Because the units were withheld, Williams received "prices many times higher than the applicable RMR contract price or the then-prevailing market price," FERC alleged. While Williams's bid price was at or near $750/Mw-hr, the estimated average variable operating cost of the non-RMR units during April and May was about $63/Mw-hr, FERC said.

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