FERC orders generators to justify California power prices

By the OGJ Online Staff

HOUSTON, Mar. 12�The Federal Energy Regulatory Commission (FERC) ordered 13 electric power generators to justify prices they charged for power sold in California in January or refund $69 million in profits the agency said could have been excessive.

The unprecedented order is the first in which FERC, acting under a Dec. 15 order allowing for after-the-fact review of wholesale power transactions, addressed charges generators have made windfall profits during California's energy crisis.

Starting in January, FERC established a so-called $150/Mw-hr "soft cap" for electricity sales, under which all transactions bid above the cap were subject to weekly reporting and monitoring requirements.

The agency said it used a price screen or proxy market clearing price�which would be the marginal unit dispatched during a Stage 3 emergency�as the setting the market clearing price under conditions of tight supply.

Based on criteria which includes average natural gas prices, average nitrogen oxide allowance costs, and variable operation and maintenance costs, FERC said it determined $273/Mw-hr would be January's proxy clearing price. The commission said it will set a proxy clearing price through April.

By May, FERC Chairman Curtis Hebert said the commission hopes to have a market monitoring program in place so post-transaction refunds will not have to be ordered.

Timetable set
The 13 generators and marketers have 15 days to challenge FERC's findings or issue refunds to California utilities, under the order issued Friday. Earlier this month, the California Independent System Operator (ISO) called on FERC to order generators to refund $555 million it said were overcharges for December and January sales.

Federal regulators, however, rejected the state standard and set a higher threshold for showing companies charged more than was "just and reasonable." FERC said the state "grossly" overestimated the amount of refunds due, by including December numbers and about $170 million in refunds due from entities such as the Los Angeles Department of Power and Water that FERC doesn't regulate.

The order was passed on a 2-1 vote with Commissioner William Massey dissenting. He called the order limiting potential for refund transactions to Stage 3 emergencies and bids in excess of $273/Mw-hr "arbitrary, capricious, and an abuse of discretion." He said using this method excludes 81% of transactions above the $150/Mw-hr soft cap.

"There is no logic to this methodology other than limiting the universe of potential refunds," he said, noting there was only one Stage 3 alert called in all 2000 and lasted only slightly more than 2 hr.

Named in the order were Arizona Public Service Co. ($2,800); Automated Power Exchange Inc. ($1.6 million); Avista Energy Inc. ($70,179); California Power Exchange Corp. ($378,614); Duke Energy Trading & Marketing Inc. LLC ($17.9 million), a unit of Duke Energy Corp.; Dynegy Power Marketing Inc. ($22.5 million), a unit of Dynegy Inc.; Nevada Power Co. ($12,006); Portland General Electric Co. ($3.2million), a unit of Enron Corp.; Public Service Co. of Colorado ($980); Reliant Energy Services Inc. ($12.4 million), a unit of Reliant Energy Inc.; Sempra Energy Trading Corp. ($480,914), a unit of Sempra Energy; Mirant California, Delta, and Potrero LLC (($2.2 million), units of Mirant Corp.; and Williams Energy Services Corp. ($8 million), a unit of Williams.