FERC Dismisses Calif. Complaints on Bilateral Energy Crisis Contracts, Price Cap

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May 25, 2011

FERC dismissed a complaint filed in 2009 by the California attorney general which had alleged that various market participants had made short-term bilateral sales at unjust and unreasonable prices to the California Energy Resources Scheduling Division (CERS) of the California Department of Water Resources (DWR) during the period January 18, 2001 to June 20, 2001 (EL09-56).

FERC said that the complaint raised previously litigated issues related to late-filed electronic quarterly reports, and, insofar as it alleged other tariff violations, it did not sustain such allegations.

The at-issue purchases were made under bilateral contract, and FERC also found that the attorney general has not adequately pleaded or otherwise advanced evidence sufficient to address the Mobile-Sierra presumption regarding contract modification.

"Thus, the rates set in those contracts are to be presumed just and reasonable, and that presumption may be overcome only if the Commission concludes that the contract seriously harms the public interest. As the Supreme Court has made clear, general allegations of market dysfunction, like those made in the Complaint, are an insufficient basis to overcome the Mobile-Sierra presumption or find that it is inapplicable," FERC said.

The complaint had stated that CERS was forced to purchase more than $5.7 billion in short-term bilateral energy to supply the California investor owned utilities' customers and keep California's grid operational. The attorney general had alleged that during the relevant period, as measured by the mitigated market clearing price refund methodology, CERS was overcharged approximately $1.9 billion by the sellers who have not yet settled with the attorney general.

Separately (EL01-68), FERC dismissed refund claims from the California attorney general and the IOUs regarding the price cap established in a June 19, 2001 order. In that order, the Commission erroneously established the price cap for spot market sales at $108.49/MWh, even though the correct cap, based on FERC's stated formula, was $91.87/MWh. FERC did not acknowledge the discrepancy until a September 7, 2001 order where it addressed the confusion regarding the applicable cap by stating that $91.87 was the correct price. The California parties were seeking refunds from those sellers who used the higher, erroneous cap until the correction.

"We find that this confusion justifies a waiver of refunds for at least those transactions that took place between June 20, 2001 and September 7, 2001, the period when the sellers could have been reasonably relying on the higher price," FERC said, while also not finding any evidence that the cap was exceeded during any time after September 7, 2011.

Additionally, the Commission affirmed that exchange transactions were not considered spot transactions, and thus were outside the scope of the price cap established by the June 19, 2001 order.

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