Feds Push Power Crisis-Era Dispute Resolution

By Published On: December 19, 2008

In an effort to resolve remaining disputes over power contracts stemming from the California 2000-01 energy crisis, the Federal Energy Regulatory Commission decided December 18 to hold “paper hearings” to supplement its record in the cases. “Resolution by settlement is always preferable to litigation,” said FERC chair Joe Kelliher. “But if parties do not settle their disputes, we will perfect our record and resolve them ourselves.” The action responds to a U.S. Supreme Court decision in June that remanded a number of FERC decisions on crisis-era contract disputes, which turned on how the commission applied the Mobile-Sierra doctrine. The doctrine presumes that power rates established in freely negotiated contracts meet the Federal Power Act’s just and reasonable requirement and therefore protect the public interest. The High Court agreed that the commission properly applied the doctrine, but told FERC it needed to clarify how its decisions affect the public interest and further identify any causal connection between alleged unlawful market activity and the disputed contracts. “I am hopeful that today’s order marks the beginning of the end,” said FERC commissioner Phillip Moeller. He said the paper hearings offer “one final opportunity” for the companies involved in the contracts to make their case. Among those that are party to the disputes are Morgan Stanley Capital, Enron, Sierra Pacific, Nevada Power, Mirant, Reliant, and the Southern California Water Co. The case is Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1 of Snohomish County. In a related move, FERC dropped a proposed rulemaking that was aimed at establishing a public interest test for power contracts. The commission opened the proceeding in response to the Morgan Stanley case. However, FERC said the High Court’s decision affirming its application of the Mobile-Sierra doctrine eliminated the need for the rulemaking. FERC also approved the California Independent System Operator’s plan to assign merchant congestion revenue rights to Florida Power & Light along transmission Path 59, which runs between Blythe and Southern California Edison’s Eagle Mountain substation. The rights are to be granted under the grid operator’s forthcoming power market redesign. Without the assignment, the grid operator told the federal commission that FPL would have no way to receive compensation for its power transmission services over the line. The new market does not provide a compensation mechanism for pre-existing merchant transmission lines, only new merchant lines. Under an agreement, Edison and FPL upgraded Path 59 earlier this decade to a capacity of 218 MW. Previously, Edison had been the sole operator of the line, which had a capacity of 72 MW. FPL currently is compensated through firm transmission rights contracts, which are to be terminated under the new market. Impressed by the grid operator’s argument, FERC approved the plan over objections by the Metropolitan Water District and California Department of Water Resources. They expressed concerns that the action might affect the price or availability of power they need for pumping water into Southern California. Under FERC’s action, Edison is to receive 42.9 percent of the congestion revenue rights and FPL 57.1 percent. The revenue rights are to run for 30 years.

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