Ninth Circuit Sends Crisis-Era Contracts Back to FERC

By Published On: December 20, 2006

In an order to the Federal Energy Regulatory Commission to reconsider a decision on power contract refunds, the Ninth Circuit Court of Appeals refined an established fair and reasonable public interest standard. The amount of refunds at stake in the court’?s December 19 decision could be as high as $1.4 billion. “[The] court ruling is a big victory for the California Public Utilities Commission and California’s consumers,” stated CPUC president Mike Peevey. “The ruling puts another $1.4 billion back on the table for California’ consumers, and should motivate parties who have not settled with California, such as Sempra, to seriously reengage in settlement discussions.” Four years ago, federal regulators turned down the state’s assertion that Sempra and others who held power contracts during the 2000-01 energy crisis should be considered for refunds because the prices exacted were unjust and unreasonable. Unlike earlier cases, the court clarified the precedent that FERC used in its decision-making to rebuff California’s argument seeking refunds. This precedent, known as Mobile-Sierra, presumes that a legal contract for rates is “just and reasonable.” However, that presumption becomes rebuttable under the new decision when rates are high. The decision notes that if “a challenged contract imposes any significant cost on ultimate customers because of a wholesale rate too high to be within a zone of reasonableness, that contract affects the public interest.” FERC spokesperson Bryan Lee said the commission is reviewing the court’s opinion. He said regulators would “respond in due course” but didn’t hazard a guess as to when that may occur. The court remanded the case to federal regulators, noting FERC should consider all relevant evidence “before determining whether the Mobile-Sierra presumption applies.”

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