Mixed Bag in Appeals Court Refund Ruling

The Ninth Circuit Court of Appeals ruled that federal regulators' refund proceedings must include unjust power sales made before October 2000 - but not power purchases made by the Department of Water Resources during the 2000-01 energy crisis. In an August 2 decision involving nearly 200 petitions for review, a three-judge panel also held that forward market buys, out-of-market power purchases, and exchange sales made by the grid operator fall within the purview of the Federal Energy Regulatory Commission's crisis-related refund proceedings. The underlying petition at issue, filed by the California Public Utilities Commission, claims that the state was denied between $2.5 billion and $3.5 billion in refunds. How much more California may reap in refunds as a result of this decision will be determined by a federal regulatory commission that now includes four members from Western states. The court in a separate order directed that mediation be pursued. "This is a welcome development as the commission has strongly encouraged all parties to settle disputes rather than litigate since the inception of the refund case five years ago," said Bryan Lee, FERC spokesperson. "We are pleased that the Ninth Circuit granted most of the relief requested by the CPUC and the other California parties regarding excessive overcharges and massive manipulation of the California energy markets," the CPUC stated. Although the court carved out state contract purchases, this week's ruling does not shut the refund door on the bilateral contracts DWR entered into during the 2000-01 deregulation debacle. The court held that the transactions, which the "California Parties" (the CPUC, the California attorney general, the Electricity Oversight Board, Pacific Gas & Electric, and Southern California Edison), estimated at between $1.5 billion and $2.5 billion in overcharges, were separate from the California Independent System Operator and California Power Exchange markets. Thus, they are "beyond the scope of the Remedy Proceedings at issue here, but may be the subject of other challenges, the posture and merit of which are beyond the scope of the instant case." The federal circuit court also reasoned that FERC can order refunds from excessively priced power sales made in the summer of 2000 because they may constitute a violation of the filed tariff under Section 309 of the Federal Power Act, and thus are not limited by Section 206's deadline. The court pointed to FERC's stated "primary purpose" of "protecting consumers." Alleged unjust power sales made before October 2000 are claimed to amount to $1 billion. The Ninth Circuit also included in the scope of FERC's proceeding unjust sales made in nonpeak hours - or "emergency hours" - on grounds that "energy supply was generally low, [and] suppliers could count on their bids being accepted in both emergency and non-emergency hours. So, the incentive to bid high prices was as evident during non-emergency hours as it was during emergency." Refunds should apply to unreasonable out-of-market sales, those not covered by the price cap, because these transactions were "a backstop to the CAISO auction market," according to the court. Potential associated refunds are estimated at between $100 million and $200 million. Docket #01-71051.

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Mixed Bag in Appeals Court Refund Ruling

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