Regulators to Appeal FERC Ruling on Energy Pacts

The California Public Utilities Commission voted November 13 to appeal the Federal Energy Regulatory Commission's decision dismissing California's bid to recast power pacts signed during the energy crisis. The dispute will land in the U.S. Ninth Circuit Court of Appeals. "These contracts were negotiated during a dysfunctional spot market and reflect in my opinion above-market prices," said CPUC president Michael Peevey. He insisted that the "overwhelming" evidence provided to federal regulators justifies contract reductions or refunds amounting to billions of dollars. "Thank god they have some backbone in someone else's proceeding since they don't have any in their own," said consumer advocate Mike Florio. He called FERC's decision "perverse" and one that could likely serve as a deterrent to inking multiyear energy deals. A November 10 order by federal regulators upheld a similar decision that FERC handed down in June, when the agency initially rejected the state's claims that up to $12 billion in contracts executed during 2000 and 2001 should be subject to renegotiation. According to the Independent Energy Producers, FERC's order is critical to securing the state's electricity supplies into the future. "The sanctity of the contracts is very important in terms of moving forward," said Jan Smutny-Jones, IEP executive director. "If we're going to change contracts every time the market changes, then there's no point in signing them." Smutny-Jones pointed out that the commission's action is consistent with its policies on wholesale markets over the years. Utility parent Sempra Energy Resources also hailed FERC's ruling to uphold the contracts. Sempra signed a $6.4 billion, 10-year deal with the state in 2001. Florio, The Utility Reform Network senior attorney, agreed that contract sanctity is an important guiding market principle in theory, but its significance in this case appears to be lost. FERC has "refused to look at the obvious—that long-term contracts were signed to escape the spot market, which FERC has already determined was not producing just and reasonable prices," he said. Typical contracts hedge against risk and could in fact prove to be more expensive than spot-market buys under normal circumstances. But FERC held the price of bilateral purchases made during the energy crisis to be unreasonable and subject to refund. Yet the commission did not find that these prices had any effect on energy contract terms reached during the same period. Sempra?s agreement was one of four such pacts cited by Peevey as unreasonable in a November 12 statement objecting to FERC?s order. FERC docket # EL01-60, et al.

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Regulators to Appeal FERC Ruling on Energy Pacts

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