State Urges Court to Order FERC to Issue Billions in Refunds

The state Attorney General?s Office alleged at an October 9 hearing before the Ninth Circuit Court of Appeals that rate information that wholesale electricity sellers gave to federal regulators did not comply with the Federal Power Act. The state argued that between $2 billion and $6 billion should be refunded to ratepayers through the Federal Energy Regulatory Commission for wholesale rates charged during May through October 2000. In response, FERC contended the power prices charged during those five months of the energy crisis were not subject to refund because they are governed by a market-based tariff under Section 206 of the federal act?the ?just and reasonable? rate section. Two of the three judges on the panel questioned the fairness of that conclusion. ?The remedy under market-based rates does not compensate the victim?it doesn?t do anything for the guy run over,? said Judge Richard Clifton. FERC attorney Beth Patella acknowledged that was true but said Congress gave FERC broad discretion over the form and timing of rate filings. That includes allowing it to accept quarterly statements from traders stating they and the buyers will reach an agreement on the price. ?How can the rates be effectively challenged as discriminatory or unjust if we don?t know what the rates are?? asked Judge Sidney Thomas. The AG and FERC specifically argued over which provision of the Federal Power Act?Section 205 or Section 206?controlled the rates at issue. Section 206, according to the attorney general, involves supposed rates set out in quarterly reports made for informational purposes not reviewed for reasonableness. The act?s two sections ?are very different animals,? said Deputy Attorney General Paul Stein, noting that remedies for violations of Section 206 are prospective only. It is also the basis of FERC?s denial of potential refunds before October 2002. Stein argued that the quarterly statements generators sent to FERC were not ?filed rates? under the federal act and gave the traders ?unfettered pricing discretion.? Clifford replied that his argument assumed that market-based rates were not permissible. Stein did not reject that conclusion but noted that although California adopted a deregulation scheme, ?it did not ask for a system that violated federal law.? Patella pointed out to the court that FERC had ordered traders to disgorge illicit profits made during the state?s power troubles and continued to investigate the matter. Stein remarked that FERC was ?settling for less than pennies on the dollar.? Last year, FERC rejected California?s request for refunds on any transactions that occurred prior to October 2, 2000, and for bilateral contracts the Department of Water Resources signed at the height of the crisis. The attorney general filed for rehearing on the matter, and FERC rejected its petition on September 23, 2002. Deputy Attorney General Ken Alex said if the appeals court were to find in the state?s favor, it could seek damages in civil suits?and those linked to unreasonable power prices DWR agreed to in the midst of the crisis when negotiating long-term energy deals. If the court were to side with the state, it would likely remand the matter to FERC to determine the amount of refunds. Case #02-73093

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State Urges Court to Order FERC to Issue Billions in Refunds

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