Ferc’s California clean-up

Sixty energy firms and utilities will have to justify their activities during the California energy crisis, the Federal Energy Regulatory Commission (Ferc) said in its regular bi-weekly meeting on June 25.

Ferc, the US interstate energy regulator, ordered the firms to explain why theyshould not have to repay profits gained from alleged market manipulation duringthe price spikes and power shortages that hit California in 2000–2001.

The ‘show cause’ order requires all companies named to submit allinformation relating to transactions in the California market between January1, 2000 and June 20, 2001. Ferc staff will report their findings to the commissionby the end of 2003, the agency said.

A trader at one of the affected companies says: “This could have been worse.We have what will hopefully be a final opportunity to prove it was the marketrules that were flawed, not our behaviour. But for the sake of the industry,we need to put these investigations behind us as soon as possible.”

But Ferc has raised the prospect of yet another investigation. In a separateorder, the agency said its Office of Market Oversight and Investigation wouldexamine bidding behaviour in short-term energy markets operated by the Californiaindependent system operator and the now-defunct California Power Exchange betweenMay 1 and October 2, 2000. The investigation will look for evidence of “economicwithholding” – that is, whether companies priced electricity so highthat they were effectively refusing to sell.

But Ferc gave energy firms some good news when it upheld the $12 billion of long-termcontracts signed by California at the height of the western US power crisis.

California officials have long tried to overturn the contracts, arguing theywere signed under duress when the state was faced with the prospect of powershortages and were based on artificially inflated prices in the spot market.But Ferc rejected this argument. The agency said dysfunctional spot sales marketsdo not justify changing the long-term contracts and that here is no evidencethat long-term contract prices were manipulated.

Ferc’s three commissioners voted 2-1 in favour of upholding the contract,with William Massey, the agency’s only Democrat, voting against. “Theprices were not just and reasonable by any means,” he said.

Ferc chairman Pat Wood said at the meeting: “We should be able to movesignificantly down the road on the numerous western dockets issues. After today’smeeting, we will have the bulk of the decision-making on the California clean-upbehind us.”

California officials immediately warned they would appeal against Ferc’sdecision. State regulator the California Public Utilities Commission (CPUC),said it would request a re-hearing. If that request is not granted, the CPUCsaid it would take its case to a federal court.

California governor Gray Davis called the Ferc decision reprehensible. “It’sclear that ratepayers will have to look to the courts for relief, since noneis coming from Ferc. I will continue to fight for the relief that Californiaratepayers deserve, in every venue, be it Ferc or the courts,” he saidin a statement released after the Ferc meeting.