FERC forced to reconsider Energy Crisis Refunds

FERC forced to reconsider Energy Crisis Refunds



Aug. 2007  - The Ninth Circuit Court 
of Appeals Friday issued a key decision that requires the Federal Energy 
Regulatory Commission, FERC, to reconsider its refusal to grant energy 
crisis refunds - which could potentially return $1.3 billion to California 
ratepayers. 
The California Attorney General had asked the court to reverse FERC's 
refusal to grant refunds after ratepayers suffered price-gouging on 
short-term energy purchased in the Pacific Northwest during the energy 
crisis of 2000 and 2001. 
Commenting on today's decision, Attorney General Edmund G. Brown Jr. said, 
"Today's decision is a major victory for California ratepayers. I 
encourage FERC to promptly refund the more than $1 billion that was stolen 
from the people of California." 
The case is Port of Seattle, Washington, et al. v. Federal Energy 
Regulatory Commission, no. 03-74139, also known as the Pacific Northwest 
or Puget case. 
In arguments before the Ninth Circuit, the Attorney General argued that 
FERC abused its discretion when it excluded the state's purchases from 
refund eligibility. 
FERC had asserted that California was not entitled to refunds in the 
Pacific Northwest because the power was consumed in California, not in the 
Pacific Northwest. 
By a two-to-one majority the three judge panel of the Ninth Circuit agreed 
with California's position and handed the case back to FERC for 
reconsideration in light of the Court's decision. 
Judge Sidney Thomas, writing for the majority, ruled, "FERC abused its 
discretion in denying potential relief for transactions involving energy 
that was ultimately consumed in California. We also conclude that in 
determining whether refunds were warranted, FERC should have considered 
new evidence of intentional market manipulation submitted by the parties 
with FERC's approval." 
But the Court found FERC's reasoning was "arbitrary and capricious" and 
instructed FERC to consider the evidence of market manipulation that it 
had previously ignored. 
On May 6, 2002, FERC released on its website documents relating to Enron's 
manipulation of the California energy markets during the energy crisis. 
According to the parties seeking refunds, this new evidence also reflected 
on market manipulation in the Pacific Northwest because some of Enron's 
tactics relied on the import and export of electricity to and from 
California and the Pacific Northwest. The parties seeking refunds also 
allege that Enron relied on counterpart energy sellers in the Pacific 
Northwest to carry out its manipulative strategies. 
The ruling of the Ninth Circuit panel reversed the 2001 decision of an 
administrative law judge, ALJ, who ruled that although prices in the 
California energy markets affected prices in the Pacific Northwest, "this 
was not the only thing driving up the prices" there. The ALJ also found no 
evidence of the exercise of market power in the Pacific Northwest and 
found that the Pacific Northwest spot market "performed as a competitive 
market" during the relevant period. As a result, the ALJ determined that 
prices were not unjust or unreasonable and that refunds were unwarranted. 
Judge Thomas wrote, "The Refund Proponents argue that the new evidence 
suggests, among other things, that: sellers of electricity in the Pacific 
Northwest were involved in schemes to withhold energy and to assist Enron 
in creating false congestion; Enron used markets outside of California in 
order to advance its tactics in California; Enron may have implemented 
fraudulent schemes outside California markets; and utilities in the 
Pacific Northwest violated posting requirements in transactions with 
Enron." 
"Even assuming all of these transactions occurred in the California spot 
market, the fact that Pacific Northwest sellers were apparently involved 
in Enron's manipulation indicates that FERC must at least consider the 
possibility that the Pacific Northwest spot market was not, as the ALJ 
found, functional and competitive," wrote Judge Thomas. 
As a result of today's decision, California can now potentially claim $1.3 
billion in refunds from "nongovernmental" energy sellers. 
Attorney General Brown says, "The largest potential refund-payers are 
Powerex, Sempra, TransAlta Energy, Coral Power and Trans-Canada." 

---