FERC Filings
REQUEST FOR REHEARING OF JULY 25 REFUND ORDER
III.
THE COMMISSION DID NOT ADDRESS THE CONCERNS OF MARKETERS THAT ORDERING REFUNDS BASED ON A PROXY PRICE SET BY A GENERATOR IS INAPPROPRIATE
Throughout these proceedings, marketers have stressed that ordering refunds on the basis of a proxy price set by a generator is inappropriate. There are significant differences between generators and power marketers that must be considered when determining whether a power marketer made sales above prices that a competitive market would yield.
As one party said:
Because marketers manage their power purchases and sales on a portfolio basis, it is inappropriate to attempt to measure a marketer’s business based on individual sales. Among other problems it is not reasonable to expect specific power sales to be matched to specific power purchases. On any given day or over a course of days, a marketer might see wide swings in profits or losses on its trading activity that reflect the real-world mix of its purchase portfolio rather than any post-hoc matching of purchases with sales.
The Commission’s Order does not reflect that marketers’ costs may include not only generation costs but also a transmission and risk management premium. For example, marketers serve an important role in buying and reselling power from public and private entities who refuse to deal directly with the ISO or DWR due to creditworthiness concerns. The marketers assumed the credit risk and should be able to recover the costs for taking on that risk.
The Commission’s response in the July 25th Order simply did not address these concerns. The Commission said:
Therefore, we will require that the ISO determine the last unit dispatched in real-time, the maximum heat rate of any unit dispatched each hour in the real-time imbalance market to the period October 2, 2000 through May 28, 2001. This should address the concerns of numerous commenters that application of the June 19 methodology from October 2, 2000 forward, particularly with respect to marketers that are price takers, would be confiscatory.
To the contrary, the Commission’s order remains confiscatory since marketers with supplies purchased above the generator set mitigation price will be denied an opportunity to recover their actual purchased power costs as well as any transmission costs incurred to move that power.
The Courts have recently admonished the Commission:
Unless the Commission answers objections that on their face seem legitimate, its decision can hardly be classified as reasonable.
The Commission’s Order fails to meet this standard and will result in an impact on power marketers that is unduly harsh. As EPSA pointed out in our Request for Rehearing of the June 19th Order, power marketers play an important role in a competitive marketplace, providing liquidity, managing credit and price risk and, offering products and services tailored to meet customers needs. By adopting policies that frustrate and stymie participation by power marketers, the Commission will ultimately produce an even more dysfunctional power marketplace.
Requiring power marketers to tie any potential refund liability to the operating costs of the least efficent generator – however those costs are ultimately derived – simply ignores reality. Marketers offer their customers a variety of products designed to meet that customers’ need for reliability, price certainty, and risk management. Those costs have nothing to do with the operating costs of any particular generating unit. As a simple matter of fairness, power marketers must have the opportunity to show and recover their actual costs, above the yet to-be-determined proxy price, particularly on a retrospective basis. While power marketers may have the ability to change their future purchasing behavior based on the Commission’s directives (or exit the business), power markets do not provide an opportunity to retroactively change completed transactions. In additon, every prior Commission Order permitted parties to provide information about costs over the Commission’s threshhold and, with an adeqaute showing, recover those costs. Simple equity requires that power marketers be provided a similar opportunity under the July 25th Order.