FERC Filings
MOTION TO INTERVENE AND PROTEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION AND THE WESTERN POWER TRADING FORUM re: STATE OF CALIFORNIA REFUND REQUESTS THROUGH ITS ATTORNEY GENERAL
PROTEST
A. The California Attorney General Complaint Attempts To Relitigate Issues Already Decided In The California Docket
The Attorney General believes that this Complaint involves matters of first impression. To the contrary, all of the Attorney General’s arguments, and the underlying relief that he seeks, have been thoroughly considered by the Commission and rejected.
First, in its November 22, 2000 comments in Docket No. EL00-95, the City of San Diego argued, similarly to the Attorney General, that the Federal Power Act requires prior notice of the actual numerical rates under market-based rate authority. In its July 25, 2001 Order, the Commission rejected that notion, saying:
[T]he fact that a market-based tariff or rate schedule is on file instead of a specific, quantified rate is not dispositive, so long as buyers know (or can know by examining the Commission’s public files) the type of rates authorized for each seller. The principle of predictability requires that the parties know the type of rate being used, not necessarily the exact numerical rate. When a buyer knows market-based rates are being used, the buyer can predict that rates will fluctuate with differing conditions, and can plan accordingly. That is all that is required. Thus, the filed rate doctrine and its corollary, the rule against retroactive ratemaking, apply to market-based rates.
Second, the Attorney General contends that the Commission’s filing requirements for sellers with market-based rate authority ignore the mandates of the Supreme Court in MCI Telecommunications and Maislin Industries. To the contrary, in Southern Company Energy Marketing, L.P., the Commission discussed its current filing requirements for power marketers and public utilities with market-based rates in the context of the Federal Power Act. In doing so, the Commission directly addressed MCI Telecommunication and found the case “irrelevant”, adding:
The Commission’s decision does not implicate the filed rate provisions of the FPA, which as we have explained, are satisfied with the respect to discretionary power sales under an umbrella power sales agreement or an umbrella tariff by the filing of the umbrella agreements and our requirement of quarterly reports.
Third, the Attorney General seeks refunds on completed market-based transactions for calendar years 2000 and 2001. As to the period after October 2, 2000, the Commission has already made a determination of the just and reasonable rate and has ordered a hearing, which is proceeding, to determine the appropriate level of refunds. As to the period before October 2, 2000, the Commission has already ruled that refunds are not permissible for any period in the year 2000 prior to October 2, 2000.
Finally, the Attorney General’s Complaint is yet another attempt to institute cost-based rates in the California wholesale market. The Complaint states:
To be clear, the Attorney General does not contend that market based pricing per se violates the FPA. For example, FERC may institute a system where rates are determined by negotiation between buyers and sellers, so long as rates do not exceed a cap lawfully established by FERC. The cap may be based on costs of production or any other measure that ensures rates are just and reasonable, so long as FERC has the opportunity to thoroughly review the cap before it goes into effect.
Time and time again throughout the numerous Commission orders involving California, the Commission has rejected the return to cost-based rates in the California wholesale market. For example, in the December 15, 2000 Order, the Commission said:
We reject proposals to return to cost based regulation. As we discussed in the November 1 Order, prices based upon traditional cost of service are incompatible with fostering a competitive market. As we stated in the November 1 Order, traditional cost-based pricing reflects the cost of the asset without regard to market conditions. The one thing that California needs most is new supply and a return to traditional cost of service ratemaking will not encourage supply to enter the California market.
In addition, in the June 19, 2001 Order, the Commission said:
[C]ost-of-service ratemaking tends to penalize more efficient generators and not provide proper incentives for generators to become more efficient since each generator’s price is dependent on its costs. Moreover, individual cost-of-service rates may not provide generators with appropriate scarcity rents. Establishing individual cost-of-service rates is also difficult with respect to spot markets. For peaking units, decisions would need to be made about the number of projected MWhs over which to spread costs. Generators also would have to make filings establishing their rate base, acceptable rate of return and cost-of-service, possibly including trackers for volatile costs such as gas and emission fees. Resolving the issues involved in such filings would be protracted and would not provide price certainty to the market.
The Commission should again reject the return to cost-based rates by rejecting the AG complaint.
B. The California Attorney General Is Incorrect That The Commission’s Procedures When Approving Market-Based Rates Do Not Comply With The Federal Power Act
Fundamentally, the AG Complaint centers on the premise that the approach taken by the Commission in approving market based rates, i.e. authorizing the ability to charge market-based rates and then allowing individual transactions to be entered into under that authorization without approving each transaction, violates the Federal Power Act. Specifically, the Attorney General states this approach violates Section 205(c) of the Federal Power Act.
In the Attorney General’s view, the Commission has the authority to approve the ability to charge market-based rates. His view, however, is that such requests do not include any particular formula or specific rates which can be derived from any formula. Thus, the customer has no notice of the particular rate to be charged. For that reason, the Attorney General contends that in order to provide the requisite notice and come under the rubric of the filed rate doctrine, any ability to charge rates based on the market must be subject to a subsequent review of the individual transactions, prior to the time that the rates go into effect.
The Attorney General fundamentally misunderstands the nature of the Commission’s approval of market-based pricing in the California market. Moreover, he conveniently ignores Commission and Court precedent finding that the lack of a specific rate on file does not violate the Federal Power Act.
Parties in the California market had notice of the rates to be charged under the Federal Power Act. Both the ISO and PX administer wholesale power markets and as such are public utilities under the Federal Power Act. As a result, both entities were required to file tariffs setting forth how rates would be charged in these wholesale markets. As the Commission is well aware, those tariff filings were voluminous, and the Commission’s analysis of the competitiveness of these wholesale markets extensive. As a result of that analysis, the Commission approved tariffs establishing the method for pricing power purchased through the ISO and PX markets -- pricing the Attorney General now challenges parties had no notice.
Moreover, to the extent that any jurisdictional seller was making sales at market- based rates outside of the ISO and PX administered markets, in other words bilateral sales, such sales were made pursuant to tariffs on file and approved by the Commission authorizing that seller to make such sales. The Attorney General bemoans the fact that the tariff on file did not contain a specific number or formula under which the purchaser could determine the rate. It is difficult to understand this concern. Certainly, the purchaser was aware of the rate charged since it agreed to the price, which is normally set out in a confirmation fax between the parties. In any event, the rate-setting mechanism under market-based pricing is clear both to the purchaser and the public, i.e., a seller is allowed to charge prices based on supply and demand.
Finally, the Commission’s approach in authorizing market-based rates under a generic tariff on file is consistent with its own precedent and has been approved by the courts. Recently, in GWF Energy, the Commission said that individual market-based rate transactions, entered into under a filed market-based rate tariff, did not require pre-approval. The Commission said that it did not have to find that individual long-term power sales agreements were themselves just and reasonable since the seller has a tariff on file, i.e., the filed rate, that provides for power sales at market-based rates. The Commission added:
Moreover, were we required to examine every long-term service agreements as if the seller was seeking new market-based rate authority, it would make the original grant of market-based rate authority (i.e., the original acceptance of the market-based rate tariff) a pointless exercise of no value to anyone, including the seller. Power sales made pursuant to a previously accepted market-based rate tariff, while they may be carried out through service agreements, are, in effect, pre-authorized pursuant to the acceptance for filing of the market-based rate tariff (barring, of course, a determination that circumstances warrant revocation of market-based rate authority). A new determination concerning the justness and reasonableness of GWF’s long-term service agreement is therefore unnecessary, because such a determination has, in effect, already been made in the acceptance, and continued effectiveness, of the market-based rate tariff pursuant to which GWF’s long-term service agreement is filed.
The Commission’s decision in GWF Energy is consistent with Court precedent upholding the Commission’s grant of market-based rates. In Louisiana Power Authority v. FERC, 141 F.3d 364 (D.C. Cir. 1998), the Commission approved market-based rates for Central Louisiana Electric Company (“CLECO”) over the objections of Louisiana Electric Power Authority (“LEPA”). In upholding the Commission’s actions, the Court did not impose any requirement to file actual rates prior to the commencement of service. To the contrary, the Court recognized that after the issuance of the order approving the market based rate tariff, CLECO was “free to compete with LEPA at market-based rates.” In other words, the rate on file, and the rate CLECO was authorized to charge under the filed rate doctrine, was the market-based rate.