FERC Filings
MOTION FOR LEAVE TO INTERVENE AND PROTEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION re: TRUCKEE DONNER PUBLIC UTILITY DISTRICT V. IDAHO POWER COMPANY, IDACORP ENERGY, L.P., AND IDACORP, INC.
PROTEST
On July 23, 2002, Truckee Donner Public Utility District (Truckee Donner) filed a complaint in this docket against Idaho Power Company, IDACORP Energy, L.P., and IDACORP, Inc. (Idaho Power/IE). In that complaint, Truckee Donner alleges that the market-based prices which currently exist under a long-term system contract for the purchase of wholesale electric power are now “unjust and unreasonable” and that the Commission should terminate or reformulate the contract. Truckee Donner alleges that the prices realized and renegotiated several times in 2000 and 2001, under the 1997 contract were the product of the market dysfunction caused by the recent crisis in Western electric power markets. According to the Truckee Donner complaint, the facts of its case differ from the numerous other complaints that have been brought before FERC seeking relief from long-term contracts because:
This case involves a long-standing contractual relationship between Idaho Power and Truckee, which places the 2001 transaction in context and vividly demonstrates the degree to which it was driven by the dysfunctional market.
The complaint then goes on to describe a timeline of various contractual re-negotiations under the Idaho Power/IE contract at issue during which flat blocks of power were locked in at varying prices over time.
Truckee claims that, due to the longstanding contractual history behind its complaint, it differs from other contract complaints brought before FERC in recent months. This is not the case. Truckee’s complaint relies on precisely the same arguments made by Sierra Pacific Power Company, Nevada Power Company and several others seeking to abrogate western power contracts – that a dysfunctional market resulted in an unfavorable negotiating environment. Additionally, Truckee has filed its own complaint because the Commission has validated these claims in the previous cases by setting all for hearing. While FERC has found that the parties seeking to overturn voluntary, market-based bilateral contracts will have a “heavy burden,” each may proceed with their claims through a settlement process and, should that yield no results, a formal hearing process. While the orders setting the complaints for hearing outline a high bar for the burden of proof, this does not ameliorate the impact of the implicit, repeated finding by the Commission that the contracts might be unwound and, hence, warrant pursuit before FERC.
As EPSA has pointed out in many previous filings, it is now clear that the Commission has opened a floodgate that threatens to overwhelm the resources of the Commission and the industry and calls into question the sanctity of any contracts or negotiations in the entire wholesale market entered into by any party in the West. In fact, the Commission’s action suggests it would be irresponsible for any buyer not to challenge their contracts and take their chances before FERC. The possible abrogation or required renegotiation of binding contracts will result in the decimation of trust in the regulatory system and could lead to dire market consequences. Further, this ever-widening floodgate introduces a level of uncertainty into the wholesale electric market that is untenable in the current financial environment of the energy industry.
According to information provided by the New York Mercantile Exchange, the energy merchant sector of the energy industry has incurred market capital losses of approximately $222 billion since May 1, 2001. These losses threaten not only further investment in power supply and transmission, but the very viability of the electricity marketplace. It only takes a review of current corporate stock prices to understand the precarious financial health of many major energy companies. Regulatory uncertainty, especially that which calls binding contracts into question, is intolerable because it is contributing to that financial deterioration. Market uncertainty will grow exponentially as the regulatory uncertainty grows with each contract case that the Commission sets for hearing. Similarly, the actions of the Commission on these contract abrogation complaints undermine and run counter to the Commission’s own efforts to instill confidence in the energy markets among the investment community.
As EPSA has strenuously argued in the prior cases, the Commission should have dismissed the other complaints and should now dismiss this one. Ripple claims are already being filed and more litigation will be a direct result of the Commission’s approach. These floodgate concerns are now a reality – the inevitable result of the Commission’s actions in the prior cases. That error should not be compounded here.
In addition, as with the other western contract complaint cases, the factual predicate of Truckee Donner’s complaint is incorrect and inconsistent. For instance, while Truckee Donner invokes the California energy crisis as the cause for its “unjust and unreasonable” prices, the complaint also explains why Truckee Donner should not be held to or compared to the Commission’s identified California benchmark for numerous reasons that set Truckee Donner apart from California entities. Hence, what really lies at the heart of Truckee Donner’s complaint is the frustration that prices have dropped since certain contracts were re-negotiated and locked in during March 2001. But the cause of the drop in prices is not due to Commission action or mitigation. The prices in the West today are well below the mitigated price because of increased supply and reduced demand. Given this reality, Truckee Donner is clearly not entitled to the relief it seeks. In fact, Truckee Donner is in the same position as any other party that enters into a forward contract and then finds spot market prices lower than they expected. Certainly in that situation, the Commission would not abrogate any contracts.
The relief requested by Truckee Donner, the abrogation or reformulation of a binding contract, is exactly the type of free regulatory hedge EPSA has repeatedly warned would delay the development of appropriate risk management. This, in turn, creates a vicious cycle where parties continuously attempt to look to FERC to correct any risk management scenario that does not result in low prices, attempting to utilize Commission intervention rather than properly manage risk on behalf of their customers. The Commission needs to break this cycle.
Finally, as EPSA has continually pointed out, the Commission should reject these complaints as a matter of policy. As the Commission has long recognized, bilateral contracts, entered into by willing buyers and willing sellers in an effort to manage supply and price risk, form the basis of today’s competitive wholesale bulk power markets. Sophisticated parties, armed with both publicly available and proprietary information, make decisions to buy and sell power on a regular basis. The parties operate under strict corporate guidelines that allow them to manage risk in a variety of creative and innovative ways. These bilateral contracts also form the basis for infrastructure investment in needed generation and transmission facilities vital to the reliability of the nation’s power system and the Commission’s efforts to promote robust markets.
If the Commission continues to sow confusion and uncertainty in the bilateral market by putting additional contracts at risk, confidence in the Commission’s long-standing policy of ensuring contract sanctity and providing transactional finality will be further eroded. This, in turn, undermines the confidence needed by both market participants and investors for today’s bulk power markets to invest in needed infrastructure and create the workably competitive markets that we all envision.