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Energy Panel Finding may Benefit Northwest Utilities by Steve Ernst Puget Sound Business Journal, April 4, 2003

A recently released Federal Energy Regulatory Commission staff report may have opened the door for utilities and businesses in the region to collect refunds from energy trades made during the West Coast energy crisis.

Still, many utility managers in the state say it doesn't go far enough.

While parts of the report, which was released last week and approved by the commission, were seen as a victory for utilities seeking refunds, the report was also viewed by many as just another frustrating step in the bureaucratic morass of FERC.

The report was the first acknowledgment by FERC that electricity and gas prices in California in 2000 and 2001 were manipulated by a handful of energy traders. It also concluded that California utilities were due about $3.3 billion in refunds, up from $1.8 billion in refunds that an administrative law judge ordered late last year.

For the first time, FERC also acknowledged that prices Northwest utilities and businesses paid during the crisis were also affected by the same manipulation -- a claim Northwest utilities have been making since the crisis started in May 2000. The staff report essentially found that Northwest and California were part of the same market, overturning an administrative law judge's previous findings.

But the report stopped short of recommending that energy sellers actually refund money, or to enter into negotiations with California utilities that may be owed refunds. It also failed to address complaints made by Northwest utilities, opting instead to recommend that those complaints be reviewed by an administrative law judge to determine how much Northwest utilities may be owed.

While the staff report may boost the Northwest case for refunds, it also means that the Northwest will need to make its case again -- a fight regional utilities have waged for three years.

"If I had my druthers, they would have put together a list of who owes money to whom, then asked us to get together and talk about it," said Jim Harding, director of external affairs at Seattle City Light.

"They confirmed many of the things we have been arguing, then issued a decision on California but not a decision on the Northwest," Harding said. "I don't expect any settlement discussions to emerge out of the blue. We are now at the point where we'll have some direct communications with Mr. Wood (FERC Chairman Pat Wood) to ask what we are supposed to make of this."

While the report didn't go as far as Northwest utilities would have liked, it may have increased the amount of refunds some utilities could ultimately receive.

A coalition of Northwest utilities and businesses claim they are owed roughly $500 million in refunds, with City Light staking claim to $280 million in refunds. Tacoma Power is looking for $90 million.

Because the FERC report also concluded that gas prices were also manipulated -- which would affect electricity prices -- Northwest utilities could see their claims rise.

Harding thinks City Light's claim could grow by as much as $100 million.

While the recommendation may have been a step forward for utilities that purchased power in short-term markets, it was a downer for utilities with long-term contracts.

The FERC report denied there was a link between short-term power purchases and long-term contracts, a move that further stifled Snohomish County Public Utility District's hopes of getting several of its long-term contracts overturned.

"I think it seems very likely that City Light and Tacoma will receive refunds that will be substantial," said Eric Christensen, associate general counsel at Snohomish County Public Utility District. "Unfortunately for those of us with long-term contracts, it looks like we could be left out in the cold."

The battle over long-term contracts will be the next big fight, according to Robert McCullough, director of the Portland-based consulting firm McCullough Research Inc. McCullough has spearheaded the Northwest's research into the West Coast energy crisis.

"There is no question that corruption in the short-term market had an impact on the long-term markets," McCullough said. "I think that FERC just doesn't have the facts down pat just yet. Snohomish and others had no choice but to buy those long-term contracts."

At the time of the crisis, FERC's advice to utilities that were short on power was to avoid the spot market and buy long-term contracts.

For the state's investor-owned utilities, Puget Sound Energy and Avista Corp., the FERC report was also frustrating. The FERC staff recommended the commission ask 30 energy sellers -- including Puget Sound Energy, Avista and the Bonneville Power Administration -- to demonstrate how their behavior did not violate energy trading rules.

The commission has not yet formally asked for that information, but all three organizations have already explained their actions to FERC, and have been cleared of any wrongdoing.

"We have answered everything we could, given the time frame," said Julie Ryan, vice president of energy portfolio management at Puget Sound Energy. "And we'll answer more questions if we have to."

While the report may have inched the region closer to settling claims caused by the energy crisis, the Northwest will again need to present its case to an administrative law judge, and it's unclear when that will happen.

But this time the Northwest will have the weight of the FERC staff report behind it.

"The bottom line is that basically all of our arguments were endorsed by the FERC staff," McCullough said.