April 8, 2003
The Honorable Pat Wood III
Federal Energy Regulatory Commission
888 First Street NE, #11A
Washington, DC 20426
Dear Chairman Wood:
We write to urge the Federal Energy Regulatory Commission (FERC) to hear oral argument from the parties to the various forward contract refund proceedings now pending before the Commission. We believe that oral arguments will provide you, Commissioner Massey and Commissioner Brownell with the opportunity to focus on what is now clearly the crucial issue in these cases - whether the Federal Power Act's statutorily mandated "just and reasonable" standard or the Mobile-Sierra "public interest"; standard should be applied in the review of these contracts.
In its orders setting these cases for hearing, FERC generally focused on two issues of inquiry: whether the dysfunctional California spot market adversely affected the prices of the forward contracts; and whether the just and reasonable or the public interest standard should be applied to FERC's review of these contracts. Regarding the first issue, the FERC Staff Report released on March 26 established that the "statistically significant" link between the California spot market and forward markets adversely affected the forward contract prices. Moreover, the recently released Reliant transcripts paint a convincing picture of the ability of market manipulators to take action in the spot market with the intent of artificially driving up forward market prices.
With regard to the latter issue, we are concerned about the lack of consistency between the statements you made during the Commission's March 26 Public Meeting and your responses to several questions during a Senate Energy and Natural Resources Committee hearing on March 27 - not to mention the Commission's Proposed Policy Statement issued last year. We believe that these forward contract cases present FERC with an issue of first impression - whether a market-based-rate contract that FERC never specifically reviewed or approved as just and reasonable pursuant to Section 205 of the Federal Power Act can be reviewed, for the first time by the Commission, pursuant to the Mobile-Sierra public interest standard - especially when the parties did not agree to bind themselves to the public interest standard of review.
This issue is extremely important to our constituents because utilities in the West followed the Commission's admonition to purchase power in the forward markets when prices, though lower than spot prices, were still astoundingly high. Many of these utilities are now being told that they have to pay refunds for sales of excess power into the California spot market because the rates were "unjust and unreasonable." It is disheartening for us to hear that FERC may impose a higher burden of proof for the rest of the West to obtain relief from the extreme rates that were the product of the same market dysfunction (including market manipulation tactics) that harmed Californians. The Commission certainly needs to carefully consider this matter before engaging in what we believe would be questionable actions.
Thank you for your attention to our request.