Western Senators to FERC: Treat the West Fairly
WASHINGTON, DC - U.S. Senators Maria Cantwell (D-WA), Ron Wyden (D-OR), Patty Murray (D-WA) and Harry Reid (D-NV) today called on the Federal Energy Regulatory Commission (FERC) to stop using different standards to determine whether consumers in California or the rest of the West get relief from artificially inflated energy prices.
Following up on Cantwell's questioning of FERC Chairman Pat Wood at a May 15 hearing, the letter says:
In short, we believe it is unconscionable for FERC to use different standards for relief to favor California consumers at the expense of ratepayers throughout the rest of the West. In this same vein, it is unacceptable for the Commission to regard utility purchases outside of California to be singularly sacred, while at the same time ignoring the sanctity of the arrangements these same utilities had to sell power in to California.
The text of the letter follows:
May 24, 2002
The Honorable Pat Wood III Chairman Federal Energy Regulatory Commission 888 First Street NE, #11A Washington, DC 20426
Dear Chairman Wood:
We write to express our strong desire that the Federal Energy Regulatory Commission (FERC) provide prompt relief for consumers throughout the West, who have been severely-and undeniably-harmed by the region's dysfunctional energy markets and the associated unjust and unreasonable wholesale electric prices.
Many utilities in the West remain bound to multi-year contracts signed at a time when wholesale power prices skyrocketed to as much as 100 times the normal rate. While it may have been prudent to sign these forward contracts given the dysfunctional spot markets, these contracts are now several times the current, just and reasonable, market rates. As a result, consumers throughout our region will be paying for the Western electricity crisis for years to come.
Mounting evidence supports the conclusion that Enron, and potentially other companies, engaged in practices designed to manipulate markets and drive up prices throughout the West. We are pleased that, during your recent testimony before the Senate Energy and Natural Resources Committee, you recognized a number of key facts: that rates associated with market manipulation are neither "in the public interest," nor "just and reasonable;" that the strategies described by Enron in the recently released memos do in fact represent manipulative practices; and that Western markets are inextricably linked to California's market. We believe that these facts, standing on their own, require FERC to take decisive and prompt action by granting the petitions of Western load-serving utilities to void or modify their forward contracts signed during the Western electricity crisis.
However, even if evidence of market manipulation had not been present, the Commission would still be required to act. Sections 205 and 206 of the Federal Power Act require that wholesale power rates subject to FERC's jurisdiction be "just and reasonable." There can be no disputing the fact that rates charged for forward contracts, far in excess of historical levels and heavily influenced by the spot markets FERC has already determined to be dysfunctional, are per se "unjust and unreasonable."
Unfortunately, FERC's response to date has been troubling. In particular, the Commission in an April 11 Order suggested that it might apply a very "heavy" burden of proof on parties seeking to void or reform forward contracts. By requiring that these parties prove that the contract rates are contrary to the "public interest"-a much more stringent standard than the "just and reasonable" threshold explicitly articulated by Congress in the Federal Power Act - FERC would be discriminating against our constituents.
Although the Commission recognized, in its June 19, 2001 Order, that there is a "critical interdependence among the prices in the ISO's organized spot markets, the prices in the bilateral spot markets in California and the rest of the West, and the prices in forward markets," your April 11 Order treats the rest of the West more harshly. Western load-serving utilities that sold power into California may be required to pay refunds under the Federal Power Act's "just and reasonable standard," even if they did not participate in plots to drive up Western prices. But at the same time, the Commission appears to be raising the bar for relief from long-term and forward contracts, on which Western utilities outside California were dependent and which FERC itself encouraged utilities to sign to bring stability back to the marketplace.
In short, we believe it is unconscionable for FERC to use different standards for relief to favor California consumers at the expense of ratepayers throughout the rest of the West. In this same vein, it is unacceptable for the Commission to regard utility purchases outside of California to be singularly sacred, while at the same time ignoring the sanctity of the arrangements these same utilities had to sell power in to California.
By placing a "heavy" burden of proof on our constituents-and giving Enron and entities like it the benefit of the doubt--you ignore the undisputed fact that our economy has been devastated by utility rate increases of up to 85 percent. The burden of proof in these matters should fall squarely on the shoulders of those who have admitted manipulating Western energy markets, harming the consumers and businesses of our states.
Thank you for the work that you and your staff are doing to investigate price manipulation in Western energy markets, as well as your candid testimony before the Senate Energy Committee. We look forward to continuing this constructive dialogue and working with you to ensure that Congress and the American people can have confidence that our federal regulators fully understand how the past year's crisis occurred and how we can best prevent it from happening again.
Sincerely,
Maria Cantwell U.S. Senator Ron Wyden U.S. Senator Patty Murray U.S. Senator Harry Reid U.S. Senator
cc: Commissioner Linda Breathitt Commissioner Nora Brownell Commissioner William Massey
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