FERC challenges legalities of new California Power Authority

Many activities of the newly created California Consumer Power & Conservation Financing Authority will require federal regulatory approval and some are legally “problematic,” the Federal Energy Regulatory Commission’s general counsel said.

Kevin P. Madden responded last week to an inquiry about the “legalities” of the power authority made by Rep. Doug Ose (R-Calif), chairman of the US House Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs.

The California legislation that created the power authority in May gave it broad powers to acquire, own, and operate electric generation and transmission facilities and projects. The agency’s claimed jurisdiction over transmission is “problematic,” Madden said.

He noted “FERC has exclusive jurisdiction over the rates, terms, and conditions of all unbundled transmission in interstate commerce including transmission to serve retail customers.”

California Sec. of State Bill Jones (R-Fresno), who is challenging Gov. Gray Davis in the upcoming state elections for governor, launched the inquiry into the legalities of the power authority. Jones asked Ose to investigate if the new state agency conflicts with existing federal laws.

In his request to Ose, Jones questioned the power authority’s broad reach in collecting service charges for energy projects and energy sold in and out of California. Jones said he was concerned activities by the agency might later be determined void because of violations of federal law. That situation could cost Californians millions of dollars to rectify, he said.

Energy produced from facilities financed by the agency must be sold to California consumers at “cost,” unless it isn’t needed in California, according to the legislation.

“These provisions are unclear but could be construed as violating FERC’s jurisdiction under the Federal Powers Act,” Madden said. “It is unclear that a public utility can segregate its generating facilities such that certain facilities are used only for retail sales and not wholesale sales.”

He also said FERC would have to approve acquisition of any wholesale power sales contracts that came with a power plant bought or acquired from a public utility. Madden said hydroelectric generating facilities in California are licensed by FERC, and a transfer of any license to the state’s power authority would require FERC approval.

“The authority would be a licensee subject to FERC’s regulation and would not have independent authority to ‘regulate’ such projects,” he said.

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