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FERC judge in California refund case recommends hearing on facts

The administrative law judge overseeing the failed refund talks between California and generators Thursday recommended a evidentiary hearing be conducted to resolve “material issues of fact.”

Federal Energy Regulatory Commission Chief Administrative Law Judge Curtis Wagner said the differences between the parties over how much is owed involved factual disputes that could not be resolved during 15 days of settlement negotiations.

California Gov. Gray Davis issued a statement saying the state was analyzing the judge’s recommendations.

In his report to the commission, Wagner recommended a methodology for calculating potential refunds and because of the “urgent need for an answer to the refund issues,” he said it should be on a 60-day fast track schedule.

Throughout the negotiations, California stuck to its demand the state was owed $8.9 billion, while the generators offered $703.6 million in refunds. In-state generators Williams, Tulsa, Okla.; Duke Energy Corp., Charlotte, NC; a unit of Reliant Energy Inc., Houston; Dynegy Inc., Houston; and Mirant Inc., Atlanta, Ga. offered a combined $510 million.

Fifteen power marketers offered $49.6 million. Seven members of the California Municipal Utilities Association offered $6.5 million; load-serving entities outside California offered $12.5 million, and Powerex, the marketing arm of Canada’s BC Hydro, offered $125 million.

Wagner said “more than a billion dollars in an aggregate sum” is probably due in refunds but not the $8.9 billion the state is claiming generators overcharged for power. While “vast sums” in refunds are due, “there are even larger amounts owed to energy sellers by the CAISO [California Independent System Operator], the investor-owned utilities, and the state of California,” he said.

No cash refunds
When a much larger amount is due the seller, can a cash refund be required, the judge asked. “I think not,” he said. Indeed, the overriding concerns of the sellers is that they should be paid what they are owed by California at the same time refunds are made, Wagner said.

Further, the judge said the amount claimed by the state “has not and cannot be substantiated.” Numbers were “hard to come by” and California “summarily” rejected a July 5 proposal, he said. The now defunct California Power Exchange submitted numbers under subpoena, and Wagner said he didn’t receive some data from the ISO until late in the talks.

Despite numerous attempts, Wagner said he was unable to establish the total volume of the California spot market. And, despite his specific request, the ISO submitted aggregate totals that included both spot market transactions and sales through bilateral contracts with the California Department of Water Resources (DWR) and other parties.

“The numbers cannot be reconciled,” he said. The ISO aggregate for the period October 2000 through May 2001 totaled 147,675 Gw-hr. The sellers at the conference, excluding the investor-owned utilities, submitted spot sales records for the same period totaling just 22,394 Gw-hr.

The judge said he has yet to receive from the DWR, the investor-owned utilities, or the ISO amounts for what they believe they owe the sellers.

Over the vehement previous objections of the state, Judge Wagner recommended the refunds be calculated starting in October not June 2000. He also recommended actual rather than hypothetical heat rates be used, and daily spot gas prices be used in the calculations. Refund prices should reflect gas purchasing practices of sellers during the period, he said.

He said the 10% credit risk included in sales to California should be retained, and he recommended that to measure the amount actual prices may have exceeded the refund price, every hour should be recalculated.

On a prospective basis, sellers are allowed to justify prices above the maximum established under the commission’s June 19 order extending price controls throughout the West. But on a retroactive basis, Wagner said, the method used in the June 19 order for setting the maximum price could distort recreation of a competitive market.