Date: Mon, 19 Mar 2001 08:25:49 -0600
From: "Tracey Bradley" <tbradley@bracepatt.com>
To: "Paul Fox" <pfox@bracepatt.com>
Cc: "Andrea Settanni" <asettanni@bracepatt.com>, "Charles Shoneman" 
<cshoneman@bracepatt.com>, "Jeffrey Watkiss" <dwatkiss@bracepatt.com>, "Nancy 
Pickover" <npickover@bracepatt.com>, "Ronald Carroll" <rcarroll@bracepatt.com>
Subject: New York Times - U.S. Orders Power Suppliers to Justify Prices in 
California
Mime-Version: 1.0
Content-Type: multipart/mixed; boundary="=_005B81C0.533259AD"

A copy of FERC's March 16 Notice regarding the proxy price for Feb. 2001 is 
attached.  This refund notice requires Duke Energy Trading and Marketing, 
Dynegy Power Marketing, Portland General Electric Company, Reliant Energy 
Services, the Mirant Corporation and Williams Energy Services to either 
provide the identified refund amounts ($55 million) or defend the prices 
charged.

Below is the New York Times article about this latest action by FERC.


March 17, 2001


U.S. Orders Power Suppliers to Justify Prices in California

By JOSEPH KAHN

WASHINGTON, March 16  Federal regulators told power suppliers in 
California's volatile electricity market today to refund $55 million to state 
utilities unless they could justify prices that regulators called excessive.

The Federal Energy Regulatory Commission issued the refund notice, which 
affected six leading electricity generators, to cover the month of February. 
Last Friday, it issued a similar order reviewing sales in January. In that 
action, the agency asked generators either to justify or refund $69 million 
in sales.

The refund mandates are part of a new push by the commission to intervene in 
California's troubled electricity market. State and national political 
leaders have put pressure on the agency to use its authority  it has the 
obligation to insure just and reasonable electricity rates nationwide  to 
limit skyrocketing prices while the state tries to unravel its failed effort 
at deregulation.

The agency has indicated that it will also scrutinize electricity 
transactions in March and April, possibly forcing refunds if it finds that 
generators have charged rates above what the agency determines to be their 
highest costs of production.

While the intervention has won support from some California officials and the 
Bush administration, the agency's orders have been criticized as too narrow 
by some California market watchers and one of the federal agency's 
commissioners.

The agency decided to apply a so- called rate screen, effectively a price 
cap, to electricity transactions that occur during California's Stage 3 
emergencies. Emergencies are declared when electricity supplies fall to 
within 1.5 percent of demand. The agency has said that generators are most 
likely to charge excessive prices when supplies are tightest.

But California has seen similarly high prices even when it is not forced to 
declare a Stage 3 emergency, California officials say. They have criticized 
the agency for effectively blessing the profits generators have made during 
those nonemergency periods by excluding them from the universe of potential 
refunds.

The agency has also imposed a relatively high rate screen  a proxy number 
intended to simulate the operating costs of the state's most inefficient 
generating plants  on all sellers of electricity during crisis hours. 
California officials had urged the agency to investigate the actual costs of 
individual generators and compare them to the prices they charged, tailoring 
penalties to the behavior of each generator.

In January, the commission set the rate screen at $273 per megawatt- hour. In 
February, the screen rose to $430 per megawatt-hour. The commission said in a 
statement that higher natural gas prices accounted for some of the increase.

"This sounds like a step backward instead of the aggressive action we need 
from FERC," said Senator Dianne Feinstein, Democrat of California, referring 
to the agency.

"Before the energy crisis started in California, electricity was selling at 
an average wholesale cost of $30 a megawatt-hour," Senator Feinstein said. 
"And now, FERC is saying a baseline of $430 a megawatt-hour is a reasonable 
cost. Something is really wrong here."

Agency officials declined to comment on the rationale behind their order.

The refunds to date are a small fraction of total electricity sales in the 
state. California officials, using a different methodology and a different 
time frame to calculate price abuses, had asked the agency to force refunds 
of $550 million for December and January.

California utility executives have estimated that unless prices are abated 
much more aggressively in coming months, the state could end up paying a $70 
billion electricity bill in 2001, compared with $28 billion last year.

The latest refund notice named Duke Energy Trading and Marketing, Dynegy 
Power Marketing, Portland General Electric Company, Reliant Energy Services, 
the Mirant Corporation and Williams Energy Services, six of the country's 
largest power marketers. Dynegy was asked to justify or refund $20.1 million 
in sales, and Williams was asked to defend or rebate $21.5 million.

Spokesmen for the companies named have said that their companies operated 
legally and ethically in California. Most of the companies said they planned 
to accept the agency's invitation to defend their prices.

 - febproxy.pdf