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 -----Original Message-----
From: 	Bryson, Jesse  
Sent:	Monday, September 24, 2001 4:27 PM
To:	Hall, Steve C. (Legal); Foster, Chris H.
Subject:	FERC Judge Rejects Claims For Elec Refunds In Pacific NW

FERC Judge Rejects Claims For Elec Refunds In Pacific NW
  
09/24/2001 
Dow Jones Energy Service 
(Copyright (c) 2001, Dow Jones & Company, Inc.) 
WASHINGTON -(Dow Jones)- The U.S. Federal Energy Regulatory Commission shouldn't order refunds for power sales in the Pacific Northwest, a FERC administrative law judge told the commission Monday. 
"I recommend that the commission not order refunds in this case because the prices weren't unreasonable and, unlike (California), the market is a competitive market," concluded Carmen Cintron, the FERC judge presiding over the case. 
The spiraling prices in California's dysfunctional power market were only one of many factors contributing to the region's high electricity prices, which were primarily the result of a supply shortage as the hydropower-dependent region experienced a drought, the judge said. 
"Spot market bilateral sales constituted only a small percentage of the total volume of transactions in the region because forward contracts are heavily relied on," Cintron said. 
Overruling the finding of FERC trial staff, Cintron found there was no evidence that sellers exercised market power in the region. 
"The prices were agreed to by willing buyers and sellers," the judge said. 
The judge urged FERC to grant a motion by Puget Energy Inc. (PSD) and dismiss the case. 
     
At issue were refund claims totaling more than $1.9 billion, with three-quarters of that amount claimed by California on behalf of the state's Department of Water Resources for purchases in the refund period of Dec. 25, 2000, to June 20, 2001. 
In July, FERC set the case for an expedited hearing before Cintron after separating the Pacific Northwest claims from a larger refund proceeding involving power sales in California from Oct. 2, 2000, through June 20, 2001. 
The administrative law judge is scheduled to forward an initial decision to the commission in the California refund case in December. 
Unlike California, the Northwest had a vibrant and functional competitive market, and ordering refunds for the minority of those in the proceeding making claims would have detrimental effects on the market, Cintron told the commission. 
"Evidence of record indicates that refunds would have a negative impact to the Pacific Northwest market," Cintron concluded. "This business relies on finality of deals and reliance on your trading partner." 
"Balancing the short-term benefit of refunds to a few market participants against the immediate and long-term damage to the market and to future investment decisions, it is impossible to reconcile refunds with the overall public-interest standard," Cintron said. 
California sought $1.466 billion of the nearly $2 billion in total claims. The remainder was claimed by municipally owned utilities in Seattle ($278 million); Tacoma, Wash. ($65.4 million); Clark, Wash. ($64 million); Eugene, Ore. ($39.7 million); Sacramento, Calif. ($4.6 million); and Northern Wasco County, Ore. ($4 million). 
Also, the Port of Seattle sought $9.4 million in refunds. 
Cintron was persuaded by the "ripple" claims arguments of the majority opposing refunds. They argued that awarding the claims of the few seeking refunds would destabilize the overall market, since most sellers themselves would then stake claims for refunds. 
"Unraveling these transactions is, to be mildly stated, a complex task," Cintron said. 
"The immense number of potential ripple claims is directly related to the highly active nature of the (Pacific Northwest) wholesale electricity market," the judge said. 
"Given the sheer magnitude of contracts that would have to be rewritten as a result of ordering refunds, it would be impossible to unwind the chain of transactions that resulted in a single bilateral sale," she said. 
The commission may either accept or reject Cintron's recommendations, which were intended to form the basis for whether FERC should order a more expansive hearing to determine refund amounts owed. 
In the event FERC does move to order refunds, Cintron offered her conclusions on what constitutes a spot-market sale in the region's bilateral contracts market. 
While power marketers had argued for a strict definition - sales of no more than 24 hours duration - those seeking refunds had argued that refunds should apply to sales for periods of up to a year or longer, particularly if they were indexed to spot-market prices. 
Cintron accepted the middle-of-the road recommendation of the Bonneville Power Administration to conclude that spot-market sales should include transactions of up to one-month duration. 
   
-By Bryan Lee, Dow Jones Newswires; 202-862-6647; Bryan.Lee@dowjones.com