Court Rules Californians Deserve $1.3 Billion in Energy Refunds

SAN FRANCISCO, California, August 27, 2007 (ENS) - The Ninth Circuit Court of Appeals Friday issued a key decision that requires the Federal Energy Regulatory Commission, FERC, to reconsider its refusal to grant energy crisis refunds - which could potentially return $1.3 billion to California ratepayers.

The California Attorney General had asked the court to reverse FERC's refusal to grant refunds after ratepayers suffered price-gouging on short-term energy purchased in the Pacific Northwest during the energy crisis of 2000 and 2001.

Commenting on today's decision, Attorney General Edmund G. Brown Jr. said, "Today's decision is a major victory for California ratepayers. I encourage FERC to promptly refund the more than $1 billion that was stolen from the people of California."

The case is Port of Seattle, Washington, et al. v. Federal Energy Regulatory Commission, no. 03-74139, also known as the Pacific Northwest or Puget case.

In arguments before the Ninth Circuit, the Attorney General argued that FERC abused its discretion when it excluded the state's purchases from refund eligibility.

FERC had asserted that California was not entitled to refunds in the Pacific Northwest because the power was consumed in California, not in the Pacific Northwest.

By a two-to-one majority the three judge panel of the Ninth Circuit agreed with California's position and handed the case back to FERC for reconsideration in light of the Court's decision.

Judge Sidney Thomas, writing for the majority, ruled, "FERC abused its discretion in denying potential relief for transactions involving energy that was ultimately consumed in California. We also conclude that in determining whether refunds were warranted, FERC should have considered new evidence of intentional market manipulation submitted by the parties with FERC's approval."

But the Court found FERC's reasoning was "arbitrary and capricious" and instructed FERC to consider the evidence of market manipulation that it had previously ignored.

On May 6, 2002, FERC released on its website documents relating to Enron's manipulation of the California energy markets during the energy crisis.

According to the parties seeking refunds, this new evidence also reflected on market manipulation in the Pacific Northwest because some of Enron's tactics relied on the import and export of electricity to and from California and the Pacific Northwest. The parties seeking refunds also allege that Enron relied on counterpart energy sellers in the Pacific Northwest to carry out its manipulative strategies.

The ruling of the Ninth Circuit panel reversed the 2001 decision of an administrative law judge, ALJ, who ruled that although prices in the California energy markets affected prices in the Pacific Northwest, "this was not the only thing driving up the prices" there. The ALJ also found no evidence of the exercise of market power in the Pacific Northwest and found that the Pacific Northwest spot market "performed as a competitive market" during the relevant period. As a result, the ALJ determined that prices were not unjust or unreasonable and that refunds were unwarranted.

Judge Thomas wrote, "The Refund Proponents argue that the new evidence suggests, among other things, that: sellers of electricity in the Pacific Northwest were involved in schemes to withhold energy and to assist Enron in creating false congestion; Enron used markets outside of California in order to advance its tactics in California; Enron may have implemented fraudulent schemes outside California markets; and utilities in the Pacific Northwest violated posting requirements in transactions with Enron."

"Even assuming all of these transactions occurred in the California spot market, the fact that Pacific Northwest sellers were apparently involved in Enron's manipulation indicates that FERC must at least consider the possibility that the Pacific Northwest spot market was not, as the ALJ found, functional and competitive," wrote Judge Thomas.

As a result of today's decision, California can now potentially claim $1.3 billion in refunds from "nongovernmental" energy sellers.

Attorney General Brown says, "The largest potential refund-payers are Powerex, Sempra, TransAlta Energy, Coral Power and Trans-Canada."

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