03.16.03

Cantwell Demands Energy Refunds from Federal Energy Regulators

FERC Commissioner Massey meets with Senator, Local Businesses and Utilities to Discuss Regional Power Issues and Cantwell’s New Legislation to Prevent Market Manipulation

EDMONDS, WA – U.S. Senator Maria Cantwell (D-WA) today convened a meeting between local ratepayers and Federal Energy Regulatory Commission (FERC) member Bill Massey to discuss FERC’s failure to deliver relief to utilities. Northwest utilities paid hundreds of millions of dollars in excess costs when FERC failed to act to stop energy trading scams executed by Enron and other companies during the western energy crisis of 2001.

Cantwell, a strong supporter of ordering refunds for utilities who were forced to raise rates because of the market manipulation, announced that she would introduce legislation designed to prevent the kinds of energy market manipulation that have occurred over the last three years. Cantwell, who sits on the Senate Energy Committee, briefed local businesses and utilities on the legislation in the Sunday meeting at the Snohomish Public Utility District (PUD) south county office.

Massey, who has supported efforts to strengthen FERC’s role in protecting ratepayers, was in Washington state at Senator Cantwell’s request to learn more about the Northwest power system and to hear from local ratepayers on the importance of strengthening ratepayer protections from market manipulation and other market failures.

"This legislation is a shot across FERC’s bow," Cantwell said. "Despite six months and thousands of pages of evidence that Enron and others conspired to manipulate energy markets, FERC has failed to protect us. I am announcing this legislation to force FERC to take action because Washington ratepayers deserve relief from high energy costs."

Cantwell’s Energy Market Manipulation Prevention Act of 2003 would protect consumers from the types of rate gouging that were made possible by the wholesale power market manipulation strategies employed by Enron and other firms. Cantwell’s legislation would help prevent a repeat of the western energy crisis by creating a powerful disincentive to manipulate energy markets. Specifically, Cantwell’s legislation would require FERC to step-up its oversight of markets, force FERC to order refunds in cases where market manipulation took place, and require FERC to revoke market-based rate authority for entities who engage in or intend to engage in wholesale power market manipulation.

Cantwell said she expected her legislation to be considered by the Senate when debate begins on a broad national energy bill. That debate is expected to begin within the next few months. As a member of the Senate Energy Committee, Cantwell has pushed FERC to provide relief to Northwest ratepayers and will use this legislation as another weapon in her arsenal to prod federal regulators into action.

The legislation is of critical importance to Washington state and the region which has long relied on the region’s affordable and reliable public power system. Since the market manipulation strategies of Enron and other companies forced the Bonneville Power Administration to raise rates in 2001, consumers and businesses have paid $895 million in excess energy costs.

Individual utilities were also hit by the crisis: for example, Snohomish PUD is actually being sued for $116 million by Enron after the utility canceled an exorbitant contract and is seeking relief from $65 million in excessive power costs charged by Morgan Stanley. Seattle City Light is currently pursing a $268 million refund claim in court and through FERC.

Major employers such as the Kimberly-Clark paper plant in Everett have seen their energy costs skyrocket. Kimberly-Clark now faces difficulty getting resources for new investments from its corporate headquarters after its energy costs went from being one of Kimberly-Clark’s cheapest plants to power to its fourth most expensive in the nation.

Legislation At-A-Glance:

The Energy Market Manipulation Prevention Act of 2003 would protect ratepayers from Enron-like energy trading scams. Specifically, it would:

Require the refund of ill-gotten gains. Anytime FERC finds that a utility or energy marketer has engaged or attempted to engage in market manipulation, the bill directs FERC to establish a benchmark cost-of-service rate, and immediately order refunds of any money collected in excess of that amount.

Require revocation of market-based rate authority if an entity misbehaves. The bill requires FERC to revoke or modify an entity’s authority to sell at market rates if the Commission finds it is charging unjust and unreasonable rates; the utility or energy marketer has engaged or attempted to engage in fraudulent, manipulative or deceptive actions in wholesale markets; or if the entity violates any other Commission rules (such as reporting requirements).

Require enhanced and regular oversight of markets. The bill requires FERC to review on an annual basis the activities of the entities to which the Commission has granted market-based rate authority (as well as the state of the markets in which they operate) to assess whether the utility or marketer has the market power to charge rates above a just and reasonable level. It also requires these entities to report to the Commission changes in corporate structure that may impact FERC’s decision to allow the utility to charge market-based rates.

Stipulate that the "public interest standard has only limited application. The bill directs FERC to apply the Federal Power Act’s existing "just and reasonable" standard to the review of market-based rate transactions, unless the contract in question contains language stipulating that the public interest standard shall apply. Even if the contract in question does contain "public interest" language, however, the bill directs FERC to waive its application if the Commission finds that one of the parties to the contract did not have reasonable bargaining power.

Key Factoids on the Lingering Impact of Energy Market Manipulation on Washington State:

· Since the market manipulation strategies of Enron and others forced the Bonneville Power Administration to raise rates in 2001, consumers and businesses have paid $895 million in excess energy costs.

· BPA has an estimated $700 million in long-term contracts with Enron. (Source: snopud.com's Industry News, 2/18/03)

· Seattle City Light is seeking $278 million in refunds. (Source: Seattle PI, 1/28/03)

· Tacoma Power is seeking $65 million in refunds.

· Snohomish PUD is seeking relief from FERC for $90 million in excess power costs from Morgan Stanley and is being sued by Enron for $116 million, the value of a contract for energy that was never delivered and whose rate was established the value of an artificially inflated contract for energy that was never even delivered. o Pacificorp is seeking $53 million in ratepayer relief from FERC. (source: snopud.com's Industry News 2/3/03)