WASHINGTON, DC – On Thursday, U.S. Senator Maria Cantwell (D-WA) issued the following statement regarding the confirmation of Jon Wellinghoff and Joe Kelliher to be members of the Federal Energy Regulatory Commission (FERC).

 

 

Cantwell’s statement:

 

 

“I will support the Senate moving forward on the confirmation of Jon Wellinghoff and Joe Kelliher to be members of the Federal Energy Regulatory Commission.  While I am pleased that FERC has been using its expanded authority granted by Congress in the Energy Policy Act of 2005 to pursue manipulation in the electricity and natural gas markets, I think it is critically important to remind FERC of its statutory duty to oversee the energy markets and protect consumers.

 

“Mr. President, in light of evidence of market manipulation in the Western electricity crisis in 2001, I fought hard to ban market manipulation in electricity and natural gas markets.  My amendment, adopted by Congress as part of the Energy Policy Act of 2005,  provided FERC new authority under the Federal Power Act and Natural Gas Act to investigate and punish market manipulation in electricity and natural gas markets.

 

“I am pleased to see that FERC has used this expanded authority to conduct 64 investigations.  According to FERC, 13 of these investigations have resulted in settlements involving the payment of civil penalties or other monetary remedies totaling over $40 million.  Two investigations have resulted in FERC bringing enforcement actions for alleged market manipulation against Amaranth Advisors LLC for $291 million in civil penalties and Energy Trading Partners for $167 million in civil penalties.  Amaranth’s shenanigans cost consumers upwards of $9 billion dollars during the summer of 2006.

 

“However, I want to remind FERC of its responsibilities relating to protecting consumers under the Federal Power Act’s statutory “just and reasonable” standard.  In section 1290 of the Energy Policy Act of 2005, which I authored, Congress directed FERC to exercise its Federal Power Act authority to enforce “just and reasonable” rates when it reviewed the validity of termination payment claims made by Enron during the Western energy crisis of 2000-01. 

 

“After entering into power contracts in a market that Enron manipulated, several utilities, including the Snohomish Public Utility District in my state, the Nevada Power Company and Sierra Pacific Power Company in Nevada, terminated their contracts with Enron or watched as Enron terminated them when the company’s web of fraudulent accounting was revealed in late 2001.   As a result, Enron tried to squeeze hundreds of millions of dollars of termination fee payments from the electricity consumers of these utilities.  In my opinion, these payments demanded by Enron were certainly neither just nor reasonable.

 

“After enactment of the Cantwell Amendment, the Snohomish Public Utility District in my state and several other entities including the Nevada Power Company, asked FERC to exercise its Federal Power Act authority, which includes enforcing “just and reasonable” rates, and deny Enron the ability to charge the fraudulent termination payments.

 

“Using the force of the Cantwell amendment, these Washington state and Nevada utilities were able to avoid protracted litigation and settle Enron’s absurd termination fee claims, saving these utilities from paying hundreds of millions in unjust payments on contracts that Enron fraudulently induced.  This has helped save electricity consumers of Washington and Nevada hundreds of millions of dollars.

 

“This spring, the United States Supreme Court will review a decision of the U.S. Court of Appeals for the Ninth Circuit which declared that FERC failed to use its authority under the Federal Power Act to enforce “just and reasonable” rates.  In a brief to theSupreme Court in this matter, FERC recently took the position that it was free to approve long-term contracts arising out of the 2000-01 Western power crisis notwithstanding evidence that, in the words of Stanford University energy economist Dr. Frank Wolak, suppliers to the Western markets during this period were “able to exercise market power at unprecedented levels” resulting in “prices vastly in excess of competitive levels.”   

 

“As the Ninth Circuit’s opinion makes clear, if FERC adopts market-based rates, it has an obligation to ensure that the markets operate properly and it cannot simply assume that a contract is just and reasonable even if the contract is the product of a manipulated market, such as the experienced in the West during 2000-01.

 

“It is troublesome that FERC continues to argue that it is free to ignore evidence of market manipulation and market power abuse when reviewing contracts affected by that abuse.  Moreover, this position is inconsistent with its recent emphasis on enforcement of market standards.   FERC’s position in the Supreme Court essentially could allow market abusers to protect their ill-gotten gains by locking them up in contracts, undermining any incentive they might otherwise have to obey market rules and report abuses by other market participants. 

 

“While I am pleased that Commissioner Wellinghoff’s response to my questions indicates that he does not agree with FERC’s brief in this matter, I will continue to watch FERC very closely as this case moves forward.  FERC is the sole forum to bring complaints of market power abuse and manipulation in electricity (and natural gas) markets, and I fully expect FERC to not abrogate its Federal Power Act responsibilities to protect consumers and enforce “just and reasonable” rates.”

 

 

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