FERC reaffirms long-term power contracts in West

Tuesday, Nov. 11, 2003 | 11:04 a.m.

SUN STAFF AND WIRE REPORTS

The Federal Energy Regulatory Commission on Monday stood by its decision that a number of long-term Western power contracts are not subject to renegotiation despite complaints that electricity markets were being abused by energy traders.

The agency said it would not reconsider a ruling it made last June upholding the contracts.

Those contracts included disputed deals between Nevada Power Co. and its sister company, Sierra Pacific Power Co. of Reno, and Enron Corp., Morgan Stanley Capital Group, Reliant Energy Services and other power traders.

The Nevada companies and utilities in Southern California and Washington state had sought the review, arguing that a "dysfunctional" power trading system in California made the long-term contracts "unjust and unreasonable" in violation of the Federal Power Act.

A U.S. Bankruptcy court judge cited the June FERC decision when it handed down a $336 million judgment against the Nevada utilities on behalf of Enron. Nevada Power and Sierra Pacific have filed a separate appeal with the FERC seeking to have the bankruptcy court ruling overturned because Enron violated market rules when terminating the contracts and demanding more than $300 million in default payments. That appeal is still pending with the commission.

The long-term contracts for electricity purchases were negotiated with a number of power producers and traders between November 2000 and June 2001, when the California power market was in disarray and spot electricity prices were soaring to record highs.

In its previous order, FERC said the utilities failed to demonstrate that the contracts caused such financial distress that they could not continue service, or that the contracts placed an excessive burden on their customers.

Also, said FERC, at the time of the contracts "other alternatives were available" to the utilities, but they "chose to enter into the contracts in question, accepting market risks."

"The fact that a contract becomes uneconomical over time does not render it contrary to public interest," FERC reiterated in its order Monday.