By -- Source, Sacramento Bee
Electrical Testing & Commissioning of Power Systems
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"FERC certainly has tremendous discretion to reset or abrogate contracts, ... but they certainly seem to have no appetite to do so," said Frank Wolak, a Stanford University economics professor who has monitored market issues for the state's electricity grid operator.
As state officials vowed over the weekend, the California Public Utilities Commission on Monday filed a formal, 61-page complaint with multiple appendices at FERC, asking it to void or modify 32 long-term electricity contracts.
The PUC argues that the power would have sold for $14 billion to $21 billion less if California's electricity markets hadn't been warped by runaway spot prices, generators' unusual clout and earlier FERC rulings.
FERC, which does not comment on pending cases, now will have to decide whether to reject the state's complaints or schedule hearings. It also could order the contracts revised without hearings, but that would be highly unusual in such a case, regulatory attorneys say.
Gov. Gray Davis, in Washington for a National Governors Association conference, continued to sound upbeat.
"I think FERC will be sensitive to what we're asking," he said. "They understand their job, which is to get in and fix marketplaces."
Any FERC action is likely to come slowly.
"Their track record is they sit on these things," said Severin Borenstein, director of the University of California Energy Institute.
Nearly three months after two Nevada utilities lodged similar complaints with FERC in early December, the commission still has not taken the next likely step of either scheduling hearings or dismissing the complaint.
If the commission sets California's case for hearings, it would probably take two years to reach a final decision, said Robert Nordhaus, a Washington, D.C., attorney who follows FERC issues.
It is rare for a buyer to ask FERC to void a power contract over allegations of unfair pricing and even rarer for the commission to do so, but it has happened on occasion, Nordhaus said.
"Realistically, it's pretty unlikely that the state will win," Borenstein said.
It is more probable that the filing will become another bargaining chip in the state's efforts to renegotiate the $43 billion in long-term contracts signed with dozens of power plant owners and traders in 2001, he said.
Even if generators believe they will eventually prevail at FERC, Borenstein said, the prospect of having to argue the issue for years would be another incentive for working toward revised deals.
Generators have said all along that they are willing to talk to the state about mutually agreeable changes. But a Davis team has been pushing hard since December to renegotiate the contracts, so far without significant progress.
"The generators think that they have pretty solid contracts, and those contracts are worth quite a bit of money to them," Borenstein said. "You can renegotiate till the cows come home. They're not going to just hand money back to the state. That's why it's called a contract."
