Law Judge Rules Against Energy Refunds in Northwest

In recommending that the Federal Energy Regulatory Commission dismiss the complaint seeking the refunds, Judge Carmen Cintron concluded Northwest utilities should have seen the surge in prices coming and could have entered into long-term contracts with electricity wholesalers to avoid purchases on the volatile spot market.

The judge found there was no evidence to suggest energy wholesalers had sought to manipulate the market. While the turmoil in California's energy market affected prices throughout the West, Cintron said, a severe drought in the Northwest and steeper prices for natural gas exacerbated the problems.

In addition, the judge said ordering refunds in this case would set a dangerous precedent that could further unravel energy markets. And it would be difficult, if not impossible, to prove who owed whom and how much, she said.

"The Pacific Northwest is a competitive market and has been for a long time," Cintron wrote in a 182-page decision. "The transactions involved in this proceeding resulted in bilateral agreements between the parties. Under these circumstances, the prices were not unreasonable or unjust and refunds should not be ordered in this proceeding."

The utilities were seeking $462 million in refunds, including $65.4 million by Tacoma Power and $278 million by Seattle City Light.

"It's kind of disappointing," said Mark Crisson, who heads Tacoma Public Utilities. "My impression is it misses the whole point and looks like an exercise in hindsight."

The commission, which has ordered refunds for Californians, will have to decide whether to agree with Cintron and dismiss the Northwest case or ignore the recommendations and order refunds.

"It seems if rates were unjust and unreasonable in California, they would be unjust and unreasonable in Tacoma," said Philip Chabot, a Washington, D.C., lawyer who represented Tacoma and other utilities in the proceeding.

Chabot was scheduled to meet with his clients Wednesday and said he would recommend they ask the commission to reject Cintron's recommendations and proceed with the case.

"The recommendations are inconsistent with what is happening in California, inconsistent with (FERC's) staff's own findings and inconsistent with the facts as I see them," Chabot said. "The evidence is quite clear. What happened in the Northwest was affected by the situation in California."

During the late fall of last year and the first six months of this year, wholesale electricity rates in the Northwest rose to more than 10 times normal levels.

But in her decision, Cintron said energy markets in the Northwest had operated like they were designed to. And even though prices rose sharply, the increases eventually persuaded people to start conserving electricity, causing prices to drop near previous levels.

"The record evidence demonstrates that the Pacific Northwest market for spot sales of electrical energy was at all times I competitive and functional," the judge wrote. "The evidence shows that the Pacific Northwest performed just as workably competitive markets would under adversity."

Cintron singled out Tacoma in pointing out that it and other utilities sold off some of their generating units and decided to play the spot market.

"The record evidence shows that Tacoma chose to take the risk of high spot market prices," the judge wrote. "Each utility is free to choose how to meet its firm load requirements as it see fit and no one is captive to a single market or a single point of supply."

Cintron said utilities such as Tacoma had "numerous options" in purchasing electricity and that some marketers were offering one- or two-year contracts with electricity prices well below spot prices.

The judge found that for almost two years the Bonneville Power Administration, which markets 45 percent of the wholesale power in the region, had warned of possible shortages.

Though market turmoil in California affected the Northwest, Cintron said "this was not the only thing driving up" electricity prices in the region, pointing to the drought, the second-worst on record, and the increases in natural gas prices.

All other considerations aside, Cintron said it would be impossible to "identify and quantify" the amount of refunds due throughout the Northwest.