Thoughts From Your Valuation Source

Energy prices that were grossly inflated by illegal trading schemes have been brought before the Supreme Court by officials from California, Washington and Nevada in an effort to nullify or renegotiate the terms according to an article today on the LA Times website. Unfortunately it seems that the chances are slim that this will happen. The U.S. Supreme Court only asked that the Federal Energy Regulatory Commission rework its analysis on only two points used to justify its position that there are no changes needed in the contracts.

FERC's refusal to void the contracts years ago stemmed from what the agency called a "long-standing policy . . . to recognize the sanctity of contracts." The commission held to that position throughout the six-year court battle over the energy contracts and it appears unwilling to change its tune now.

"The court recognized the importance of contract certainty to both buyers and sellers in competitive wholesale power and gas markets," FERC Chairman Joseph Kelliher said in a statement. "The court has directed the commission to 'amplify or clarify' its findings on two specific points, so the commission will have further work to do in reviewing these contracts."

A second member of the commission, Philip Moeller, also applauded the court's decision, noting that, "contract uncertainty can have a chilling effect on needed investment in the energy industry and may deter parties from entering into long-term arrangements."

This point of view is not being shared by most, especially those paying the exorbitant rates being charged.

Roger Berliner, an attorney who worked on the case for Nevada utility Sierra Pacific Resources, said he was disappointed by the ruling: "This decision is not a positive decision for consumers."

California had hoped to renegotiate a handful of long-term contracts between the state Department of Water Resources and several power providers that are in still in force and were never renegotiated.

The California Public Utilities Commission and state officials believed that crisis-era pacts with San Diego-based Sempra Energy and others were costing consumers an extra $1.45 billion to $3.08 billion -- an amount they had hoped to return to electricity customers, possibly by reducing or eliminating future charges.

A Washington utility had hoped to get relief from a nine-year power contract with Morgan Stanley Capital Group. Under that contract, the Snohomish County Public Utility District is paying $105 a megawatt-hour, well above the historic norm for the Pacific Northwest of $24 a megawatt-hour, but also well under the $3,300 a megawatt-hour hit at the peak of the energy crisis that spread beyond California's borders, according to the court's synopsis.

The FERC and the power providers have all claimed that the market prices at the time set deal prices and that there was no manipulation and thus no need to adjust or revise contracts.

"It was the failure of regulators to protect consumers from market manipulation" that caused the utilities to overpay for power. "I don't think the court appreciated the extent to which the dysfunction in the market made it impossible for there to be just and reasonable contracts."

California utility regulators nonetheless struck an optimistic tone. "We are pleased the Supreme Court agrees that FERC needs to take another look at this case," the state Public Utilities Commission said in a statement. "We look forward to further proceedings and continuing our challenge to long-term contracts entered into during what FERC itself has described the 'worst electricity market crisis in American history' in order to obtain financial relief for California electricity consumers."