The Federal Energy Regulatory Commission has directed six power sellers to refund customers after finding they failed to justify sales made above a $1,000/MWh soft price cap during severe heatwaves in August-September 2020.
Extreme heat during those months produced energy transactions that exceeded the Western Electric Coordinating Council's $1,000/MWh soft price cap. That triggered a requirement for sellers who transacted above the soft cap to justify their offers to FERC.
In a series of April 22 orders, FERC found that six sellers justified making some spot market sales at the relevant average index price, which can exceed the soft price cap in some cases. But the sellers did not justify premiums added to the index price for certain other sales, the commission found. (ER21-57, ER21-47, ER21-46, ER21-55, ER21-51, ER21-42)
Accordingly, the commission directed all six sellers — Shell Energy North America LP, Tucson Electric Power Co., Mercuria Energy America Inc., BP Energy Co., Mesquite Power LLC and Tenaska Power Services Co. — to issue refunds for premiums charged above the average index price for the sales at issue.
The specific amounts of the refunds will be disclosed in reports required within 30 days of their being issued.
In directing refunds, FERC was unpersuaded by the sellers' contention that sales above the index price set at the Palo Verde trading hub were made at prevailing market prices.
FERC issued guidance in June 2021 that included three different frameworks that sellers could use to justify their offers, including an index-based framework.
"In these circumstances, the index-based framework only justifies prices up to the index price and ... any premiums above the index must be justified in other ways," FERC said, finding that all six sellers fell short in that regard.
Commissioner James Danly dissented in all of the proceedings, arguing that the market-based rate sales at issue are subject to the Mobile-Sierra doctrine.
That doctrine holds that FERC must presume that rates agreed to in freely negotiated wholesale energy contracts are just and reasonable. Such a presumption can only be overcome if the commission concludes the contract may seriously harm the public interest.
"There is no showing in the record that these prevailing market prices seriously harmed the public interest," Danly said, echoing reasoning in a similar proceeding for PacifiCorp. (ER21-60)
"It is not like [the seller] has a real choice not to sell excess power during a reliability crisis," Danly said. "If it does not sell, the commission will investigate it for physical or economic withholding and attempt to levy sanctions for manipulating the markets."
The de facto result is that FERC requires sellers to make sales during grid emergencies, "and then we require them to sell at our preferred price," Danly said. "No wonder there seems to be no end in sight to the supply shortage in California and (increasingly) the Western United States."
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