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On voluntary remand, FERC to look at energy crisis refund cost offsets

A FERC administrative law judge will hold a trial-type hearing to determine whether two energy suppliers are seeking to offset their Western energy crisis of 2000-2001 refund obligations with costs related to fraudulent transactions, the agency said in a Jan. 23 order.

According to the commission, cost offsets claimed by Shell Energy North America (US) LP, formerly Coral Power LLC, and Hafslund Energy Trading LLC are alleged to include "costs of illegal activities."

"We find that sellers should not be permitted to offset their refund liability by the costs incurred while engaged in activities in violation of the then-effective tariffs," FERC explained.

The dispute at issue stems from a 2006 order in which FERC largely approved cost filings of 13 power sellers, including Coral and Hafslund, that sought to offset the companies' refund obligations for excess electricity charges during the energy crisis with their costs of serving the California markets during that period.

A group of California parties — the state's attorney general and public utilities commission, as well as investor-owned utilities Pacific Gas and Electric Co. and Southern California Edison Co. — subsequently challenged that order and other FERC energy crisis decisions at the United States Court of Appeals for the 9th Circuit.

Meanwhile, FERC in November 2014 issued Opinion 536, in which the agency determined that false exports, false load scheduling and phantom ancillary services transactions constitute tariff violations, and Coral, now known as Shell, and Hafslund had engaged in some or all of those activities during the energy crisis. The California parties then filed a brief with the 9th Circuit charging that FERC erred in allowing Shell's and Hafslund's offset claims to include costs associated with those illegal activities.

Responding to the brief, FERC on Oct. 11, 2016, filed a motion for a voluntary remand of the refund cost offsets issue, and the court granted the request the following day. FERC's Jan. 23 order acts on the remand.

In that order, FERC explained that a hearing is needed to determine which transactions included in Shell's and Hafslund's cost claims constitute false exports, phantom ancillary services and false load scheduling, and therefore should be excluded from the offset calculations.

"Shell and Hafslund are allowed to present evidence showing that the alleged illegal transactions had a legitimate business purpose," FERC said. "We also reopen the record to allow parties to supplement the existing record."

However, as it usually does in such situations, the commission encouraged the parties to resolve their disputes among themselves. To that end, FERC held the hearing in abeyance and ordered that a settlement judge be appointed to assist the parties in their negotiations. (EL00-95-295, EL00-98-267 et al.)