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FERC Denies Rehearing Of Order That Allocates Must-Offer Generation Costs To Retail Suppliers, Rather Than Single LSE

May 11, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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FERC has denied rehearing requests from retail electric suppliers concerning FERC's August 2019 order that revised the allocation of must-offer generation commitment costs in the California ISO, and in doing so, allocated the costs to a broader group of LSEs (which includes retail suppliers), rather than a single LSE.

See background on the proceeding and the August 2019 order here

The origins of this proceeding date back more than a decade to CAISO’s May 2004 filing of Amendment No. 60, which proposed, among other changes, to allocate must-offer generation commitment costs using a "bucket" rate design

Most of the costs (almost $100 million) at issue here relate to the South of Lugo path and whether it was considered a local or zonal constraint.

Costs related to the constraint were initially assigned on a local basis, to only a single LSE, Southern California Edison.

The constraint was later classified as zonal, which would allocate costs to additional LSEs.

However, FERC in 2016 rejected a refund report from CAISO which would have resettled prior must-offer generation costs related to South of Lugo, and which would have allocated the costs on a zonal basis to new LSEs (via a surcharge) to provide a refund to SCE

In an August 2019 rehearing order, FERC reversed its prior finding with respect to refunds. FERC in August 2019 found that it was appropriate for CAISO to administer market resettlements, with surcharges on a broader group of LSEs, due to the change to zonal allocation.

Shell Energy North America (US), L.P. and the Alliance for Retail Energy Markets (collectively, the Coalition) sought rehearing of FERC's August 2019 rehearing order, arguing, among other things, that the Commission lacks jurisdiction to authorize the refunds it approved in the August 2019 Order because in doing so, the Commission reopened and fundamentally altered a final Commission order that was upheld on judicial review.

FERC denied rehearing and affirmed its August 2019 order and the relief contained therein

FERC noted that in the order on rehearing it does not address arguments regarding the accuracy and transparency of CAISO’s resettlement process raised by suppliers. These matters will be addressed separately in connection with the Commission’s review of CAISO’s compliance filings, FERC said

FERC also affirmed the application of interest to the amounts under the resettlement process

Concerning its denial of rehearing FERC said, "We deny rehearing. All parties seeking rehearing maintain that once the Commission filed the record of this proceeding with the D.C. Circuit, it lost jurisdiction to order relief differing from that awarded in the 2007 and 2011 Rehearing Orders. But, as discussed below, the relief directed in the 2007 and 2011 Rehearing Orders is the relief that we affirm in this order. Consequently, the relief we affirm in this order was part of the record that the Commission filed at the D.C. Circuit. However, the Commission acknowledges that its reading of the 2007 and 2011 Rehearing Orders in the interim, i.e., in the October 2016 and the August 2019 Orders, does not properly reflect that fact. In reevaluating the August 2019 Order, we acknowledge that the Commission did not provide a correct reading of the 2007 Rehearing Order in the October 2016 and August 2019 Orders. As discussed more fully below, a correct reading of the 2007 Rehearing Order indicates that the Commission did in fact order refunds. Although the August 2019 Order misread the 2007 Order, it ultimately ordered the same relief, i.e., refunds to correct the misallocation of must-offer costs as found in the 2007 Rehearing Order and affirmed in the 2011 Rehearing Order. In this order, we correct the August 2019 Order’s erroneous statement concerning the 2007 Rehearing Order, but we ultimately affirm the August 2019 Order’s decision to require that refunds be paid—again, the same relief ordered in the 2007 Rehearing Order. Thus, while the August 2019 Order incorrectly reads the 2007 Rehearing Order, the relief approved there is within the Commission’s jurisdiction."

"The Commission acknowledged in the August 2019 Order 'that certain statements in this proceeding could reasonably have been read to create the expectation that refunds would be ordered.' A closer reading of these statements by the Commission from earlier orders in this proceeding demonstrates that this expectation has a clear factual basis because, in substance, the statements show that the Commission ordered refunds. This conclusion emerges from a brief recounting of statements in the Commission orders," FERC said

"The Commission stated in the 2007 Rehearing Order that 'the question before us now is not the date that was earlier established as the refund effective date from which the Commission could order refunds, but rather what should be ordered (i.e., when refunds should begin).' In that closing parenthetical, the Commission made clear that the question it was considering was what refunds to order, not whether to order refunds at all. The Commission ultimately found that the starting date for all refunds should be July 17, 2004. The Commission went on to state in the 2007 Rehearing Order that '[w]e continue to find that refunds for the proposed allocation of must-offer related charges under Amendment No. 60 should be ordered beginning July 17, 2004.' The Commission also stated that the same date should apply to refunds of the net incremental cost of local charges, and it stated that 'we . . . order refunds from July 17, 2004 for the net incremental cost of local methodology and direct the CAISO to use its proposed proxy incremental cost of local methodology from July 17, 2004 through September 30, 2004.' In short, we conclude that the correct interpretation of these statements is that the Commission in fact ordered refunds and do not merely create a possible expectation that refunds would be ordered. No party sought rehearing on the Commission’s findings regarding refunds in the 2007 Rehearing Order, and those findings were thus affirmed in the 2011 Rehearing Order," FERC said

"In the October 2016 Order, the Commission rejected the Refund Report as 'procedurally deficient' on the grounds that it 'is not tied to any Commission compliance directive in this proceeding.' In other words, the Commission rejected the Refund Report because the Commission’s 2007 and 2011 Rehearing Orders did not include formal directives to CAISO on refunds or the filing of a refund report. The Coalition is correct that the Commission’s typical practice when ordering refunds is to specify that they be made within a specific time and that a refund report be filed at a specified time. However, we disagree with assertions that the absence of such a specific directive negates the Commission’s substantive refund determinations or prevents the Commission from implementing them to carry out the Commission’s statutory obligation to ensure that rates are just and reasonable. Given our reading of the 2007 Rehearing Order set forth above, the October 2016 Order incorrectly rejected the Refund Report," FERC said

"Turning to the specific individual objections to refunds raised on rehearing, we find unconvincing the Coalition and Powerex’s argument that the refunds improperly exceed the 15-month refund period specified in FPA section 206. The Coalition and Powerex overlook that the Commission accepted Amendment No. 60 under section FPA section 205, subject to refund, and FPA section 205 does not contain a refund period or otherwise place a specific time limitation on the Commission’s refund authority. The consolidation of this FPA section 205 proceeding with a complaint filed under FPA section 206 does not constrain the Commission’s refund authority under FPA section 205," FERC said

Docket ER04-835-011 et al.

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