FERC At Its Best: Retail Supplier Waiting 10 Years for FERC Refund on Unjust Charges

Quest Energy, LLC and Integrys Energy Services, Inc. requested that FERC issue an order approving a settlement agreement among the retail suppliers and various AEP transmission owners concerning Seams Elimination Charge Adjustments imposed on retail suppliers by FERC.

Specifically, after many years of litigation, including Quest/Integrys' filing of two Petitions for Writ of Mandamus with the U.S. Court of Appeals for the D.C. Circuit, multiple Petitions for Review, multiple protests, requests for rehearing and negotiations, on January 10, 2013, AEP and Quest/Integrys filed with the Commission a settlement. No party filed comments to the settlement agreement, and the parties have been awaiting an order on the settlement agreement for more than six months. "There is no controversy, and this Settlement Agreement will end the litigation between the Parties and will provide for the return of some of the funds that AEP has been holding since 2003," Integrys Energy Services said.

As recapped by Integrys Energy Services, the tortuous SECA proceedings, "commenced as a result of the formation of or attempt to form regional transmission organizations ('RTOs') in the Midwest."

"Because of the choices of Regional Transmission Organization ('RTO') made by certain transmission owners (the 'New PJM Companies'), a large and illogical seam was created in the Midwest, which the Commission acknowledged would inhibit the development of markets and the fulfillment of the Commission's RTO goals. The Commission determined that elimination of the seams charges (regional through and out rates 'RTORs') was necessary to facilitate market development. Thus, the SECA was born," Integrys Energy Services said.

"Caught in the mess of untangling these choices were entities like Quest/Integrys, load serving entities ('LSEs') who compete with traditional utilities for commercial and industrial customers in states where retail markets have been opened. Retail LSEs like Quest/Integrys engaged in power sales transactions during 2002 and 2003 when retail market competition was in its infancy. They relied on the stability and risk/reward features of 'bundled delivery' contracts for energy used to serve their retail customers. Under these contracts, wholesale power marketers would provide, at a specified delivery point, energy and transmission at a fixed price, delivered to the area where the load was served. The energy price and transmission rate risk was placed on the supplier. This arrangement provided the certainty necessary to serve customers, because retail LSEs participating in newly open retail markets did not have the standard regulated utility mechanisms to defer costs or otherwise manage cash flow," Integrys Energy Services said.

"Retail LSEs were blindsided by the Commission's orders implementing the SECA because the SECA mechanism was a charge on load – it did not flow through transmission rates or apply to the transmission customer. Thus, retail LSEs found themselves liable for the SECA charge on their long past purchasing activities even though they never even obtained transmission as part of their purchase of a bundled product," Integrys Energy Services noted.

Quest/Integrys' SECA charges amounted to approximately $19.6 million. Quest/Integrys' SECA obligation was about 4% of the total SECA amounts when it, at most, served about 0.3% of load. "They paid these amounts and have expended significant resources for companies of their size to show that the rate mechanism and the amounts sought to be collected were unjust and unreasonable," Integrys Energy Services said.

"Quest/Integrys vigorously objected to the SECA. Quest/Integrys filed Protests of filings and compliance filings; filed requests for rehearing of every substantive Commission order; and was a very active participant in the hearing presided over by Administrative Law Judge Cintron. Because of delays in issuance of Orders, Quest/Integrys, along with Direct Energy, filed not one, but two Petitions for Writ of Mandamus with the U.S. Court of Appeals for the District of Columbia Circuit ('DC Circuit'). Quest/Integrys is a Petitioner in consolidated proceedings currently pending in the DC Circuit. Quest/Integrys' issues raised and currently pending before the Commission are comprehensive and reach the fundamental issues on the validity of the Commission's orders in establishing the SECA. Quest/Integrys has remained committed to seeing this case to its conclusion, no matter how many years it takes," Integrys Energy Services said.

"On January 10, 2013, AEP and Quest/Integrys filed with the Commission a Settlement Agreement that would resolve all issues between the parties. No party objected to the Settlement Agreement, yet the Settlement Agreement has remained pending a Commission order for nearly six months. Quest/Integrys seek an immediate Commission Order approving the Settlement Agreement and submit that Quest/Integrys are harmed by this delay," Integrys Energy Services said.

"The Settlement is comprehensive and would resolve all issues raised by Quest/Integrys and a number of issues raised by AEP in the DC Circuit. This Settlement would significantly reduce the issues that remain subject to appeal. The Settlement creates certainty and results, among other things, in a $9.5 million lump sum payment to Quest/Integrys. This is money that AEP has been holding since 2003. Failure to issue an Order approving the Settlement is causing harm to Quest/Integrys and to the administrative process," Integrys Energy Services said.

"There is no reason for it to take six months to issue an Order on the Settlement Agreement in this case," Integrys Energy Services said.

"[I]ssuance of an Order approving the Settlement is in the public interest. Under the terms of the Settlement Agreement, not only will Quest/Integrys receive a lump sum payment, but the parties have resolved a number of issues that are the subject of appeal before the DC Circuit. In addition, Quest/Integrys has agreed to withdraw its Petitions for Review if the Settlement Agreement is approved," Integrys Energy Services said.

"[F]ailure to issue an Order on the Settlement Agreement harms the administrative process. Parties, including Quest/Integrys, have been awaiting their day in court for ten years. Once the Commission issues an Order on the Settlement Agreement, the remaining parties to the case can either settle or move forward to conclude the appellate process. Failure to issue an Order requires parties before the DC Circuit to constantly seek deferrals of the procedural schedule. Each time the parties seek deferral, they now report that the reason for the deferral is the Commission's failure to act on the pending Quest/Integrys and AEP Settlement Agreement," Integrys Energy Services said.

"Enough is enough," Integrys Energy Services said.