Washington Attorney General’s Office Issues Statement On Wholesale Energy Rates

January 15, 2008 -- OLYMPIA -- The Washington Attorney General’s Office filed an amicus, or friend of the court, brief yesterday in the U.S. Supreme Court supporting Snohomish County PUD (PUD) in its dispute with Morgan Stanley Capital Group Inc (Morgan Stanley) over its 2001 power contract.

The PUD entered into the nine-year contract with Morgan Stanley during the Western Energy Crisis of 2000-01 when electricity prices soared due to market manipulations. Pursuant to the Federal Power Act (FPA), the PUD asked the Federal Regulatory Energy Commission (FERC) to review and reform its contract, resetting rates to “just and reasonable” levels consistent with the Act. FERC refused to take action on the matter. The Ninth Circuit Court of Appeals overturned FERC’s decision and directed FERC to review the contract in light of the evidence of a dysfunctional market. Morgan Stanley is seeking review in the U.S. Supreme Court.

In its brief, the state contends the case, set to be heard Feb. 19, is of “vital interest to… Washington” not just because the PUD and its customers suffered from the high rates during the energy crisis, but because all Washington’s electricity consumers rely on FERC for protection from unjust and unreasonable wholesale electric rates.

Under the FPA, the Washington Utilities and Transportation Commission (WUTC), which has authority over retail rates charged by investor-owned utilities (not PUDs), cannot review wholesale rates.

“When prices began to escalate, the PUD was put in an unfortunate position. It had no choice but to acquire power to serve its customers,” Attorney General McKenna said. “Those customers should not suffer because sellers were able to demand ridiculously high prices in the then-flawed wholesale market. Washington’s consumers deserve to have the FPA enforced properly.

“I support the Ninth Circuit’s conclusion that an error was made in denying Snohomish County the opportunity to challenge the rates set by its contract with Morgan Stanley,” he said.

“We appreciate the support of the attorney general in helping to protect consumers in the Pacific Northwest,” said PUD General Manager Steve Klein. “It’s good to know that our state officials are willing to stand with us in pursuit of justice.”

The brief contends that the Western Energy Crisis was a dramatic market failure in which FERC failed to protect consumers from excessive wholesale electricity prices.

The Attorney General’s Office argues that FERC failed to take any significant action to protect consumers for one year. The crisis began June 2000 in the Pacific Northwest, when the day-ahead electricity price soared to between $200 per megawatt hour (MWh) and $500/MWh compared to the historical average of $24/MWh. The Morgan-Stanley contract called for power to be delivered over eight years at $105/MWh.

Source: Washington Attorney General

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