In a May 27 brief-of-exceptions filing, Iberdrola claimed that the Federal Energy Regulatory Commission (FERC) should dismiss the company from the ruling or reject the decision because a U.S. Supreme Court ruling was misapplied and the rates Iberdrola charged were “just and reasonable.”
The filing is in response to the decision made April 12 in Washington, D.C. by FERC Judge Steven Glazer. The judge ruled that Iberdrola misled state officials while negotiating the contracts and charged $371 million more than it should have in 2000 to 2001.
Glazer ruled that Iberdrola charged “two to three times” higher than normal, according to a Los Angeles Times story. In its brief, however, Iberdrola claimed that its average rate impact of its contract was 5 cents per month for a typical residential customer of Pacific Gas & Electric. Meanwhile, FERC said in the brief that an average impact rate of 27 cents per residential customer was not considered an excessive burden.
Further, the brief said, the decision contradicts the 2008 Supreme Court case of Morgan Stanley Capital Group v. Public Utility District No. 1 of Snohomish County, Washington. That case “establishes the standard for application of the Mobile-Sierra presumption to long-term contracts.”
According to the Supreme Court opinion on the Morgan Stanley case, Mobile-Sierra says “the Federal Energy Regulatory Commission … must presume that the rate set out in a freely negotiated wholesale-energy contract meets the ‘just and reasonable’ requirement imposed by law. The presumption may be overcome only if FERC concludes that the contract seriously harms the public interest.”
Michael Wara, an associate professor of law at Stanford University, told the Northern California Record that this boils down to what constitutes a public-interest exception great enough to overcome the Mobile-Sierra presumption.
“We don’t know where this public-interest exception is going to actually apply,” Wara said. “I think there’s still a real dispute about that, apparently, and it remains to be seen.”
In a statement emailed to the Northern California Record by a spokesperson from Avangrid Renewables, the new legal name for Iberdrola Renewables, the company also raised questions in its brief.
“[I]t is undisputed that the energy crisis ended with the Commission’s June 19, 2001, mitigation order, and that by July 6, 2001, when the Iberdrola contract was signed, spot market volatility had ended and futures prices had largely returned to pre-crisis levels,” the statement said. “The Commission correctly determined in 2002 that the long-term contracts signed after June 19, 2001, were not impacted by dysfunction, whether generic or specific to any seller, and the initial decision confirms, once more, that the Iberdrola contract was not affected by unlawful conduct."
Iberdrola, in its brief, said “that the mere fact that a long-term power purchase contract was executed during the energy crisis suffices to dispose of the Mobile-Sierra-Morgan Stanley presumption in its entirety.”
Iberdrola responded by quoting the Morgan Stanley opinion: “It would be a perverse rule that rendered contracts less likely to be enforced when there is volatility in the market.”
“The initial … decision contains both findings of fact and conclusions of law that directly contravene and ignore Supreme Court precedent and Commission precedent and policies promoting contract sanctity and underlying the Commission’s market-based rate regime,” the emailed statement said.
Wara said that given the timing of this case, with so many years having passed since the energy crisis, there is a big focus on the future.
“The real question is going to be, what signals does FERC want to send to market participants for the next time?” he said. “This is really about what happens next time when there’s a big price spike in markets for some reason.”