California representatives urge FERC to reconsider APX refund liability

HOUSTON, June 23, 2003 — California members of the U.S. House of Representatives recently sent a letter to the Federal Energy Regulatory Commission (FERC), asking the commission to reconsider its position to hold Automated Power Exchange (APX) liable in the California Refund Proceeding.

The letter sent June 20 to FERC Chairman Pat Wood follows:

Dear Chairman Wood,

We’re writing to request that FERC seriously consider and respond to the refund liability issue that Automated Power Exchange, Inc. (APX) has raised in the California refund proceeding (Docket Nos. EL00-95-45, et al). We understand FERC will be acting on this matter before month’s end.

FERC’s actions to date suggest that the serious issues raised by APX have not been fully considered. FERC is holding APX primarily liable for up to $100 million of the billions of dollars in refunds FERC is expected to order. There’s no doubt this money (and we would argue substantially more) is owed to consumers as restitution for the overcharges they paid during the refund period. The question is who should pay the refunds?

From the information we’ve reviewed, FERC seems to have missed the mark in identifying APX as primarily liable. APX preformed what appears to have been a purely administrative function in the California market, balancing schedules between sellers and buyers of electricity and submitting those schedules to the California Independent System Operator (CAISO). For performing this administrative service, APX charged a flat rate of 34 cents for each megawatt-hour scheduled. Although APX processed payments for buyers and sellers, the thus-far-uncontested record shows that APX never took title to power, never bought or sold power, and never earned or benefited from the high prices paid by California consumers. Furthermore, as a scheduling coordinator in the CAISO market, APX was not involved in the illegal manipulation of price and supply.

Because APX did not make decisions about the timing of sales or the prices at which power was sold, it was not responsible for gouging Californians. It was the power sellers using APX’s services that charged and profited from unjust and unreasonable rates. FERC should hold these sellers, including Enron, El Paso, Merrill Lynch, Calpine, and Avista, directly and primarily liable for refunding the overcharges. There is sufficient authority for FERC to do so.

The Federal Power Act gives FERC authority to hold sellers liable for refunds for their sales into the California market via APX. The record contains detailed evidence identifying the sellers that hired APX and the quantity of power they scheduled through APX during the refund period. Many of the sellers are already under investigation for manipulating the market. Holding APX liable for overcharges may allow those sellers to escape FERC’s oversight and enforcement for their sales via APX. Even worse, such a precedent may allow sellers in other contexts to avoid FERC oversight and refund liability simply by using a scheduling intermediary, such as APX.

We fear that failing to hold the sellers of electricity liable for refunds will reduce the refunds California consumers will receive. APX, which earned revenues of less than $20 million in 2002 (a company record), cannot refund money it does not have. FERC should not assume that APX will be able to secure that money from the sellers that used its services. We understand that some sellers have already informed APX that they will use FERC’s order imposing liability on APX as a shield to avoid paying refunds. The order will mire APX and the sellers in further litigation, which still may not result in any refunds for consumers. The most likely result is APX’s bankruptcy.

If FERC holds that APX is not liable for refunds, we understand that APX has pledged to continue to be active in the refund case to serve as a billing and collection agent for those transactions that were made through APX. Further, because APX already has identified the sellers that sold power via APX and their respective refund obligations, holding the sellers liable at this point should neither impose any procedural burdens on the parties nor force FERC to return the matter for additional administrative proceedings. Even Judge Birchman’s December 2002 proposed findings of fact indicates that the record already contains a reasonable mechanism to allocate refunds to the sellers rather than APX.

As you know, we’ve long believed that California consumers should be refunded the highest amount as quickly as possible. Regrettably the FERC’s approach to the electricity sales made through APX will limit, delay, and jeopardize the payment of refunds. For the benefit consumers, we hope FERC will give this important refund liability issue a complete and thorough review on rehearing.

Thank you for your attention to this matter. We ask that you include this letter in public record for Docket Nos. EL00-95-45, et al., and we look forward to your prompt reply.


Anna G. Eshoo, Member of Congress
Michael M. Honda, Member of Congress
Lois Capps, Member of Congress
Zoe Lofgren, Member of Congress

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