Pelosi, Western Democrats Urge Bush to Repudiate FERC, Supply Refunds to Energy Consumers in California, Other Western States

Pelosi, Western Democrats Urge Bush to Repudiate FERC, Supply Refunds to Energy Consumers in California, Other Western States

October 18, 2004

Washington, D.C.-House Democratic Leader Nancy Pelosi and 34 West Coast Democrats sent letters to President Bush and to the Chairman of the Federal Energy Regulatory Commission today urging the President to tell FERC to stop abdicating its duty and take immediate action to refund billions of dollars to energy consumers in California and other Western states

"In short, the [Ninth Circuit] Court found that FERC failed to enforce the law and unfairly denied billions in potential refunds," the lawmakers wrote to President Bush. "Today, we are urging you to repudiate FERC's previous actions and call upon the Commission not to appeal the Court's decision. Instead, FERC should use the full range of its authority to ensure that consumers are made whole for the entire period during which Enron and other energy companies manipulated the market in the West. Consumers in California, Nevada, Oregon, and Washington who have been harmed by the unscrupulous activities of energy suppliers deserve the refunds that FERC has so far denied."

In their letter to FERC Chairman Pat Wood, California Members of Congress wrote: "We are writing to urge FERC to stop abdicating its duty and take immediate action to refund Californians the nearly $9 billion in refunds they deserve... By any measure, FERC has failed to bring justice to California and the other western states for the price gouging and market manipulation that occurred in 2000 and 2001. FERC now has the opportunity to redeem itself. We strongly urge FERC to ensure that California's consumers are fully and fairly compensated for the overcharges and market manipulation that siphoned billions from the state."

Below are the full texts of both letters and a list of signatories.

October 18, 2004

The Honorable George W. Bush
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Dear President Bush,

Since you've taken office, we have written to you and your appointees at the Federal Energy Regulatory Commission (FERC) many times to ask for assistance in protecting western consumers from the illegal activities of Enron and other energy suppliers who drained billions of dollars from our states' economies in 2000 and 2001. Unfortunately, neither FERC nor your Administration has acted to bring justice and refunds to our states.

On September 9, 2004, the U.S. Court of Appeals for the Ninth Circuit issued a ruling (State of California v. FERC, No. 02-73093) admonishing FERC for its failure to protect consumers and to use the tools at its disposal to order refunds. In short, the Court found that FERC failed to enforce the law and unfairly denied billions in potential refunds.

Today, we are urging you to repudiate FERC's previous actions and call upon the Commission not to appeal the Court's decision. Instead, FERC should use the full range of its authority to ensure that consumers are made whole for the entire period during which Enron and other energy companies manipulated the market in the West. Consumers in California, Nevada, Oregon, and Washington who have been harmed by the unscrupulous activities of energy suppliers deserve the refunds that FERC has so far denied.

We're alarmed that FERC has already sought to diminish the significance of the Ninth Circuit's ruling, calling it a "clarification of the scope of the Commission's authority." More than a clarification, this ruling makes it clear that FERC has extensive authority to grant refunds, authority it has failed to exercise or even acknowledge. Without your public insistence, we fear FERC will find yet another pretext to lessen sanctions against market manipulators.

In a speech in October 2000, you told consumers in the West, "I believe so strongly that part of this region is going to suffer unless you have a President who is willing to tell the FERC to do what is right for the consumer." Many of us reminded you of that promise in a March 30, 2001 letter asking for you to intervene to halt the market manipulation. Because no assistance was forthcoming then, we are again calling on you to do what is right for consumers and instruct the FERC to use the authority the Court has affirmed.

We would appreciate your timely response.

Sincerely,

List of Signatories:

Nancy Pelosi
Anna G. Eshoo
Henry A. Waxman
Jay Inslee
Peter DeFazio
Shelley Berkley
Zoe Lofgren
George Miller
Hilda Solis
Lois Capps
Pete Stark
Jane Harman
Dennis Cardoza
Michael M. Honda
Joe Baca
Grace Napolitano
Diane Watson
Juanita Millender-McDonald
Barbara Lee
Sam Farr
Susan A. Davis
Xavier Becerra
Linda Sanchez
Ellen O. Tauscher
Jim McDermott
Brad Sherman
Tom Lantos
Bob Filner
Robert Matsui
Lucille Roybal-Allard
Maxine Waters
Howard Berman
Lynn Woolsey
Adam Schiff
Mike Thompson
* * * * *

October 18, 2004

The Honorable Pat Wood III
Chairman
Federal Energy Regulatory Commission
888 First Street NE
Washington, DC 20426

Dear Chairman Wood,

We are writing to urge FERC to stop abdicating its duty and take immediate action to refund Californians the nearly $9 billion in refunds they deserve.

On September 9, 2004, the United States Court of Appeals for the Ninth Circuit ruled in State of California v. FERC that FERC "improperly concluded that retroactive refunds were not legally available" and remanded the case to FERC for refund proceedings. We urge FERC to abide by this decision and exercise its authority to award retroactive refunds.

In its ruling, the Court stated that FERC allowed its own rules governing market-based rates to be broken by companies selling power into California's deregulated marketplace. Specifically, FERC did not enforce rules requiring companies to report information about specific transactions. In failing to insist on the observance of these rules, FERC failed in its regulatory oversight responsibility. As the Ninth Circuit noted in its ruling:

Despite the promise of truly competitive market-based rates, the California energy market was subjected to artificial manipulation on a massive scale. With FERC abdicating its regulatory authority, California consumers were subjected to a variety of market machinations, such as 'round trip trades' and 'hockey-stick bidding,' coupled with manipulative corporate strategies, such as those nicknamed 'Fatboy,' 'Get Shorty,' and 'Death Star.'

The Court found that FERC "misapprehends its legal authority" by claiming it cannot order retroactive refunds. Furthermore, the Court concluded that "FERC's construed limitations on its own authority are not supported by a careful examination of the [Federal Power Act]."

FERC's public reaction to the judgment has been disturbing. A statement released by FERC said, "[t]he Commission will closely examine the scope of the Court's findings regarding violations of quarterly sales reporting requirements, which was a problem with a number of market participants, not all market participants."

This is not just a matter of energy companies failing to submit paperwork; it goes to the heart of whether or not rates were just and reasonable. As noted in the Court's decision, FERC itself has said the information companies withheld is the "minimum needed for market monitoring purposes." With major power-sellers withholding basic information about their transactions in 2000 and 2001 and with many companies now implicated in market manipulation, FERC cannot demonstrate that rates charged in the West in 2000 and 2001 were just and reasonable.

FERC has already found that rates charged in the period between October 2000 and June 2001 were not just and reasonable and has initiated a process to refund some of the excessive rates charged during that period. The conditions that made rates excessive during that period also existed before October 2000. Indeed, public outcry about excessive rates led FERC to begin a staff investigation of western bulk power markets in the summer of 2000. FERC later chose to set a refund effective date of October 2, 2000, arguing that this was the earliest refund effective date permissible under the law. However, under the Court's ruling, FERC is clearly not constrained by the October 2000 date and may set an earlier one. An earlier refund effective date is warranted in light of the ample evidence that companies were manipulating the market well before October 2000.

FERC should also reexamine other areas in which its overly narrow interpretation of its authority has unnecessarily denied refunds to consumers. For example, FERC has cited procedural grounds to deny refunds for purchases made by the State of California in the first half of 2001, even though the rates charged were not just and reasonable. The overcharges on these transactions alone amount to approximately $2.7 billion and refunds should be ordered by the FERC.

By any measure, FERC has failed to bring justice to California and the other western states for the price gouging and market manipulation that occurred in 2000 and 2001. FERC now has the opportunity to redeem itself. We strongly urge FERC to ensure that California's consumers are fully and fairly compensated for the overcharges and market manipulation that siphoned billions from the state.

Thank you for your consideration of our request and we look forward to your reply.

Sincerely,

List of Signatories:
Nancy Pelosi
Anna G. Eshoo
Henry A. Waxman
Zoe Lofgren
George Miller
Hilda Solis
Lois Capps
Pete Stark
Jane Harman
Dennis Cardoza
Michael M. Honda
Joe Baca
Grace Napolitano
Diane Watson
Juanita Millender-McDonald
Barbara Lee
Sam Farr
Susan A. Davis
Xavier Becerra
Linda Sanchez
Ellen O. Tauscher
Brad Sherman
Tom Lantos
Bob Filner
Robert Matsui
Lucille Roybal-Allard
Maxine Waters
Howard Berman
Lynn Woolsey
Adam Schiff
Mike Thompson