Opinion ID: 3040021
Heading Depth: 3
Heading Rank: 1

Heading: California Energy Crisis

Text: California responded to the energy crisis outlined in PUD in several ways, although not until after “rolling blackout” PUC v. FERC 19623 became a household phrase and several of California’s largest utilities bordered on insolvency. Governor Gray Davis declared a state of emergency on January 17, 2001, and ordered the California Department of Water Resources (“CDWR”) to purchase forward power “as expeditiously as possible.” On February 1, 2001, the California Legislature passed Assembly Bill 1 of the 2001-2002 First Extraordinary Session (“AB1X”), which authorized CDWR to purchase power through the end of December 31, 2002. Between February 6 and August 23, 2001, CDWR executed 57 forward contracts with 28 suppliers. Some of these contracts explicitly called for applying the relatively stringent Mobile-Sierra “public interest” test, rather than the relatively relaxed “just and reasonable” test to judge the rates included in the contracts. Other contracts were silent regarding the test to apply. The 57 contracts include 32 agreements with the intervenor-respondents in this case:2 • Coral Power, for prices from $169 to $249/MWh, for delivery in 2001 and 2002; • Dynegy Power Marketing, Inc., for $119.50/ MWh, for delivery from January 1, 2002 through December 31, 2004; • Mirant Americas Energy Marketing, for $148.65/ MWh, for delivery between June 1, 2001 and December 31, 2002; • PacifiCorp (“PPM”), for $70/MWh, for delivery between July 29, 2001 and June 30, 2002; and • Sempra Energy Resources, for $189/MWh, for 2 These energy companies are all intervenors on behalf of FERC in this case. 19624 PUC v. FERC delivery between June 1, 2001 and September 30, 2001. Under AB1X, the people of California must pay the cost of these contracts through their electricity rates. See CAL. WATER CODE § 80104 (West) (“Upon the delivery of power to them, the retail end use customers shall be deemed to have purchased that power from the department. Payment for any sale shall be a direct obligation of the retail end use customer to the department.”). Raymond Hart, who testified for the Public Utilities Commission, described this statutory provision as ensuring that costs of CDWR contracts would “be passed on to the retail end-users of the IOUs [investor-owned utilities] through their retail electricity rates.” In other words, CDWR passed the costs of the power it purchased to local utilities — such as Pacific Gas and Electric — which, in turn, passed it on to California consumers. FERC questions whether the challenged contracts call for rates above long-run competitive prices, Pub. Utils. Comm’n v. Sellers of Long Term Contracts, 103 F.E.R.C. ¶ 61,354, at ¶62,415 (2003), but does not contest that the cost of those contracts is passed on to California consumers. On June 19, 2001, FERC issued a price mitigation order for spot markets regarding several western states, which went into effect the following day. Subsequently, prices generally returned to pre-crisis levels in both spot and forward markets, completing a downward cycle that had begun about a month prior to the June 19 Order.