On October 20, 2022, the Federal Energy Regulatory Commission (“FERC”) issued an Order rejecting a request by the California Public Utilities Commission (“CPUC”) seeking a rehearing of a Justification Order.  FERC’s Order declining rehearing comes after an October 7, 2020 filing where Tri-State Generation and Transmission Association, Inc. (“Tri-State”) filed its justification for spot market sales that exceeded the Western Electricity Coordinating Council (“WECC”) soft price cap of $1,000/MWh during the summer months of 2020.  On May 20, 2022, the Commission issued an order finding that Tri-State had sufficient justification for certain spot market sales above the soft price cap but had not justified amounts charged above the relevant index price.  Ultimately, the Commission rejected the CPUC’s rehearing request.

FERC initially adopted the WECC energy price cap in response to the 2000-2001 Western energy crisis (see April 1, 2022 edition of the WER).  Following extreme heat in August and September 2020, 21 sellers, including Tri-State submitted filings to justify sales that exceeded the WECC soft price cap.  Tri-State’s justification filing argued that that it was a price taker in transactions initiated by existing trading partners in need of energy and that it did not solicit the transactions, bid into the market, or withhold energy.  Before acting on any of the 2020 justification filings, the Commission issued an order providing guidance for justification filings and provided each of the 21 sellers additional time to supplement their justification filings consistent with the guidance provided in the order.

In their guidance order, the Commission explained that justifications for sales above the $1,000/MWh WECC soft price cap could be based on an index-based framework, wherein a seller must provide: (1) reference to a price index at a specific hub; (2) an explanation of the relevance of the specified price index to the transaction requiring justification including locational and temporal relevance and published index price; and (3) a demonstration that the price index met conditions for adequate liquidity at the location based on the Commission’s index liquidity standards. The guidance order also outlines two other potential justifications and clarifies that the three justifications provided by FERC were non-exhaustive.

Tri-State made a supplemental justification filing explaining that its sales above the price cap were justified by the index-based framework.  In response, the Commission issued an order finding that Tri-State had justified the identified August 2020 sales at the relevant average index price, but had not justified amounts above the index price.  The Commission therefore directed Tri-State to refund amounts above the index price and file a refund report.  The CPUC requested rehearing of FERC’s order arguing that the Commission erred in: (1) relying on a price index that contained transactions that were still under consideration by the Commission in other justification filings; (2) relying on a 90-day period to assess index liquidity; (3) relying on index price data from the trading date as opposed to the sale date; and (4) relying on index price data from the Palo Verde hub instead of the Mead hub.

Upon rehearing, FERC found that it had appropriately analyzed Tri-State’s justification filing and that CPUC’s claims regarding the index-based framework were improperly raised on rehearing for the first time.  FERC noted that there was no requirement in the guidance order to exclude transactions for which justification filings were pending and that no parties challenged the use of an index-based framework after the issuance of the guidance order—based on grounds that the price index includes transactions still under review by the Commission or otherwise.  Regarding index liquidity, FERC rejected Tri-State’s arguments explaining that measuring liquidity only during the specific time of the sales at issue as the CPUC had suggested would not provide sufficient as to whether the hub was a reliable indicator of prevailing market prices.  With respect to trading and delivery days, FERC pointed out that trading can either occur on the same day or the next day, and thus, some variation between days is inevitable and indicative of actual conditions to which the market is responding.  On index price location, FERC found that Tri-State’s index was physically proximate to the delivery points and met the liquidity standard, and thus was appropriate.

A full copy of the order can be found here.