September 12, 2007 in Business

Energy case goes back to FERC

By The Spokesman-Review

Federal regulators erred when they did not consider new evidence that Pacific Northwest electricity markets were manipulated in 2001, according to a three-judge panel of the U.S. Ninth Circuit Court of Appeals.

That finding on Aug. 24 remands a major case back to the Federal Energy Regulatory Commission and reignites claims that some companies unfairly profiteered during the electricity crisis and should refund money. It ensnares Avista Corp. in another round of legal wrangling resulting from the 2000-2001 energy crisis, in which markets were manipulated and prices skyrocketed. Buyers of the expensive electricity want the contracts re-examined and their money back.

Federal investigators in 2004 exonerated Avista of wrongdoing. That move cleared the company of allegations that it was part of an illicit scheme to manipulate energy markets, the same problems that engulfed Enron Corp.

Avista’s regulated utility, along with its now-sold separate energy marketing subsidiary, was active in the markets along with many other private power companies and public utilities.

The Spokane-based company does not want to unwind the contracts, arguing that spot market power prices were not unreasonable and that refunds would be inappropriate. The company has not estimated its financial exposure.

The Ninth Circuit’s decision found that FERC, by denying the requests for power contract refunds, failed to consider new evidence of market manipulation and that “such failure was arbitrary and capricious,” and must be re-evaluated.

The judges, however, did not direct FERC to grant refunds.

Though Avista sold its energy marketing subsidiary to Shell Group subsidiary Coral Energy, any legal liabilities stayed in Spokane with Avista.

In a second item disclosed in a recent financial filing with the U.S. Securities and Exchange Commission, Avista reported that it faces an Oct. 15 damages trial stemming from a lawsuit by the state of Montana.

The state has argued successfully that it owns the riverbeds within its boundaries, and thus should be paid annual leases by utilities storing water behind dams.

Montana officials have declined to disclose their financial demands. Though the two scheduled days of mediation last week failed to resolve the case, the sides are still attempting to settle before the trial begins in Helena.

The lawsuit was first filed by two Bozeman parents of schoolchildren who said utilities should pay to use state trust lands.

The state took over the case and received favorable rulings, including a series of six recent summary judgment orders. One, on Aug. 28, detailed the riverbed ownership issue.

Avista’s two dams on the Clark Fork River create reservoirs in Montana. The lawsuit also targets PPL Montana, which bought the electricity generating assets from the former Montana Power Co. and operates dams on the Missouri River and others in the wake of the state’s deregulation in the 1990s.

Montana has already settled its case against Pacificorp, which operates a dam on the Swan River at Bigfork.

Money Montana receives from the suits will be used to fund public schools in the state.

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