[BETA] Fortnightly

The Federal Energy Regulatory Commission (FERC) has issued two orders that indicate for the first time how it would implement the prohibition against "sham" transactions under the Energy Policy Act. The separate decisions involve requests by two municipalities for orders requiring utilities to wheel power.

In one order, the FERC denied a request by the City of Palm Springs, CA, for electric transmission service from Southern California Edison (SCE) under sections 211 and 212 of the Federal Power Act (FPA) (Docket No. TX96-7-000). Palm Springs had wanted to install duplicate electric meters and compete with SCE for retail electric customers inside city limits. Palm Springs had also argued that if the FERC granted its request for transmission service, it would be protected from stranded-cost recovery by SCE, and that the FERC is the proper forum for addressing that issue.

The California Public Utilities Commission (CPUC) argued against the "municipalization-lite" scheme, calling it a sham wholesale transaction. The CPUC also argued that allowing the request would directly interfere with the state's electric restructuring plan.

The FERC found no grounds to compel SCE to wheel electricity under section 211 so that Palm Springs might sell power to potentially all of SCE's nearly 40,000 retail consumers in the municipality: "Common sense analysis . . . supports the view that meters, by themselves, do not deliver power."

Commissioner William L. Massey said the FERC cannot support the "absurd" result intended by Palm Springs, and called the proposal "economically wasteful" and a "subterfuge."

In the other case, Cleveland Public Power of the City of Cleveland requested transmission service from Cleveland Electric Illuminating Co. (CEI) to purchase power from a third party in order to serve an existing retail customer of CEI. The FERC said that the request required no more than that CEI

fulfill the terms of its prior, FERC-approved transmission agreement (Docket Nos. EL96-9-000 and EL96-21-000). The FERC said it can enforce contracts that are on file, including contractual obligations it could not otherwise order. Even if the "sham" wholesale wheeling provision applies, the FERC noted, the City of Cleveland would not violate it because it will deliver power to end users over its own 138-kilovolt transmission line.

The FERC dismissed CEI's stranded-cost recovery request, but advised the utility to refile under the criteria outlined in Order 888.

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