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New FERC Policy May Impact Your Power Supply Deals

March 08, 2004

By Energy Practice Group & Project Finance Practice Group

The Federal Energy Regulatory Commission revised its policy regarding its review of cost-based power purchase agreements between affiliates through an order issued on February 25, 2004 in Southern California Edison Company on behalf of Mountainview Power Company, L.L.C. Under its previous policy, FERC required a showing that a sale of power at market-based rates to a franchised utility from an affiliate was reasonably priced compared to alternatives in the market. However, FERC is now requiring this showing for cost-based agreements as well. Specifically, FERC is requiring that all affiliate long-term (one year or longer) power purchase agreements, whether at cost or market, be shown to be reasonably priced compared to alternatives in the market.