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THE CALIFORNIA ENERGY CRISIS

Punishing the Producers Could Add to Problem

Shortage: Some officials want 'pirates' to pay for state's crisis. But that could dissuade them from creating needed supply, others warn.

April 17, 2001|JULIE TAMAKI | TIMES STAFF WRITER

SACRAMENTO — Lt. Gov. Cruz Bustamante wants to empower the state to throw power producers in jail. Atty. Gen. Bill Lockyer is offering a $50-million reward to anyone who helps him prosecute them for fraud. Senate leader John Burton is calling on the governor to commandeer their plants.

As the electricity crisis has escalated, so have efforts by lawmakers to go after the big energy companies--described as "pirates" or a "cartel"--that they say have brought California to its knees.

They want the mostly out-of-state companies, which Gov. Gray Davis recently described as "the biggest snakes on the planet Earth," punished and some of their earnings returned to the public.

* Bustamante proposed that the Legislature enact a law to make it a felony for energy companies to charge unreasonable and unjust prices. Prosecutors could use findings of unreasonable prices by regulatory bodies, such as the Federal Energy Regulatory Commission, to file charges against a generator. Punishment would include restitution, jail time or fines.

* Sen. Nell Soto (D-Pomona) and Sen. Jack Scott (D-Altadena) introduced legislation that would tax producers' "windfall profits" and give the money to taxpayers to offset their electricity bills. The charge would apply to a corporation's taxable net income for 2001, using 1999 as a comparison year.

* Offering potential rewards of hundreds of millions of dollars, Lockyer appealed to whistle-blowers to report suspected fraud by energy providers who sell electricity and natural gas to California government entities.

Lockyer said he will invoke a state law under which whistle-blowers whose information leads to the successful prosecution of a false claim may be entitled to a percentage of the financial penalties, which can be three times the actual losses.

"Since billions of state dollars may be recovered, the award to an informant could potentially range from $50 million to hundreds of millions of dollars," Lockyer said.

Whether his offer results in any fraud convictions, or whether any of the other proposals produce more than rhetoric, remains to be seen. But the possibility exists that the actions could compound the state's problems by dissuading companies from building new plants in California or refurbishing existing ones to increase their output.

Generators say the lawmakers' proposals share a common trait: None solves California's fundamental problem, which they contend is a lack of electricity supplies. They describe their treatment by state officials, who are desperate for new power plants to be built in California, as contradictory at best.

"We cannot simultaneously be the heroes and the villains in this opera," said Jan Smutny-Jones, executive director of the Independent Energy Producers.

Richard Wheatley, a spokesman for Reliant Energy of Houston, said that in response to strong demand for power in California, his company has more than doubled its plants' output.

Reliant, which bought five California power plants from Edison when the state deregulated electricity, said the windfall profits measure could cause some generators to reduce the amount of power they produce.

"It would make the problem worse in California by removing [financial] incentives that have prompted generators to run their plants at historically high levels," Wheatley said.

Duke Energy of Houston has announced plans to spend $1.6 billion to refurbish its California power plants to increase production.

But company spokesman Tom Williams said a windfall tax would have an inflationary effect, because the expense ultimately would be passed on to consumers. He said such measures could cause his and other companies to rethink their plans in the state.

Sen. Tom McClintock (R-Thousand Oaks) said he believes some of his legislative colleagues are doing "enormous damage" to the state by targeting power suppliers. California, he said, suffers from a catastrophic shortage of electricity.

"To make electricity plentiful, we have to build more power plants, but we cannot accomplish that by threatening every generator in the world with the confiscation of its assets and the imprisonment of its executives the moment they set foot in California," McClintock said. "It is no wonder that power plant applications in California are a fraction of what they are in states like Texas that welcome new power plant construction."

Others say the shortage is a manipulated one. Lockyer noted that his investigators have been examining whether producers have manipulated the market and withheld supplies to run up energy prices.

Santa Monica consumer advocate Harvey Rosenfield welcomed word of the windfall tax legislation, which he said embodies an idea he has been calling for since last fall.

"This is a crisis of greed," Rosenfield said. "There is no solution in this energy crisis that does not involve getting our money back from the thieves who have stolen it from us."

*

Times staff writer Carl Ingram contributed to this story.

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