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Energy Overcharge of $5.5 Billion Is Alleged

Power: Money should be refunded to taxpayers and utilities, the state grid operator says, citing evidence of market manipulation. Suppliers deny the accusation.


Wholesale electricity suppliers overcharged California by about $5.5 billion between May and last month, and that money should be refunded to the state's taxpayers and financially strapped utilities, the state power grid operator said Wednesday.

Generators engaged in market manipulation and consistent patterns of bidding far above costs in the deregulated energy market, the California Independent System Operator found in a study of pricing data. The findings support the widespread belief that these suppliers reaped massive additional revenue by manipulating the market.

Spokesmen for the companies denied the accusation.

The study, prepared for a filing with federal regulators today, is central to Cal-ISO's efforts to seek reimbursement for what it considers excessive charges by electricity suppliers during the state's energy crisis.

"This might be the first time we told them the total impact and magnitude [of the overcharging]," said Anjali Sheffrin, Cal-ISO's director of market analysis. "We think the entire amount deserves consideration for refunds."

Using confidential bidding data on tens of thousands of electricity sales, Cal-ISO found that five companies that together supply about 30% of the power delivered to customers of the state's investor-owned utilities engaged in two types of behavior that tended to push up prices:

* They effectively withheld supplies by bidding at excessive prices, even though they could have made some money selling more electricity.

* Less frequently, they had power generation available but did not bid at all.

The study concluded that energy suppliers commonly offered their electricity at twice their cost. For example, Sheffrin said, the average markup in August was 100% during peak hours.

A spokeswoman at the Federal Energy Regulatory Commission, which oversees wholesale electricity pricing across the country, declined to comment Wednesday, saying, "This is part of an ongoing proceeding."

FERC member William L. Massey, who has considered previous commission actions on refunds to be inadequate, said it would be improper for him to comment on a report that has not yet been filed. But when told of the $5.5-billion total, Massey said: "That doesn't shock me in any way."

"Prices over the past 10 months in California have greatly exceeded the federal standards of just and reasonable prices, and I think they have exceeded the standards by possibly billions of dollars," he said.

Cal-ISO, which oversees grid operations and an emergency energy market, previously detailed $550 million in alleged overcharges for December and January and asked FERC for refunds. But the commission has proposed refunds of only a tiny fraction of that amount.

The study covered five major in-state power suppliers--Reliant Energy, Dynegy, Williams/AES, Duke Energy and Mirant, formerly Southern Energy--plus 16 power importers, all of which deliver power to customers of Pacific Gas & Electric Co., Southern California Edison and San Diego Gas & Electric Co.

"All [21] overcharged, but some excessively and some by moderate amounts," Sheffrin said.

Cal-ISO's public filing will quantify the alleged overcharging by each company, but the companies will be identified only by a number. The code will be provided to FERC, Sheffrin said, and Cal-ISO lawyers will determine how much information about the companies will be made public.

State, U.S. Investigations

California electricity markets and the companies that buy and sell power in the state have been the subject of several investigations by state and federal authorities since wholesale electricity prices first skyrocketed in May.

Electricity suppliers have repeatedly denied manipulating the California market in any way, whether through above-cost bidding in spot markets or through physical withholding of electricity to drive up prices.

Reliant Energy is cooperating with FERC's requests for more data and is confident the commission will conclude that prices charged by Reliant were justified, said Joe Bob Perkins, president of the Houston-based company.

Perkins also bitterly disputed charges that Reliant has shut down units so that it can earn bigger profits on the power sold by the remaining plants. These charges have been leveled against all of the power-plant owners in the state.

Reliant Vice President John Stout said Cal-ISO's calculations typically don't include such fixed costs as salaries, taxes and the interest on bonds they sold to finance their power plants, which they acquired under terms of the state's landmark 1996 deregulation law.

In addition, he said, many high-priced power days have resulted from buyers bidding against each other for scarce supplies rather than sellers charging excessive amounts--like a house price being driven far above the listing price in a hot real estate market.

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