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California and the West

Estimate of Possible Overcharges for Electricity Rises to $6.3 Billion

Energy: Grid operator says it has not assessed how much should be refunded. Producers deny that they have profiteered.

March 23, 2001|NANCY RIVERA BROOKS and TIM REITERMAN | TIMES STAFF WRITERS

California's power grid operator boosted its estimate of potential overcharges by major electricity suppliers from $5.5 billion to nearly $6.3 billion Thursday. But lawyers and industry observers said prospects for a massive refund are highly uncertain.

The California Independent System Operator said it has not yet determined how much of a refund it would seek for utilities and taxpayers.

Cal-ISO analyzed confidential bidding data on tens of thousands of electricity sales to document what it alleges was market manipulation by generators to drive up prices.

But to more precisely measure the amount of alleged overcharges, officials said, they need the kind of confidential power plant cost data that generators provide to federal regulators.

Electricity producers denied that they have profiteered in the California electricity market and argued that Cal-ISO's figures do not take into account all their costs.

Cal-ISO presented the cost data Thursday to the Federal Energy Regulatory Commission as part of its formal response to a commission staff proposal to curb electricity market manipulation in California. Cal-ISO is using the $6.27-billion total to argue that the commission, which is charged with ensuring just and reasonable electricity rates, needs to be more aggressive in helping the state cure its power ills.

"While FERC is headed in the right direction, we don't believe it has gone far enough," Cal-ISO General Counsel Charles Robinson told a news conference.

The agency said wholesale electricity costs in California could total $70 billion this year based on prices paid during January and February. Such costs totaled $27 billion in 2000 and $7.43 billion in 1999.

The Times reported Thursday that a study by Cal-ISO found evidence of market manipulation and consistent patterns of bidding far above costs in the state's deregulated market. The agency found that suppliers commonly offered electricity at twice their costs.

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.

Grid officials avoided calling the electricity tab an "overcharge," preferring instead to term the prices from May through last month "beyond what we would think would be reasonable in a competitive market."

When asked if Californians had been cheated by electricity generators to the tune of $6.27 billion, Robinson replied: "I think it's way too early to draw that conclusion."

Cal-ISO also is exploring legal theories that would let FERC order refunds for questionable electricity trades that occurred before Oct. 2, the cutoff the commission established for consideration of refunds.

Agency officials said they are talking with the state attorney general's office, Public Utilities Commission and Electricity Oversight Board to determine how best to seek refunds.

"The major option would be to go to FERC, but there are other options," Robinson said, adding that the agency will settle on a strategy within 30 days.

The bulk of any potential refund is expected to go to utilities, with a smaller amount to the state for purchases by the Department of Water Resources since January. The state became the major power purchaser for 27 million Californians as skyrocketing prices put Pacific Gas & Electric Co. and Southern California Edison nearly $14 billion into debt and many suppliers refused to sell them electricity.

"We are pleased that FERC has looked into the prices being charged in the wholesale market and urge them to quickly review the latest findings by the ISO," said PG&E spokesman Ron Low.

Gary Stern, Edison's director of market monitoring and analysis, noted that the Cal-ISO study documented two practices that pushed up prices: shutting down power plants and bidding electricity into the market at prices so high they were not accepted.

"If these guys have such high costs . . . how come they're making so much money?" Stern asked.

Industry representative Jan Smutny-Jones called Cal-ISO's accusations an attempt "to poison the atmosphere against the generators and use them as scapegoats."

"Generators have been playing by the rules and have been offering to sell power at substantially lower, long-term contract rates since last summer," said Smutny-Jones, executive director of the Independent Energy Producers, a Sacramento-based trade group.

When asked about the Cal-ISO study at hearings of the House Subcommittee on Energy and Air Quality on Thursday, Duke Energy Vice President William Hall denied any wrongdoing.

"We do not conduct ourselves in that manner," he said. "We don't withhold generation from the marketplace."

Consumer advocates said the $6.27 billion in alleged overcharges bolsters their case that ratepayers should not be held liable for the problems of deregulation.

"This should be a watershed day in the political battle about who bears the brunt of deregulation," said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

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