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New Evidence of Fraud in Power Crisis

Workers at AES Corp. and Williams Cos. agreed to idle California plants to drive up electricity prices, federal regulators allege.

November 16, 2002|Nancy Rivera Brooks | Times Staff Writer

New evidence has emerged that AES Corp. and Williams Cos. conspired to squeeze electricity supplies to California in early 2000, drawing an angry response Friday from state officials and bolstering contentions that the enormously expensive energy crisis was at least partly a fraud.

Indications of bogus power plant shutdowns, released Friday by federal regulators, may threaten a settlement unveiled Monday in which the state agreed to drop lawsuits accusing Williams of price gouging during the energy meltdown of 2000-01 in exchange for concessions by Williams on long-term electricity contracts.

The Federal Energy Regulatory Commission released a previously sealed investigation Friday showing Williams employees cutting deals in April and May 2000 with AES employees to shut down one Southern California power plant that AES operated for Williams and prolong a maintenance closure at another.

The FERC investigation found that Williams employee Rhonda Morgan, in two taped telephone conversations, told an AES worker on April 27 that "Williams wanted the outage to run long" at a Long Beach power plant that had closed for repairs two days before.

In a conversation later that day with Eric Pendergraft, identified in the FERC report as a high-ranking AES employee, Morgan said, "I don't wanna do something underhanded, but if there's work you can continue to do ... "

Pendergraft responded: "I understand. You don't have to talk anymore."

AES extended the outage through May 5.

Williams, which has a contract to market the electricity from AES electricity plants in California, earned more than $10 million by selling more expensive electricity from other AES plants to the California Independent System Operator during the outages at the Long Beach and Huntington Beach plants totaling 17 days, FERC investigators found.

AES and Williams settled the inquiry in April 2001, without admitting wrongdoing, after Williams agreed to refund $8 million to Cal-ISO -- $2 million less than the profit Williams made. Cal-ISO runs electricity markets for last-minute power and operates the long-distance transmission grid serving about 75% of the state.

The disclosures give added juice to accusations that energy suppliers worked together to drive up prices in the state's electricity markets, which were created under California's ill-fated venture into power deregulation.

In May, FERC released Enron Corp. documents showing that the energy company used trading tactics to create artificial shortages and boost prices.

Former Enron trader Timothy N. Belden has pleaded guilty to conspiracy to commit wire fraud in connection with the ploys, and the Justice Department and the California attorney general are pursuing separate antitrust investigations against other energy suppliers, including AES of Arlington, Va., and Williams of Tulsa, Okla.

The fresh evidence released Friday presented California officials an opportunity to renew demands that FERC order $9 billion returned to the state for alleged overcharges during the energy crisis.

But a top state official said California is unlikely to gain any ground in that proceeding because the allegations come as part of an investigation that was settled last year and because a recent FERC ruling limited the kinds of evidence that the state can present.

At the very least, the damaging new details gleaned from recorded conversations between Williams and AES employees -- who at times laugh at their "games" that earned Williams a more than tenfold profit on its power -- gave California politicians a chance to claim vindication and accuse FERC of moving too slowly to help the state.

FERC, which acts as a sort of federal utilities commission, was criticized Tuesday in a report by the Democratic staff of the Senate Governmental Affairs Committee, which said the commission failed to devote enough resources to respond aggressively to reports of price gouging or other misdeeds.

"Almost a year and a half ago, when I went public with charts and graphs that showed power plants shut down for maintenance at sometimes four times the normal rate, the energy companies and Vice President [Dick] Cheney scoffed at the implication that the energy supply was being manipulated," Sen. Barbara Boxer (D-Calif.) said.

"Now we know the truth. FERC should immediately order refunds for California. We want our money back from this thievery."

Steve Maviglio, a spokesman for Gov. Gray Davis, called the allegations "very serious" and said they could threaten the settlement with Williams, which the Davis administration had estimated would save the state as much as $1.4 billion in power costs over 10 years.

"We have until Dec. 15 to pull the plug on the settlement ... and we can continue to pursue criminal fraud charges," Maviglio said.

Loretta Lynch, president of the California Public Utilities Commission, said the FERC report lent credence to a recent PUC report that concluded that the state's generators withheld power from the state, causing unnecessary blackouts.

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