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Energy Market Manipulated, Regulators Say

FERC moves to increase California's refund to $3.3 billion, still far less than the state seeks.

March 27, 2003|Jonathan Peterson and Ricardo Alonso-Zaldivar | Times Staff Writers

WASHINGTON — Taking a tough new stance, federal energy regulators said Wednesday that more than 30 private firms manipulated natural gas and electricity prices during the California energy crisis, and moved to increase the state's refund to about $3.3 billion.

In addition, the Federal Energy Regulatory Commission threatened to revoke the trading authority of eight subsidiaries of troubled Enron Corp. for allegedly gaming the natural gas market. The commission also said it's prepared to strip the trading authority of Reliant Energy Services Inc., now known as Reliant Resources Inc., and BP Energy Co. for allegedly engaging in "coordinated efforts" to manipulate electricity prices at Palo Verde, a key Arizona trading hub. Both companies denied the charges.

California officials expressed some satisfaction with the FERC decision, but emphasized that the remedy fell far short of the $8.9 billion in refunds sought by a coalition of state agencies and its major utilities, including Pacific Gas & Electric and Southern California Edison.

The commission also stopped short of approving the state's request to renegotiate $20 billion in long-term energy contracts that were signed during the period of feverish prices in 2001.

"Show me the money," Gov. Gray Davis declared. "Where's the $9 billion that we've been asking for, for two years? That is when I'll finally feel vindicated, when we get the money back that these energy companies stole from this state."

Davis said the state is prepared to keep pressing its case in court if California's refund isn't boosted when the matter goes back to a federal administrative law judge, the next step in the process.

FERC officials, long criticized for an easygoing approach toward the corporations they regulate, insisted that their 13-month investigation into the causes of California's energy crisis proves the agency is taking its oversight role seriously.

"This is all part of our role as the cop on the beat," said FERC Chairman Pat Wood III. "We have said from the beginning that a belief in the free enterprise system goes hand in hand with a responsibility to see that the playing field is level and that everyone plays fair. If there was ever any doubt that this was part of our core philosophy, that doubt should now be dispelled."

As part of its action Wednesday, FERC asked more than 30 companies and utilities to justify actions that may have violated anti-gaming provisions. These companies and utilities included some of the out-of-state actors that were branded during the energy crisis as preying on California, including Reliant, a Williams Cos.-AES Corp. venture and Mirant Corp.

But FERC also singled out a number of in-state companies and utilities for possible wrongdoing. Among them: Southern California Edison; the Los Angeles Department of Water and Power; and Sempra Energy, the parent of San Diego Gas & Electric and Southern California Gas Co.

In fact, Southern California Edison is one of the major players in the state's quest for refunds, thrusting it in the awkward position of being both accuser and accused.

"We will certainly file a response," to the market manipulation allegation, said John Bryson, chief executive of the utility's parent, Rosemead-based Edison International. He added that the FERC allegation related to no more than about $7,000 of power charges.

"The most important thing today," Bryson said, "is that the staff report shows pervasive unlawful and unethical manipulation of the power market, causing California consumers billions of dollars of direct damages."

Edison officials believe their utility would qualify for up to 25% of the refund money, which they expect would ultimately be returned to customers through lower rates in the future.

Other companies and utilities reached for comment Wednesday roundly denied FERC's allegations. Brad Church, a spokesman for Tulsa, Okla.-based Williams said "a fact-based analysis" of its alleged role in gaming the state's electricity market would find no wrongdoing.

Steven Prince, chief executive of Sempra's wholesale-trading unit, said he is "confident the FERC will conclude that our activities in the California energy market were proper."

Los Angeles Mayor Jim Hahn on Wednesday ridiculed the FERC decision to include the city's DWP among the possible price gougers.

"In its shotgun approach, FERC is seeking to hold all energy producers liable when all evidence points to the fact that the LADWP was a major part of the solution," Hahn said.

Energy companies named prominently in the report -- many already battered on the stock market -- saw further declines Wednesday. Reliant shares fell 95 cents, or nearly 24%, to close at $3.05 on the New York Stock Exchange.

The flurry of developments came as FERC released its definitive findings on the turbulent episode of rolling blackouts and soaring prices that rattled the California economy in 2000 and 2001.

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