Calif. to show new evidence of utility price gouging Reuters, 03.03.03, 11:44 AM ET
By Julie Vorman WASHINGTON, March 3 (Reuters) - California will on Monday submit a final batch of evidence to the Federal Energy Regulatory Commission to prove manipulation of its power market during its 2000-01 energy crisis merits $7.5 billion in refunds, state and industry officials said. The new evidence, collected from wholesale electricity suppliers, aims to show deliberate price gouging by the firms at a time when California was reeling from blackouts, the bankruptcy of a major utility and billions in economic damage. Dozens of utility companies, including El Paso Corp (nyse: EP - news - people), Dynegy Inc. (nyse: EP - news - people) and Williams Cos. Inc. (nyse: EP - news - people), have denied any wrongdoing. A coalition of California's attorney general, the public utilities commission, the state's electricity oversight board, and Edison International's SoCal Edison (nyse: EIX - news - people) utility say the new evidence supports their demand for refunds. "We have uncovered substantial new evidence of pervasive violation of market rules by many of the major merchant sellers in California's wholesale power markets," said John Bryson, chairman of Southern California Edison. FERC was forced by a federal court of appeals late last year to give California until March 3 to submit additional evidence on whether market manipulation took place. The agency's three commissioners have promised to issue a final ruling in the case by the end of March. In a preliminary ruling in December, a FERC administrative law judge said the state was owed about $1.8 billion in overcharges. That amount can be upheld, rejected or modified by FERC commissioners. FERC TO KEEP EVIDENCE SECRET However, the evidence submitted on Monday will be kept secret, due to a FERC protective order. FERC's chairman has refused to say when the documents will be made public. California Sen. Dianne Feinstein has criticized FERC for keeping secret the new details about alleged misbehavior by large power companies. A Feinstein spokesman could not say if she planned any effort to try to force FERC to release the documents. Bryson said the state has evidence of "widespread" market manipulation by merchant generators and marketers, including withholding power at times when supplies were desperately needed. The documents show how some traders partnered with municipal utilities to scam the market, he said. All told, Bryson said their actions mean California is entitled to $7.5 billion in refunds. "If FERC decides to lift the protective order, we will be able to present the clearest picture yet of why the California energy crisis occurred," he said in a statement. California Gov. Gray Davis, a Democrat, has demanded $8.9 billion in refunds. "The filing includes evidence supporting consumer refunds of more than $7.5 billion. However, it does not diminish the state's overall claim for refunds to buyers of approximately $9 billion," a spokesman for Gov. Davis said. Power traders insist the tenfold jump in power prices during the California crisis simply reflected market conditions and the state's poorly designed deregulation plan. Gary Ackerman, executive director of the Western Power Trading Forum, said FERC's extra time for California to produce new evidence set off a "100-day reign of terror" among power companies. The state demanded tens of thousands of pages of trading records, telephone transcripts, internal strategy memos and interviews with traders to collect its new evidence. Some new evidence accuses Williams, Dynegy, Mirant Corp. (nyse: MIR - news - people) and Duke Energy (nyse: MIR - news - people) of shutting power plants to force prices higher, a report in the San Francisco Chronicle said. The newspaper quoted sources who said the FERC documents will show how some firms used a "ricochet" trading strategy to move electricity outside state lines to evade a California price cap, then resold it into the state at higher prices. Companies have until March 20 to respond to the allegations. HOW MUCH, THEN? Experts said the refund FERC will ultimately order paid will likely be closer to the $1.8 billion of the initial ruling. "My guess is that it will go up a little bit" into the $2 billion range, said Severin Borenstein, director of the University of California's Energy Institute. "But it will be a very small share of the money that changed hands as a result of market power." Others said the case has dragged on long enough, especially at a time when the industry has been hit by credit downgrades and multimillion-dollar losses. "The financial markets are pleading for resolution. When will it stop?" said Christine Tezak, an analyst with Schwab Capital Markets. Any decision that FERC commissioners reach is virtually certain to be challenged in a federal court of appeals. "What we have is the tightest schedule, the most money at risk and the most complicated subject," said consultant Robert McCullough. "It's a recipe for a court appeal." The agency said its decision will be fair. "The commission is determined to issue a final resolution of this matter that will stand up to legal challenge," a FERC spokesman said. (Additional reporting by Chris Baltimore) Copyright 2003, Reuters News Service
