Judge claims energy companies overcharged state by $1.8 billion

Friday, December 13, 2002

WASHINGTON -- Energy companies overcharged California by $1.8 billion during the state's power crisis, a federal regulatory judge said Thursday. The amount is far short of what the state is seeking.

Bruce Birchman, an administrative law judge at the Federal Energy Regulatory Commission, also found that the companies still have $3 billion in unpaid bills for power delivered to California, meaning it is unlikely the state will see any refunds if FERC adopts the judge's recommendations.

California is seeking $8.9 billion in refunds for 2000 and 2001, when power prices soared and the state faced energy shortages and rolling blackouts.

Gov. Gray Davis said Birchman was limited in how much he could award the California parties "because FERC rigged the rules."

Davis said FERC would not allow Birchman even to consider $3.4 billion in claims from the California Department of Water Resources.

"These folks are not on our side, my friends," Davis said. "They are the referees in this game and they keep calling California out."

'Do the right thing'

Davis called on President Bush to ask his two appointees to FERC "to do the right thing."

Mark Stultz, spokesman for the Washington-based organization that represents power generators, said that despite Davis' disappointment, "There are no winners and losers in this power crisis."

Stultz, of the Electric Power Supply Association, said the accounting for individual companies is not clear in Birchman's decision.

But the judge said generally that the bulk of the overcharges came from the largest power generators and sellers of wholesale electricity in California, including Enron Corp., Duke Energy, Dynegy, Mirant, Reliant Energy and the Williams Cos.

They also are owed the most money, Birchman said in his 239-page ruling.

Barry Goode, Davis' legal adviser, said the $1.2 billion still owed the energy companies would not come from the state treasury. Instead, the Power Exchange, the defunct day-ahead electricity market, and Pacific Gas and Electric Co. -- both of which declared bankruptcy in 2001 -- have set aside large sums of money for unpaid power bills, Goode said.

The initial decision in the California refund case comes amid mounting findings by federal and state investigators that energy producers and traders manipulated the vast California market during the state's ill-fated experiment with electricity deregulation.

Birchman's findings, based on complex formulas, cover power transactions from October 2000 to June 2001. They do not take into account evidence of manipulation.

California is gathering evidence of price gouging, which it must submit to FERC by Feb. 28.

FERC may take into account California's submission and evidence from other investigations when it votes on Birchman's recommendations. FERC Chairman Pat Wood has said he hopes to wrap up the California case in the spring.

FERC also continues to investigate the soaring power prices of two years ago, as well as the rise in natural gas prices since gas fuels many electricity-generation plants.

The commission regulates wholesale electricity markets and interstate natural gas pipelines. Under a 1934 law, it is required to ensure prices are just and reasonable.

California is seeking to renegotiate long-term power contracts signed during the energy crisis.

A FERC report in August found evidence of price manipulation and deceit by Enron as the energy trader aggressively sought ways to profit from California's volatile power markets. In 2000 and 2001, the company had accumulated profits from Western electricity trades "in the neighborhood of $1.8 billion," the report said.

It's unclear, the report said, how much of that was related to price manipulation through deceit and misinformation or through marketing and trading schemes.

A follow-up report is expected in February.

During the height of the power crisis in early 2001, the average daily cost of wholesale power in California topped $300 per megawatt hour, 10 times the normal of previous years. At times, wholesale prices spiked to as much as $3,800 per megawatt hour.

California paid $27 billion for electricity in 2000, the worst year in its power crisis. The 2000 bill was nearly four times as much as power cost in 1999.


AP writer Jennifer Coleman contributed to this report.


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