Legislature to probe energy market allegations

The Associated Press
Wednesday March 14, 2001



In a move that could force power generators to open their books and justify their profits, the state Senate is launching its own probe into whether California’s electricity market has been illegally manipulated to drive up prices. 

Senate leader John Burton, D-San Francisco, will announce the formation of a select special committee Wednesday morning in Sacramento, said an aide to Sen. Joe Dunn, D-Garden Grove, who will serve on the committee. 

It is not unusual for such committees to subpoena records and compel testimony – efforts that energy watchdogs hope will produce evidence proving that a “cartel” of power companies have conspired to gouge California. 

“If they are the crooks they appear to be we need to get them to discuss their behavior in the public’s eye,” said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights. 

Burton declined comment other than to say that Wednesday’s announcement concerns “potential manipulation in the energy market,” said his aide, Dave Sebeck. Dunn also wouldn’t comment. 

The power generators have consistently denied any wrongdoing and blamed the high prices on the poor planning of California lawmakers who voted to deregulate the state’s electricity market in 1996. 

The power generators imposed “unjust and unreasonable” charges totaling $555 million during December and January, according to the California Independent System Operator, which runs the state’s electricity grid. 

Even the Federal Energy Regulatory Commission, a strong supporter of deregulation, found that wholesalers have been overcharging for California electricity, ordering 13 companies to refund $69 million. 

Attorneys general in California, Washington and Oregon are pursuing similar investigations into the generators’ pricing practices, and U.S. Rep. Anna Eshoo, a Democrat from Palo Alto, called Tuesday for the Justice Department and Federal Trade Commission to launch inquiries as well. 

“There appears to be evidence of price-gouging in the market. If in fact that’s the case, generators deserve to be brought to justice,” Eshoo said Tuesday. 

Much of the outrage over the high prices has been focused on a handful of out-of-state energy companies whose profits doubled and tripled last year as California’s wholesale electricity prices soared. 

They include: Houston-based Dynegy, Houston-based Reliant Energy, Charlotte, N.C.-based Duke Energy, Atlanta-based Mirant, and Tulsa, Okla.-based Williams Energy, which sells power produced by AES. 

The companies entered the California market after a 1996 deregulation law prompted the state’s major utilities to sell their power plants. 

Combined, the out-of-state generators control California power plants with a capacity to produce 17,000 megawatts – slightly more than one-third of the in-state supply. 

At least five lawsuits seeking class-action status on behalf of all Californians have been filed against the out-of-state generators, alleging they colluded to drive up prices by illegally sharing sensitive market information and withholding power to create artificial shortages. 



Nine California counties will lose $11 million in property taxes in the next five months because the five energy producers who owe the money say they are due even more from Southern California Edison. 

Some school districts in those counties – Imperial, San Joaquin, Riverside, Alameda, Contra Costa, Inyo, Kern and San Bernardino – said Tuesday the defaults could hurt their ability to finance expansions or repairs. 

More immediate needs, such as teacher pay, are expected to be covered through state programs. But budgets for rural counties such as Inyo were expected to suffer. 

“This has huge potential impact,” said Pat Leary, legislative representative for the California State Association of Counties. “We can put tax liens on the properties, so we will get paid, but those things can take years.” 

The suppliers – FPL Energy LLC, CalEnergy Operating Corp., Caithness Energy LLC, Coram Energy Group and EnXco Inc. – provide environmentally friendly power through sources such as solar, wind or geothermal technology.  

The generators, also called qualifying facilities, or QFs, said Edison’s debt to them is in the hundreds of millions of dollars. 

The problem stems from California’s 1995 attempt at electricity deregulation. Southern California Edison was among big utilities required to buy power through the soaring open market but limited in what rates they could charge consumers. The utilities’ resulting financial straits have spread through the industry’s food chain. 

CalEnergy real estate manager Vincent Signorotti said his company won’t be making $3.8 million of the $4.7 million owed to Imperial County in April. The $3.8 million covers CalEnergy facilities serving Edison, which has not paid the geothermal plants since November, Signorotti said. 

“The whole situation gets more desperate every day,” said Signorotti, whose plant employs 200 and is one of the Imperial County’s top three employers. 

“There is a limit to how long we can go on operating those facilities,” he said. 

More than 1,000 megawatts worth of California QF plants have already been forced to shutter operations for lack of utility payments. Still more have said they will also shut down if they don’t get some payments within the next several weeks. 

School officials said the tax defaults could hurt. 

Calipatria school district business manager Lori Wigg said her Imperial County district recently issued two sets of bonds for projects. The bonds are insured and will be paid, but if the district decides it needs another round of financing, the blow from CalEnergy could hurt its ability to sell bonds at a decent interest rate, she said. 

Other counties said they would be less affected. Riverside County is set to lose more than $195,000 from wind generator EnXco Inc. 

“It’s bad news, but quite honestly it is a drop in the bucket,” said Riverside County treasurer-tax collector Paul McDonnell. “We collect $1 billion a year. It will have no significant effect on our operations.”