Power suppliers overcharged state $6.2 billion

The Associated Press
Friday March 23, 2001


SACRAMENTO — California intensified scrutiny of its soaring power prices Thursday, with grid officials accusing wholesalers of $6.2 billion in overcharges and the state auditor blaming both buyers and sellers for the skyrocketing costs. 

Meanwhile, lawmakers prepared to open an inquiry Friday into high natural gas prices that have contributed to the state’s energy crisis. 

The California Independent System Operator, which oversees the state’s power grid and buys emergency electricity to avoid blackouts, told the Federal Energy Regulatory Commission that electricity suppliers have overcharged it and the state Power Exchange $6.2 billion since May for the power the two bought on behalf of utilities. 

The excessive charges will continue during high demand this summer unless the commission steps in, the ISO said. 

Despite alleging billions in overcharges, ISO officials did not ask FERC to order refunds beyond the $555 million it requested for December and January overcharges, or accuse wholesalers of market manipulation. 

That fueled criticism from consumer advocates that state and federal regulators are letting profit-reaping power wholesalers manipulate the California market. 

“Nobody’s talking about fines,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights. “You’ve got companies bilking the state for over $6 billion, and you’re only talking about refunds?” 

ISO officials are working with Attorney General Bill Lockyer, the state Electricity Oversight Board and the state Public Utilities Commission to determine how they could get a refund, ISO attorney Charles Robinson said. 

Former FERC attorney Stephen Angle said the possibility of the commission ordered wholesalers to refund $6.2 billion “is pretty slight.” 

FERC can only order a refund once it has made the rates subject to refund, which it did for rates only back to October, Angle said. 

In addition, FERC says it only has jurisdiction over private U.S. companies that sold power, not municipal utilities or foreign companies that California bought electricity from. The ISO report included every entity that sold power to California. 

Lockyer began investigating in August, when lawmakers asked him to look into possible collusion and price manipulation in the electricity and natural gas markets, spokeswoman Sandy Michioku said. She declined to comment on the investigation’s status. 

State lawmakers are also investigating. The Assembly energy commission plans a hearing Friday to open its inquiry into high natural gas prices, starting with testimony from utility customers. 

California’s two largest utilities, Pacific Gas & Electric Co. and Southern California Edison, say they’ve lost nearly $14 billion since June due to rising wholesale power prices.The state’s 1996 utility deregulation law blocks them from recouping the high costs from their customers. 

With both utilities denied credit by power suppliers, the state has spent about $45 million a day since early January to buy electricity for their customers. 

FERC has given several electricity wholesalers until Friday to justify $124 million in January and February power charges the commission considers excessive. Those who cannot must refund the money, FERC said. 

PG&E spokesman Ron Low said it hopes FERC reviews the ISO’s filing quickly. 

“Virtually every regulatory agency has said that California’s energy market is broken and that wholesale prices since last summer have not been just and reasonable,” Low said. 

Consumer advocate Heller said PG&E and Edison should pursue refunds from the wholesalers, not rate increases from their customers. 

The Bureau of State Audits issued a 97-page report finding several factors to blame for California’s volatile electricity market. 

California’s flawed deregulation of the market encouraged both buyers and sellers to “manipulate wholesale prices to their advantage” on real-time power markets – in the case of sellers, by understating supply and in the case of buyers, by underscheduling demand to try to win more advantageous prices, the report said. 

Other factors include: 

• A retail rate freeze that prohibited utilities from passing on soaring wholesale costs. 

ª Limits on utilities’ ability to enter long-term power contracts and a requirement that they sell their own power plants and buy electricity through the Power Exchange. 

ª The ISO’s inability to coordinate power plant outages for maintenance. 

The audit was requested by Sen. Steve Peace, D-Chula Vista, one of the co-authors of the deregulation law.  


An aide said Peace was disappointed by the audit. 

Auditors failed to see “that the problem in California and throughout the West is that supplies are tight,” spokesman John Rozsa said. “There’s no market structure changes that would fix this situation.” 

Lawmakers plan to review how the audit’s findings fit with legislation they are considering, said Chuck Patilla, a consultant to Assemblyman Fred Keeley, D-Boulder Creek. 

A FERC staff report this month recommended several steps to keep wholesale prices in check this summer, when California’s demand for power is expected to rise by up to 50 percent. 

Those recommendations erroneously assume a large portion of California’s power will be purchased under long-term contracts, the ISO’s Robinson said. 

FERC is also focusing on periods when California is in a Stage 3 power alert, declared when reserves threaten to drop below 1.5 percent. The ISO believes that is too limited, Robinson said. 

California had enough electricity Thursday to avoid a repeat of the blackouts that hit the state Monday and Tuesday. 


On the Net: 

The Federal Energy Regulatory Commission: www.ferc.fed.us 

The California Independent System Operator: www.caiso.com 


• The Assembly might meet again Friday to consider the failed bill to allow the alternative energy producers to be paid. An Assembly committee begins its inquiry into natural gas prices. 

• Generators have until Friday to appeal an order by federal regulators to refund power charges of $69 million for January and $55 million for February. The Federal Energy Regulatory Commission says some sales were priced too high, even taking into account high natural gas prices, air quality control costs and plant maintenance. 

•The Public Utilities Commission meets Tuesday in San Francisco to determine whether to order utilities to pay their alternative energy producers, how much the state will receive from the utilities for power it buys on behalf of their customers, whether to extend a blackout exemption to all hospitals of all sizes and whether to investigate the holding company formations of the parent companies of PG&E, SDG&E and SoCal Edison. 

The problem: 

High demand, high wholesale energy costs, transmission bottlenecks and a tight supply worsened by scarce hydroelectric power in the Northwest and maintenance at aging California power plants are all factors in California’s electricity crisis.  

Edison and PG&E say they’ve lost $13.7 billion since June to high wholesale prices that the state’s electricity deregulation law bars them from passing onto ratepayers, and are close to bankruptcy. 



liers, scared off by the two companies’ poor credit ratings, are refusing to sell to them, leading the state to start buying power for the utilities’ nearly 9 million residential and business customers.