Lawmakers eye energy suppliers for investigation, prosecution

The Associated Press
Friday April 27, 2001

SACRAMENTO — Frustrated by soaring energy prices and tightening supplies, lawmakers lashed out at power generators Thursday, and implied some should go to jail. 

Lt. Gov. Cruz Bustamante joined Assembly Democrats in their attempt to make overcharging for electricity a felony punishable by prison for corporate officers and forfeiture of 10 percent of a company’s assets. 

Meanwhile, analysts from the Independent System Operator, which runs the state’s power grid, told a Senate investigating committee generators owe California more than $6 billion in refunds for artificially driving up prices to unprecedented levels. 

Market manipulation affected 98 percent of the hourly bidding on electricity between May and November, testified Anjali Sheffrin, director of the ISO’s department of market analysis. 

A shortage of supply and suppliers created a classic oligopoly, where just five major electricity wholesalers found they could name their price without necessarily coordinating their actions, Sheffrin said. The shortage-driven price spiral soon spread to other Western states, she said. 

“In an oligopoly market, everybody benefits from high prices,” she told the Senate Select Committee to Investigate Price Manipulation in the Wholesale Energy Market. 

Prices averaged 30 percent higher than they should have since May, ISO Market Monitoring Manager Eric Hildebrandt told the same committee. 

However, ISO’s studies were not designed to identify individual generators who overcharged, Hildebrandt said, and he did not suggest generators acted illegally. 

As part of its investigation, the committee subpoenaed confidential ISO power-bidding records. 

Investigators won’t find anything, said Jan Smutny-Jones, executive director of the Independent Energy Producers Association. “The generators that are being investigated did not create this market.” 

“If what they’re doing isn’t illegal, it ought to be,” Bustamante said as he proposed making price gouging a felony. “If they think they’re going to get away with this, they’re wrong.” 

Assemblyman Dennis Cardoza, D-Atwater, compared the energy crisis to the Japanese attack on Pearl Harbor and his bill to a crackdown on wartime profiteering. 

Those who “rob millions of Californians of billions of dollars” should face the same prison time as if they had burglarized a house, Cardoza said. 

Investigators haven’t found any wrongdoing, Cardoza and Bustamante said, because they didn’t dig deeply enough. 

Their bill calls for a million-dollar award and whistleblower protection to anyone who provides proof that generators illegally drove up energy prices. 


Prices would drop, they said, if the bill passes and generators who don’t overcharge have nothing to fear. 

Smutny-Jones joined Republicans who said the bill would discourage generators from selling energy to California when the state needs power to stave off summer blackouts. 

Lawmakers acted a day after the Federal Energy Regulatory Commission, in a late-night order, limited energy prices during the state’s power emergencies. 

FERC has ordered generators to justify $124 million in possible overcharges for three months this year, an amount state officials call too small. 

Meanwhile, lawmakers split along partisan lines on two energy bills, derailing a Senate bill designed to speed up approval of new power plants. Republicans balked at an amendment that would let workers collect unemployment insurance if blackouts force them to leave work without pay. 

Assembly Democrats used their majority to send the Senate a bill creating a new power authority that could issue up to $5 billion in revenue bonds to build or operate power plants. 

Both parties supported an Assembly bill that would make gasoline refineries among the last to be subject to rolling blackouts. The petroleum industry argued an outage could shut down a refinery for days and result in shortages of gasoline, diesel and jet fuel. That bill now goes to the Senate. 


On the Net: Read SB6x, SB28x, AB57x and AB67x on the Web at http://www.sen.ca.gov