State asks federal regulators for more price controls

The Associated Press
Saturday May 26, 2001

SACRAMENTO — California renewed demands Friday for tough federal electricity price caps and singled out two generators for immediate rate rollbacks. 

The filings by several state agencies were in response to a Federal Energy Regulatory Commission order in April that offered limited price controls, in exchange for concessions on control of the state’s power grid. 

“FERC’s pricing plan is laced with loopholes,” said Gov. Gray Davis.  

“It’s worse than too little, too late. It’s simply a fig leaf that does nothing to address the impact of the energy crisis on California and our nation.” 

The state’s multiple filings also said that two generators, Williams and AES, have profited excessively by exercising market power. 

The Electricity Oversight Board, the Public Utilities Commission and the Independent System Operator asked FERC to require the generators to use cost-based rates, which limit company profits to a percentage above the costs to produce power. 

In order to escape charging cost-based rates, generators must prove to FERC that they don’t have market power – the ability to charge whatever price they want without consequence. 

The ISO, keeper of the state’s power grid, said the two companies have exhibited that they have market power and the ability to charge market-based rates should be revoked. 

Aaron Thomas, spokesman for the Arlington, Va.-based AES, said the company has applied to have its ability to charge market-based rates renewed, and expects FERC to approve that request. 

“The governor, for six months now, has been calling for a form of cost-based rates from FERC, so I don’t think anything has changed,” said Thomas. 

Earlier this month, Tulsa-based Williams agreed to pay $8 million to settle charges with FERC that the company was purposely withholding electricity from California’s power market.  

The company admitted no wrongdoing, and officials said a full hearing would have cleared the company. 

ISO attorney Charles Robinson said the agency is also considering similar requests for revocation of the market-power authority of three other generators – Duke Energy, Reliant  

and Mirant. 

Sen. Joe Dunn, D-Garden Grove, chairman of the Senate subcommittee investing the electricity wholesale market, said FERC has never adopted a definition of market power, leaving open the question of how they can determine if the generators don’t have it. 

“That calls into question whether FERC must revoke market-based rate authority retroactively,” Dunn said. “That may require a reimbursement of the difference between what would have been cost-based rates and what they’ve been charging.” 

The FERC order in April establishes some price controls when the state’s power reserves drop below 7.5 percent. That is scheduled to take effect Tuesday, unless the FERC orders otherwise over the holiday weekend, Robinson said. 

The state Assembly, in documents to be filed Tuesday, said those price controls should cover all hours – not just during power emergencies.  

The Assembly’s filing calls that order “arbitrary and capricious,” and says the order does nothing to curtail unreasonable prices unless reserves drop. 

Earlier ISO studies have estimated that California was overcharged more than $6 billion in the last year. FERC has ordered refunds for a fraction of that – $125 million – saying it can only examine prices for power sold during Stage 3 emergencies, when reserves drop to below 1.5 percent. 

The Assembly’s filing also will object to FERC’s requirement that the state join a regional transmission organization in order to get price controls. Robinson said the ISO would make a decision next week whether to file a plan to join an RTO. 

The state agencies also objected to a FERC plan to put a surcharge on energy rates to pay money owed to generators. 

If FERC denies the state’s requests, or doesn’t “act in the time frame we believe is necessary to prevent harm,” the agencies can appeal to a circuit court, Robinson said. 

“We’re going to explore every legal avenue we can,” said Davis spokesman Steve Maviglio. 


On the Net: 

The California Independent System Operator: www.caiso.com