SACRAMENTO — Former workers at Duke Energy’s South Bay power plant accused the company of shutting down production units there in what they called a scheme to drive up electricity prices.
Duke officials termed the charges “baseless.”
The former workers told the state Senate Select Committee to Investigate Price Manipulation Friday that officials at the San Diego-area plant ordered power units off-line for apparently unnecessary maintenance; destroyed parts that were needed for repairs; and manipulated the electricity it was feeding the statewide grid.
“This is the first smoking gun that’s appeared — whistleblowers,” said Lt. Gov. Cruz Bustamante, who is sitting in with the committee. “That is called market manipulation, and that, in effect, ended up costing the ratepayers of California billions of dollars.”
Gov. Gray Davis said the testimony, if true, would provide “very disturbing evidence” that could help the state convince federal regulators to order generators to refund $9 billion in power charges.
State legislators, regulators and prosecutors are investigating whether power generators illegally manipulated the power supply to drive prices to record levels, forcing the state to buy more than $8 billion worth of electricity since January for the state’s three investor-owned utilities.
All three longtime San Diego Gas & Electric employees were laid off in April when Charlotte, N.C.-based Duke completed its two-year acquisition of the former SDG&E plant in Chula Vista.
Mechanics Glenn Johnson and Ed Edwards said they were ordered to shut down machinery for unneeded repairs, and to do so when they didn’t have the necessary parts available to quickly repair the equipment. They said they were ordered to dispose of perfectly good parts that could have been used in those repairs.
“We were told when things were shut down that it was for ’economics,”’ Johnson testified. “Sometimes a unit would be ’down for economics’ for two or three days.”
Duke officials said the plant’s performance belies the workers’ accusations. They said Duke’s four California plants produced 50 percent more electricity last year than in 1999 and are on a pace to improve that performance this year.
The company was so pleased with its unanticipated windfall from soaring energy prices that it threw two prime rib-and-shrimp parties for the plant’s employees, the workers said and Duke vice president Bill Hall acknowledged.
“Duke Energy is not (price) gouging,” Hall said after he was denied a chance to testify at Friday’s hearing. “Duke does not collude with any other entity to drive market prices up.”
Operating decisions were made based on market conditions, Hall said, but he denied illegal collusion or market manipulation that could drive state or federal regulators to step in. “Depending on the amount of supply or demand, some of our units which are in some cases not as efficient as others in the state simply aren’t economic to run,” Hall said. “That’s the market sending a signal, ’We have sufficient supply, we don’t need your less-efficient, more costly units.”’
Operators rapidly cycled the plant’s electricity production “like a yo-yo — up and down, up and down,” former worker Johnson said, in a way that damaged equipment but maximized prices. He, Edwards and assistant control room operator Jimmy Olkjer backed their testimony with copies of control room logs Johnson smuggled out of the plant.
“Duke Energy Trading and Marketing was calling the shots – that’s where they made the money,” Senate Energy Committee Chairwoman Debra Bowen, D-Marina del Rey, said after examining the logs.
Any fluctuations, Hall said, were ordered by the California Independent System Operator, which runs the state’s power grid, or were needed to meet environmental standards.
Duke destroyed new parts, as the workers testified, Hall said, because they were obsolete or to cut the tax Duke paid on its parts inventory.
But Edwards and Johnson said it cost the company more money to order replacement parts shipped in as needed, in addition to the cost of the lost production.
Duke often ran the plant’s smallest, least-efficient turbine even at a cost of trucking in jet fuel from the Los Angeles area, they said.
Hall countered by saying jet fuel was then cheaper than natural gas, which powered the plant’s other four generators.
Its four California plants have had fewer forced outages than when the plants were operated by the state’s utilities, Duke said, and perform more consistently than the industry average despite running hard during the power crisis that began a year ago.
“All of the spinning and excuse-making goes out the window at some point when you’re confronted with the people actually running the machinery,” said attorney Mike Aguirre, who is suing several power generators and convinced the workers to testify. Duke supplies about 5 percent of California’s electricity at four power plants, including three purchased from Pacific Gas and Electric for $501 million in 1998. It is undertaking a 1,060-megawatt expansion of its Moss Landing power plant.
It confirmed earlier this month that it sold 5,000 megawatt hours of electricity in California for as much as $3,880 per megawatt hour in January – double the rate recently cited by Gov. Gray Davis as an “obscene” example of price gouging.
Duke spokesman Tom Williams said the company will accept the Federal Energy Regulatory Commission’s decision to cap the company’s payment at $273 per megawatt hour for the power it sold into California in January and $430 for the power sold in February.