Officials will try to justify $9 billion in overcharges

The Associated Press
Wednesday June 27, 2001

California officials will attempt to justify their claim that energy providers overcharged the state by $9 billion when federal settlement talks over the West’s energy crisis resume Wednesday. 

California’s allegations of price-gouging during the last 13 months are expected to dominate the third day of confidential negotiations involving scores of entities who buy and sell power in California and 10 other Western states. 

A new analysis backs up the $9 billion figure, said Michael Kahn, chairman of the California Independent System Operator, which manages much of the state’s electricity grid. 

But that study, as well as an earlier analysis prepared by the grid operator, suggest that several billion dollars might lie beyond the reach of federal energy regulators. Last week, regulators ordered the talks as part of an effort to get a handle on Western energy prices. 

The commission’s order last week extended price controls in California and imposed them in the rest of the Western power grid, covering all sellers.  

It also gave the parties until July 9 to settle a host of issues, including $15 billion in alleged overcharges in California and elsewhere in the West, generators’ unpaid bills and additional long-term power contracts. 

Kahn said roughly $3 billion in alleged overcharges occurred before Oct. 1, which FERC has said marks the start of its authority to investigate pricing abuses. 

Another portion of the money California is seeking in refunds would come from municipal utilities and other power sellers that until now have not come under the energy commission’s jurisdiction. 

California will try to argue that neither of those factors should influence a settlement. 

“We respectfully disagree with FERC on the October situation,” Kahn said.  

“We think we suffered greatly last summer. It’s inexplicable to us that we would not be allowed to seek refunds for that period.” 

Kahn, the state’s chief representative at the Washington talks, will contend that the regulators’ expanded view of their authority also should apply retroactively. 

“We determined that if the plan had been in effect since May 2000, that the numbers were approximately $9 billion,” Kahn said. 

A negotiated settlement – rather than an order from regulators — also could allow power users and providers to reach agreement on issues that might not be in FERC’s domain. Those issues include whether generators would be protected from lawsuits over their prices, said Mark Cooper, research director for the Consumer Federation of America. 

“It’s one of the concerns we have, that we might not get a clear ruling and that we run the risk of losing our litigation rights,” Cooper said. 

Wholesale power costs in California were $7 billion in 1999, rose to $27 billion last year and could top $50 billion this year, according to state estimates. Federal regulators have on several occasions said the recently deregulated electricity market is dysfunctional. 

Power wholesalers have dismissed the state’s claim as grossly inflated. They say high prices have been justified by a shortage in natural gas, which fuels many power plants. 

The generators said they have yet to be paid billions of dollars for power that already has been supplied. 

“California for some reason feels that they’re entitled to free energy,” said Richard Wheatley, a spokesman for Houston-based Reliant Energy. “Reliant and other generators have been California’s energy bankers for some time.” 

Wheatley said Reliant is owed $337 million for past power sales. 

Generators probably would have to pay no more than $2.5 billion in refunds, said Curtis Wagner, who is FERC’s chief administrative law judge and is overseeing the negotiations. 


On the Net: 

Federal Energy Regulatory Commission: http://www.ferc.gov