Features

Judge: California likely owed ‘hundreds of millions of dollars’

By Jennifer Coleman Associated Press Writer
Friday July 13, 2001

SACRAMENTO – An administrative law judge mediating talks between the state of California and energy companies says the state is likely owed “hundreds of millions of dollars” in refunds, much less than the $8.9 billion the state wants. 

Judge Curtis L. Wagner Jr., in a recommendation released Thursday, said that while there are “vast sums” due for overcharges, California utilities, grid managers and the state agency purchasing power owe generators even more. 

Gov. Gray Davis and California officials who attended the 15-day talks held out for $8.9 billion in refunds, but Wagner said that amount “has not and cannot be substantiated. 

“That very large refunds are due is clear,” Wagner wrote, likely amounting to “hundreds of million of dollars, probably more than a billion dollars in an aggregate sum.” 

Davis said he hoped the Federal Energy Regulatory Commission would reject the recommendation. 

“Californians have, by and large, gotten a raw deal from FERC during the past year,” he said in a statement. “Now the day of reckoning for the new FERC has come. I would like to believe the commission, with two new commissioners, will be more sensitive to California consumers and order all the refunds that are due.” 

U.S. Sen. Barbara Boxer, D-Calif., said the recommendation “undermines the consumer protections that FERC is supposed to safeguard by law.” 

The differences between what the state wants and what the sellers believe they owe should be decided in a “trial-type, evidentiary hearing” that should be held in 60 days, Wagner said. 

The judge recommended a method for calculating refunds back to October. California’s estimate is based on figures from May 1, 2000. 

Peter Navarro, a University of California, Irvine economist who works on energy issues, called the recommendation “insulting” to California. 

The refund order should reach back until at least July, he said, when energy prices had spiraled to record levels and utilities were accruing billions of dollars in debts. 

“Setting it arbitrarily from October keeps billions and billions of dollars more in refunds from the state of California,” he said. 

In calculating costs, the judge recommends using the “heat rate” for the least efficient plant that sold power into the California market on each day. That plant’s costs to produce power will be the basis for setting a benchmark prices that day. 

Navarro said that’s unfair to California and basing refunds on each individual plant’s costs would be the best way to calculate what was overcharged. 

“By choosing that methodology, the judge limits the ability of California to recover what’s really owed to it,” Navarro said. “It reduces the total judgment by as much as 80 percent.” 

Officials with Reliant Energy, which participated in the negotiations, were still reviewing the order, but Melissa Kinch, a company spokeswoman, said they were “hopeful that with the formula, all the correct data will come out.”