Much Calif Power Price Gouging Beyond FERC's Reach -ISO    
Updated: Monday, June 25, 2001 06:59 PM ET   Email this article to a friend! 
 Printer-friendly version  


By Jason Leopold 

Of DOW JONES NEWSWIRES 


LOS ANGELES (Dow Jones)--Federal energy regulators only have the authority to 
order refunds for about a third of the $9 billion California Gov. Gray Davis 
claims energy companies have overcharged the state in the 12 months to May 
2001, documents from the state's wholesale market operator show. 

Of the total, $2.9 billion came from the May-September period the Federal 
Energy Regulatory Commission has said it can't act on, and $2.8 billion from 
the October-May period is attributable to municipal utilities over which FERC 
lacks jurisdiction, according to documents from the California Independent 
System Operator.  
   
That leaves just $3.3 billion in alleged overcharges that FERC could 
potentially order refunded - far less than the $9 billion Davis seeks. 

Talks between generators and state officials to settle billions of dollars in 
unpaid bills and issues of overcharging began Monday. Curtis Wagner, the FERC 
administrative law judge presiding over the talks, has said California will 
likely see refunds from generators, but far less than the $9 billion Davis 
expects. 

Davis said Sunday California is going to Washington, D.C., "with one goal, 
and that is to bring back $9 billion." 

Nearly half that amount is attributable to municipal utilities, the ISO 
documents show. The ISO said the Los Angeles Department of Water and Power, 
for example, overcharged California $75 million between May and October. 

David Freeman, the governor's chief energy adviser and the former general 
manager of the LADWP, said the agency didn't overcharge the state, but 
conceded it profited by selling spare power to the ISO. 

Davis adviser Nancy McFadden said the state needs FERC to lay the groundwork 
for the state to seek refunds from public utilities by ordering refunds from 
corporate energy suppliers. 

But during a conference call Sunday with reporters, McFadden and Davis press 
secretary Steve Maviglio couldn't explain how the governor would go about 
getting refunds from companies whose wholesale power prices aren't regulated 
by FERC. 

Davis testified before the U.S. Congress last week that generators 
overcharged the state $9 billion and that FERC should order the refunds. 

State Sen. Jim Brulte, R-Rancho Cucamonga, has asked for an investigation 
into Davis's testimony, saying the figures were based on "shaky 
calculations." 

To come up with its conclusions, the ISO compared hourly market prices 
received by sellers to an estimate of market prices that could have been 
expected under competitive market conditions. 

The ISO established a benchmark for what it determined was competitive - at 
times about $125 per megawatt-hour to $200/MWh, a fraction of actual prices 
in the market - based on the cost of natural gas and compliance with 
air-quality rules. 

The ISO, however, typically used the price of gas at California's northern 
border, according to the documents. Generators paid a higher price for the 
fuel in Southern California, raising the cost of making electricity. 

The ISO also used reports of earnings by the state's "Big Five" power 
suppliers during 2000 - earnings that for some quadrupled - to draw the 
conclusion that generators overcharged the state, according to the documents. 

The ISO attributed high power prices in part to the state's three largest 
utilities' failure to buy the power they needed in advance, leaving the grid 
operator to pick up the shortfall at the last minute, according to the 
documents. 

The ISO alleges the following companies overcharged the state by the listed 
amounts between May 2000 and February: