Energy Cost Study Critical of Public Agencies Too 
 Power: DWP is among three government-run producers cited as driving prices 
up. Spokesmen deny any market manipulation. 

By ROBERT J. LOPEZ, RICH CONNELL, Times Staff Writers

????Government-owned utilities, including the Los Angeles Department of Water 
and Power, were influential in driving wholesale electricity prices to levels 
that helped ignite California's exploding energy crisis during the summer and 
fall, according to public and confidential records. 
?????For months, Gov. Gray Davis, legislators and consumer advocates have 
chiefly blamed a few private power companies for throwing the state into 
darkness and economic chaos. 
?????But they are just part of the equation. 
?????A confidential document obtained by The Times names power providers that 
have allegedly manipulated the electricity market. While the document does 
identify out-of-state merchants criticized for gouging, it also discloses for 
the first time the extent to which public entities allegedly have maximized 
profits in the volatile spot market. 
?????The document--which decodes the identities of unnamed suppliers in a 
recent state study--singles out three government-run agencies as consistently 
trying to inflate prices. They are: the DWP, the federally owned Bonneville 
Power Administration in the Pacific Northwest and the trading arm of Canada's 
BC Hydro in British Columbia. 
?????Like a number of privately owned generators, these three producers 
offered power at a range of high prices and, sometimes, in large amounts when 
the state was most desperate. They also helped saddle California's three 
largest utilities with billions of dollars in debt--leading one, Pacific Gas 
& Electric, to seek bankruptcy protection last week. 
?????The study by the California Independent System Operator, or Cal-ISO, 
analyzed thousands of hours of bidding practices for 20 large suppliers in 
the spot, or "real-time," market from May to November. The study accounted 
for factors such as rising production costs, increased demand, periods of 
scarcity and profits that would be earned in a healthy, competitive market. 
?????Money earned above that was called excess profits. 
?????No entity--public or private--earned as much in alleged excess profits 
as British Columbia's Powerex, the state records show. 
?????"They were the most aggressive bidders," said Anjali Sheffrin, author of 
the coded study. 
?????"They had the most amount to bid and the most freedom to bid it in," 
said Sheffrin, who did not discuss any companies by name. 
?????The Canadian agency reaped $176 million in alleged excessive 
profits--several times the amount collected by all but one of the private 
generators. Second on the list was Atlanta-based Southern Co. Energy 
Marketing, now called Mirant, which collected nearly $97 million in alleged 
inflated earnings. 
?????BC Hydro and Mirant--along with the DWP and other producers--say they 
played by the rules established under California's flawed deregulation plan 
and did not exploit the state's troubles. 
?????But BC Hydro officials acknowledge that they did anticipate periods of 
severe power shortages and planned for them by letting their reservoirs rise 
overnight and then opening them to create hydroelectricity, which could be 
produced inexpensively but sold for a premium. 
?????"It was the marketplace that determined what the price of electricity 
would be at any given time," said BC Hydro spokesman Wayne Cousins. "We 
helped keep the lights on in California." 
?????And the rates low for their own customers. During the past year, BC 
Hydro has stashed hundreds of millions dollars in a "rainy day" account to 
ensure that it has among the lowest rates in North America. 
?????Los Angeles' Department of Water and Power, although eighth on the list 
of alleged profiteers, was among those singled out for seeking high prices 
during periods of high demand that helped inflate costs across the entire 
spot market, where emergency purchases are made. 
?????This, according to state documents, was accomplished by offering power 
at incrementally higher prices that would rise substantially with even modest 
increases in demand. The strategy also helped prop up prices, keeping them 
from falling. 
?????The DWP's average hourly bid, or asking price, for electricity 
ultimately bought topped such private sellers as Reliant Energy of Houston 
and Tulsa-based Williams Cos., two major players in the national energy 
market. 
?????In addition, the DWP submitted other bids at far higher prices that 
could pay off handsomely with even small bumps in demand, the report said, 
referring by code to DWP and four other suppliers. "The data shows they 
clearly exercised market power to inflate prices further at higher load 
conditions." 
?????DWP General Manager S. David Freeman called the report's findings 
"outrageous," insisting that the utility never tried to inflate prices. 
?????"These charges go under the heading there is no good deed that goes 
unpunished in this state," Freeman said, noting that DWP power helped avert 
more blackouts across the state. 
?????He did acknowledge, however, that the agency has charged high prices for 
surplus power at the 11th hour but said that was only because it cost more to 
produce. 
?????"We have consistently charged [Cal-ISO] our cost, plus 15%," he said. 
"It's not as though we're up there peddling a bunch of power to jam it down 
their throats." 
?????Freeman said that when his staff reviewed the coded report, they never 
took it personally. "If you're innocent," he said, "you don't look at the 
criminal file." 
?????Yet another public agency criticized for its behavior in California's 
deregulated market was the U.S. government's Bonneville Power Administration, 
a nonprofit agency that sells wholesale electricity produced at 29 federal 
dams in the Columbia-Snake River basin. 
?????Bonneville actually bid slightly lower than the DWP, records show, but 
reaped millions more in alleged excessive profits, apparently because it 
supplied greater amounts of power during the period studied. Bonneville was 
in the top five accused of taking excessive profits. 
?????Bonneville officials say some of its profits are used to pay back 
federal construction loans and fund an internationally recognized salmon 
recovery program. 
?????Stephen Oliver, a Bonneville vice president, said his agency did not act 
improperly and has asked Cal-ISO for detailed information on how it reached 
its conclusions. He said the grid operator often came to Bonneville pleading 
for last-minute electricity and offering to pay high prices. 
?????"From our point of view, we bid what we had when we had it and we 
operated precisely within the terms of their rules," Oliver said. 
?????Those rules--and the bidding practices criticized by Cal-ISO--so 
distorted the market that Aquila Power Corp. of Missouri, which tried to act 
responsibly, has bailed out. 
?????It offered the lowest average hourly price of any supplier 
studied--slightly more than $8 per megawatt-hour, compared to Mirant's $138, 
the highest. 
?????But the spot market, as initially designed, made sure that all suppliers 
offering power received the highest price paid in any hour. 
?????The result: Aquila collected $171 an hour for power it was willing to 
sell at a single-digit price. 
?????"They weren't the culprits," said Cal-ISO's Sheffrin. "Someone else 
drove that up." 
?????Aquila spokesman Al Butkus said the company pulled out of the California 
market because it was too unpredictable. Although the company made money, he 
said, it also could have lost because of possible downward swings. 
?????"We looked at it and we didn't feel very comfortable with what we saw," 
he said. 
?????The market has since been adjusted to prevent high bids from setting the 
price for everyone. But Sheffrin said it hasn't made much difference because 
the overall prices are still excessive. 
?????"We're saying the patient is sick," Sheffrin said of California's 
electricity market. "It needs help [and] may die." 
?????