Metro Desk
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.
ROBERT J. LOPEZ; RICH CONNELL
TIMES STAFF WRITERS

04/11/2001
Los Angeles Times
Home Edition
A-1
Copyright 2001 / The Times Mirror Company

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." 
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC) 
Top 10 in Profits 
The California Independent System Operator says that a total of $505 million 
in extra profits was reaped by power suppliers from May to November 2000 in 
California's volatile spot market. The alleged excess profits were generated 
by high bids and high-volume sales during periods of peak demand. 
* 
British Columbia Power Exchange: $176.2 million 
Southern Co. Energy Marketing (renamed Mirant): $96.8 million 
Reliant Energy Services $35.5 million 
Dynergy Electric Clearing House $32.1 million 
Bonneville Power Administration $30.0 million 
Enron Energy Services $27.9 million 
Duke Energy Trading $18.4 million 
Los Angeles Dept. of Water and Power $17.8 million 
Sempra Energy Trading $14.9 million 
Pacific Corp. $13.6 million 
Source: Public and confidential government records


GRAPHIC: Top 10 in Profits, Los Angeles Times;