SAN FRANCISCO: Attorney General Bill Lockyer has sued Tulsa-based Williams Cos. Inc. and three other energy concerns, alleging they double-billed Californians millions for electricity.
The lawsuits say the out-of-state power generators reaped millions by being paid to hold power in emergency reserve but then selling the power instead on the open market. Among other things, Lockyer said, the companies were paid $49 million between 1998-2000 to reserve electricity that was not delivered when called on.
Such double-billing, Lockyer said, increased electricity prices by forcing California’s grid operators to buy power on the expensive spot market instead of calling on their reserve capacity.
“Basically, they sold the same electrons twice and fattened the wallets of the energy traders,” Lockyer said in a telephone interview.
Since grid electricity cannot physically be stored, the reserve contracts demanded power companies to reduce their generation enough to supply the power on call, an obligation Lockyer says was breached.
“There have been several investigations about overcharges and market manipulation over the past year and to date there have been no findings in support of these allegations,” said Paula Hall-Collins, a spokeswoman for Williams. “Williams has operated in good faith and in a forthright business manner within the rules and regulations defined by the state and federal agencies.”
“This is an election year and the motivation behind the complaint is clear,” said Richard Wheatley, a Reliant spokesman. An industry spokesman, Jan Smutny-Jones of the Independent Energy Producers trade group, dismissed the suits, saying “at the end of the day there is not going to be a lot here.”
Filed in state court here, the lawsuits fed speculation that Gov. Gray Davis may use them as a bargaining chip to rewrite a few of the dozen long-term energy contracts the governor signed last year.
Those contracts, totaling $48 billion, force California to pay for electricity at two to three times today’s market rate. Davis signed them as electricity prices were skyrocketing last year.
“The governor is going to use every type of leverage possible to renegotiate these contracts,” Davis spokesman Steve Maviglio said. “Certainly, today’s action … puts more pressure on the generators.”
Federal energy regulators are also reviewing the Davis administration’s request to renegotiate the compacts, which Maviglio said “were negotiated under duress at prices that are far and above current levels.”
Lockyer said more suits against power companies were likely, adding that he wanted to recover as much as $165 million in “ill-gotten” gains and profits. If the suits stimulate negotiations on the contracts, that was fine with him.
Of the four energy companies sued, three agreed to long-range contracts with the Davis administration. Dynegy‘s three-year deal expires Jan. 1, 2005; Mirant’s at year’s end and Williams’ expires April 2011, according to state Department of Water Resources records.
The suits allege the double-billing occurred between April 1998 through September 2000. They claim that the companies were paid fees by the Independent System Operator, which at the time operated California’s power grid, to keep electricity on reserve and to sell it at specified times if ultimately requested. The companies, the suit says, did not keep the power on reserve, but sold it in the open market under California’s deregulated energy market.
In some instances, the reserve energy was not available for purchase when it was called upon. In other instances, the energy was not called upon.
The suit says the companies broke the rules when they resold it before its reserve time expired. Dynegy, Lockyer said, did that 10,000 times.
“We call that an unfair business practice,” Lockyer said.
Joe Newlin, a spokesman for the Foundation for Taxpayer and Consumer Rights, lauded the lawsuits.
“The power companies saw deregulation as a license to steal, but the companies must be held accountable for robbing us blind,” Newlin said.
But Lockyer said flaws with the ISO also hurt, because “there was not a sophisticated computer system that was designed to track these things.”