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Los Angeles Times

Maintenance shutdowns that took some California power plants offline late last year were not orchestrated to raise prices, according to an audit by a federal regulatory agency.

The Federal Energy Regulatory Commission said telephone interviews, a review of four years of documentation and on-site inspections did not yield any evidence that producers “were scheduling maintenance or incurring outages in an effort to influence prices.”

Instead, the audit found that “the companies appeared to have taken whatever steps were necessary to bring the generating facilities back online as soon as possible by accelerating maintenance and incurring additional expenses.”

Moreover, the breakdowns at the plants did not necessarily coincide with price fluctuations in the market, the 55-page audit, released Thursday, concluded.

The investigation was a follow-up to a probe of California’s runaway energy market last summer. The probe had found a questionable pattern in which plants shut down unexpectedly before prices spiked.

For the current probe, regulators visited three power plants in the Los Angeles area–two owned by Reliant Energy Co. and one owned by a joint venture of Dynegy and NRG. The plants were selected randomly, based on the size of facilities that went down for repairs in December and their geographic proximity.

The audit’s findings drew sharp skepticism from both consumer advocates and a spokesman for Gov. Gray Davis, who has repeatedly criticized the staunchly free-market commission for not placing price caps on Western electricity markets.

From all reports, said Davis spokesman Steve Maviglio, “it was a see-no-evil, hear-no-evil type of audit.”

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, noted that the energy commission is a staunch supporter of deregulation and free markets and branded the probe a “whitewash.”

“This is hardly the thorough investigation that would support the conclusions it reached,” Rosenfield said. “FERC has neither the expertise nor the inclination to get to the truth.”

But companies that own the power plants–and have long said they are trying to provide California with as much energy as possible–said they had been vindicated.

Tom Williams, spokesman for Duke Energy, said the report affirms the Charlotte, S.C.-based company’s operating procedures in the face of “incorrect and inflammatory allegations that we have somehow been withholding power from our four plants in California.”

“Just the opposite is true,” Williams said in a statement. “We have been running 30- to 40-year-old equipment as hard as it can be run to help meet California’s need for electricity. This is reflected in plant operating levels’ being 50% higher in the year 2000 versus 1999.”

Federal investigators found that the plants that went offline were 30 to 40 years old and had been running at a significantly higher rate than in previous years. “Most of the generating facilities were out of service because of tube leaks and casing problems, turbine seal leaks and turbine blade wear, valve failure, pump and pump motor failures,” the report found.

However, the audit did not look into separate allegations that power firms were withholding electricity from the market by refusing to sell or by pricing power so high that buyers would not make an offer.

Those issues are being probed by the attorneys general of California, Washington and Oregon. Gov. Davis has repeatedly castigated power plant operators that shut down frequently, and he threatened to seize their plants if they don’t provide needed electricity.

During last month’s blackouts, plants producing a record 11,500 megawatts of electricity, twice as much as normal, were offline for repairs.

The energy commission regulates interstate commerce in wholesale electricity, natural gas and oil.

In a separate report, also released Thursday, the agency concluded that a range of factors from weather to energy policy precipitated rising prices in California in November and December, including a dramatic spike in mid-December.

A statistical analysis by the agency showed that 94% of the increase in prices could be explained by “temperature, precipitation or stream flow levels and tight supply and demand measured by the prevalence of emergency conditions in California.”

These conditions drove power prices above short-term power production costs.

The study found that while demand for power rose steadily during the 1990s, generating capacity did not. In November and December, a cold wave descended on the region at a time when low water levels and stream flows limited the hydroelectric energy that California normally counts on during the season.

Environmental safeguards to protect fish populations further limited the water available for generating power. At the same time, several conventional power plants had to shut down because they had reached air quality limits on emissions, though some were later granted emergency waivers.

Maintenance shutdowns further complicated the supply and demand equation.

Finally, uncertain market conditions helped push up prices.

Consumer Watchdog
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