California Consumers Unlikely to Benefit Much from Any Energy Refund

Published on

San Jose Mercury News

Even if federal regulators agree to the multibillion-dollar refund that California officials are demanding from electricity suppliers, consumers shouldn’t count on getting a fat check in the mail any time soon.

A long line already is forming to snap up whatever money the state might receive. The line doesn’t just include homeowners, merchants, utility companies and the various state agencies that have purchased power in recent months. It also includes the same electricity suppliers accused of gouging.

While Gov. Gray Davis has been claiming for weeks that California is owed $ 8.9 billion, the issue of who would actually get that money has been largely lost in the debate. In fact, state officials acknowledge that they have no plan yet of how the money would be divvied up or who would oversee the distribution of refunds.

And no one can say for sure whether consumers will ever see much tangible benefit, such as a drop in their utility bills.

“I’m never going to say never,” said California Public Utilities Commission president Loretta Lynch. “It’s just too soon to tell.”

One group that is likely to benefit is energy companies.

Some of these suppliers say they’re entitled to the money because they weren’t paid for what they previously sold to such customers as Pacific Gas & Electric Co., which has been forced into bankruptcy. Others insist they have a right to a refund, because somewhere along the complicated daisy chain of transactions that characterizes the energy marketplace they bought electricity from somebody else.

“California assumes that it is the sole buyer, but that is far from the truth,” Enron declared this week in legal papers it filed with the Federal Energy Regulatory Commission, which is mulling the refund idea. While arguing that no such repayments are warranted, Enron nonetheless noted that it has bought power in California through a subsidiary that provides electricity to retail customers. So if the commission does order refunds, it argued, Enron is entitled to “its rightful share.”

Other suppliers feel the same way.

“We’re on both sides of the issue, actually, because we have made sales in the market and we have made purchases in the market,” said John Fistolera of the Northern California Power Agency, a coalition of 21 public utilities, several of which also have been accused of overcharging for power.

“We make more purchases than sales,” he said. “So if a refund to purchasers is ordered, then clearly, we would get in line and request our refund, just like any other purchaser.”

Complicating things further is the fact that some electricity is sold “10 or 20 times, maybe even more” before it is delivered to a final customer, said Jan Smutny-Jones, executive director of the Independent Energy Producers, an industry trade group. If several electricity traders claim to have been gouged along the way, he added, “it is not at all clear how refunds would be allocated or claimed, or how the process itself would work.”

The possibility that some suppliers might pay a refund and then get part of it back “should be considered laughable,” said Doug Heller, with the Foundation for Taxpayer and Consumer Rights in Southern California. He found it especially absurd for companies to demand a share of the refunds to help repay them for their power sales. After all, he said, the main reason they weren’t paid initially is because their price was exorbitantly high.

Heller said California officials should refuse to give suppliers any portion of the refund and make them forfeit whatever amount they are owed. But other top state officials fear such a position could trigger a long legal battle. “I think we’d be in courtrooms till kingdom come,” said Gov. Davis’ spokesman Steve Maviglio.

How much, if anything, should be refunded is expected to be hashed out over the next few weeks during public hearings before the federal commission. California officials have demanded at least $ 8.9 billion. But a judge overseeing unsuccessful settlement talks on the matter on Thursday said $ 1 billion was probably closer to what should be repaid, which is not even enough to cover the amount suppliers say they are owed.

Assuming something is refunded, it’s unclear who would oversee its distribution. Some experts said the federal commission would be the most appropriate agency, while Maviglio mentioned the state’s Independent System Operator, which monitors the power grid. But ISO spokeswoman Stephanie McCorkle said the California Public Utilities Commission might be best, although she added, “I don’t know who would take the lead on this.”

David Freeman, Davis’ chief energy expert, said it’s too early to be worrying about those details. “Let’s get the money first and then figure it out,” he said.

If California got the full $ 8.9 billion and it was all passed on to consumers, that would work out to an average of nearly $ 900 for each of the 10 million electricity customers of the state’s three major utilities. But don’t count on that happening, experts advise.

“If in fact a refund happens, consumers would have to compete with all these other entities to actually get a piece of it,” said Mindy Spatt of the Utility Reform Network in San Francisco. So her advice: “Don’t go spending your refund check just yet.”

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases