Davis Seeks Cuts in Power Deals

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Energy: FERC is asked to reduce cost of long-term contracts by $21 billion. Suppliers, analysts call the request a long shot.

Los Angeles Times

SAN FRANCISCO — Gov. Gray Davis is seeking help from the Federal Energy Regulatory Commission–the same regulators he blamed for letting power sellers charge sky-high prices and not immediately lending a hand to prevent rolling blackouts last year.

This time, Davis wants FERC to reduce by $21 billion the cost of contracts the state signed at the height of its power crisis to supply electricity over the next two decades. Power sellers call it a political ploy, and industry analysts say the state might be wasting its time.

“I don’t think the state has a long shot of getting what they’re seeking here,” said Gary Ackerman, executive director of the Western Power Trading Forum, which represents many suppliers.

“I don’t really expect FERC to do much of anything,” said Harvey Rosenfield, president of the Foundation of Taxpayer and Consumer Rights, a Santa Monica-based consumer advocacy group.

They could be right. It was months before FERC capped electricity prices in California in June, long after blackouts rolled, electric rates climbed and other states began casting lures for Golden State businesses.

And while FERC has agreed with the state Public Utilities Commission that energy sellers charged unfair prices for electricity bought at the last minute, no refund check has arrived to help ease the state’s gaping $10-billion-plus power debt.

Since then, power prices have plunged, and Davis has been roundly criticized by consumer groups, by his Republican challengers this election year and even by his own state appointees for buying too much power at too high a cost for too many years.

The state is arguing that FERC’s inaction and illegal market manipulation by sellers made the state’s energy market spin out of control last spring, resulting in soaring energy prices. It wants FERC to lower the prices of the contracts or force the sellers to renegotiate in good faith.

The state will need to show FERC that it had a gun to its head when making those contracts, said Severin Borenstein, director of the University of California Energy Institute. But even if the state proves its argument, it may not matter.

“It will require first, that FERC actually will take that action, and I think FERC has signaled that they’re not inclined to, and second, that FERC has the authority, because these contracts have clauses that the state has to pay these contracts even if FERC finds them unreasonable,” Borenstein said.

Still, Davis expressed optimism Monday. “We’re really expecting to get some relief,” he said. “I believe [FERC] will be sympathetic to our complaint.”

Assemblyman Fred Keeley, a Boulder Creek Democrat who is the Assembly’s point man on energy issues, says the state is doing exactly the right thing:

“I think that [FERC] is going to want to be very responsive to California. If they continue to believe that deregulation is a good idea, that the marketplace is the answer to the nation’s energy needs, I think they’re going to want to see California be a success story.”

The deals in question, worth $45 billion, were negotiated in secret last spring, and California ratepayers were told the details of where their money was going only after court battles from news organizations. Tamara Young, a FERC spokeswoman, said Monday that the commission would review the filing and request public comment before taking any action.

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