Energy users will see pennies, not dollars, from gouger rebates

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Ventura County Star (California)

Everyone involved agrees the Federal Energy Regulatory Commission’s brand-new finding of widespread market manipulation in the California energy crisis of two years ago was long overdue. But it’s no surprise that politicians and consumer advocates take diametrically opposite views of California’s equally new lawsuit settlement with the gas pipeline operators of Houston’s price-gouging El Paso Co.

“Very good news for California ratepayers,” crowed Gov. Gray Davis after signing off on the El Paso deal that gives the state a nominal $1.7 billion, less than half the $3.7 billion he earlier had accused the company of stealing during the energy crunch of 2001. “El Paso will never be able to rip off Californians again.”

“A total giveaway,” was the contradictory evaluation of Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. “People who should be in jail are escaping with the equivalent of a parking ticket.”

A $1.7 billion parking ticket? In point of fact, that just may be true. For gas and electric customers will get direct refunds totaling only $500 million this year from El Paso, less than one-seventh the sum Davis and state Attorney General Bill Lockyer say the firm stole from residential and business users of energy. Another $1 billion in rebates will be parceled out over 20 years. And, oh yes, El Paso executives who took $2 million in bonuses as corporate rewards for their crooked actions will have to pay that money to the state.

It’s yet to be determined who will get the estimated $3.3 billion in rebates FERC will be ordering from electricity generators, but chances are they will follow the El Paso pattern, with most of the money coming in future years. Some also will go to the utility companies whose lobbying created the deregulated scene exploited by the generators.

Overall, this means utility customers who paid big dollars in a short period during 2000 and 2001 will get a little of their money back every month, probably pennies off each bill they receive. Rosenfield correctly equates the El Paso payout to a parking ticket. Meanwhile, consumers will keep paying today’s inflated rates.

But Davis and Lockyer insist this was absolutely all they could ever hope to get for their constituents from that company. They may be right. For they could never hope to be the ultimate arbiters of how much El Paso was forced to rebate. Neither is any state agency the final authority when it comes to assessments against the electric generating companies that manipulated prices to unheard-of levels.

Those roles belong either to federal courts or FERC. Commissioners at FERC made it plain early on they would never order refunds approaching the $9 billion total Davis and Lockyer claim the generators pirated. But if the El Paso case or those against the generators were played out in court, they might take more than 10 years to complete.

“If it took that long, who knows what the next attorney general might do?” asked Nathan Barankin, spokesman for Lockyer.

Lockyer and Davis don’t deny that consumers are short-changed by the settlement and very likely will be when FERC decides in a few months how to split up the upcoming rebates. “There’s no doubt the money went out in big chunks and will come back in pennies,” said Barankin.

But Davis spokesman Steven Maviglio said that if the state had not settled with El Paso, the pipeline giant probably would have declared bankruptcy. “If they did that, we’d just have been standing in line with all the other creditors, and who knows what we’d get?” he asked. “They simply don’t have $1 billion in cash to fork over. Our options were to settle for less, wait for FERC

to decide something or let El Paso go bankrupt and take our chances among the other creditors. We think we took the best path.”

But the El Paso deal will likely set a precedent for the state’s claims against generating companies such as Duke Power, Reliant Resources, Mirant, AES and others who might settle before hearing the final word from FERC or an appeals court.

“The villain here is FERC,” Maviglio said. “They allowed the highway robbery to go on in the first place, and now they’re the judge of what they allowed. They are essentially apologists for the generators, and they won’t order even close to the refunds we should be getting.”

In fact, FERC did allow generators to exploit weaknesses in California’s deregulation plan. But both Davis and Lockyer backed it when that plan passed in 1996.

The bottom line is that consumers hoping soon to see credits of $10 or $15 per month on $30 electric and gas bills will be disappointed. The total credit most likely will amount to a dollar a month or so, at best. But this will go on for many years and will be enjoyed even by future consumers who paid no part of the inflated rates imposed during the crunch.


Thomas D. Elias is author of the book “The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It,” available in an updated second edition. His email address is [email protected]

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