Federal Panel Orders Refunds from Power Generators in California Crisis

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Contra Costa Times

A federal panel that has staunchly defended the free market in the face of a collapsing electricity deregulation scheme in California ordered up to $ 69 million in refunds from power generators on Friday, saying the firms might have sold that power at unjustifiable prices.

The Federal Energy Regulatory Commission called its order, issued late Friday, an aggressive move to ensure fair prices in California.

Thirteen power companies will be required to refund tens of millions of dollars or provide justification to FERC for the prices they charged during Stage 3 power emergencies in January.

“The federal regulators who have been the most ardent defenders of deregulation have found that these generators have ripped us off and abused the unregulated marketplace,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

“The caveat is after acknowledging the crime, they’re letting the thieves keep too much of the money,” Heller added.

The order came in response to a request from state market authorities who wanted the federal panel to review $ 550 million in possible overcharges in December and January. FERC, in its order Friday, addressed only the January sales and said it would take up the remainder at a later time.

“We are pleased that FERC took responsibility and stepped up to the plate . . . and showed a willingness to grant refunds,” said Charles Robinson, general counsel for the California Independent System Operator, one of two state-created bodies that sought the refunds.

Robinson said his agency might ask FERC to reconsider portions of its order and grant additional refunds.

“The granting of refunds by FERC is not a common occurrence. It’s a relatively rare occurrence,” Robinson said.

At least some generators were defiant, saying they would further justify the prices they charged rather than pay refunds.

Duke Energy spokesman Tom Williams, for example, said his company would submit documentation on its charges that would show that high natural gas prices and pollution penalties added to the cost of producing power and that Duke charged “risk premiums” to address the possibility it might not get paid.

Duke and other power companies were told last month to expect less than 2 cents on the dollar for hundreds of millions of dollars in electricity sold into the California markets. Under Friday’s order, Duke faces a potential refund of nearly $ 18 million.

“It is a bit ironic to us that we might be asked to refund money that we haven’t been paid yet,” Williams said.

Reliant spokesman Richard Wheatley said his company, which faces a possible refund of $ 12 million, would also seek to avoid paying the refund and said his company welcomed the federal review.

“Once that supporting data is analyzed, we will be completely justified,” Wheatley said, adding, “FERC found the majority of transactions are appropriate.”

In its order, FERC figured that under normal market conditions the price in January probably would not top about $ 273 per megawatt-hour. Energy companies that sold power above that amount during Stage 3 emergencies are facing potential refunds on those sales, which totalled about $ 69 million.

The commission said it would develop such benchmark prices for each of the next few months and review sales over that amount.

One federal commissioner voted against the measure, saying the panel did not go nearly far enough. FERC is considering refunds only for power sold during Stage 3 emergencies, even though only about 20 percent of the sales above FERC’s $ 150 per megawatt-hour “soft cap” occurred during Stage 3 emergencies.

“There is no logic to this methodology other than limiting the universe of potential refunds,” Commissioner William L. Massey said in his dissenting opinion.

California’s electricity market was partially restructured in 1998.

Prices on the state’s wholesale electricity markets soared last summer, a development that has been blamed on a shortage of supply, manipulation by power companies or a combination of both.

Because retail rates are shielding electricity customers from those costs, the financial burden fell first to the state’s electric utilities, which are now verging on bankruptcy, and more recently to the state, which has spent more than $ 2 billion in the past seven weeks keeping the lights on because power companies have become highly reluctant to sell to the utilities.

The ISO says that in December and January, the energy costs for utility companies was more than $ 11 billion, compared to $ 7.4 billion for the entire year of 1999.

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