Firms ordered to justify high rates

The San Francisco Chronicle

Federal regulators warned power companies yesterday that they may have to refund $69 million to California ratepayers for charging unreasonable prices during recent electricity shortages.

However, the Federal Energy Regulatory Commission left the door wide open for the unnamed 13 generators to avoid refund payments if they could offer “further justification” for why their rates should be considered fair.

Consumer activists were quick to note that the commission’s order was significant.

“They have acknowledged for the first time that there has been abuse of the marketplace,” said Doug Heller, assistant organizing director for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “It’s an acknowledgment that the power companies have been ripping us off.”

However, consumer groups also pointed out that the order — issued late in the day — was partly a political ploy intended to make the Bush administration look more sympathetic to California’s plight.

The proposed $69 million refund also represents only a fraction of the billions of dollars that utilities have had to pay due to rising electricity rates.

The commission set narrow parameters for power charges in January that may be considered unreasonable. It is only considering charges above $273 per megawatt hour during the series of Stage 3 energy emergencies that threatened statewide blackouts.

William Massey, the lone commissioner who voted against the order, noted that of 70,300 power transactions in January above $150 per megawatt hour, only about 13,000 fall within the regulatory commission’s parameters for potential refunds.

“This order is arbitrary, capricious and unlawful,” he said. “Eighty percent of the transactions have been excluded from refunds.”

But commission Chairman Curt Hebert characterized the order as an aggressive effort to safeguard California consumers.

“Today’s refund order demonstrates the commission’s commitment to ensure appropriate and reasonable prices in the wholesale electricity market given the supply and demand imbalance in California,” he said in a statement.

POWER COMPANIES NOT WORRIED

Gary Ackerman, executive director of the Western Power Trading Forum, an energy-industry association in Menlo Park, said power companies are not worried about the prospect of having to pay out millions of dollars in refunds.

“The people I’ve talked to said they can justify the costs for a majority of hours where FERC said there may have been overcharges,” he said.

“We will be supplying supporting data to FERC,” said Richard Wheatley, a spokesman for Reliant Energy in Houston. “We commend them for doing this review. We believe this can be resolved and we can all move on.”

Jan Smutny-Jones, president of the Independent Energy Producers, a trade group representing out-of-state generators, said the commission’s order shows that the system is working.

“In my opinion, what has been identified is talking about potential refunds,” he said. “The generators will have a chance to justify their rates. I’m not terribly troubled by that.”

The California Independent System Operator, which oversees the state’s power grid, welcomed the order, although it said $69 million is lower than its own estimates of potential overcharges.

The ISO had asked the commission earlier this month to review $350 million in January power charges that exceeded the regulatory commission’s “soft cap” of $150 per megawatt hour.

A soft cap means the price can exceed the prescribed amount as long as a supplier can justify the charge.

REFUND ORDERS ARE RARE

“The granting of refunds by FERC is not a common occurrence,” said Charles Robinson, the ISO’s general counsel. “We’re treading new ground.”

Considering the potential ramifications of the order, the commission was oddly furtive in issuing its press release at the very end of the business week.

The commission’s press office already was closed by the time of the announcement, and the commissioners had left for the day.

Reached at his home, Massey acknowledged that the commission was all but inviting power companies to bury the commission in paperwork to support their wholesale rates.

“Welcome to the Hebert chairmanship,” he said.

Hebert was appointed head of the commission last month by President Bush. Since then, the regulatory commission and the Bush administration have maintained a largely hands-off approach to California’s energy crisis.

“We have said from the beginning that obviously the state of California has to address these problems and these challenges,” U.S. Energy Secretary Spencer Abraham said this week.