Additional rate boost likely, cash would go to power suppliers

The San Francisco Chronicle

Federal energy regulators have proposed a surcharge on wholesale electricity sales in California to compensate generating companies, angering state officials who say the idea amounts to gouging consumers.

The Federal Energy Regulatory Commission suggested collecting the money to reimburse electricity suppliers who have debts from Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric Co. Power companies accrued some $6 billion in unpaid bills from California’s struggling utilities in late 2000 and early this year, until the state stepped in to take over the purchasing of power.

“Under the pretense of helping California, (FERC) is proposing to steal additional money from California ratepayers to pad the pockets of the greedy energy companies,” Gov. Gray Davis said in a statement. “FERC does not care one wit about the ratepayer. Their plan is a total capitulation to the energy companies.”

Sen. Dianne Feinstein, D-Calif., who has been an outspoken critic of FERC’s policies in California, said the surcharge would “ensure that power generators get paid fully for their price gouging. That is outrageous and will further alienate Californians.”

The surcharge presumably would be levied on the California Department of Water Resources, which, as the state’s purchasing agent, has already spent more than $5 billion on power since January. The DWR’s costs, in turn, are likely to be borne by California’s consumers and taxpayers.

FERC would require the California Independent System Operator, which runs the state’s power grid, to collect the surcharge. But state regulators could challenge the surcharge.

“We have 30 days to comment to FERC and are considering our options,” said Sean Gallagher, state counsel at the California Public Utilities Commission.

“If (FERC’s) concern is public policy and maintaining just and reasonable prices for consumers, I don’t quite understand why they would get into the middle of a legal wrangle about past bills’ getting paid,” said Severin Borenstein, director of the University of California Energy Institute in Berkeley. “It is true the firms would like to get paid. I’m not sure what FERC has to do with helping them collect their money.”

A ‘GOUGING TAX’

Consumer advocates characterized the surcharge as a “gouging tax” that underscores the Bush administration’s close ties to energy firms, many of which are based in President Bush‘s home state of Texas.

“This is evidence that FERC and the administration are more interested in protecting the energy industry than the consumers or taxpayers of California,” said Doug Heller, a consumer advocate with the Los Angeles-based Foundation for Taxpayer and Consumer Rights. “It’s back-billing us to pay prices that were unjust and unreasonable per the FERC’s own analysis.”

FERC’s Curt Hebert, a Mississippi Republican whom President Bush appointed chairman of the commission, was behind the surcharge proposal, which he told the Wall Street Journal was a way “to stabilize the market.” Hebert did not return calls for comment.

The surcharge was proposed in FERC’s 39-page “mitigation” plan to alleviate wholesale electricity prices in California during power emergencies; the plan was released last week. FERC said it would accept public comment on the proposal for 30 days, after which it would decide whether to implement it.

COMPLICATED ISSUES

Even the power industry, the presumptive beneficiary of the surcharge, did not express whole-hearted support for it.

“I’m glad they brought it up,” said Gary Ackerman, executive director of the Western Power Trading Forum, which represents all major buyers and sellers of wholesale electricity in California. “But it skirts the issue of what’s state regulated and what’s federally regulated. I’m not sure how federal regulators can pass a charge on wholesale costs which then ends up on consumers, without the state saying it’s OK.”

Some of the proposal’s wording is unclear. It discusses, for example, whether the surcharge money “should cover all past-due amounts or only future unpaid bills starting from the date the plan is begun.”

The reference to “future unpaid bills” is puzzling since, with the state of California picking up the tab, electricity suppliers no longer are accumulating unpaid bills from the utilities.

“That could become a self-fulfilling prophecy; we don’t want to go there,” Ackerman said about the idea of “future unpaid bills.”

The FERC proposal also implies that electricity generators have reduced production in California, an allegation the power companies themselves deny. FERC asked for comments on whether the surcharge “would help to increase production by creating a greater assurance that generators will be paid.”