Governor, federal regulators fight over who’s in charge of energy

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Associated Press

WASHINGTON — Despite evidence of price manipulation by energy companies and findings by federal energy regulators of unfairly high power prices, California has yet to see the first penny in refunds it has been demanding for 14 months.

The state claims it is due nearly $9 billion from energy companies in overcharges during the power crisis in 2000 and 2001.

The absence of action at the Federal Energy Regulatory Commission is at the heart of an unusually public and vituperative feud between Gov. Gray Davis and the agency that has a large role to play in preventing a repeat of the state’s power woes.

The languid pace of work on the refund issue contrasts with the speed with which FERC is working to strip the state of its control of the board that manages California’s electricity grid, the California Independent System Operator.

FERC’s effort comes at a time when many in California back stricter governmental regulation of the electricity market, a view arising out of fears that FERC tilts toward the companies that helped put California in its energy predicament in the first place.

Undeterred, FERC has even sued the ISO in federal court, an aggressive move by an agency that typically first exhausts administrative options.

There is no longer any pretense of cooperation between Davis and the federal regulators, whom the governor recently called “spineless.” He also labeled an interim report by FERC staff on Enron Corp.’s energy trading practices a “whitewash.”

The governor has built his case for refunds on the growing body of evidence being compiled by FERC that energy prices probably were manipulated by Enron and other energy companies that sought quick, large profits in California’s flawed deregulated electricity market.

FERC has chosen to place the emphasis on the market structure and the lack of in-state power generation that forced California to rely too heavily on importing power.

The stridency of the governor’s remarks has led FERC Chairman Pat Wood to comment that Davis is engaging in campaign-style rhetoric to placate voters who might hold him accountable for the state’s energy woes.

“I look forward to the end of the political season when the old Gov. Davis I first got to know a year ago comes back,” Wood said recently.

The sharp rhetoric does not, for now, appear to be conducive to negotiated settlements on either question of who will oversee electricity trading and transmission and how much money should be returned to California.

In any event, Wood has said it is unlikely that FERC will order refunds prior to the Nov. 5 election.

Davis and other California officials maintain that the state is due $8.9 billion because of overcharges at the height of the crisis in 2000 and 2001. A FERC administrative law judge has for the past year been considering how to calculate the refunds.

The case is plodding along. At a public session last week, lawyers for all the parties spent more than an hour discussing when legal briefs should be submitted and at what length.

“I’m outraged they are sitting on our valid claims in front of them,” said Loretta Lynch, president of the California Public Utilities Commission.

Lynch said it is unclear whether California power consumers ultimately would benefit from refunds, which could flow either to the state treasury or to financially strapped utilities.

“It could eventually result in lower rates for consumers or it could go to the state, since it has been paying the bills” since early last year, Lynch said.

But representatives of California consumer groups said they hold out little hope for lower rates as a result of refunds for several reasons, including the uncertain financial health of several energy companies.

“I wouldn’t go spending it just yet,” said Mindy Spatt, spokeswoman for The Utility Reform Network.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, said half-jokingly that California should insist instead on the return of the power plants that utilities were forced to sell under the deregulation scheme.

While refunds have been delayed, FERC has pushed ahead with a restructuring of the California power market, a sort of second try at deregulation. Last month, a unanimous commission – including Commissioner William Massey, normally sympathetic to California – ordered the state to disband the ISO board.

FERC said the board – entirely appointed by the governor – is not independent of the state. Compounding the problem, FERC said, the California Department of Water Resources has been a major buyer of wholesale power for the past 18 months.

ISO Chairman Michael Kahn said he found FERC’s order ironic because the combination of ISO management and FERC-imposed price caps on wholesale power has resulted in relatively cheap power and no blackouts for more than a year.

Davis, Attorney General Bill Lockyer and the ISO board are openly defying the order, which FERC said prompted its lawsuit. Davis said FERC “was attempting nothing short of a federal takeover of the California ISO.”

The commission also was bowing to the wishes of the power companies, proposing to give them a say in how the California grid is run, Davis said. He said it was akin to “putting the fox in charge of the henhouse again.”

But Mark Stultz, spokesman for the Washington-based organization that represents power generators, said FERC had no choice but to try to redo California’s electricity market as part of its plan to institute national rules for power trading and transmission. “The companies are taking a beating on Wall Street over the lack of certainty about how those markets are going to form,” said Stultz of the Electric Power Supply Association.

FERC typically requires parties to complete its internal appeals process before going into federal court. But in this matter, FERC itself went directly to U.S. District Court in Washington because the ISO was violating, or getting ready to violate, federal law.

Kahn, a staunch Davis ally, said that although FERC has made mistakes over the past two years, its lawsuit could prompt a resolution to the refunds case and other pending issues, including whether natural gas supplies and prices also were manipulated.

“One mistake FERC has made is that it has not been adequately and publicly appreciative of the trauma California has faced. The commission has never said, ‘We were asleep at the switch,”‘ Kahn said.

But the lawsuit, he said, “creates an environment where both sides can sit down and negotiate. This is a game of chicken, and I don’t believe either side can afford to play a game of chicken.”

On the Net: Federal Energy Regulatory Commission:

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