ISO estimates price-fixing cost to consumers to be $6.2 billion

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The San Diego Union-Tribune

California’s power grid managers said yesterday that energy company price fixing over a recent 10-month period has cost consumers at least $6.2 billion.

In a 100-page filing to federal regulators, the California Independent System Operator said that between last May and last month, electricity suppliers were able to raise prices to a level 10 times higher than in 1999 through bidding strategies and by withholding the commodity.

“The California electricity market has gone from being dysfunctional to precipitating a crisis,” the ISO said in its filing to the Federal Energy Regulatory Commission.

The ISO based its estimate of overcharges on a model of what it said the price should have been in a competitive market.

“Many large suppliers actively engaged in strategic bidding efforts that are consistent with oligopoly pricing,” the report said.

The Federal Energy Regulatory Commission, which recently said it found evidence of $124 million in electricity overcharges for January and February, has resisted calls for a regional cap on power prices. FERC has argued price caps would fail to encourage power conservation and discourage badly needed investment in new plants.

But the ISO said current price levels are 400 percent above what is needed to create incentives for new plant construction. In fact, the ISO report said, plant owners can now recoup their investments in less than two years.

While applauding the FERC for beginning to move on market abuses, the ISO said federal regulators had not gone far enough. They noted, for example, that FERC has ordered possible refunds only for price runups that occurred during Stage 3 power emergencies.

“(FERC) needs to be more aggressive with market mitigation,” said Charles Robinson, general counsel for the ISO.

The attorney also hinted that the ISO may seek relief for California through venues other than FERC.

“We are working very diligently with other agencies and I would expect that within the next 30 days we will have more to say.”

The ISO’s estimate of overcharges brought calls for criminal investigations and demands for cancellation of some $40 billion in recent agreements with power companies. Power suppliers denied any wrongdoing.

“In light of this, the long-term power contracts the state has recently reached with power companies must be renegotiated,” said Doug Heller of the Foundation for Taxpayer & Consumer Rights in Santa Monica.

“We have to be ready to impose a windfall profits tax on suppliers and if they threaten to turn off the lights, Gov. Davis should seize the power plants and operate them on a not-for-profit basis.”

Michael Shames, executive director of the Utility Consumers’ Action Network, said a criminal investigation should now be undertaken.

“What you are seeing in this market is almost textbook tacit collusion, which is clearly a violation of anti-trust laws,” Shames said. “There has to be a criminal investigation.”

A spokeswoman for Attorney General Bill Lockyer would say only that an active investigation is under way. A spokeswoman for the U.S. Attorney in San Diego declined to comment on possible investigations.

The ISO said it looked at the behavior of more than 20 power suppliers and found that not all had engaged in price manipulation. Major California suppliers denied that they manipulated the market.

“We categorically deny that we have done anything illegal or unethical in the way we have bid our power into the California grid,” said Richard Wheatley, spokesman for Houston-based Reliant Energy.

Tom Williams, a spokesman for Duke, labeled allegations of price fixing as “preposterous.”

“If they look back to last May they will find prices indicative of the supply and demand imbalance,” said the spokesman for Duke, which is among the companies that FERC has ordered to either issue refunds or justify prices for January and February.

Williams Cos., which also faces refund orders, rejected the price-fixing scenario.

“We feel confident we operated within the regulations set out by the ISO and others,” said Williams spokeswoman Paula Hall-Collins.

Mirant, also a major California power supplier, took a similar tack.

“All our transactions have been fair and properly priced,” said Chuck Griffin, a Mirant spokesman.

In its filing with FERC, the ISO made specific reference to San Diego’s experience last summer to refute the suggestion that California’s market can be brought into balance by saddling consumers with higher costs to reduce power demand and create greater incentive to build new plants.

“It’s simplistic to assume that abuses would be abated by lifting a retail price freeze,” said the ISO. “Sanctioning the pass-through of prices inflated by the exercise of market power produced a public backlash never before seen.”

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