Copley News Service

WASHINGTON: New details emerged Friday about allegations that two major energy companies colluded to inflate electricity prices as California’s power crisis took hold in 2000.

A previously confidential report by federal regulators indicates that employees of Williams Cos. and AES Corp. discussed prolonging the shutdown of one California power plant and provided inconsistent reasons for idling another. The shutdowns required the state power grid manager to pay premium prices to Williams for electricity from other sources.

The plants were shut down for periods in April and May of 2000, purportedly for repairs and maintenance.

Virginia-based AES owned and operated the Los Angeles-area power plants, known as Alamitos 4 and Huntington Beach 2. Oklahoma-based Williams sold the power.

In April 2001, Williams agreed to reimburse the California grid manager $8 million to settle the allegations of price manipulation, but admitted no wrongdoing. AES has also denied any improper behavior.

It is unclear whether the new revelations will have any impact on a separate $1.4 billion settlement Williams recently reached with the state regarding other issues arising from the 2000-2001 power crisis.

Details of the Federal Energy Regulatory Commission’s investigation of the power plant shutdowns were not previously made public and a judge ordered them to be released this week.

In one April 27, 2000, telephone conversation recounted in the FERC report, a Williams official told an AES employee that California’s power grid manager was paying “a premium” for electricity while the Alamitos plant was idled for repairs and “that’s one reason it wouldn’t hurt Williams’ feelings if the outage ran long.”

When the Williams official had a similar conversation with a high-ranking AES employee later the same day, the AES employee said, “I understand. You don’t have to talk any more.”

The plants had been designated by FERC to provide reliable power to the grid manager, the California Independent System Operator, at a cost far below the market price for electricity then. Because they were shut down, the ISO had to pay about $750 per megawatt hour for the power it needed, compared to the $63 per megawatt hour it would have paid otherwise.

Williams and AES are among several companies that have been subpoenaed as part of a wide-ranging federal grand jury probe of alleged price manipulation during the power crisis.

Both companies on Friday repeated their assertions that the plant shutdowns were justified and they had done nothing wrong.

The new details about the incident came just four days after Williams and California officials announced a deal that will save the state $1.4 billion in power costs. In return, the state agreed to drop civil litigation against Williams.

Tom Dresslar, a spokesman for California Attorney General Bill Lockyer, said the office was aware of the details of the FERC report before the deal was announced. A federal judge had ordered FERC to release it to the state in October.

“I think people need to look at the comparative settlements reached by FERC and the state of California. We did pretty well by comparison. We continue to think, all things considered, that this is a good deal for California,” he said.

But Steve Maviglio, a spokesman for Gov. Gray Davis, said, “We were aware of charges of manipulation. We attempted to get more information from FERC, but it was not provided.”

“This is a serious allegation. In the settlement negotiated by the attorney general, the governor’s office and the PUC (California Public Utilities Commission), we retained our rights to pursue criminal and fraud allegations. We certainly will review this information carefully,” Maviglio added.

Doug Heller, senior advocate for the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said the latest revelation requires the state to cancel its recently renegotiated contract and settlement with Williams.

“If a state contractor was scamming the state you wouldn’t renegotiate their contract, you’d arrest them.” said Heller. “The same standard should apply to these corporations which stole billions of dollars from California ratepayers.”

Williams released a statement saying it provided the FERC report to the state more than a year ago.

“The company’s settlement with California … does not provide an opportunity for termination based on the events described in the document,” the company said.

The state has until Dec. 15 to void the deal with Williams if it finds evidence of wrongdoing.

FERC publicly questioned the plant shutdowns in March 2001, after a complaint by the California Independent System Operator.

The commission staff’s confidential report on the shutdown of the Alamitos unit cites phone conversations between Williams’ outage coordinator, Rhonda Morgan, and AES plant personnel that were routinely recorded by Williams.

In a conversation with AES employee Eric Pendergraft, Morgan at one point says, “I don’t wanna do something underhanded, but if there’s work you can continue to do. …”

Pendergraft said he understood and added, “We probably oughta have things we’d like to do in preparation for summer, so … that might work out.”

In an interview with Copley News Service, Williams spokeswoman Julie Gentz said, “The bottom line is the conversation was inappropriate and didn’t result in any improper actions.”

As for the Huntington unit, the FERC report said phone conversations between Williams and AES employees indicate that AES was unhappy over the compensation California grid officials were offering for pollution emission credits AES had to buy to keep the plant running under environmental regulations.

“Williams and AES first stated that the unit would be shut down because of the purportedly high cost of (nitrogen oxide) credits,” according to the FERC report. “When the (California grid officials) found this reason totally unacceptable, AES shifted to a second reason, a stated need to clean the circulation tunnels” that are used to cool the plant with sea water.

The FERC investigators said the second excuse was either “unlikely” or showed evidence of improper operation of the tunnels.

AES spokesman Ken Woodcock said the company did nothing wrong.

“The issue has been fully investigated by authorities and resolved in a civil action,” he said. “AES did not pay a single penny in that settlement. That fact strongly supports AES’ position that it acted appropriately.”

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(San Diego Union-Tribune staff writer Craig Rose contributed to this report.)