Report: Firms exploited energy crisis with nudges and winks, suppliers kept plants closed, regulators say.

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Sacramento Bee

In the early days of California’s power crisis, innuendo and nuance were enough to keep a power plant offline, driving up electricity prices by at least $10 million, according to a report released Friday by federal regulators.

The federal summary of dealings between Williams Cos. and AES Corp., two large companies that together owned and marketed the electricity from critical south state power plants, doesn’t outline a new offense.

Instead, it offers an unsettling look into the half-spoken requests, jokes and gibes uncovered during an investigation that ultimately resulted in an $8 million refund by Williams.

The newly released document raises the profile of an episode that the Oklahoma-based company hoped to put behind it, and has sparked renewed consumer outrage just as state officials have tentatively settled many of their differences with Williams.

The report “provides conclusive evidence that Williams and AES conspired to prolong” repairs at Southern California power plants, said Independent System Operator spokeswoman Stephanie McCorkle, “as we suspected all along.”

The once-sealed appendix to a Federal Energy Regulatory Commission probe into Williams and AES, released only after the Wall Street Journal successfully sued to end federal secrecy, was posted Friday morning on FERC’s Web site.

The appendix summarizes exchanges among Williams, AES and grid operators during April and May of 2000, when Williams encouraged AES-owned power plants in Southern California to stay offline for maintenance. Because Williams had a contract to market virtually all of AES’ electricity, the two talked frequently about production issues.

At the time, some of the plants were required to sell power for no more than $63 a megawatt hour, but if they weren’t working, Williams could sell desperately needed electricity from other units for up to $750 a megawatt hour.

On April 27, the Williams official who coordinated plant shutdowns, which are known as outages, repeatedly signaled an AES employee that prolonged maintenance work would be a good thing.

“If your Unit 4 outage runs long and if you need more time, we don’t have a problem with that,” Rhonda Morgan told the AES worker in a tape-recorded conversation turned over to FERC by Williams. She noted that Williams was selling power at “a premium” and “that’s one reason it wouldn’t hurt Williams’ feelings if the outage ran long.”

Later that day, Eric Pendergraft, described as a high-ranking AES employee, called Williams back to clarify that “you guys were saying that it might not be such a bad thing if it took us a little longer to do our work,” and to ensure AES would not be penalized for a prolonged outage.

“You wouldn’t hit us for availability?” he asked Morgan.

“I don’t wanna do something underhanded,” she replied, “but if there’s work you can continue to do … .”

“I understand,” Pendergraft said.

AES later told the ISO, which runs most of the electric grid, that more time was needed for repairs to get ready for summer.

In another episode in early May, other Williams and AES staffers laughed about “weird” plans for taking some units down, with one quipping, “It’s just some big game they’re playing right now.”

At the time, AES had told grid operators other units wouldn’t operate because of problems with emission credits, and when that was rejected, it said ocean-based cooling systems had to be cleared of mussel shells.

That cleanup job, done by one diver at a time working a single shift each day, lasted for four weeks, and was such an unusual procedure that it hadn’t been done in the previous 20 years, according to the FERC report.

While the shutdowns did not trigger any blackouts, they immediately troubled grid operators, who urged Williams to run more efficiently, using “some of that money you just raped us out of.”

The ISO, which calculated that Williams had earned an extra $10.8 million because of the shutdowns, asked FERC to investigate, urging a $10 million fine plus punitive damages.

Last spring, without admitting wrongdoing, Williams ended the FERC investigation by agreeing to refund $8 million. That settlement is no protection, however, if federal, state or local prosecutors reviewing the document conclude it describes behavior that could prompt criminal charges.

AES and Williams on Friday repeated their position that they had followed the rules of California’s power markets.

“It’s old news,” said Williams spokeswoman Julie Gentz. “We certainly acknowledge that the conversation was inappropriate, but there were no improper actions taken.”

Gov. Gray Davis‘ office will review the appendix, but it wasn’t startled by the revelations, said spokesman Steve Maviglio.

“It’s the gory details of something we already knew about,” he said “It’s not like we’re shocked that gambling is going on in Casablanca.”

The document was released just four days after California announced a tentative agreement to revise long-term power contracts with Williams and settle the state’s lawsuits against the company. That agreement left the door open for criminal charges.

“Californians were robbed by the energy companies. These documents are more evidence the crime was happening throughout the industry,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

State officials had seen the appendix and took its contents into account before reaching their $417 million tentative settlement with Williams, said Tom Dresslar of the California Attorney General’s Office.

“Look at what FERC got. They got $8 million. We got $417 million. We think the disparity speaks for itself. We did damn good compared to federal regulators,” he said.


The Bee’s Carrie Peyton Dahlberg can be reached at (916) 321-1086 or c


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