State may have claim on further overbilling; $55 million in refunds possible for February

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The San Diego Union-Tribune

Federal energy regulators said again yesterday that California may have paid too much for power, this time citing some $55 million in possible overcharges during February that could be subject to refund.

But like last week — when the Federal Energy Regulatory Commission found possible January overcharges of $69 million — a broad spectrum of state leaders said the new refund is a pittance compared with the billions of dollars that power companies are extracting from the state each month for electricity.

The January electricity bill for San Diego Gas and Electric and the state’s two other major utilities was $5.2 billion. February’s total is expected to be higher.

Federal regulators said yesterday that they notified six electricity suppliers that sales exceeding $430 per megawatt-hour during Stage 3 alerts — emergencies called when power reserves are nearly exhausted — would be subject to refunds, unless the suppliers can justify the sale prices on the basis of costs.

A FERC official said whatever refunds were ordered would probably be in the form of credits to utility companies, used to offset other power purchases.

Houston-based Dynegy faces the largest possible payment, with a potential liability of $23 million for the month. A spokesman said the company was still studying the FERC finding, which was issued yesterday.

“What we have said all along is that, given the market conditions, the prices we have charged will be found to be just and reasonable,” said Dynegy spokesman Steve Stengel.

A spokeswoman for Williams Energy Services Corp., which faces possible refund payments of $22 million, said the Tulsa-based company was unsure whether the price level set by FERC was adequate for recovering all the costs associated with producing power.

Other suppliers facing possible refunds are Duke Energy, Portland General Electric Co., Reliant Energy and Mirant, formerly a unit of Southern Co.

Under federal law, regulators must assure that wholesale power prices remain “just and reasonable.” Despite repeated pleas from state leaders to cap prices, FERC allowed prices in California’s deregulated power market to soar from $40 per megawatt-hour last spring to 10 times that level in recent months.

The costs have created a state crisis of monumental proportion, leading Gov. Gray Davis and state lawmakers to plan a repair package that is expected to include more than $20 billion in state borrowing and possibly rate increases for consumers. The state is buying electricity on behalf of the utilities.

Last week, FERC said it would order refunds for all Stage 3 sales above $273 per megawatt-hour in January, unless generators can justify their prices. The federal commission said it allowed a higher threshold for February because of increased costs for natural gas, the primary fuel for producing electricity.

But consumer groups said the $430 cutoff for possible power refunds belied FERC’s insistence that it’s policing the deregulated market. For an SDG&E customer using 500 kilowatt hours monthly, for example, a $430 per megawatt-hour charge would translate to an electricity bill of $250.

“What I see is that FERC wants to present the appearance that it is disciplining the market, but what they are doing is coddling,” said Michael Shames, executive director of the Utility Consumers’ Action Network.

“If I were a power generator, I would be thrilled.”

Harvey Rosenfield, president of the Foundation for Taxpayer & Consumer Rights in Santa Monica, criticized the FERC refund finding as “laughable.”

“In attempting to protect energy generators against greater retribution, FERC has acknowledged that deregulation has failed, that there is no free market and the public has been gouged,” Rosenfield said. “The only question now is, how much?”

The state’s grid operator, which recently said California may have been overcharged by more than $500 million during December and January, indicated that it might challenge the FERC findings, in order to press for larger refunds.

For one thing, the Independent System Operator said it had evidence of overcharging during periods other than Stage 3 emergencies. The state’s grid manager also noted that the FERC established its refund price threshold by considering only the power industry’s most inefficient generating facilities.

“We are encouraged by FERC’s actions of late, but they have not gone far enough,” said Steve Greenleaf, director of regulatory policy for the Independent System Operator.

Davis, who has pressed FERC to set firm limits on the wholesale price of power, agreed with the ISO.

“At long last, FERC is finally recognizing what we have been saying for months — that generators have been unfairly soaking California ratepayers,” he said. “However FERC is taking only baby steps.”

Attempts to reach FERC Chairman Curtis Hebert were unsuccessful. Commissioner William Massey, who has called for lower price caps, said that the FERC orders are allowing the vast majority of power sales to be excluded from possible refund.

Massey added that the power bill for California’s three major utilities, which leaped to $28 billion last year from $7 billion in 1999, could soar far higher.

“The projection for this year is $70 billion,” Massey said. “This agency needs to wake up because this is turning into a disaster.”

Rep. Bob Filner, D-San Diego, said he believed FERC was beginning to yield to pressure from the state for action.

“It is clear they are under pressure, but they are using data that is most favorable to the industry,” Filner said. “But their action gives credibility to those of us who have said all along these generators are gouging the state.”

In other action yesterday:

[] PG&E Corp. said it would transfer $1.1 billion from a federal tax refund to its troubled utility unit, which is seeking billions in compensation for costs it says it incurred buying power for its customers.

The parent companies of PG&E and Southern California Edison have been criticized for draining billions from their respective utility units in recent years.

Consumer groups and others oppose additional payments to the utilities, but the governor has said he will not allow them to go bankrupt.

[] Davis will spend more than $51 million over two years on consultants to help negotiate power contracts and on an advertising campaign to educate the public about energy conservation.

The Governor’s Office released copies of the contracts yesterday afternoon. They range from $25,000 to $40 million in cost and include contracts for legal and financial assistance.

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