Energy prices in Calif. manipulated, FERC says

Federal regulators move to raise state refund to about $3.3 billion

March 27, 2003|By Jonathan Peterson and Ricardo Alonso-Zaldivar | Jonathan Peterson and Ricardo Alonso-Zaldivar,SPECIAL TO THE SUN

WASHINGTON - Taking a tough new stance, federal energy regulators said yesterday that more than 30 private companies manipulated natural gas and electricity prices during the California energy crisis, and moved to increase the state's refund to about $3.3 billion.

In addition, the Federal Energy Regulatory Commission threatened to revoke the trading authority of eight subsidiaries of bankrupt Enron Corp. for allegedly gaming the natural gas market.

It also said it is prepared to strip the trading authority of Reliant Energy Services Inc. and BP Energy Co. for allegedly engaging in "coordinated efforts" to manipulate electricity prices at Palo Verde, a key Arizona trading hub. Both companies denied the charges.

California officials expressed some satisfaction at the FERC decision, but emphasized that the remedy fell far short of the $8.9 billion in refunds sought by a coalition of state agencies and its major utilities, including Pacific Gas & Electric and Southern California Edison.

The commission also stopped short of approving the state's request to renegotiate $20 billion in long-term energy contracts that were signed during the period of feverish prices in 2001.

"Show me the money," California Gov. Gray Davis declared. "Where's the $9 billion that we've been asking for, for two years? That is when I'll finally feel vindicated, when we get the money back that these energy companies stole from this state."

Davis said the state is prepared to keep pressing its case in court if California's refund isn't boosted when the matter goes back to a federal administrative law judge, the next step in the process.

FERC officials, long criticized for an easygoing approach toward the corporations they regulate, insisted that their 13-month investigation into the causes of California's energy crisis proves the agency is taking its oversight role seriously.

"This is all part of our role as the cop on the beat," said FERC Chairman Pat Wood III. "We have said from the beginning that a belief in the free enterprise system goes hand-in-hand with a responsibility to see that the playing field is level and that everyone plays fair.

"If there was ever any doubt that this was part of our core philosophy, that doubt should now be dispelled."

As part of its action yesterday, FERC asked more than 30 companies and utilities to justify actions that may have violated anti-gaming provisions.

These companies and utilities included some of the out-of-state operations that were branded during the energy crisis as preying on California, including Reliant, a Williams Cos./AES Corp. venture and Mirant Corp.

But FERC also singled out a number of in-state companies and utilities for possible wrongdoing. Among them: Southern California Edison; the Los Angeles Department of Water and Power; and Sempra Energy, the parent of San Diego Gas and Electric and Southern California Gas Co.

In fact, Southern California Edison is one of the major players in the state's quest for refunds, thrusting it in the awkward position of being both accuser and accused. Other companies and utilities reached for comment yesterday denied FERC's allegations.

Brad Church, a spokesman for Tulsa, Okla.-based Williams Cos. said "a fact-based analysis" of its alleged role in gaming the state's electricity market would find no wrongdoing.

Steven Prince, chief executive of Sempra's wholesale-trading unit, said he is "confident the FERC will conclude that our activities in the California energy market were proper."

The flurry of developments came as FERC released its definitive findings on the turbulent episode of rolling blackouts and soaring prices that rattled the California economy in 2000 and 2001.

Still, despite a FERC staff conclusion that prices for long-term power were influenced by market manipulation, two of three board members said they would be reluctant to approve Gov. Davis' demand to renegotiate long-term power contracts.

The contracts were based, in part, on short-term prices that FERC now concedes were the result of broken markets and abusive practices by sellers.

In a report to the commissioners, Donald Gelinas, a senior FERC staffer, found that "market dysfunction" in California affected the long-term contracts. But Commissioner Nora Mead Brownell said FERC should be extremely reluctant to void contracts that were willingly entered into by competent parties.

Jonathan Peterson and Ricardo Alonso-Zaldivar write for the Los Angeles Times, a Tribune Publishing newspaper.

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