California Utility Regulators To Ask FERC to Void Pacts
By REBECCA SMITH
Staff Reporter of THE WALL STREET JOURNAL
California utility regulators said they will file two complaints at the Federal Energy Regulatory Commission Monday asking that FERC void about $40 billion of power-supply contracts signed last year when, the state says, the energy market was being manipulated by sellers.
The complaints, to be filed under Section 206 of the Federal Power Act, provide no new evidence of market manipulation but come at a time when California Gov. Gray Davis is up for re-election and taking heat for the contracts negotiated by his staff. Those contracts obligate the state to pay double and triple today's market rate for electricity. It also comes when big independent power producers and traders are being cast as villains due to the collapse of Enron Corp.
See full coverage of the Enron saga.
On Sunday, the president of the Public Utilities Commission, the general counsel for the state's Electricity Oversight Board and representatives of the governor's office charged that "FERC's indifference" in 2000 and 2001 caused California's market failure and said the state was forced to sign high-price contracts as a result, beginning in January 2001, to keep the lights on.
Barry Goode, attorney for Mr. Davis, says the state now wants FERC to void 32 contracts with 22 sellers, after permitting a kind of grace period during which the state could negotiate sharply lower prices. The complaints name, among others, units of Calpine Corp., Mirant Corp. and Williams Cos., as well as Dynegy Inc. These companies have denied manipulating the market.
Calpine, the biggest supplier, signed deals permitting it to collect prices of $58 and $61 per megawatt hour, about double today's spot-market price that reflects slack demand due to the recession.
Jim Macias, senior vice president for Calpine, said his firm repeatedly has offered to renegotiate lower prices, to no avail. "While we don't welcome the complaints, we're happy the state filed at FERC where there at least will be an orderly process" for deciding the merits of the case, he said.
Loretta Lynch, president of the PUC, said FERC's inaction in reining in a runaway wholesale market in mid-2000 "allowed gougers and gamers to come in" the California market. The state's current position ignores the fact that much of the structure of the California market previously was approved by her predecessors at the PUC and by the state legislature.
At the time the contracts were signed, critics said the state was signing too many and for time periods that were too long. In effect, they said it was creating a long-term fix for the short term problem of skyrocketing energy prices brought on by inadqequate supply coupled with surging demand in the then-vibrant economy. Brushing aside such criticism, the governor's office said the prices were reasonable and he praised sellers like Calpine for coming to the table.
In its filing this week, the state walks a rocky path. It is arguing at FERC that the contracts are neither "just" nor "reasonable" as required by the Federal Power Act. Yet within the state, it is arguing for rate-making purposes that the costs of those contracts are in fact "just and reasonable" and that retail consumers must pay to uphold them.
If the contracts are voided, it could have a significant impact on companies like Calpine that already are reeling from a low stock price and constricted capital markets.
Write to Rebecca Smith at rebecca.smith@wsj.com
Updated February 25, 2002 |
