FERC Judge Sees $1.8B Calif Pwr Refund, Not $3B
DOW JONES NEWSWIRES
WASHINGTON -- A Federal Energy Regulatory Commission judge recommended Thursday that generators who supplied power to California during its 2000-01 electricity price surge should refund $1.8 billion to the state.
In a 242-page opinion, FERC Administrative Law Judge Bruce Birchman said that after his proposed refund for unjust and unreasonable power prices during the Oct. 2, 2000 to June 20, 2001 period, power suppliers are still owed $1.2 billion because the state's wholesale market coordinator has yet to distribute money belonging to them.
California officials and local utilities have asked for refunds of up to $8.9 billion during the period when the state's spot wholesale power market saw unprecedented price volatility.
Birchman emphasized the recommended total refund amount - which he breaks down by what individual companies owe and are owed - isn't final because, among other things, the commission has yet to finalize a so-called mitigated market clearing price, or MMCP.
The MMCP is a proxy for fair value for power in a dysfunctional market. The judge said he used the MMCP provided by the California Independent System Operator, the state's wholesale power grid coordinator.
Birchman's findings took into account months of hearings that closed Oct. 11 with a hearing record spanning 5,945 pages, as well as 20 shelf-feet of filings by more than 100 interested parties. But they don't address whether market manipulation occurred during the state's power price surge.
While FERC has already concluded that California's wholesale power prices from October 2000 to June 2001 were unjust and unreasonably high, it hasn't finally assigned blame.
When commissioners decide what to do about Birchman's findings, they will be able to factor in potential evidence of market manipulation in an open evidentiary period lasting until late February.
Since FERC ordered refund hearings in August 2001, disclosures have mounted suggesting some of the country's biggest energy suppliers engaged in gaming, inaccurate price reporting and collusion to withhold available power in California.
Advocates of a higher refund say recent revelations and FERC's decision last month to allow new evidence until late-February will support their case for a refund of up to $8.9 billion.
Power suppliers involved in the refund case include Allegheny Energy Inc. (AYE), Dynegy Inc. (DYN), Duke Energy Corp. (DUK), Mirant Corp. (MIR), Reliant Resource Inc. (RRI), Royal Dutch/Shell Group (RD) unit Coral Power, Sempra (SRE) and Williams Companies (WMB).
The California refund case issue is separate from the state's efforts to renegotiate long-term contracts signed in the first half of 2001 at prices the state says were artificially inflated by the energy market's crisis environment.
FERC's chief judge said this summer most of the long-term power suppliers to California are likely to settle, saving the state the billions of dollars over a decade. But some suppliers have resisted renegotiation. Another FERC judge, Bobbie McCartney, is holding hearings this week ahead of an expected initial decision in mid-February on whether the market was so dysfunctional the government should abrogate contracts that can't be renegotiated.
California Attorney General Bill Lockyer said the findings are "another example of FERC not being helpful to California, to say the least."
Lockyer said the commission is frustrating the state's attempts to get redress for price gouging but added there is still time to convince federal regulators a higher refund is in order. "This is by no means over," he said.
Spokespersons for two of the larger power suppliers to California during the period in question said while their lawyers continue to pore over the judge's findings, they're initially satisfied with what they see.
"We're pleased that the judge has determined that Duke and the other generators are owed substantially more than what they would have to refund," said Duke spokeswoman Cathy Roache.
"Looking at it on the surface-level, it looks like a very positive first step," said Dynegy spokesman Art Shannon.
It wasn't immediately clear how much individual companies would owe and be owed under the judge's recommendations. Among factors the judge cited that could affect the final refund obligations are emissions-credit costs incurred by power generators, which FERC has determined can be deducted from refund obligations.
Beyond Birchman's findings, a number of FERC developments will play into the decision whether market manipulation occurred in California and as a result what potential refunds will be owed.
In August, FERC staff released an initial report finding natural gas prices may have been manipulated during California's 2000-01 energy shortage, driving up the price of power from gas-fired generators. A final version of the report is expected in February or March.
Since the interim report's release, companies including American Electric Power Co. (AEP), Dynegy, Williams and CMS Energy Corp. (CMS) have admitted some of their traders submitted false data to natural gas index publications.
Over the past two months U.S. attorneys have indicted former traders with Enron Corp. (ENRNQ) and El Paso Corp. (EP). The Justice Department obtained a guilty plea from Enron's former top western electricity trader on a count of wire fraud related to attempts to manipulate California's power market.
Meanwhile, FERC and the Commodity Futures Trading Commission are examining the extent of the misreporting of data to private firms that compile gas-price indexes, which help set the price for power.
On another track, FERC Chief Administrative Law Judge Curtis Wagner ruled in September that El Paso withheld space on the largest interstate gas pipeline serving California during the 2000-01 energy shortage. Commissioners are expected to decide in the first quarter of 2003 whether to uphold Wagner's findings and, potentially, what type of penalties are warranted.
Wall Street is looking for progress on key Califorina-related issues at FERC including the El Paso case, the refund-request case and long-term contracts case to help clear a cloud of legal and regulatory uncertainty for the beleaguered merchant energy sector.
-By Campion Walsh, Dow Jones Newswires; 1-202-862-9291; campion.walsh@dowjones.com
(Jessica Berthold in Los Angeles contributed to this story.)
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