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Regulator to Spurn California Power Refund Boost, Analysts Say
By Jim Efstathiou
Washington, March 25 (Bloomberg) -- U.S. regulators probably won't order significantly higher refunds from Mirant Corp., Dynegy Inc. and other power sellers when the results of a probe into California's energy crises are announced this week, analysts said.
The Federal Energy Regulatory Commission may also rule at its regular meeting tomorrow that most contracts signed at the height of the crisis are valid, they said.
In December, a FERC judge found that from October 2000 to June 2001, sellers overcharged California consumers by $1.8 billion, a fifth of what the state sought. Judge Bruce Birchman also ruled that California owed the sellers $3 billion after withholding payments during the crisis.
``FERC may be under political pressure to make California happy,'' said Christine Tezak, an electricity analyst with Schwab Capital Markets. ``If it moves up and stays under $3 billion, I think the street would say fine.''
Commission Chairman Pat Wood III has said he wants to end disputes between California and the power suppliers stemming from the crisis, during which energy prices soared tenfold and the state's two biggest utilities became insolvent. Doing so would help win back the confidence of investors in companies whose shares have plunged over the past two years, he has said.
Birchman did not consider allegations of manipulation and based the refunds on a calculation of what fair market prices should have been at the time. A separate probe of what caused power and natural gas prices to surge in Western markets during the crisis might change the size of the refunds, analysts said.
Last week, El Paso Corp., the largest owner of U.S. gas pipelines, agreed to pay $1.7 billion to settle charges the company withheld gas to drive up prices.
Higher Refund?
While the commission may use evidence of price manipulation gathered since the judge's ruling to raise the amount of the estimated overcharges, a higher refund won't rattle investors as long as sellers don't end up owing the state, the analysts said.
``FERC wants to get some sense of closure on what California can extract from these companies,'' said Gregory Phelps, who helps manage $2.7 billion at John Hancock Advisors Inc., including preferred shares of Duke and El Paso Corp. ``Once that uncertainty's resolved, the industry can move forward. It's been stymied by capital flight on two years.''
The commission opened its probe into the crisis in February 2002. Initial findings released last August showed evidence of misconduct by Enron Corp., its utility affiliate Portland General Electric Co., and two other utilities, Spokane, Washington-based Avista Corp., and El Paso Electric Co., based in El Paso Texas.
Illegal Trades
The commission's trial staff in December cleared Avista of charges it facilitated illegal trades between Enron and Portland General. El Paso Electric has proposed refunding $14 million and suspending wholesale electricity trading for two years to settle the charges. Both proposed settlements are pending commission approval. The Portland General investigation remains open.
The probe also led Reliant Resources Inc., an energy trader that owns California power plants, to agree to pay $13.8 million to settle charges it withheld electricity to manipulate prices.
Schwab Capital's Tezak said the commission might name more companies that are under investigation or have reached settlements tomorrow. The commission will release all evidence in the case, amounting to ``over 2 terabytes of data, which would fill 1.5 million floppy diskettes,'' it has said.
``We learned from California how not to do things,'' Wood said on a conference call in January. ``We need to continue to provide clarity, continue to provide balance and continue to take steps that really will support investment in the energy sector.''
Gaming Evidence
Last November, the commission allowed California to collect and submit evidence of market manipulation by sellers in an attempt to boost the refund. Power sellers and utilities accused of gaming the market submitted their rebuttals last week.
``We're not going to want to go forward with them on some future initiative until they show us they're the kind of regulator that wants to fix something when the next experiment goes wrong,'' said Erik Saltmarsh, lead attorney with the California Electricity Oversight Board, a state agency that's pursuing the refunds. ``If we got half of what we truly believe is a fair result, the difference is so big that we'd have to appeal. That would not achieve the chairman's goal of getting this behind him.''
FERC's willingness to consider California's claims has created doubts among energy traders that transactions will be honored, said Timothy O'Brien, manager of the $196.8 million Evergreen Utility and Telecommunications Fund, which owned shares of Duke, Dynegy, Allegheny Energy Inc., Reliant Resources Inc., and El Paso as of Oct. 31, Bloomberg data show.
``Are contracts in the energy space going to be good, or are we going to be continually subjected to attempts by parties who are unhappy with the terms of contracts to weasel out of them?'' O'Brien said. ``My hope and my expectation is that FERC finds that the prices in the contracts will be found to be just and reasonable, because otherwise, how do you do business?'' |
