San Diego Union-Tribune

July 26, 2001

FERC orders more hearings over refunds
   Commission sets 60-day timetable to sort out claims


WASHINGTON -- Federal regulators ordered further hearings yesterday into how much California is due in refunds for high-priced electricity, but acknowledged they expect the dispute to end up in court.

Adding another wrinkle to the long-running debate, the Federal Energy Regulatory Commission, or FERC, said municipal utilities and other public power generators that sold some of the highest-priced electricity to California face the possibility of paying refunds.

Those entities normally are not subject to FERC jurisdiction and are likely to mount a legal challenge.

The commission set a 60-day timetable for sorting out the financial claims and counter-claims arising from the power crisis that has gripped California for more than a year.

FERC will then make a ruling on the state's demand for massive refunds and the claims by power sellers that they are owed billions of dollars for electricity.

State officials, who accuse the sellers of price gouging, have said FERC has more than enough information to order refunds immediately. Nonetheless, Gov. Gray Davis said the commission's decision "validates California's claim that significant refunds are due."

"The remaining question for FERC to decide is how much. California's answer remains the same -- $8.9 billion -- and today's action gets us closer to realizing that refund," Davis said in a statement.

Mark Stultz, a spokesman for the Electric Power Supply Association, said the process FERC outlined is "not going to come close to what California demanded" in refunds. The association represents power generators and

"We don't think there's any evidence to support refund obligations, but we also recognize the need to resolve outstanding issues and move forward," Stultz said.

FERC gave the California Independent System Operator 15 days to calculate how much wholesale power would have cost between Oct. 2, 2000, and June 20, 2001, using a formula based on a recent FERC order that curbed electricity prices in the West. The ISO manages most of the state's power grid.

A FERC administrative law judge will then have 45 days to hold an
evidentiary hearing that establishes a basis the commission can use to order refunds.

"Market participants will not have to wait long for final commission
determination on California refunds," said FERC Chairman Curt Hebert Jr.

FERC's order largely followed the recommendations of Curtis Wagner Jr., the commission's chief judge. Wagner recently presided over two weeks of unsuccessful settlement talks between California officials and power providers.

Wagner estimated that the state is due only "hundreds of millions of dollars, probably more than a billion dollars," but that power sellers are owed "even larger amounts."

Davis repeated his threat to sue the power providers to recover the full $8.9 billion the state is demanding. 

"If the FERC does not make California whole, we will see you in court," he said.

Hebert and Commissioner Pat Wood III acknowledged the issue probably is headed that way.

"I want you defending this thing in court . . . because it will go there," Wood joked to FERC staff members who drafted the recommendations.

Municipal utilities added to the litigation threats after FERC decided to make them subject to paying refunds. Public utilities, including the Los Angeles Department of Water and Power, sold some of the most expensive electricity
to the state.

"I'm pretty hard pressed, almost mystified, on how they can find they have this legal authority," said Allen Mosher, director of policy analysis for American Public Power Association, which represents municipal utilities. "I don't think we should have to litigate this, but that may be the result."

Commissioners William Massey and Linda Key Breathitt partially dissented from FERC's order over the issue. Massey said he doubts the commission has the authority to order public utilities to pay refunds under the Federal Power Act.

"The conclusion that this agency has the power to tell non-jurisdictional companies to pay money back will come as a shock to most observers, I think," Massey said. "If Congress had wanted this agency to have refund authority over non-jurisdictional sellers it could have easily spelled that out."

But Wood called the decision "a natural extension" of FERC's move in April to apply price limits to all power sellers in the California market, including public utilities.

Massey, who has been one of California's chief champions on the
commission, also objected to some elements of the formula that will be used to calculate potential refunds and said the order "still fails to squarely address" allegations that generators idled power plants to drive up prices.

A FERC staff member indicated the allegations are still being investigated. "Those are non-public matters," he told Massey.

Meanwhile, FERC deferred a discussion of the makeup of the ISO board, which is appointed by Davis. Power sellers have questioned whether it can be a neutral manager of the state's power grid, and Hebert has raised similar concerns.

Davis has promised to fight any move by FERC to replace the board.