San Diego Union-Tribune

July 8, 2001

Refund talks lag for state, suppliers


WASHINGTON -- With a deadline looming tomorrow, settlement talks between California officials and power suppliers remain bogged down in debate over how the state determined it was owed at least $8.9 billion in refunds for high-priced electricity.

The state will make a presentation on its methodology today. Power sellers have hotly disputed the $8.9 billion figure, and some of the largest companies involved in the talks reportedly have offered only $500 million.

"We have spent the better part of the last week or so discussing . . .
the basic methodological assumptions that went into the $8.9 billion to $9 billion" demand, said Michael Kahn, who is leading the state team. "A huge amount of time has been spent in justifying the number."

The judge mediating the negotiations, Curtis L. Wagner Jr.,
acknowledged, "They're moving very slowly.

"I'm trying to break them loose," said Wagner, the chief administrative law judge for the Federal Energy Regulatory Commission, which ordered the talks. "I have so many parties, it's just difficult. . . . I told them all to go to church and say a prayer that I come up with something."

The negotiations started June 25 and are aimed at resolving the complex financial claims that have arisen from the power crisis gripping California. The crisis was fueled by soaring wholesale power costs.

If no settlement agreement is reached, Wagner will recommend one to the five-member FERC. Other Western states also are pressing claims against the power sellers.

In a wide-ranging discussion with reporters yesterday, Kahn provided a glimpse at California's bargaining position during the closed-door talks. Kahn is chairman of the Independent System Operator, or ISO, which manages most of the state's power grid.

While the state went into the talks demanding a cash settlement, on Monday it laid out a series of options for reaching the $8.9 billion total, he said.

They included some combination of cash and lower prices for long-term electricity contracts the state has negotiated with power sellers; below-market prices for future sales, through 2002; and a reduction of the amount of money power sellers say they are still owed by the state and utilities.

"We told people they could mix and match . . . they could calculate it anyway they want, just as long as they honored our methodology of making it to the $8.9 billion," Kahn said. "It was really an effort to encourage people, individually and collectively, to make a deal."

Power industry sources have questioned the state's approach. They
consider the $8.9 billion figure wildly inflated.

The refund figure, which applies to power charges from May 2000 to May 2001, was calculated by the ISO. Wagner said the state would provide expert testimony today on how it came up with the number and that other parties may get a chance to present their own expert testimony tomorrow. 

He acknowledged that such issues are typically resolved early in
settlement discussions.

"Here it's toward the end of the game because we have such a short period to do it," Wagner said.

"I've been doing this for a long time. Most cases settle on the last
hour of the last day."