San Diego Union-Tribune

June 20, 2001

State will press generators to refund billions

and Ed Mendel STAFF WRITER 

WASHINGTON -- Now that federal regulators have enacted price restraints on electricity in the West, the focus of the power crisis is shifting to demands for billions in refunds from power generators accused of overcharging in California.

Gov. Gray Davis plans to make that case here today when he testifies before
a Senate committee.

"His basic message will be 'We want our money back,' " Steve Maviglio,
Davis' press secretary, said yesterday. "Ratepayers as well as the state have
been overcharged billions of dollars and we haven't gotten a penny back."

The Independent System Operator, the agency that manages the California
power grid, recently estimated that California has been overcharged $8.9
billion for electricity since prices began to soar last spring.

So far the Federal Energy Regulatory Commission has ordered $125 million
in refunds from power generators.

On Monday, FERC created a process to settle disputes over past electricity
charges in its order that primarily dealt with keeping future prices down.

The order provides for a 22-day period, involving arbitration and review by
an administrative law judge, for resolving price-gouging allegations and issuing refunds in cases of improper pricing.

But that plan was deemed too meek by several critics, including FERC
Commissioner William Massey. Though he backed the overall order, Massey
said yesterday that the commission has failed to provide guidelines that would
assure refunds to overcharged consumers.

Sen. Barbara Boxer, D-Calif., said she would propose legislation later this
week designed to provide refunds to customers who have had to pay unfair
prices for their electricity.

"If FERC won't do it . . . Congress should," Boxer said.

Davis will testify today before the Senate Government Affairs Committee,
which is investigating FERC's performance during the power crisis. FERC
commissioners are also scheduled to appear.

Maviglio said the governor will outline steps taken by California to build new
power plants, conserve energy, and stabilize the utilities, while giving the
committee a brief history of the state's failed deregulation plan.

But the key issue will be refunds.

"The main message is California wants its money back," Maviglio said.

FERC's sweeping action on Monday generally received a positive, if
skeptical, reception from members of both parties in Congress. Sen. Dianne
Feinstein, D-Calif, yesterday questioned whether the order would end
wholesale price manipulation by power providers or result in refunds to
overcharged ratepayers.

Feinstein and Sen. Gordon Smith, R-Ore., had introduced legislation for a
much tighter pricing formula than the one FERC used. But they asked that
their bill be set aside temporarily in deference to the agency's action.

"I think we should wait and see what happens," Feinstein said yesterday
during a Senate Energy and Natural Resources Committee hearing that
featured the five members of FERC -- two Democrats and three Republicans.

Democrats on the committee pressed FERC Chairman Curtis Hebert and the
other commissioners on why they had not acted sooner to control the daily
price turbulence in the California energy market. A market-intervention order
issued by FERC in April was designed to cope only with energy-supply
emergencies, despite pleas from Davis and other California Democrats -- and some Republicans -- for more drastic measures.

"It's time to stop blaming and start problem-solving," said Hebert, a
Republican appointed chairman by President Bush.

Hebert noted that electricity prices on the volatile spot market have dropped
considerably since the April order, even though they remain three times as
high as they were a little over a year ago. Just weeks ago they were 10 times
higher than last year.

Some analysts say the price drop is likely temporary and is the result of
several factors, including cooler weather earlier this month, conservation and
the state entering into lower-cost, long-term energy contracts.

Prices on the energy futures market have also tumbled, as have natural gas
prices -- a key component in the cost of electricity.

On Monday, FERC unanimously ordered around-the-clock restraints on
wholesale electricity prices in California and 10 neighboring states over the
next 15 months.

As was the case with the April measure, prices will be pegged to the costs of
the least efficient power provider when reserves in California fall below 7
percent. But when reserves are more plentiful, the prices will drop to 85
percent of the level established during supply shortages.

The action may help stabilize the market, but won't provide immediate relief to California electricity customers, whose rates are set by the state Public
Utilities Commission. In response to higher energy costs, the PUC already has raised rates for customers of Southern California Edison and Pacific Gas and Electric. The PUC will consider rate increases for San Diego Gas & Electric customers beginning this week.

Adamantly opposing price controls earlier, FERC acted after coming under
intense pressure from lawmakers of both parties. Republicans said they were
worried that their GOP colleagues in California would have been blamed and
possibly imperiled at the polls next year if FERC had failed to act.

Bush, who also took a hard line against price caps, blessed FERC's action
after it was taken.

Hebert criticized the bill advanced by Feinstein and Smith as an attempt to
solve California's problem by "bureaucratic fiat."

Their measure would cap wholesale electricity prices based on the reported
production costs of the individual generators, with an added allowance for a
profit margin.

Hebert argued that the "mitigation price" that FERC established "is not a blunt, arbitrary figure that bears no resemblance to market conditions and is subject to political pressures and whims."

Massey made it clear that he harbors misgivings about the measure, although
he supported it.

Massey, a Democrat who has consistently criticized his colleagues for moving
too slowly in the California crisis, questioned whether the order would
provide an unintended incentive for generators to continue using inefficient
plants in order to assure higher profit margins for their more modern facilities.