Union Tribune

October 2, 2003

State rips proposed payments for power

By TOBY ECKERT
COPLEY NEWS SERVICE

WASHINGTON Federal regulators' proposed settlements involving numerous companies accused of manipulating California's power market amount to a financial slap on the wrist and ignore substantial evidence of wrongdoing unearthed by the state, California officials argued this week.

One of the companies, Reliant Resources, made 16 times more money from one scheme than it would be forced to pay under a settlement, the officials said, calling the proposed deal "a whitewash."

Attorney General Bill Lockyer joined other state agencies and California's two largest utilities in urging federal regulators to reject settlements or dismissals involving Reliant, Morgan Stanley, the Los Angeles Department of Water & Power and several other electricity marketers.

In filings to regulators, the officials said they would not oppose tentative settlements with about a dozen other companies, including San Diego Gas & Electric, though they asked that some conditions be added.

The settlements were negotiated by the companies and the trial staff of the Federal Energy Regulatory Commission. They must be reviewed by an administrative law judge and the entire commission before they are final.

The maneuvering stems from a pair of orders issued by the FERC in June that directed dozens of companies to prove they did not manipulate prices during California's 2000-01 power crisis. They were accused of creating phony congestion on the power grid, evading price caps and other schemes that inflated wholesale electricity costs, leading to shortages and rolling blackouts.

The FERC threatened to force the companies to surrender ill-gotten profits if they could not prove their innocence.

But the commission also encouraged the 65 companies to enter settlement negotiations to avoid lengthy hearings. In recent weeks, the FERC's trial staff has filed proposed settlements with about 15 companies and moved to dismiss charges against 17 others.

Lockyer and other California officials have criticized the FERC for handling the cases in a piecemeal fashion, saying that has made it impossible to get a full picture of the price manipulation.

FERC Chairman Pat Wood recently defended the process, saying some of the power-trading schemes "did not ring up a whole lot of money."

One of the largest settlements made public to date would require Reliant to pay $836,000, while admitting no wrongdoing.

The California officials harshly criticized the deal, arguing that Reliant earned "at least $13.6 million" from one questionable practice involving the sale of emergency backup power. They also said the FERC trial staff ignored evidence Reliant was involved in "ricochet" transactions that moved power out of the state and then back in to avoid price controls.

"Stated bluntly, approval of the Reliant settlement would result in a whitewash," the officials said in a filing to FERC Administrative Law Judge Carmen Cintron. "Reliant has engaged in a concerted pattern of deception and distortion about its conduct, not only to the California (power-grid manager), but also to this commission and to the United States Congress. . . . Yet perplexingly . . . the Reliant settlement accepts Reliant's word that it did nothing wrong, and would absolve Reliant of any meaningful liability."

A spokesman for the Houston company declined to comment.

The California officials called the $857,089 that Morgan Stanley Capital Group would pay a "relatively paltry sum" and said the proposed settlement "fails to address all of the evidence of (the company's) collusive behavior."

In the Los Angeles Department of Water & Power case, the California officials challenged the FERC trial staff's conclusion that there was not enough evidence that the utility participated in power-grid congestion schemes and other manipulative practices.

Morgan Stanley and the Los Angeles utility have repeatedly denied wrongdoing.

The California officials did not object to a proposed $27,972 settlement with SDG&E. However, they said the FERC should "clarify" several points, including that the settlement does not cover other issues, including possible refunds for overpriced electricity.

The state is seeking $9 billion in refunds from dozens of power sellers, which the FERC is considering in a separate proceeding.