Union Tribune

November 16, 2002 

Details of shutdown allegations revealed
Energy companies discussed prolonging the idling of plants

By TOBY ECKERT 
COPLEY NEWS SERVICE

WASHINGTON New details emerged yesterday about
allegations that two major energy companies colluded to inflate
electricity prices as California's power crisis took hold in 2000.

A previously confidential report by federal regulators indicates that
employees of Williams Cos. and AES Corp. discussed prolonging
the shutdown of one California power plant and provided
inconsistent reasons for idling another. The shutdowns forced the
state power grid manager to pay premium prices to Williams for
electricity from other sources.

The plants were shut down for periods in April and May 2000,
purportedly for repairs and maintenance.

Virginia-based AES owned and operated the Los Angeles-area
power plants, known as Alamitos 4 and Huntington Beach 2.
Oklahoma-based Williams sold the power.

In April 2001, Williams agreed to reimburse the California grid
manager $8 million to settle the allegations of price manipulation, but admitted no wrongdoing. AES also has denied any improper
behavior.

It is unclear whether the new revelations will have any impact on a
separate, $1.4 billion settlement Williams recently reached with the
state on other issues from the 2000-2001 power crisis.

Details of the Federal Energy Regulatory Commission's
investigation of the power plant shutdowns were not previously
made public, and a judge ordered them to be released this week.

In an April 27, 2000, telephone conversation recounted in the FERC
report, a Williams official told an AES employee that California's
power grid manager was paying "a premium" for electricity while
the Alamitos plant was idled for repairs and "that's one reason it
wouldn't hurt Williams' feelings if the outage ran long."

When the Williams official had a similar conversation with a
high-ranking AES employee later the same day, the AES employee
said, "I understand. You don't have to talk any more."

The plants had been designated by FERC to provide reliable power
to the grid manager, the California Independent System Operator, at
a cost far below the market price for electricity then. Because they
were shut down, the ISO had to pay about $750 per megawatt hour
for the power it needed, compared with the $63 per megawatt hour
it would have paid otherwise.

Williams and AES are among several companies that have been
subpoenaed as part of a wide-ranging federal grand jury probe of
alleged price manipulation during the power crisis.

Both companies yesterday repeated their assertions that the plant
shutdowns were justified and that they had done nothing wrong.

The new details about the incident came just four days after
Williams and California officials announced a deal that will save the
state $1.4 billion in power costs. In return, the state agreed to drop
civil litigation against Williams.

Tom Dresslar, a spokesman for California Attorney General Bill
Lockyer, said the office was aware of the details of the FERC
report before the deal was announced. A federal judge had ordered
FERC to release it to the state in October.

"I think people need to look at the comparative settlements reached
by FERC and the state of California. We did pretty well by
comparison. We continue to think, all things considered, that this is a
good deal for California," he said.

Steve Maviglio, a spokesman for Gov. Gray Davis, said: "We were
aware of charges of manipulation. We attempted to get more
information from FERC, but it was not provided.

"This is a serious allegation," Maviglio added. "In the settlement
negotiated by the attorney general, the governor's office, and the
PUC (California Public Utilities Commission), we retained our rights
to pursue criminal and fraud allegations. We certainly will review
this information carefully." 

Doug Heller, senior advocate for the Santa Monica-based
Foundation for Taxpayer and Consumer Rights, said the latest
revelation requires the state to cancel its recently renegotiated
contract and settlement with Williams.

"If a state contractor was scamming the state you wouldn't
renegotiate their contract, you'd arrest them." said Heller. "The
same standard should apply to these corporations which stole
billions of dollars from California ratepayers."

Williams released a statement saying it provided the FERC report to
the state more than a year ago.

"The company's settlement with California . . . does not provide an
opportunity for termination based on the events described in the
document," the company said.

The state has until Dec. 15 to void the deal with Williams if it finds
evidence of wrongdoing.

FERC publicly questioned the plant shutdowns in March 2001, after
a complaint by the California Independent System Operator.

The commission staff's confidential report on the shutdown of the
Alamitos unit cites phone conversations between Williams' outage
coordinator, Rhonda Morgan, and AES plant personnel that were
routinely recorded by Williams.

In a conversation with AES employee Eric Pendergraft, Morgan at
one point says, "I don't wanna do something underhanded, but if
there's work you can continue to do. . . . "

Pendergraft said he understood and added, "We probably oughta
have things we'd like to do in preparation for summer, so . . . that
might work out."

In an interview, Williams spokeswoman Julie Gentz said, "The
bottom line is the conversation was inappropriate and didn't result in any improper actions."

Staff writer Craig D. Rose contributed to this report.