Union Tribune

March 4, 2003

State files a long list of energy allegations
Power sellers ready to post counterclaims with FERC

By TOBY ECKERT
COPLEY NEWS SERVICE

WASHINGTON As California officials yesterday formally lodged allegations of a "pervasive pattern of market manipulation" during the 2000-01 power crisis, energy sellers prepared to defend themselves with a round of counterfilings.

The mammoth sheaf of documents filed by state agencies and two utilities at the Federal Energy Regulatory Commission laid out 10 specific allegations, ranging from the deliberate idling of power plants, to scams involving the trading of pollution emission credits. The state cited 348 exhibits, including tapes of energy traders' telephone conversations, according to an excerpt of the filing.

"This evidence, while substantial and compelling, is just the tip of the iceberg," the California parties said in their filing. "As this investigation has shown, there is a snake under almost every rock one turns."

Many of the allegations were outlined to reporters by state officials on Sunday. The filing is meant to bolster the state's effort to win billions of dollars in refunds from power sellers.

Several of the companies including San Diego-based Sempra Energy, Williams Cos. and Duke Energy said they would file extensive responses to California's allegations.

Under a little-noticed order that FERC issued in February, the power companies have until March 20 to rebut the allegations. So FERC is likely to face another avalanche of data.

"We fully expect to (respond) once we've seen their allegations," Duke spokesman Pat Mullen said.

Reliant Energy provided a preview, releasing a 46-page defense of its practices in the California market that it intends to supplement after learning more details of the state's allegations. The Houston company recently agreed to pay a $13.8 million refund for withholding electricity from the market in an attempt to drive up prices over two days in June 2000, though it admitted no wrongdoing.

Reliant argued that "the California energy crisis resulted from a flawed market structure and ill-conceived rules" and that the California parties were attacking "conduct that was permissible and rational under the rules in effect" at the time.

Brad Church, a spokesman for Williams, also said, "We acted within market rules established by the state of California and FERC."

But if energy providers can be expected to dig in for battle over the question of refunds, California Gov. Gray Davis vowed to match their persistence.

"The suppliers stole, cheated and lied," Davis said during a telephone news conference. "We're not letting go. We owe it to the people of this state to recover the money."

While details of the evidence the state presented were publicly withheld under a FERC confidentiality order, a spokesman for the commission said he expected the information to be released "soon."

"There are some processes we have to go through," including consultation with other federal agencies that are investigating allegations of market manipulation, said the spokesman, Kevin Cadden.

Sen. Dianne Feinstein, D-Calif., yesterday repeated her call for public release of the information, in a letter to FERC Chairman Pat Wood and a speech on the Senate floor.

"It's very difficult to know whether the Federal Energy Regulatory Commission is ensuring rates are just and reasonable if no one can review the evidence," Feinstein said.

The California parties also filed a formal motion yesterday asking FERC to remove its seal from yesterday's filing to allow public scrutiny of the documents, as well as the documents that power suppliers will file later this month in response.

The state's filing is the product of an unusual, 100-day evidence-gathering period set up in November by FERC, following a federal court order.

The state argues that widespread market manipulation caused the cost of electricity to soar during the power crisis to $44 billion from May 2000 to June 2001, compared with less than $25 billion for 1998, 1999 and 2002 combined.

The schemes alleged by the state include power generators idling plants or timing bids to create shortages; sellers exporting and then reimporting power to avoid the state's price caps; the creation of phony congestion on the state's power grid; and the trading of environmental credits for power plant emissions in a way that inflated their price and, thus, the cost of electricity.

Staff writer Craig D. Rose contributed to this story.