Union Tribune

April 1, 2003

Intentional idling of power plants questioned

By TOBY ECKERT
COPLEY NEWS SERVICE

WASHINGTON Among the unfinished business federal regulators left in the wake of their key rulings last week on California's power crisis was the question of whether energy companies shut down power plants to increase electricity prices.

Barely noticed in the pile of documents released by the Federal Energy Regulatory Commission were a few sentences announcing the commission's intention to continue looking into allegations of "physical withholding" lodged by California state officials and utilities.

At the same time, the commission released a staff report that discounted some allegations of withholding made by California utility regulators last fall.

California officials and some independent energy experts contend that the intentional idling of power plants, combined with excessively high bids or a refusal to sell power at any price, caused much more market turmoil than price-manipulation tactics that went by eye-catching code names like "Death Star" and "Get Shorty."

"The combination of those two things is where we think the largest effect on the market happened," said Erik Saltmarsh, general counsel for the California Electricity Oversight Board.

"The big money is in withholding," said Severin Borenstein, director of the University of California Energy Institute. "The manipulation by Enron and other companies may have made them some money, but wasn't the fundamental cause of the crisis. If there hadn't been any withholding, they wouldn't have been a particular concern."

Power companies have consistently denied that they withheld electricity during the crisis to influence prices.

"Mirant stands ready to show there was no violation of any tariff, there was no economic or physical withholding," said Debra Bolton, associate general counsel for Mirant Corp.

Two companies, Reliant Energy and Williams Cos., have paid fines to settle allegations they withheld power from plants in Long Beach and elsewhere in California in 2000. FERC released transcripts of telephone conversations in which power traders explicitly discussed shutting down plants to boost prices, but the companies admitted no wrongdoing.

Investigators for the commission, commonly known as FERC, did not focus on physical withholding of power from the market during their recently completed investigation of price manipulation in the West in 2000 and 2001. They did, however, recommend that FERC order nine generators to explain suspiciously high bids from May to October 2000 or surrender "unjust profits."

California officials and utilities made detailed allegations about plant shutdowns in an extensive filing of evidence they made with FERC last month.

Citing internal company records, they accused Mirant, Reliant Energy, Dynegy, Duke Energy and AES/Williams of falsely reporting that generating units were out of service for required maintenance or repairs on 14 occasions between April 2000 and May 2001.

They also said that records showed Dynegy, Mirant and Reliant put units on "reserve shutdown" meaning they were not operated for economic reasons on 22 occasions when California's power grid manager had declared emergency shortages.

Combined with bidding tactics, "These withholding strategies . . . succeeded in keeping the market in a near-constant state of shortage and the (grid manager) in a near-constant state of panic as it was forced to fight against time to obtain the power needed to keep the lights on," the California parties alleged.

In a press statement, FERC said the material submitted by the California parties "indicates that the generators may have engaged in physical withholding of generation" and that its staff would seek more data on the issue.

The companies heatedly denied California's allegations.

Reliant said the charges "rest on incomplete facts, incomplete research and analysis, or selective use and misrepresentation of available data. . . . Reliant can refute each of (California's) allegations using contemporaneous sources that were also available to (the California parties) but which they chose to ignore."

The generators also noted that FERC issued a report last week in which its staff discounted some highly publicized allegations of electricity withholding made by the California Public Utilities Commission last fall. The PUC "significantly overstated the degree to which the generators held power out of the market" during blackouts in 2001, the FERC staff concluded.

But the staff also noted that its analysis of the PUC allegations covered only six days and "was not an exhaustive study of generator performance for the 2000 through 2001 time period."