PG&E says power suppliers take unfair profits : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Published Saturday, September 23, 2000, in the San Jose Mercury News

PG&E says power suppliers take unfair profits BY STEVE JOHNSON Mercury News Companies seem to be selling electricity at unfair prices and should refund some profits, according to documents filed Friday by PG&E, which maintains that such refunds could ease the price shock for consumers when its rates are unfrozen.

``The evidence, which is being gathered and summarized by disinterested market monitors, is overwhelming and unambiguous,'' the company told the Federal Energy Regulatory Commission. ``. . . There is substantial evidence of an unjust and unreasonable situation which will cause irreparable harm if left unchecked.''

Pacific Gas and Electric Co., which says it is going into debt because of the price of power, also asked the federal agency to immediately cap the price of electricity sold in California. The utility firm said it ``may be necessary'' to set a rate cap lower than the $250-per-megawatt cap set by the Independent System Operator, which oversees the state's power grid.

PG&E's filing adds a powerful voice to a growing chorus of agencies and consumer groups that say deregulation has spun out of control and is not delivering the promised benefits to customers.

The Federal Energy Regulatory Commission already has begun an investigation of California's energy market after monthly bills doubled this summer for utility customers in San Diego, where the rate cap was removed last year. But in its request to the commission, PG&E said it and consumers cannot wait much longer.

``While PG&E supports the commission's decision to investigate the California power markets, an investigation will not alleviate this crisis,'' the company said.

``It is imperative that immediate relief be granted to stop the mounting economic losses of PG&E and its ratepayers. The problems facing the California wholesale markets are unique, and they should not be left to fester unresolved until the completion of the commission's broader industry-wide investigations.''

Many energy experts have attributed the price spikes this summer to the state's growing demand for electricity and the critically short supply of power, which has largely resulted from the fact that no major power plants have been built in California in recent years.

But PG&E's papers suggest that something more sinister may be at work. As partial evidence of that, it referred to a study done in August for the Independent System Operator, which found that high prices occurred this summer even though ``we cannot identify any apparent shortage.''

PG&E spokesman John Nelson stressed that his firm had no direct evidence of wrongdoing by any company selling power, because much of the information about the volume and price of electricity that has been sold is confidential.

``It would be inappropriate for us to make a conclusion on numbers that we don't have,'' Nelson said. ``But we're asking them to determine that with all due speed. . . . We need to fix the broken wholesale markets.''

PG&E's president and chief executive officer, Gordon Smith, made a similar point in an interview Wednesday at the Mercury News. In response to a question about the pricing practices of electricity marketers, he replied, ``I don't think it's anything necessarily illegal.'' But he added, ``I think it is market power that is being abused.''

He also said during that interview that having the Federal Energy Regulatory Commission order power companies to refund any unfair profits they have earned could significantly soften the economic impact of having the rate freeze lifted in Northern California.

But PG&E officials acknowledged they did not know how a refund would work, how much money might be involved or how it would be distributed.

PG&E wants the state-mandated freeze -- which began March 31, 1998, and is due to expire March 31, 2002 -- ended much sooner, perhaps even this year, if the California Public Utilities Commission would approve such an idea.

PG&E is eager to begin selling electricity at the price it pays for it. The company claims it has gone into debt $2.2 billion this summer because the frozen rate is insufficient to cover the cost of power.

Several power-generating companies have reported enormous profits over the summer, including Reliant Energy, AES Corp. and Calpine Corp., based in San Jose. Nonetheless, officials with those firms and others that sell power insist they are merely reaping the legitimate financial benefits that occur in any market when supply is low and demand is high.

Officials at Calpine were unavailable for comment about the PG&E filing Friday. But earlier this month, Calpine spokesman Bill Highlander defended his company's profits. ``I can unequivocally tell you that Calpine is not trying to manipulate the market,'' he said.

-- Martin Thompson (, September 23, 2000

Moderation questions? read the FAQ