Regulators say prices unlawful; but no refunds U.S. panel orders changes in state's electricity market By Craig D. Rose UNION-TRIBUNE STAFF WRITER November 2, 2000

Federal regulators declared yesterday that California's haywire power market had produced unlawful prices, but still said they lacked authority to order refunds from the high summer rates.

The Federal Energy Regulatory Commission, however, did order "sweeping" changes to the state's deregulated market, some of which are controversial.

While saying it did not have legal footing to order refunds for charges over the summer -- when bills more than doubled for many in San Diego County -- the commission said it could exert such authority over future rates deemed excessive.

"Ideally, some people wanted us to identify the people who manipulated the market and order disgorgement of their ill-gotten gains," said commission chairman James Hoecker, anticipating that San Diegans would be disappointed over the decision not to order refunds. "It's not as simple as that."

The commission, meeting in Washington, D.C., explained it had legal grounds to order refunds only for charges since Oct. 2, a date it established earlier. Analysts estimate that power companies earned billions in profits over the summer from the California market.

The regulators blamed high power prices on structural flaws in the deregulated market and on tight supplies. They found deregulation also allowed many generators within California to ship power out of state.

Elected officials contended the commission's finding that summer prices failed to meet a federal legal standard of being "just and reasonable" left the door open to refunds.

"You have a federal statute that establishes these payments as unlawful. It follows that those payments should be returned," said Rep. Duncan Hunter, R-El Cajon, who indicated that the fight to return power-industry profits to consumers may now shift to the courts.

Consumer advocates quickly added that yesterday's order does little to halt the build-up of a "balloon payment" set to explode as early as 2002. That's when the state's rate-deferral plan -- capping customer payments but not power company charges -- shifts all uncollected charges onto consumers.

Duke Energy and Reliant Energy, two major electric-generating companies, said the report exonerates the industry of allegations of collusion to raise prices.

In the order released yesterday, the federal commission also proposed to:

Eliminate the ability of California's Power Exchange and Independent System Operator to set wholesale power price caps.

Establish a "soft cap" for the next two years of $150 per megawatt-hour on wholesale electric transactions, beyond which suppliers would be required to make a special filing to the commission. The current cap is $250.

Encourage more advanced power purchases to avoid last-minute buying that tends to be the most expensive approach.

Eliminate a requirement that most power purchases take place within designated state markets, reversing California's effort to conduct most power sales in an observeable market.

The order is now subject to a three-week comment period, including a public meeting Nov. 9 in Washington. The panel said it hoped to issue a final order in December.

Some consumer advocates bristled at the commission's takeover of all authority to set price caps.

One advocate, Michael Florio, said that the commission moved immediately yesterday to cancel the Independent System Operator's plan for flexible caps that could have held prices as low as $65 per megawatt-hour. The plan was criticized by industry representatives as setting prices too low for some to turn a profit.

In its place, the regulatory commission has set a $250 cap, which had been in place previously. California entered the summer with a $750 per megawatt-hour cap, which was progressively lowered as prices soared.

"We are much worse off today than we were yesterday," said Florio, senior attorney for TURN, the Bay Area utility consumer advocacy group. "I actually had hope they might be doing some good, but this is an unmitigated disaster."

Florio, who is also a member of the service operator's board, added that state power prices remained far above expectations -- and well above the cost of production -- during October, the month for which the commission says it could order refunds.

"And the commission did nothing about that," he said.

Hunter emphasized that continued uncertainty over power costs in San Diego County could inhibit business growth here and urged the region to go forward with construction of a county-owned power plant to move the region toward energy independence.

Rep. Bob Filner, D-San Diego, also a supporter of developing government-owned power facilities, blasted the regulatory commission's investigation as shallow.

"They found no culpability, liability or blame here," said Filner. "They did not subpoena or depose anyone. It lets everyone off the hook. What they're saying is that when anyone (deregulates), 'go for it -- the store is open.' "

Filner said Congress should now hold hearings or press forward with legislation for refunds.

Gov. Gray Davis characterized the federal proposal as a "mixed blessing."

"Why the Federal Energy Regulatory Commission can find that the prices were unjust and unreasonable and not order the only remedy they have, a refund, is beyond me," Davis told reporters.

The governor said that while continuing to urge the federal agency to order generators to repay ratepayers, he also intends to determine whether the state has the power to order a refund.

Stephen Baum, chief executive of Sempra, the parent of SDG&E, recalled that Sempra had said earlier that many generators could easily profit with caps set as low as $150 and had pressed for federally imposed caps in the Western market.

"This is only the beginning," Baum said.

"FERC has recognized the market is broken and not working," he said. "They put price caps into place. I would call that significant progress. And I have not given up on ratepayer relief for the summer abuses."

http://www.uniontrib.com/news/metro/20001102-9999_1n2ferc.html

-- Carl Jenkins (somewherepress@aol.com), November 02, 2000