CALIFORNIA investigations focus on whether out-of state wholesalers manipulated energy prices

Friday, June 1st 2001, 12:00 am
By: News On 6

SAN FRANCISCO (AP) _ State energy regulators say they are close to finishing probes into whether electricity wholesalers illegally aggravated the state's power squeeze.

In one year, California's power crisis has raised customer rates by $5.7 billion and dumped a $13 billion bailout bill on taxpayers. State officials hope to recover the money if they find evidence that out-of-state wholesalers manipulated the market to illegally driving up prices.

The wholesalers say they are being turned into scapegoats for a 1996 deregulation law sculpted by California lawmakers and the state's two largest utilities, Pacific Gas and Electric and Southern California Edison.

The utilities have reported a combined $8.2 billion in losses since June 2000.

Two legislative committees are investigating allegations that wholesalers created artificial supply shortages that drove wholesale electricity prices as high as $1,900 per megawatt hour. Before June 2000, wholesale prices for energy sold under similar terms rarely climbed above $150 per megawatt hour.

At least five lawsuits, including one filed by San Francisco City Attorney Louise Renne, seek damages from wholesalers on behalf of all Californians.

``I don't think these are going to be very hard cases to make,'' said Owen Clements, chief special litigator for San Francisco. ``Even if they didn't break the letter of the law, they clearly have violated the spirit of the law.''

Attorney General Bill Lockyer is offering multimillion-dollar rewards to power plant workers and energy traders who provide the state with inside information about wholesaler's decisions.

``Everyone feels like they're being ripped off. There's a lot of emotional belief that unfair things have been done, but we're still working through the case,'' said Lockyer, a Democrat who voted for the deregulation law when he served in the state Senate.

The state utilities commission is inspecting power plant documents that may show whether some facilities shut down unnecessarily to diminish supply. The commission and Lockyer are investigating whether the plants then increased production to reap big profits.

Power wholesalers maintain that the plants, many of which are 30 to 40 years old, shut down for legitimate equipment repairs and maintenance.

``No one in our industry cuts back on production so a competitor can make more money. It just doesn't happen, at least not on planet Earth,'' said Gary Ackerman, executive director of the Western Power Trading Forum, a trade group.

The Federal Energy Regulatory Commission earlier this year alleged that Tulsa, Okla.-based Williams profited from the closure of two Southern California power plants owned by a business partner, Arlington, Va.-based AES Corp.

Without admitting wrongdoing, Williams refunded $8 million to settle the charges.

California's investigations are examining the conduct of Williams, as well as several other prominent power wholesalers, including Houston-based Enron Corp., Dynegy Inc., and Reliant Energy, Charlotte, N.C.-based Duke Energy and Atlanta-based Mirant Corp.

Cohen said the utilities commission could file a civil lawsuit against the wholesalers by the end of June. Lockyer expects to wrap up an investigation in late July at the earliest.