Government questions high costs in California energy crunch

Saturday, March 17th 2001, 12:00 am
By: News On 6

WASHINGTON (AP) _ Federal energy regulators are stepping up their scrutiny of power companies who have reaped billions of dollars from California's energy crisis. But critics say alleged overcharges of $124 million found so far only scratch the surface.

The Federal Energy Regulatory Commission on Friday directed six power producers, including some of the country's largest, to justify $55 million worth of wholesale power transactions they made in February.

That followed a similar order a week earlier against many of the same companies and additional ones, seeking $69 million in alleged overcharges for power sold in the California market in January.

The agency's action ``demonstrates the commission's commitment to ensure appropriate and reasonable prices in the wholesale electricity market given the supply and demand imbalances in California,'' says FERC chairman Curtis Hebert.

California regulators have accused some of the wholesalers of price gouging. The state is paying $45 million a day for power often at prices 15 to 20 times what they were a year ago.

Under Friday's action, the companies are required to provide the commission with justification for the charges by March 23. At that time the agency will either accept the explanations or order refunds, officials said.

The companies requested to provide justification for their prices included Duke Energy Marketing Inc. and Dynegy Power Marketing Inc., which together accounted for about $45 million of the potential refunds being sought.

The other companies in Friday's action were Portland General Electric Co., Reliant Energy Services Inc., Mirant Corp., and Williams Energy Services Corp.

Commission investigators cited more than 11,000 sales in February by the six companies that exceeded a threshold of $430 per megawatt hour and, therefore, were viewed as unjustified and unreasonable given market conditions.

The companies have denied improper pricing.

``We believe all of our transactions are reasonable and we will go to the FERC and attempt to demonstrate why that was so,'' said Chuck Griffin, spokesman for the Atlanta-based Mirant.

Reliant spokesman Richard Wheatley said that when the company submits its support for the prices, ``we do believe that our practices will be justified. We have operated legally and ethically.''

But the federal commission's actions were viewed by some California officials _ and even one of the panels own members _ as falling far short of addressing potential price gouging by the power suppliers during the state's supply shortages this past winter.

The FERC directive applies only to power sold during emergency supply conditions, and not all power sales, and kicks in only when the price reaches $430 per megawatt hour, a level that far exceeds what some consider reasonable even in California's tight market.

That threshold is far too high, said Sen. Dianne Feinstein, D-Calif., noting that last year power in California sold for $30 a megawatt hour. Now the FERC is calling a price nearly 15 times that amount reasonable and justified, she said.

``This sounds like a step backward,'' said Feinstein. ``Something is really wrong here.''

One of the three commissioners, William Massey, also has called the FERC's actions on seeking refunds inadequate, calling the price calculations ``fatally flawed.''

Massey questioned why only transactions during the most severe shortages are being examined. ``It seems irrational to limit refunds'' in that way, said Massey.

At a Senate hearing this week, Hebert, who has opposed across the board controls on wholesale electricity prices in the California market, defended the methods used to calculate refund requests.

He said the FERC staff based the trigger on detailed market and supply conditions at the time of the sale when supplies are exceedingly tight. The trigger for the January sales was $273 per megawatt hour.

California officials have sought much higher refunds. They have claimed that wholesalers may have overcharged the state's power purchasers by as much as $550 million in December and January. No state estimates have been given for February.

FERC has not yet reviewed the December sales.

The agency cited Williams Energy Services with $21.5 million in potential refunds based on an examination of 7,054 transactions. Dynegy was cited for 3,051 transactions worth $23.4 million.

Other companies cited were: Reliant, 770 transactions with $7.44 million in potential refunds; Duke Energy, 20 transactions and $3.24 million in potential refunds; Mirant, 286 transactions and $826,111 in potential refunds; and Portland General Electric with 23 transactions and $73,600 in potential refunds.