Court Backs California's Push for Energy Refund From Electricity Suppliers

 

Sep 10 - The Sacramento Bee

Sep. 10--Federal regulators were too timid in taking control of California's runaway energy market, and now the state should have another chance to push for billions more in refunds, a federal appeals court ruled Thursday.

The ruling by the 9th U.S. Circuit Court of Appeals opens the door initially for California to seek close to $2.8 billion in refunds, and could bolster arguments that might lead to another $3 billion, said state Attorney General Bill Lockyer.

"It's a huge victory for California ratepayers," Lockyer said in a telephone press conference.

The decision, welcomed by Gov. Arnold Schwarzenegger as "fantastic," doesn't guarantee any more money for Californians who paid dizzying wholesale electric prices during the state's energy crisis.

Instead, it holds that the Federal Energy Regulatory Commission has the authority to order refunds, and it orders FERC to begin proceedings into how much more money California is owed.

Power suppliers can be expected to fight vigorously against further refunds at those hearings, and one key generator -- Mirant Corp. -- is in bankruptcy court and would need a judge's approval to pay up.

If California prevails, it would still be years before any money could reach the state's consumers, probably in the form of one-time discounts or lowered electric bills for customers of the three most affected utilities, Pacific Gas and Electric Co., Southern California Edison, and San Diego Gas & Electric Co.

Once that happens, Lockyer speculated that a bigger share of any refunds would be likely to flow to big businesses, because business and commercial consumers overpaid "three or four times as much" as residential customers during the crisis.

Thursday's ruling could be one of the most significant yet to come out of the roughly 100 lawsuits that the state attorney general's office has brought in the wake of California's energy crisis, Lockyer said.

But electricity marketers said the decision just opens the door to further turmoil at exactly the wrong time -- when California needs to begin encouraging more power plant construction.

"This has dragged on for four years now," said Jack Hawks of the Electric Power Supply Association. "The last thing that California needs is more uncertainty."

The FERC praised one key portion of the 9th Circuit ruling, which validated that it had the authority to set up market-based electric rates as part of California's foray into deregulation.

Commission spokesman Bryan Lee said the agency will thoroughly evaluate what should happen next under the court's order, but welcomed the decision for giving it "another tool to try to provide justice during that period when markets went awry."

California's September 2002 lawsuit against FERC argued that federal requirements for "just and reasonable" electricity rates precluded the kind of competition that FERC approved for California.

In addition, the state argued that if market rates were allowed, FERC should have been much more aggressive in insisting that power marketers file detailed reports with the commission on their transactions to ensure that rates stayed fair.

The appeals court rejected the first part of that argument but embraced the second, holding that FERC couldn't possibly enforce fair rates without seeing detailed filings from electricity vendors -- filings it often had not received.

"Despite the promise of truly competitive market-based rates, the California energy market was subjected to artificial manipulation on a massive scale," the court held. "With the FERC abdicating its regulatory responsibility, California consumers were subjected to a variety of market machinations."

California has long maintained that it can prove it was overcharged by at least $9 billion because of market manipulation from mid-2001 until mid-2002. In earlier rounds of hearings, though, the FERC had estimated that California can only make a case for about $3 billion.

There were two key reasons for the $6 billion discrepancy. Federal regulators disallowed about four months of refunds early in the crisis, and excluded certain kinds of trades from refunds.

Lockyer and others believe the four-month exclusion, accounting for about $2.8 billion in refunds, definitely will be reconsidered by FERC and the excluded trades, worth another $3 billion, could be reopened.

So far, California has not collected any of the $3 billion that FERC is considering refunding, but it has negotiated roughly $800 million to $1 billion in settlements with various power marketers.

California lawmakers and utilities on Thursday heralded the court's decision, and urged federal regulators to move quickly.

The ruling "validates what California has been saying for nearly four years" said state Sen. Debra Bowen, D-Marina Del Rey, in a prepared statement. "But we'll see whether FERC actually tries to do its job and has any luck squeezing money out of these companies four years after the fact."

Of the $2.8 billion that seems likeliest to come under renewed FERC review, Mirant Corp. accounts for about $350 million, according to those familiar with California's claims.

U.S. Sen. Dianne Feinstein said the decision "now paves the way for FERC finally to act," and wrote FERC Chairman Pat Wood Thursday encouraging a quick response.

By Carrie Peyton Dahlberg and Dale Kasler

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