Judge says California owed ‘hundreds of millions of dollars’
SACRAMENTO (AP) – An administrative law judge mediating talks between the state of California and energy companies says the state is likely owed ”hundreds of millions of dollars” in refunds, much less than the $8.9 billion the state wants.
Judge Curtis L. Wagner Jr., in a recommendation released Thursday, said while there are ”vast sums” due for overcharges, California utilities, managers of the Independent System Operator and the state agency buying power owe generators even more.
Gov. Gray Davis and California officials who attended the 15-day talks held out for $8.9 billion in refunds, but Wagner said that amount ”has not and cannot be substantiated.
”That very large refunds are due is clear,” Wagner wrote, likely amounting to ”hundreds of million of dollars, probably more than a billion dollars in an aggregate sum.”
Davis said he hoped the Federal Energy Regulatory Commission would reject the recommendation.
”Californians have, by and large, gotten a raw deal from FERC during the past year,” he said in a statement. ”Now the day of reckoning for the new FERC has come. I would like to believe the commission, with two new commissioners, will be more sensitive to California consumers and order all the refunds that are due.”
U.S. Sen. Barbara Boxer, D-Calif., said the recommendation ”undermines the consumer protections that FERC is supposed to safeguard by law.”
The differences between what the state wants and what the sellers believe they owe should be decided in a ”trial-type, evidentiary hearing” that should be held in 60 days, Wagner said.
Michael Kahn, chairman of ISO’s board of governors, said Wagner immediately trimmed the amount of money on the table when he limited the refund order to power purchases dating from October. California’s estimate is based on figures from May 1, 2000.
That dropped the $8.9 billion figure to about $6 billion. That number was further whittled when the judge said he wouldn’t consider purchases outside FERC’s jurisdiction, such as sales from municipal districts or Canadian firms.
”He was really only dealing in the universe of something in the area of $5 billion,” Kahn said. He estimated that the state could recover ”a significant percentage of the $5 billion.”
Peter Navarro, a University of California, Irvine economist who works on energy issues, called the recommendation ”insulting” to California.
The refund order should reach back until at least July, he said, when energy prices had spiraled to record levels and utilities were accruing billions of dollars in debts.
”Setting it arbitrarily from October keeps billions and billions of dollars more in refunds from the state of California,” he said.
In calculating costs, the judge recommends using the ”heat rate” for the least efficient plant that sold power into the California market on each day. That plant’s costs to produce power will be the basis for setting a benchmark prices that day.
Navarro said that’s unfair to California and basing refunds on each individual plant’s costs would be the best way to calculate what was overcharged.
”By choosing that methodology, the judge limits the ability of California to recover what’s really owed to it,” Navarro said. ”It reduces the total judgment by as much as 80 percent.”
Pacific Gas and Electric Co., one of three utilities that amassed crippling debts due to high wholesale prices, filed a response with federal regulators, urging them to consider a plan that used individual plants’ costs, not the least-effective plant model.
Jan Smutny-Jones, executive director of the Independent Energy Producers, said the state’s refund estimate was based on a ”faulty analysis” and the judge was correct in lowering the amount.
Wagner said California hasn’t provided information he requested about the state’s long-term contracts. Further compounding the calculations, he said he has yet to receive information from the California Department of Water Resources, the utilities and the ISO listing amounts they believe they owe to generators.
Should any party involved not agree with the commission’s decision on the recommendation, they could sue to have it overturned, delaying the resolution by months or years, said Sen. Debra Bowen, D-Marina del Rey.
”It looks to me like we’re going to court,” she said. ”I’m very skeptical that there won’t be someone who goes to court to challenge whatever FERC does because there’s so much money at stake.”
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The Federal Energy Regulatory Commission: http://www.ferc.gov
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