State to Challenge Ruling on Energy Crisis Refunds

California agencies and utilities today will urge federal regulators to reconsider a March 26 decision on how much energy companies should refund the state for overcharges during the electricity crisis, contending that the decision failed to take into account key evidence of misconduct.

In a request for a new hearing before the Federal Energy Regulatory Commission, the California parties will argue that the new evidence of market manipulation they submitted this year was ignored by FERC. The trove -- thousands of pages and more than 10 compact discs of data -- was delivered to the agency after the U.S. 9th Circuit Court of Appeals ordered FERC to allow the state to submit its documentation of misbehavior.

“They have not really looked at and considered the evidence that they’d forced us to put together in a very quick time frame,” Vickie Whitney, a California deputy attorney general, said in an interview. “That’s what’s disappointing to us.”

A FERC spokesman Thursday declined to comment on the request for a new hearing. Energy companies have repeatedly asserted that they violated no laws and were scapegoats for state officials chagrined at the failure of their energy deregulation plan.

California officials are seeking $9 billion in refunds for energy costs, claiming that power companies, utilities and others illegally manipulated markets in 2000-01 to inflate prices. Federal regulators agree that market manipulation was rampant but disagree with the state over the amount of damages.

On March 26, FERC indicated it was prepared to order refunds of about $3.5 billion -- up from the $1.8 billion approved by a FERC judge last year but far short of the amount sought by California. At the same time, FERC put more than 30 energy suppliers on notice that they may face individual orders to give back profits gained with the help of price manipulation during the market meltdown.

The California coalition -- which includes the state attorney general’s office, the Public Utilities Commission and major investor-owned utilities -- is attacking the FERC decision on several fronts:

* The time period for which refunds may be awarded. FERC had ruled that a wide array of energy companies should be forced to disgorge a share of profits they made from Oct. 2, 2000, to June 20, 2001. California parties want profits returned for the period extending back to May 1, 2000.

“We found evidence that the really bad conduct commenced May 1, 2000,” Whitney said. She said the addition of five months to the time frame could mean $2.3 billion more in refunds, based on FERC’s own method for making such calculations.

* Contracts that may be subject to refunds. FERC has excluded $2 billion in power purchases by a division of the state Department of Water Resources on grounds that the electricity was not bought at auction but rather in “bilateral” deals that aren’t subject to FERC’s authority for granting refunds. The California parties contend that the exclusion makes no sense.

* Fine print involving gas costs paid by electricity suppliers. California parties fear that a little-noticed provision would enable energy suppliers to significantly reduce the $3.5-billion refund amount by claiming high expenses for natural gas.

“It has the potential to eat up a very large part of the increase” in the refunds that FERC approved March 26, said Sean Gallagher, an attorney with the Public Utilities Commission.

A key point of dispute is the time frame for forcing energy companies to pay refunds. FERC previously agreed that energy companies that made profits in the California market from Oct. 2, 2000, to June 20, 2001, should be forced to return a portion of those gains in refunds.

For the period before Oct. 2, 2000, FERC has indicated that only those companies proved to have manipulated the markets would have to give back profits.

But the California coalition contends that misbehavior by even one or two companies could skew the entire market. As a result, the state wants the time frame for the so-called universal refunds to be pushed back to May 1, 2000.

The case-by-case approach, the state argues in its 116-page filing, “is particularly troubling given the interrelated nature of the various California energy markets and the overlap ... among and between the various schemes engaged in by the various sellers.”

Whitney put it another way: “If I’m a robber, and I go into a jewelry store and steal jewels and give them to Joe, he can’t keep them and say he didn’t rob the jewelry store,” she said. “He has to return them. Similarly, here, those who benefited from prices that weren’t just and reasonable should not be allowed to retain the fruits of that.”

The California parties contend that the appeals court last year made it clear that evidence of market manipulation by individual firms should be considered for its effect on the entire market and that assessing damages on a case-by-case basis flies in the face of that direction.