Talks on Energy Disputes Heat Up
Against a backdrop of renewed energy crisis controversy starring Grandma Millie, California officials have stepped up efforts to settle financial disputes with companies that sold electricity to the state during the 2000-01 market meltdown.
For two days last week, the feuding parties met behind closed doors at Federal Energy Regulatory Commission headquarters here to haggle over alleged overcharges -- and learn whether the conflict might be shifting into a more flexible phase of deal making rather than accusation flinging.
No breakthroughs were reported from the confidential talks among power sellers, state officials and federal regulators. But that the talks even took place was viewed by some as encouraging.
“For everybody that’s got a dog in this fight, it’s a positive direction to go,” said Jan Smutny-Jones, executive director of the Independent Energy Producers Assn., a Sacramento-based trade group. “It’s a very important development.”
To be sure, noisier events have dominated the energy saga in recent weeks, recalling the bitter months of crisis when power companies emerged as public villains and politicians felt compelled to attack them.
The revelation in May of the existence of tape recordings of Enron Corp. traders discussing plans to exploit “Grandma Millie” and other Californians touched off a national backlash and prompted calls for congressional hearings. In June, a new furor emerged, when FERC ordered the state to pay $270 million in refunds to Enron and other firms accused of abusive energy trades.
The tapes provoked condemnation by California’s U.S. senators and demands for refunds. FERC Chairman Patrick Wood III said his staff would review the tapes for potential use in other proceedings involving Enron. California officials asked the energy panel to reconsider its ruling on the $270 million in rebates to the energy companies arising from transactions involving the state at the peak of the crisis.
The public outcry was captured in an angry complaint to FERC from an unidentified Californian that found its way to the commission’s website. The June 17 letter -- which begins: “Dear Idiots” -- cited the recent news reports and went on to blast the regulators: “You’re making CA pay back some money when Enron and other energy suppliers have ripped us consumers off for billions of dollars. Are you people deaf and dumb or are you just too ... ignorant to care?”
There is little reason to believe that the latest round of finger-pointing will have much effect on the refund process, a highly technical, dispute-riddled effort that virtually everyone believes will end up in court.
The California Independent System Operator, which runs the state’s power grid, is re-computing overcharges from the energy crisis, a step it hopes to complete by year-end. At that point, the state will furnish federal regulators with final data to use in determining refunds.
State officials have long claimed that the overall number should be $8.9 billion. Through an array of rulings, however, federal regulators have signaled that their number is closer to $3 billion.
“I think FERC has kind of locked itself in to what it’s willing to do and not willing to do on the refund front,” said Mike Florio, senior attorney with the pro-consumer Utility Reform Network in San Francisco. Of the recent controversy, he added: “It stokes the fires of frustration -- but I’m not sure I can see through the thicket to any tangible outcome -- other than confirming in people’s minds that there were some really bad guys doing some really bad things.”
State officials believe that they can wring more from power suppliers than FERC will grant.
Recent accords with Williams Cos. and Dynegy Inc. show the path the state and some legal adversaries are taking to avoid endless litigation. The Dynegy settlement, announced in April, was valued at $281.5 million; the Williams deal, announced in February, was valued at $140 million.
The fine print, which drew little attention at the time, is cited as a potential model for others tangled in the refund battle.
Significantly, both agreements included settlement of disputed charges from early in the crisis, a period at the center of the legal conflict with FERC. The commission has resisted the state’s pleas for refunds from before Oct. 2, 2000, on technical grounds, while California has argued that as much as $3 billion in overcharges could be at issue.
The Dynegy deal included $50.9 million for the pre-October period, and Williams’ accord included $8 million. Through those settlements, Dynegy and Williams wiped out many of their outstanding disputes with the state and -- in a noteworthy development -- freed themselves from California’s principal refund claims at FERC.
California officials believe that “the next few weeks and months could be especially productive in reaching negotiated resolutions, primarily in light of recent settlements involving [Williams] and Dynegy,” FERC Chief Administrative Law Judge Curtis L. Wagner Jr. noted in endorsing such negotiations.
Last week’s talks were aimed primarily at second-tier energy sellers, such as regional utilities, rather than the bigger players, including Reliant Energy Inc., Mirant Corp., Enron and Powerex Corp., which constitute a larger share of the pie.
Erik Saltmarsh, executive director of the state’s Electricity Oversight Board, said the message to the companies went something like this: “All you little guys, you’ve seen us settle these cases with some big, marquee-type players.... Let us show you from the state parties’ side what we’d be willing to accept from you little guys.”
One participant, who asked not to be identified, said California officials “handed an envelope” to representatives of many of the companies, outlining dollar figures the state considered acceptable for deals.
“I’d say there were at least 100 [company] lawyers involved,” the participant said of the talks inside FERC’s main conference room.
No deals were immediately made public, leaving billions of dollars still in dispute. However, advocates remained hopeful that at least some of the conflict might be dispensed with shortly.
As Gov. Arnold Schwarzenegger put it in a June 28 letter to Wood: “I am sure that we can all agree resolution of these matters through the settlement process would be fantastic.”
