Cal-ISO Was Behind Plant’s Output Swings

The operator of California’s electricity grid has acknowledged in internal documents that it was responsible for gyrations in production at a San Diego power plant that Gov. Gray Davis and others have touted as evidence of gouging by out-of-state energy companies.

In a letter to its oversight board, the California Independent System Operator said a review of its records shows that Duke Energy was only following orders intended to help balance the grid, not drive up prices.

The admission by Cal-ISO has dragged the agency deeper into California’s deregulation controversy. Already, the agency’s independence from the governor is being questioned by critics, along with its estimate of how much power suppliers have allegedly overcharged the state--$8.9 billion. Davis is demanding that federal regulators order electricity suppliers to refund that amount.

When three former workers at a Duke plant near San Diego testified June 22 before a state legislative committee, Davis pounced. The trio said Duke had exploited California’s electricity market by “yo-yoing” output to drive up prices.

As proof, they produced detailed operational logs for Duke’s Chula Vista plant for three days in January. The logs showed that Duke’s trading arm was ordering rapid swings in the plant’s output. Before a bank of television cameras, the former workers also told of being ordered to throw away good parts and of shutting down units for unnecessary maintenance.

Lt. Gov. Cruz Bustamante said the three--former plant mechanics Ed G. Edwards Jr. and Glenn D. Johnson and Jimmy Olkjer, an assistant control room operator--had delivered the “smoking gun.”

Davis praised the trio as heroes and invited them to breakfast. The governor said the testimony bolstered his suspicions about a “concerted effort to suck every dime out of the state and ship it to Houston and North Carolina.”

Duke, based in Charlotte, N.C., said the workers were not in a position to know that the firm’s traders were being directed by Cal-ISO.

Aides to Davis said Saturday that it was unclear whether the governor was aware of Cal-ISO’s role. His spokesman, Steve Maviglio, said Davis based his criticisms on the trio’s sworn testimony.

“It sounded like the smoking gun that everyone was pointing to,” Maviglio said. “But if there’s counter-evidence, there’s counter-evidence.”

Cal-ISO has yet to publicly acknowledge its role in the generation ramping. Instead, it privately handed its analysis to selected lawmakers late Friday after Duke gave the agency’s confidential orders to The Times and another newspaper, the Charlotte Observer.

A copy of the analysis obtained by The Times shows that Cal-ISO examined Duke’s logs and found that each instruction to throttle up or down was ordered by Cal-ISO, which is headquartered in Folsom, near Sacramento.

“It appears that the Duke South Bay Units 1 and 2 logs are accurate and the units did follow the ISO’s dispatch orders,” it said. Any orders that did not come from ISO “were in accordance with proper ISO tariff and protocols.”

A Duke spokesman expressed disappointment that the governor chose to meet with the three former employees but declined to talk with the company when it tried to offer exculpatory information.

“It’s regrettable that some people have inferred things that just weren’t the case,” said Duke spokesman Tom Williams. Duke was so battered by the whistle-blower allegations that it bought full-page ads in numerous newspapers offering its side. “We want you to know the truth,” the ads said.

Officials with the governor’s staff, Cal-ISO and the legislative investigating committee cautioned that further inquiry is needed to fully determine whether Duke used other tactics during those three January days to manipulate the market, including offering electricity at unreasonably high prices.

The chairman of that committee, state Sen. Joe Dunn (D-Santa Ana), said Saturday that he was reserving judgment until Cal-ISO prepared an analysis that he requested on Duke’s bidding practices.

“IS0’s comments [on the ramping] still do not resolve the full question,” he said.

In fact, Duke has come under fire for its pricing and production tactics both at the state and national level. The Federal Energy Regulatory Commission last month found that the company had overcharged California millions of dollars by pricing its electricity at $3,880 a megawatt-hour.

The order characterized Duke’s prices as “emblematic” of the industry’s “abuse of market power or anti-competitive bidding.” The commission found that Duke, which says it has yet to be paid, was entitled only to $273 per megawatt-hour.

Meanwhile, Cal-ISO has accused Duke of reaping more than $800 million in excessive profits from May 2000 to last February--part of the billions of dollars Davis says the state is owed. Duke, like other power merchants, has said Cal-ISO’s computations are flawed. Even Cal-ISO officials have said additional study may be necessary.

In a confidential letter to Congress last month, Cal-ISO Chief Executive Terry Winter said the estimates “have been frequently misinterpreted by the press and other entities as ‘alleged overcharges.’

”. . . The ISO has repeatedly contended that further analyses may well be necessary or advisable before specific refunds by specific sellers should be ordered,” Winter’s letter said.

On Saturday, the whistle-blowers were back in front of the TV cameras, even as their most sensational allegation of plant ramping was unraveling. In a news conference the Chula Vista plant, Rep. Bob Filner (D-San Diego) dubbed them his congressional district’s Citizens of the Month.

Told later that Cal-ISO had ordered Duke’s swings in production, Filner was undeterred in his criticism of the firm: “The bottom line [is] . . . they are stealing from us.”

*

Times staff writer Tony Perry contributed to this story.