Official Has No Power to Fashion a ‘Miracle’

For two weeks, the settlement negotiations between California and its energy suppliers over the nearly $9 billion the state says it has been overcharged resembled nothing so much as trench warfare.

What follows may be worse. With the failure of the settlement negotiations, the battle will move into more formal court proceedings--and into the open.

When the cast of angry characters from California’s power crisis first gathered in a closed government hearing room two weeks ago to try to settle billions of dollars in alleged electricity overcharges, state officials and power generators agreed on just about nothing.

At Monday’s close of the settlement talks ordered by the Federal Energy Regulatory Commission, they were as far apart as ever.

“In 15 days you can’t expect miracles,” said mediator Curtis L. Wagner, who as FERC’s chief administrative law judge tried to bring the parties together.

Who’s to blame for the talks’ failure? As with all things in the meltdown of California’s deregulated power market, that depends on who is doing the finger-pointing.

Gov. Gray Davis ripped the power generators on Monday for blocking attempts at compromise in the FERC negotiations--and vowed to press the issue into the courts if necessary.

“If we were to go to court, the amount of money we would seek is a great deal larger than $8.9 million,” Davis said, adding that it is “in the generators’ interest to solve this sooner rather than later.”

The governor said the state would likely seek upward of $20 billion in a lawsuit against the generators. He noted that the cost of power to the state had risen from $7 billion in 1999 to $27 billion last year and could be as high as $55 billion this year.

Davis argued that California’s negotiators have shown flexibility and “a willingness to compromise,” while the generators “have not budged one inch. As a matter of fact, their best offer is we owe them $500 million.”

The other side, meanwhile, accuses the state of not moving from the $8.9-billion figure, which power generators argue has never been adequately explained or justified.

It was a viewpoint that was impossible to miss in Monday morning’s contentious open session--where it became clear that Wagner’s hope of reaching at least a partial settlement by the midnight deadline was unrealistic.

John Stout, a vice president for Reliant Energy, one of the major generators at the center of California’s complaints, said his company’s “fundamental position has been and remains that no refunds are justified or appropriate and that the record in this proceeding is insufficient to support refunds.”

But he said he had participated in the talks in “good faith” with the hope that a “comprehensive settlement” dealing with issues such as outstanding debt could be reached.

Stout took the stand to try to poke holes in the overcharge calculations made by Cal-ISO, the operator of the state’s electricity grid. A heated exchange occurred after he disclosed that Reliant had made a settlement offer of $50 million to the judge.

California’s chief negotiator, Michael Kahn, was incredulous, saying Reliant had never communicated that to the California delegation. He pressed Stout for more details. Stout said it was $50 million off an estimated $300 million Reliant claims it is still owed.

Kahn: “Is 1 cent of it in cash payment?”

Stout: “Could you define what you mean by cash payment?”

Kahn: “I can show you, I have some in my pocket.”

Wagner--who repeatedly had to ask argumentative participants to “move on” during the session--cut off the line of questioning.

And when the talks were all over, brought to a close hours before the midnight deadline when it became obvious that more talking wasn’t going to change any minds, even the instant replays seemed to be of entirely different events.

Kahn was gloomy: “We came here wanting $8.9 billion. In all candor, we did not receive any meaningful offers from anybody.”

Wagner, by contrast, told those gathered that refunds of hundreds of millions and “maybe a billion” dollars were due. But, he cautioned, the money owed the generators likely was more than any refund.

He told reporters afterward that he believes progress was made and that he expects more agreements to come of the talks. He said two entities--Calpine and another unidentified firm--were close to settlements with the state.

“I think a lot of the parties genuinely wanted to settle and others didn’t,” Wagner said, again declining to be more specific.

At the close of the day, Wagner--chosen to mediate because of previous success with complicated disagreements--said it came down to a matter of mathematics.

“You say $8.9 billion and you say $716 million,” he said with a shrug. “The numbers were too far apart.”

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Times staff writer Eric Bailey contributed to this story.