California Blamed in Power Refund Talks

In a final report that reads like a rebuke of California Gov. Gray Davis, a federal mediator said Thursday that the state refused to budge during recent electricity refund negotiations, although it couldn’t back up its claim for $8.9 billion in alleged overcharges.

“The amount claimed by the state of California has not and cannot be substantiated,” wrote Curtis L. Wagner Jr., who is the Federal Energy Regulatory Commission’s chief administrative law judge.

Wagner said the negotiations failed because “there were those who simply did not want to negotiate, but rather, stood firm on their litigation position, with no movement.”

“The State of California has publicly made it clear that the refund amount [it] claimed . . . is $8.9 billion,” the judge wrote. “It has not moved from that position and Gov. Davis makes it publicly clear that it will not.”

Davis brushed aside the judge’s conclusions and instead continued to put pressure on the FERC, which bears ultimate responsibility for meting out any refunds.

In a one-paragraph statement issued by his staff, the governor said California has gotten “a raw deal” from FERC during the last year. But with two new commissioners recently seated, he said, “the day of reckoning for the new FERC has come.”

Davis, who has threatened to sue if the state doesn’t get hefty refunds, said it would be “unconscionable” if FERC doesn’t come through, adding that such an oversight would amount to a “$3-billion free gouge for the generators.”

Wagner said that the California delegation “summarily rejected” a settlement he proposed on July 5, but he did not detail its contents.

Participants in the closed-door talks said the judge at one point had floated a $4.5-billion compromise, but got no takers. Negotiators often put proposals on the table to test whether they can get parties talking.

On Thursday, Wagner reinforced his preliminary assessment that the state probably would not get any cash back, since debts still owed to power sellers by California utilities probably exceed any potential refund. “That very large refunds are due is clear. They do amount to hundreds of millions of dollars, probably more than a billion,” he wrote. “At the same time . . . there are even larger amounts due to energy sellers.”

Wagner recommended that FERC’s governing board launch a “trial-type” hearing to determine a fair price for wholesale electricity sold since Oct. 2 of last year, when a federal order authorizing refunds in California took effect. Such a hearing could take months to complete, and a decision even longer.

The FERC had no immediate reaction to the judge’s recommendations. Commissioners had assigned him to try to obtain a voluntary settlement to avoid having to impose their own solution, which would likely be appealed to the federal courts.

Wagner recommended that FERC make its estimate of a fair price as realistic as possible, using actual spot market prices for fuel--natural gas--instead of averages. He also urged the commission to come up with a more precise measure for the efficiency rating of power plants.

Michael Kahn, the attorney who headed the California delegation, said FERC should rule immediately on refunds to the state because the commission has been tracking the state’s dysfunctional market since last August.

“We don’t want any more delay,” Kahn said. “We would like to have this decided.”

Kahn also disputed accounts that the Californians dismissed settlement offers.

“I don’t remember summarily rejecting anything the judge said,” Kahn said.

The settlement talks were held from June 25 to Monday at FERC’s Washington headquarters. In other proceedings to date, FERC has ordered refunds of about $125 million in California.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Fuel Economy Comparisons

Under a 1975 law, passenger cars must meet fuel economy standards of 27.5 miles per gallon. But SUVs are in the “light truck” category, which has a lower standard. Here’s a look at how average fuel economy has fluctuated:

*

Cars (Average miles per gallon)

1980: 23.5 mpg

2000: 28.1 mpg

*

SUVs (Average miles per gallon)

1980: 15.5 mpg

2000: 20.0 mpg

Source: Environmental Protection Agency

*

Alonso-Zaldivar reported from Washington and Bailey from Sacramento.