Federal regulators said Wednesday that they intend to impose a settlement in the bitter dispute over the $8.9 billion that California claims it was overcharged by power sellers, but they conceded their solution will probably be challenged in court.
"This is going to the circuit [court] anyway," said Federal Energy Regulatory Commission Chairman Curtis L. Hebert Jr. after the commission agreed on a method for estimating alleged electricity overcharges and ordering refunds.
The FERC action begins a fact-finding process that is not expected to produce a refund estimate until this fall. That estimate, which will have to go back to the commission for final approval, is widely expected to be much lower than the amount the state is demanding.
In another significant development, FERC said it may also demand refunds from publicly owned utilities, such as the Los Angeles Department of Water and Power, that are outside the commission's legal jurisdiction. That potential expansion of FERC's authority is likely to be hotly contested.
In a statement during a previous FERC proceeding, DWP lawyer Marcia Haber-Kamine asserted that the city agency had not overcharged and, in any event, was beyond the federal government's reach. "Actions taken by the commission cannot be imposed on LADWP," Haber-Kamine said.
However, FERC commissioners said all power sellers, whether Texas energy merchants or California municipalities, should be subject to the same scrutiny.
The FERC board, meeting for the last time this summer, postponed a showdown with Gov. Gray Davis over control of the nonprofit corporation that runs the state's electric grid.
According to federal rules, the California grid operator, known as Cal-ISO, should be governed by an independent board. But a state law enacted earlier this year gave Davis the power to appoint all five members.
Davis' control is a sore point with federal regulators, who are trying to link state electric grids into broader regional networks--an "interstate highway" for power sales. The issue was scheduled for commission action Wednesday but was removed from the agenda at the last minute. Asked by a reporter when FERC is going to act, Hebert responded: "Not yet."
A senior FERC official said commissioners had been unable to agree on how to resolve the standoff. FERC officials say the agency has the authority to dismiss the board appointed by the governor, but commissioners were hesitant to embark on such a confrontational course midway through the summer power peak.
The commission also acted to more closely monitor the California natural gas market, approving an order that will require pipeline operators to provide regulators with detailed pricing information.
Wednesday's meeting came amid growing evidence that the crisis in California is receding. Although August looms, power prices in California have fallen amid ample supply. Since January, FERC has moved from an initial hands-off stance to increasingly active intervention that it says has helped assure the supply of electricity and limit prices.
This fall, the agency may be under new leadership. It is widely rumored that Hebert will step aside in favor of Patrick H. Wood III, a Texas regulator recently named to the commission by President Bush. Wood supports deregulation but has said he believes government must take an active role in policing markets and protecting consumers.
FERC's decision on electricity refunds largely tracked the recommendations of its chief administrative law judge, who tried to broker a settlement earlier this month between the state and power sellers.
At the time, the judge said California may be owed more than $1 billion but not the $8.9 billion that Davis claims.
The judge also predicted that debts still owed to power generators by the state's utilities are likely to exceed any potential refund.
In a statement Wednesday, Davis said he would not settle for anything less than $8.9 billion.
"As for the energy profiteers and pirates, let me make clear that I will not rest until every dollar gouged from California businesses and residents returns to California," said the governor. "If the FERC does not make California whole, we will see you in court."
Under the procedure approved Wednesday, FERC will try to estimate what a fair price for power would have been from the earliest date on which it can base refunds--Oct. 2, 2000--to the date FERC's price limits took effect throughout the West, June 20.
That limitation alone is likely to chop several billion dollars from the refund claimed by California.
Under the FERC order, the California grid operator now must supply federal regulators with the raw data on power sales needed to calculate a refund. After the data are received, a FERC administrative law judge will hold hearings and make a recommendation to the commission.
Southern California Edison said the order does not go far enough because it does not include "the hundreds of millions of dollars in excess costs paid by SCE throughout the summer of 2000." Edison also wants FERC to extend its remedies beyond spot electricity markets to "all [electricity] markets tainted by the exercise of market power."
Commissioners also ordered a preliminary hearing to determine whether refunds are also due in Oregon and Washington. To date, FERC has ordered power sellers to refund more than $125 million in California.
Times staff writer Nancy Vogel in Sacramento contributed to this story.