Estimates of Power Profits Disputed
Gov. Gray Davis’ contention that California has been nicked for billions of dollars in inflated electricity costs is based on a study that state officials concede may have significant flaws, according to interviews and confidential government documents.
Those costs--estimated by the state to be as high as $9 billion--were central to Davis’ testimony this week before a U.S. Senate committee, where he again denounced power wholesalers and urged federal regulators to “give us back the money that was wrongly taken from us.”
The governor’s impassioned demand, however, was based on shaky calculations. The formulas are being reworked, said Charles Robinson, vice president of California’s grid operator, which prepared the study.
Robinson said he “had no idea” how much the amount allegedly overcharged by the generators might change. For now, he said, the agency stands by the numbers.
But internal documents from the California Independent System Operator warn that some of the financial assumptions used to quantify the alleged excess profits could be well off the mark.
What’s more, the documents caution against relying on the agency’s study as a basis for allegations of overcharging--as Davis did during his testimony Wednesday. That warning was particularly important because the documents provide for the first time a detailed accounting of how much each energy supplier prospered from the state’s power troubles between last summer and February.
The largest amounts were charged by four out-of-state power companies, according to the confidential Cal-ISO report. Oklahoma-based Williams Cos. led the group with $860 million, followed by Duke Energy with $805 million, Southern Company Energy Marketing (now Mirant) with $754 million and Reliant Energy Services with $750 million.
When told of the alleged profiteering attributed to them, executives of the companies insisted the numbers were grossly overstated because of Cal-ISO’s poor methodology.
Duke spokesman Tom Williams said his company’s entire energy earnings for North America were less than the amount it was accused of reaping unfairly in California.
“It doesn’t add up. It doesn’t come close to adding up,” Williams said. “What [Cal-ISO] has done is highly irresponsible math.”
Paula Hall-Collins, a Williams Cos. spokeswoman, said the firm would need to study the ISO report further. But generally, she said, such reports fail to fully account for electricity production costs.
“We maintain that we have not overcharged, and that we have operated legally.”
Reliant spokesman Richard Wheatley also questioned the figures, saying, “There’s a lot of misinformation out of there.”
A Mirant spokesman said: “We haven ‘t overcharged. We haven’t manipulated. We haven’t withheld.”
Even some firms alleged to have overcharged to a much lesser degree were outraged.
Joe Ronan, vice president for government and regulatory relations at Calpine, said the $236 million attributed to his company “doesn’t bear any relation to reality.”
“Anybody can throw out any number,” he said. “It’s like McCarthyism. . . . Where is the evidence?”
A spokeswoman for Davis conceded that his refund figure was an estimate but defended it as reasonable.
“It’s no surprise that the people that are gouging us want to dispute an estimate of how much they’re gouging us,” senior advisor Nancy McFadden said.
Despite the cautions expressed in the Cal-ISO documents, officials Thursday insisted they were not troubled that the governor referred to the agency’s figures as potential overcharges.
“The way it should be characterized is the amount paid above a competitive benchmark,” said Robinson, who is also Cal-ISO’s general counsel.
The first version of the now-disputed Cal-ISO study was made public in March. It estimated that power sellers earned $6.3 billion in excess profits between May 2000 and last February. The report, later revised upward to $6.7 billion, became a crucial element of the Davis Administration’s campaign against alleged electricity price gougers.
This week, just before Davis’ appearance in Congress, the study was updated again, adding another $2.2 billions in alleged excess profits through May.
The original study, which did not include actual pricing data, was mostly intended to prod federal regulators into seeking information from generators that the state had been denied, Robinson said.
Thus far, the Federal Energy Regulatory Commission has ordered refunds of only $125 million. Next week FERC is convening an unusual settlement conference aimed at addressing the outstanding claims by the state, as well as those of sellers who claim they are owed hundreds of millions of dollars by California utilities.
One encouraging signal for state officials came this week when FERC reiterated an earlier order that Duke Energy pay millions in refunds. The order stemmed from the company’s sale of electricity at $3,880 a megawatt hour--for thousands of hours.
FERC’s order said Duke’s pricing had resulted in $11 million in billings. A fair price for that power would have been $273 per megawatt hour, the agency said.
Tom Williams, a Duke spokesman, said the firm is willing to accept the lower price. He said he company has yet to collect a dime.
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Times staff writers Elizabeth Shogren and Dan Morain contributed to this story.
