Power Regulators to Determine State Refunds

Starting today, federal power regulators will begin trying to solve one of the riddles of the energy crisis: How much of a refund will California get?

One thing seems clear: The reduction will be a lot more than the $125-million refund ordered to date, in all likelihood soaring to more than $1 billion.

Over the next 15 days--the Federal Energy Regulatory Commission is mandating no weekends off--warring representatives from power companies and the state of California will sit at the same table in a government conference room while a FERC task force wrestles the question to the ground.

The task is to determine the price that power would have cost if FERC’s decision to impose soft caps had been made not last week, but last fall.

It is a daunting mathematical problem, factoring in hourly charges during the last eight months. To come up with a total, federal regulators, state electricity officials and power generators must determine what the highest price for a megawatt should have been under the soft price caps now in effect. Then they have to figure out which companies--if any--were charging more.

Under the recent FERC ruling, the price of electricity during any given hour cannot exceed the actual cost of generating the least efficient--or most expensive--power coming into the grid.

Curtis L. Wagner, the 72-year-old chief judge for FERC who is overseeing negotiations on California’s overcharges, said of this morning’s events: “It will be a zoo.”

Wagner, who headed into the weekend with three inches of documents to sort through, explained that Gov. Gray Davis wants $9 billion knocked off the amount the power generators charged California. “I don’t really think it’s that high,” said Wagner, predicting the refund will be more than $1 billion but probably far from $9 billion.

“We have folks trying to do some adding now and some work on what the number should be,” he said.

Wagner said the money at stake will be the most he has worked on in his nearly three-decade career at the agency.

Until recently, the likelihood of massive refunds seemed nil. Although California lawmakers--led by Davis--had demanded relief for costs that ran as high as 10 times or more than the rates a year ago, FERC officials had not agreed.

And their minds seemed set. When FERC first proposed remedies for the California price increases late last year, commissioners said: “Refunds may be an inferior remedy from a market perspective and not the fundamental solution to any problems occurring in California markets.”

To date, FERC has ordered $125 million in refunds for alleged overcharges in January and February.

But with the recent appointment of two new commissioners by President Bush--Republicans Patrick H. Wood III of Texas and Nora M. Brownell of Pennsylvania--FERC’s position softened, leading to the price mitigation ordered last week.

Now FERC is taking a closer look at the prices already charged.

California lawmakers have pegged overcharges at nearly $9 billion since the California market went haywire last summer--a number that comes from a study done by Cal-ISO, the operator of California’s electricity grid. Cal-ISO officials acknowledged last week that the study might have significant flaws.

Among companies that may be required to reduce their bills are energy giants Enron Corp., Mirant Corp., Duke Energy Corp., Williams Cos. and Reliant Energy Inc.--all of which are expected to have representatives at the negotiations. The companies have hotly disputed the amount of overcharges alleged by Davis and other California lawmakers and point out that they have yet to be paid for the vast majority of electricity sold in the state in recent months.

Today, Wagner said he plans to make opening statements to the media. After that, he said he hasn’t determined how much of the wangling will be done behind closed doors. If the parties don’t come to an agreement in 15 days, Wagner will have seven days to make a recommendation on refunds to FERC’s five commissioners.

It is a process that may be repeated down the road if Sen. Barbara Boxer (D-Calif.) and other California politicians get their way. Boxer has introduced legislation that would give FERC retroactive power to order refunds--all the way back to July 2000, when San Diego first faced huge spikes in electricity costs.