State, Power Firms Urged to Make a Deal

TIMES STAFF WRITERS

After being vilified for months by Gov. Gray Davis, federal energy regulators here and in Sacramento took steps Monday to show they are determined to respond to California's energy crisis.

A top federal regulator began mediating Davis' demand for nearly $9 billion in what the governor says are overcharges by power generators--and warned a room full of dark-suited lawyers, energy executives and state officials here that they will be "far better off" if they decide among themselves how big a refund the state is due.

Meanwhile, in Sacramento, Patrick H. Wood III and Nora M. Brownell, President Bush's first appointees to the five-member Federal Energy Regulatory Commission, spent the afternoon conferring with Davis and legislative leaders. Then they held a fact-finding hearing with California regulators on the high price of natural gas, the fuel that spins most new electricity turbines in California.

"We're going to be working together through tough issues," Brownell said. "We're going to work through them and solve them and move forward. It is a lot easier when people have sat down and gotten to know each other."

Davis has been attacking federal energy regulators--a majority of whom are holdovers from the Clinton administration--for failing to take a variety of steps to bail California out of its energy woes.

On Monday, however, Davis toned down his bellicose attacks on the federal commission. Brownell and Wood, Davis said, are "committed to working together with us to drive down the price of natural gas in California to get it closer to what the rest of the country is paying."

"I think we are turning a corner," Davis said, as temperatures across the state were moderate and electricity demand was low. "Conservation has been spectacular. Californians have responded heroically. The federal government is now finally taking some positive actions. The outlook looks much more positive than it did two months ago."

The developments in Washington and Sacramento come as Davis issues campaign-style demands for more aid from the federal government and as polls show that voters are skeptical of how Davis and Bush are handling California's energy crisis.

Republican lawmakers in Sacramento contend that the regulatory commission has granted Davis virtually everything he has sought. The commission earlier this month imposed temporary price restraints, a step Davis said is helping to lower wholesale electricity prices paid by the state.

Senate Republican leader Jim Brulte said Monday that he has "no doubt" the commission, known as FERC, will order power generators to issue refunds to California, as Davis has requested.

But Brulte, of Rancho Cucamonga, also predicted that Davis will find the order wanting: "The governor's game is a political one. . . . The Davis administration has a clear strategy--that no matter what FERC does, it isn't enough."

In Washington, the roughly 150 participants who showed up for day one of a 15-day settlement conference on refunds showed little sign they were ready to agree, at least not yet.

For now, the differences remain considerable: about $9 billion in refunds demanded by California's representatives at the talks, plus $6 billion more that other Western states say they have been unfairly charged. Power generators hotly dispute those figures.

"The time to put California's past energy problems to rest and structure a new arrangement for California's energy future is now," said Curtis L. Wagner, the chief administrative law judge for FERC. "We can do it if we try."

Wagner, who told reporters last week he believed refunds of about $2 billion were probably justified, is mediating the closed-door talks. Davis is asking that the refunds cover the period since May 2000.

"These out-of-state energy companies are taking us for a ride," Davis said in a brief interview in Sacramento on Monday. "I am determined to get every penny back that California is owed. The generators have bilked us mercilessly, and I'm fighting back. I'm not giving up nothing."

Consumers wouldn't see refunds directly. Rather, the money would go to the state or to private utilities, such as Southern California Edison, for electricity purchases made during the energy crisis.

Participants in the Washington meeting represent about 70 entities with stakes in the electricity dispute. If they fail to reach agreement among themselves within the allotted 15 days, Wagner will have seven days to make a formal recommendation of his own to FERC's five-member governing board.

The settlement negotiations are confidential; Wagner promised those present he would shred his notes and transcripts at their completion. He allowed reporters in the hearing room, where oversized pots of coffee perched on every table, only long enough to listen to his opening remarks and to a prepared statement he read from two of the five FERC commissioners.

Wagner, who asked that all sides send advocates with the authority to reach an agreement, said the issues to be resolved include:

* Refunds for past electricity purchases, including how much money is involved and who needs to be paid.

* Moving additional quantities of electricity off the spot market and into long-term contracts.

* Ensuring that generators receive payment for electricity already provided.

* The bankruptcy of Pacific Gas & Electric.

Wagner said the talks also should address whether any settlement provides generators with immunity from existing and future lawsuits and prosecutions.

The statement from FERC commissioners Wood and Brownell encouraged participants to "focus on what they absolutely need and not what they want." But sorting out which is which may prove challenging.

The head of California's delegation, for example, reiterated Davis' demands for $8.9 billion in refunds.

"We want our refunds. We want them now," Michael Kahn, one of Davis' top energy advisors, told reporters during a break in the negotiations.

Kahn said the officials he is representing--the governor, state legislators, the Electricity Oversight Board and the Public Utilities Commission--consider the $8.9 billion figure to be an "extremely conservative estimate."

He indicated the delegation had little interest in relinquishing the right to sue for additional funds, even if power generators offered to make refunds for time periods before the Oct. 2 cutoff that FERC has proposed.

As they have in the past, electricity generators staked out a far different position, characterizing as "absurd" the state's overcharge estimate.

"We've done absolutely nothing wrong," said Tom Williams, a spokesman for Duke Energy Co., adding that his company was "gratified that all the parties are at the table to discuss this."

The settlement negotiations were mandated by FERC last week as the agency put in place an expanded "price mitigation plan" for Western electricity markets.

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Garvey reported from Washington and Morain from Sacramento.

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