Lots of Talk, Little Give on Refund Deal


The first week of negotiations on refunding billions of dollars in alleged electricity overcharges in California ended Friday with no agreement in sight, participants said.

California's representatives said they were adamant about getting the $8.9 billion they calculate is owed to the state. Industry analysts insist the figure is too high, although it appears roughly in line with estimates by some independent economists.

"It's time for them to show us the money," said Michael Kahn, who chairs the board that oversees California's electric grid and is representing Gov. Gray Davis at the Washington talks. "Every way we have looked at it indicated to us that $8.9 billion is the floor."

The Federal Energy Regulatory Commission launched closed-door talks in an attempt to resolve three major issues: refunds of any overcharges, payments of amounts still owed to power sellers, and strategies for completing the shift from daily wholesale purchases of electricity to more stable long-term contracts.

Chances of success by the July 9 deadline are considered a longshot.

"It doesn't take a rocket scientist to realize that if you've got 15 days to settle a case that involves billions of dollars and hundreds of participants, it's not going to be easy," said a lawyer representing a Western energy company, who asked not to be identified.

The negotiations are being overseen by FERC's chief judge, Curtis L. Wagner Jr., a veteran mediator who has prohibited participants from discussing details with the media. More than 140 lawyers are involved, representing generators, utilities, power marketers and government agencies.

FERC's governing board has vowed to impose its own settlement terms if the talks fail. Board members are warning all parties involved that they are better off coming to terms voluntarily, since a solution from above could lead to years of costly litigation.

But California officials are operating from a position of strength for the first time in more than a year, and they say they see no reason to accept a weak compromise. Wagner has indicated that he thinks the $8.9-billion refund they are seeking is too much.

"This is not a drill where if there's no settlement, nothing happens," S. David Freeman, chief energy advisor to Davis, said in Sacramento. The prospect of letting the FERC board decide doesn't faze him, Freeman added.

"They're duty-bound, and there will be refunds," Freeman said. "The issue is how much, and FERC is pledged to decide that.

An energy trader said Kahn told industry representatives at the talks that the state was willing to negotiate individually with companies that agree to open their books.

The $8.9 billion is about 20% of what California paid for power from May 2000 to May 2001, according to state officials.

That percentage is roughly within range of some independent estimates. MIT economist Paul Joskow has calculated that California was overcharged by $45 a megawatt hour last summer, or about 34%. However, the figures are not directly comparable.

Separately on Friday, Rep. Peter DeFazio (D-Ore.) released a report by the General Accounting Office criticizing a February FERC study concluding there was no evidence that generators strategically shut down plants to drive up prices last year.

"FERC's study was not thorough enough to support its overall conclusion that audited companies were not physically withholding electricity to influence prices," the GAO found.

Alonso-Zaldivar reported from Washington and Vogel from Sacramento.

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