2 Firms Ordered to Justify Taking Plants Offline


Stung by criticism that Washington has not responded strongly enough to California's energy crisis, federal regulators on Wednesday ordered two companies to prove that they did not take generating units out of service to drive up electricity prices.

The Federal Regulatory Energy Commission also ordered a series of steps designed to increase power supplies to the West.

The commission ordered Williams Energy Marketing & Trading and AES Southland to show why they should not be forced to refund $10.8 million to California utilities for taking generating units offline last year. The action forced the utilities to pay higher prices for power.

The commission said its investigation "determined that the companies appeared to have financial incentive to prolong any outages from these two generating units."

Bill Hobbs, president of Williams Energy Marketing & Trading, a unit of Tulsa, Okla.-based Williams Cos., said the company is reviewing the decision.

"What we can say today," he said, "is that once all the facts are on the table, we are confident it will be clear that Williams conducts business legally, within the terms of our contracts and tariff obligations. We plan to continue being part of the solution to restoring health to California's power markets."

Aaron Thomas, an AES representative in California, said: "We're absolutely confident that our decisions regarding our outages will stand up to any level of investigation."

Noting that AES operates the plants for Williams at a fixed price, Thomas added, "We haven't seen a dime of market revenues associated with the sales from those plants."

He also said the units were taken out of service for repairs.

The commission investigation centered on generating units located in Long Beach and Huntington Beach that were taken out of service last April and May. As a result, the California Independent System Operator had to buy power from other units owned by AES, "where the power was much more expensive and the companies made much larger profits," the commission said.

Federal regulators said they are investigating the operation and maintenance and sales of power from the Long Beach and Huntington Beach plants at other times.

The commission's actions to boost electricity supplies came in response to projections that California could be short by 10% of peak demand this summer.

The commission directed its staff to speed up the processing of natural gas pipeline projects and called on hydroelectric power plant operators to study ways to generate more megawatts.

Commission staff members could not say how much more electricity the actions could produce. And that sparked criticism from one commission member, who accused his colleagues of "ignoring the elephant in the living room" by failing to more directly confront spiraling wholesale electricity prices. That price surge has put California's two biggest utilities on the brink of bankruptcy and forced the state to pay billions of dollars for power.

"Without protection, there is huge concern about what the summer will bring in terms of high prices," commission member William L. Massey said.

Also criticizing the commission's actions was Sen. Dianne Feinstein (D-Calif.), who said it has failed "to provide the kind of interim stability and reliability that the state needs until it can bring additional electricity generation online. The only way to do this is either with a temporary wholesale [price] cap or cost-based rates."

Feinstein and Sen. Barbara Boxer (D-Calif.) are pushing price control legislation. But President Bush and GOP congressional leaders oppose such measures, saying they would discourage investment in power plant construction.

Commission Chairman Curt Hebert Jr., a free-market advocate, said the agency is "doing everything in its power to lessen the severity" of the crisis.

On another front, the Senate on Wednesday killed a measure that would have ensured that power suppliers forced to sell electricity to California are repaid. The debate produced an unusual rift between California's senators.

Boxer supported the measure introduced by Oregon Sens. Ron Wyden, a Democrat, and Gordon Smith, a Republican, who complained that their constituents could be forced to pay the $120 million owed to the Bonneville Power Administration if California's two biggest utilities go bankrupt. "I do not want to be known as a deadbeat state," Boxer said.

But Feinstein warned that the legislation could set back efforts to restore Pacific Gas & Electric and Southern California Edison to solvency.

In other developments:

* The state's energy supplies will be tighter than the California Energy Commission has estimated for this summer, Elizabeth G. Hill, a nonpartisan legislative analyst, concluded in a report released this week to an Assembly oversight committee. However, California should be able to overcome a shortfall that would trigger rolling blackouts and even develop a slight cushion of surplus power, if energy conservation and efficiency efforts succeed and new power supplies become available, the report said.

* Power producers reacted coolly Wednesday to news that Senate Leader John Burton (D-San Francisco) has formed a select committee to investigate allegations of energy market manipulation. "It's the most recent of many investigations into our participation into this market and every one of them has found there was no inappropriate behavior in no way, shape or form," said Tom Williams, a spokesman for Duke Energy.

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