Power Firms Told to Justify Prices or Refund $55 Million

Federal energy regulators on Friday ordered six wholesale power suppliers to refund an additional $55 million to California if they cannot justify the prices they charged in February.

The order by the Federal Energy Regulatory Commission was the agency’s second in two weeks responding to accusations by California officials that energy companies have reaped excessive profits from the electric supply shortage in the West.

FERC last week ordered 13 power suppliers to justify or refund $69 million to California utilities for power sold in January.

The proposed refunds represent a small portion of what California officials are seeking.

Also on Friday, news that some alternative energy producers may be lining up to shove Southern California Edison into Bankruptcy Court sent the stocks of the parent companies of Edison and Pacific Gas & Electric Co. plunging.

Edison executives said they believe they stand a good chance of deflecting an involuntary bankruptcy petition, if one is filed, but acknowledged that they need to resolve their money problems soon.

“There’s no doubt about it, time is not our friend here,” said Ted Craver, chief financial officer of Edison International, parent of Southern California Edison.

Wholesale electricity prices skyrocketed last May and never returned to earth, prompting accusations that electricity suppliers were gouging Californians and harvesting hundreds of millions in windfall profits. Edison and PG&E; have amassed $13.8 billion in electricity debts that have left them unable to pay their bills.

Electricity company officials said Friday they are prepared to defend the prices charged in each month. But on Capitol Hill, California lawmakers complained that the FERC action did not go far enough, saying the prospective refunds should have been much larger.

“This sounds like a step backward instead of the aggressive action we need from FERC,” said Sen. Dianne Feinstein (D-Calif.).

She questioned FERC’s decision to order possible refunds only for electricity sold in excess of $430 per megawatt-hour during Stage 3 alerts in February.

“Before the energy crisis started in California, electricity was selling at an average wholesale price of $30 a megawatt-hour,” she said. “And now FERC is saying a baseline of $430 a megawatt-hour is a reasonable cost. Something is really wrong here.”

FERC officials did not respond to requests for an explanation of how they arrived at the figure of $430 per megawatt-hour. By contrast, they had determined that $273 per megawatt-hour was the highest reasonable price the suppliers should have charged in January.

The FERC order cited a complex formula that based the price for February on such factors as natural gas prices and higher costs for generators to comply with air pollution rules.

In other action, FERC announced plans to hold an April 6 meeting in Boise, Idaho, to discuss price volatility in the West with state and energy officials.

A number of California officials have accused FERC of acting timidly in response to the high energy costs that have left PG&E; and Edison on the edge of fiscal collapse.

But Rep. Bob Filner (D-San Diego) welcomed Friday’s action on refunds. “The overcharges have been so egregious that even FERC, which doesn’t want to admit it, has to say something went wrong.

“It’s a start,” Filner added, “and it may help to change minds on Capitol Hill” in support of government-imposed price controls on wholesale power supplies. But he said refunds are far from certain.

Indeed, the energy companies said they expect to persuade FERC to uphold the prices charged in February and January.

Steve Stengel, a spokesman for Houston-based Dynegy, which was asked to justify $23.4 million in charges, said his firm has been running its power plants nonstop and deferring maintenance to help California through the energy crunch.

“Dynegy has done everything it could do to be part of the solution,” Stengel said. “We feel that what we have charged has been just and reasonable.”

Richard Wheatley, a spokesman for Houston-based Reliant Energy, which faces $7.4 million in potential refunds, echoed that sentiment. “We’ve conducted our operations legally and ethically,” he said.

Asked about the company’s profits, Wheatley said, “I think it’s high time that the generation companies quit apologizing for good management.”

Tom Williams, a spokesman for North Carolina-based Duke Energy, said his company’s prices were justified by premiums for environmental penalties and fears of the lack of credit-worthiness in California. Duke was asked to justify $2.1 million in charges.

Also ordered to justify their prices were Williams Energy Services Corp., $21.6 million; Portland General Electric Co., $73,600; and Mirant, $826,000. The wholesalers have until next Saturday to make their case to FERC.

In Sacramento, Steve Greenleaf, director of regulatory policy for the California Independent System Operator, which runs the power grid for 75% of the state, said: “We’re encouraged by FERC’s action of late.” But he added, “Quite honestly, it doesn’t go far enough.”

Gary Stern, director of market monitoring for Edison, said the FERC order is flawed because “it applies refunds only to hours of Stage 3 alerts, which . . . excuses millions of dollars in excessively priced [power].”

A Stage 3 alert is declared when electricity reserves fall below 1.5%.

Edison and PG&E; have stopped paying most bills, including money owed to producers of alternative energy. Creditors are becoming increasingly irritated at the failure of the utilities and Gov. Gray Davis to reach a settlement that will allow the utilities to pay their bills.

One such producer, Coram Energy Group, a small windmill farm in Tehachapi, said it will sign a petition that could force Edison into involuntary bankruptcy proceedings. At least two other creditors must sign the petition before Edison can be forced into Bankruptcy Court.

In another potential precursor to bankruptcy, an alternative energy producer called Caithness Energy won a lien Wednesday in federal court in Nevada against Edison’s stake in the Mohave power plant near Laughlin, Nev.

The turmoil sent investors fleeing Friday. The stock of PG&E; Corp. dropped $1.50, or 11.6%, to $11.42, while Edison International tumbled $1.35, or 9.9%, to $12.24. Both trade on the New York Stock Exchange.

If an involuntary petition were filed, Edison believes it could persuade a bankruptcy judge during the mandated 20-day waiting period not to accept the case, said Edison lawyer Barbara Matthews.

“We believe we have solid ground to oppose, not the least of which is the Bankruptcy Court doesn’t need to intervene” because solutions are being pursued in the Legislature and in the governor’s office, Matthews said.

PG&E; executives said that the San Francisco company has no utility assets outside of California that creditors can seek to attach and is aware of no petitions circulating among creditors to put PG&E; into involuntary bankruptcy.

California law forbids placing a lien against utility assets without a prior approval by state regulators.

In fact, bankruptcy talk has reinvigorated negotiations with advisors to Davis to sell the PG&E; transmission grid to the state as part of a broader settlement, said Peter Darbee, PG&E; Corp. chief financial officer.

Edison reached a tentative agreement three weeks ago to sell its transmission lines, but has yet to reach a final deal.

“We think there’s reason to be cautiously optimistic,” Darbee said.

In other developments Friday:

* Preparing for a summer of tight energy supplies, the Public Utilities Commission proposed an overhaul of a controversial program in which businesses won reduced rates in exchange for having to go dark during power shortages. The “interruptible” program had caused businesses to lay off employees when their power was cut for weeks at a time.

The PUC said new members of the program would not have power cut for more than four hours a day or 40 hours a month; existing customers’ cuts would be limited to six hours a day.

* A day after Energy Secretary Spencer Abraham predicted long blackouts this summer, the PUC also tinkered with the way power is cut in California. The commission asked utilities to tell customers what block of circuits they are on. If that block must be blacked out, they could be warned by the news media.

*

Simon reported from Washington and Rivera Brooks from Los Angeles. Times staff writer Nicholas Riccardi contributed to this story.