Energy Providers Accuse State of Unfair Practices

Power plant owners turned the tables on California on Thursday, accusing two state agencies of colluding and manipulating the state’s electricity market.

Reliant Energy and Mirant Corp., vilified by politicians as gougers that overcharged California on electricity sales, filed a petition seeking intervention by the Federal Energy Regulatory Commission. The companies argue that the agency overseeing most of California’s electrical transmission grid is giving preferential treatment to the state Department of Water Resources.

The department was pushed into the role of the biggest power buyer in the West in January, after exorbitant prices in the state’s fledgling deregulated market so crippled utilities that they could no longer buy power for 27 million people.

Nine months later, the energy companies are accusing the California Independent System Operator, manager of the grid, of discriminating against other buyers and sellers by sharing confidential information about bids and the availability of electricity with the department.

“We’ve got a situation where, unless it’s corrected, we’re never going to have a properly functioning market,” said Richard Wheatley, spokesman for Houston-based Reliant, which owns four large power plants in Southern California.

Reliant and Mirant, based in Atlanta, asked federal regulators to immediately order the California grid operator to change the way it buys electricity. They also called for an investigation of potential collusion between the state agencies.

At the extreme, an order from FERC could jeopardize the existence of Cal-ISO. That is because Cal-ISO is simply a clearinghouse for electricity purchases and sales and is backed financially by the water department.

To separate the two agencies would leave the state without a means of guaranteeing a smooth flow of electricity, and it would leave power sellers without a guarantee of payment.

“Reliant and Mirant don’t want to destroy Cal-ISO, but they want the federal government to make sure the ISO doesn’t bend in favor of the state,” said Gary Ackerman, executive director of the Western Power Trading Forum, a group representing power sellers.

Under the 1996 deregulation plan, California opened a wholesale electricity market in which the state’s biggest utilities sold many of their power plants to companies such as Reliant and Mirant. The utilities then bought electricity in the market, where prices fluctuated hourly. Cal-ISO bought small amounts of electricity as needed to fine-tune the flow of electricity on the grid, and charged the utilities for the purchases.

In May 2000, market prices shot up and stayed high for more than a year. Pacific Gas & Electric and Southern California Edison were banned from passing on their increased costs to customers. In January, when the utilities had bled so many billions of dollars that they were no longer credit-worthy, the state Power Exchange collapsed. It is now bankrupt, and the water department is buying power on behalf of the utilities.

Cal-ISO depends on the water department to pay for the grid operator’s purchases.

In their filing with FERC, the power companies allege that Cal-ISO has been choosing to use electricity purchased by the water department under long-term contracts instead of picking a power seller from a stack of bids, based on lowest cost.

Such favoritism affects the prices paid to private power plant owners and electricity marketers, Reliant and Mirant complain.

Stephanie McCorkle, a spokeswoman for Cal-ISO, said her agency has been put in a “tough spot” by the collapse of the state’s power market, but is still abiding by federal power market rules. The agency is constrained by the fact that it must have a credit-worthy buyer to back its electricity purchases, and the only agency doing that now is the water department, she said.