FERC Ruling a Setback to State Contracts Case
California suffered a setback Tuesday in its bid to force renegotiation of long-term power contracts after a regulatory judge ruled the state could not introduce evidence of market manipulation to bolster its claims.
Meanwhile, a team of California investigators camped out at the Tulsa, Okla., headquarters of Williams Cos. to help determine whether the state should honor its recently negotiated settlement with the power supplier over energy contracts. The deal has been jeopardized by new disclosures that Williams may have conspired to squeeze electricity supplies in 2000.
California’s demand that federal regulators toss out costly long-term electricity contracts is the subject of a two-week hearing before Judge Bobbie McCartney, an administrative law judge with the Federal Energy Regulatory Commission in Washington. McCartney ruled Tuesday that she would not open the proceedings to consider allegations of gaming the market.
State officials maintain that manipulation by energy companies is a legitimate consideration, saying it worsened the energy shortage and created a crisis atmosphere that handicapped California as it negotiated long-term power agreements with energy companies.
But FERC spokesman Bryan Lee said market abuses were beyond the scope of the contracts case.
“This hearing was never to consider whether there were market abuses,” Lee said. “This hearing was to determine whether dysfunction in the short-term market affected prices for long-term electricity supply.”
The judge’s ruling Tuesday is in sharp contrast with the evidentiary procedure being followed in another case before FERC, in which California is seeking as much as $9 billion in refunds for alleged overcharges for short-term electricity purchases. In that case, a U.S. appeals court has directed FERC to allow the parties to develop and introduce evidence of manipulation.
“This is wrong,” Erik Saltmarsh, acting executive director of the Electricity Oversight Board in Sacramento, said of McCartney’s ruling.
Saltmarsh, whose state board is a party to the FERC contract proceeding, said the judge based her decision on an overly narrow interpretation of the commission order setting the matter for trial.
Steve Maviglio, a spokesman for Gov. Davis, also blasted the decision. “There is more and more evidence every day that market manipulation existed, and they want to ignore it,” he said.
Despite McCartney’s ruling, the issue of market abuses could find its way back into the case.
One possible avenue was outlined by McCartney herself, when she suggested that the state’s lawyers could ask her to take “judicial notice” of another FERC judge’s initial finding that El Paso Corp. manipulated the California natural-gas market.
Natural gas is the main fuel for producing electricity in the state. The El Paso case is being considered by the FERC board.
Another avenue could lie with the refunds case, in which the California plaintiffs have been given 100 days to develop and introduce evidence that electricity prices were subject to manipulation.
Should such evidence emerge, McCartney may have to reconsider her ruling.
The hearing before McCartney is scheduled to end Dec. 13, and an initial decision is due Feb. 14.
That decision would go to the FERC board, whose commissioners would decide whether to ratify it, reject it or send the case back to the judge for more work.
California has been attempting to renegotiate several long-term power contracts and scored its biggest success with Williams.
Williams last month agreed to slice as much as $1.4 billion from the cost of a $4.3-billion contract to supply electricity to California and provide more than $400 million in other concessions on condition that the state drop civil lawsuits against Williams.
California officials have until Dec. 15 to finalize the agreement.
But Maviglio said the deal was placed in jeopardy after documents were released last month detailing Williams’ efforts to fake power-plant shutdowns in early 2000.
Williams said the state was aware of the documents all along. They turned up as part of an investigation by FERC that Williams settled, without admitting guilt, by paying $8 million in fines.
The disclosures in the documents followed Williams’ admission that traders had lied to an industry publication about the price of some natural-gas deals.
Williams and other energy suppliers and traders remain the subject of several state and federal probes.
Lawyers from a state task force investigating alleged energy market manipulation are in Tulsa this week interviewing Williams executives, traders and other employees, according to Tom Dresslar, a spokesman for California Atty. Gen. Bill Lockyer.
“We are doing the due diligence on the settlement, and the agreement requires them to cooperate in our broader investigation,” Dresslar said. “I assume we would be talking to them about the overall market investigation.”
More than 20 interviews have been conducted and more than 500 boxes of documents are being examined, Dresslar said. This is the team’s second visit to Williams, he added.
Williams spokesman Kelly Swan said the company is cooperating.
“Both sides have an interest in consummating this agreement” by the Dec. 15 deadline, Swan said.
“Everything is headed in that direction.”
Times staff writer Ricardo Alonso-Zaldivar contributed to this report, and Reuters was used in compiling it.
