New Evidence of Fraud in Power Crisis
New evidence has emerged that AES Corp. and Williams Cos. conspired to squeeze electricity supplies to California in early 2000, drawing an angry response Friday from state officials and bolstering contentions that the enormously expensive energy crisis was at least partly a fraud.
Indications of bogus power plant shutdowns, released Friday by federal regulators, may threaten a settlement unveiled Monday in which the state agreed to drop lawsuits accusing Williams of price gouging during the energy meltdown of 2000-01 in exchange for concessions by Williams on long-term electricity contracts.
The Federal Energy Regulatory Commission released a previously sealed investigation Friday showing Williams employees cutting deals in April and May 2000 with AES employees to shut down one Southern California power plant that AES operated for Williams and prolong a maintenance closure at another.
The FERC investigation found that Williams employee Rhonda Morgan, in two taped telephone conversations, told an AES worker on April 27 that “Williams wanted the outage to run long” at a Long Beach power plant that had closed for repairs two days before.
In a conversation later that day with Eric Pendergraft, identified in the FERC report as a high-ranking AES employee, Morgan said, “I don’t wanna do something underhanded, but if there’s work you can continue to do ... “
Pendergraft responded: “I understand. You don’t have to talk anymore.”
AES extended the outage through May 5.
Williams, which has a contract to market the electricity from AES electricity plants in California, earned more than $10 million by selling more expensive electricity from other AES plants to the California Independent System Operator during the outages at the Long Beach and Huntington Beach plants totaling 17 days, FERC investigators found.
AES and Williams settled the inquiry in April 2001, without admitting wrongdoing, after Williams agreed to refund $8 million to Cal-ISO -- $2 million less than the profit Williams made. Cal-ISO runs electricity markets for last-minute power and operates the long-distance transmission grid serving about 75% of the state.
The disclosures give added juice to accusations that energy suppliers worked together to drive up prices in the state’s electricity markets, which were created under California’s ill-fated venture into power deregulation.
In May, FERC released Enron Corp. documents showing that the energy company used trading tactics to create artificial shortages and boost prices.
Former Enron trader Timothy N. Belden has pleaded guilty to conspiracy to commit wire fraud in connection with the ploys, and the Justice Department and the California attorney general are pursuing separate antitrust investigations against other energy suppliers, including AES of Arlington, Va., and Williams of Tulsa, Okla.
The fresh evidence released Friday presented California officials an opportunity to renew demands that FERC order $9 billion returned to the state for alleged overcharges during the energy crisis.
But a top state official said California is unlikely to gain any ground in that proceeding because the allegations come as part of an investigation that was settled last year and because a recent FERC ruling limited the kinds of evidence that the state can present.
At the very least, the damaging new details gleaned from recorded conversations between Williams and AES employees -- who at times laugh at their “games” that earned Williams a more than tenfold profit on its power -- gave California politicians a chance to claim vindication and accuse FERC of moving too slowly to help the state.
FERC, which acts as a sort of federal utilities commission, was criticized Tuesday in a report by the Democratic staff of the Senate Governmental Affairs Committee, which said the commission failed to devote enough resources to respond aggressively to reports of price gouging or other misdeeds.
“Almost a year and a half ago, when I went public with charts and graphs that showed power plants shut down for maintenance at sometimes four times the normal rate, the energy companies and Vice President [Dick] Cheney scoffed at the implication that the energy supply was being manipulated,” Sen. Barbara Boxer (D-Calif.) said.
“Now we know the truth. FERC should immediately order refunds for California. We want our money back from this thievery.”
Steve Maviglio, a spokesman for Gov. Gray Davis, called the allegations “very serious” and said they could threaten the settlement with Williams, which the Davis administration had estimated would save the state as much as $1.4 billion in power costs over 10 years.
“We have until Dec. 15 to pull the plug on the settlement ... and we can continue to pursue criminal fraud charges,” Maviglio said.
Loretta Lynch, president of the California Public Utilities Commission, said the FERC report lent credence to a recent PUC report that concluded that the state’s generators withheld power from the state, causing unnecessary blackouts.
“This shows that FERC, despite all of its promises, is not doing its job,” Lynch said. “FERC, even when they catch the energy suppliers in shenanigans, they slap them on the wrist.”
Lynch said the new evidence would not aid California’s demands for power refunds because FERC ruled Nov. 1 that the state could not present evidence of market manipulation in the proceeding.
A FERC spokesman declined to comment.
Williams and AES denied wrongdoing Friday, and Williams said the state was aware of the FERC findings when it negotiated the settlement announced Monday. That deal requires $417 million in concessions from Williams, including a $147-million cash payment.
Williams, in a statement, acknowledged that some employees engaged in “an inap- propriate conversation” about whether to extend the maintenance period at the Long Beach plant. But both companies said the outages were legitimate and were conducted during the normal spring maintenance period.
Morgan was disciplined and later fired as part of a recent downsizing of the company’s troubled trading operation.
Overall system reliability and the prices paid to other market participants were not affected by the outages, Williams said.
The FERC investigation concerned the operation of the AES-owned Alamitos power plant in Long Beach and AES’ Huntington Beach plant -- both large facilities containing several smaller plants. Both plants had generation units under contract with Williams to provide electricity to Cal-ISO at $63 a megawatt-hour -- enough power to supply about 750 typical homes for an hour.
The shutdowns allowed Williams to sell power to Cal-ISO from other AES plants at a premium price -- $750 a megawatt-hour, FERC documents show.
The FERC report, which had been under seal, was released Friday in response to a court order sought by the Wall Street Journal, which first reported details of the investigation.
The probe made use of telephone conversations between workers, which are routinely tape-recorded in the energy trading industry.
At Huntington Beach, an unnamed AES worker told a Williams employee that AES wanted to shut down one of its generation units on May 6, 2000, because Cal-ISO was not paying enough for the unit’s electricity to cover the air pollution credits that AES would have to buy to run the unit, the documents show.
The request was unusual because the unit in question was required to operate under contract to Cal-ISO to provide a reliable source of electricity.
“The Williams employee laughed, saying, ‘That’s weird,’ ” the FERC report said. “The AES employee responded, ‘Yeah, They’re playing games.’ The AES employee added that AES was ‘mad because of emission credits, or afraid they’re all going to get used up or something.’
In a later conversation, a Cal-ISO coordinator objected to shutting the unit to conserve pollution credits. In a taped conversation with Morgan, who monitored AES outages for Williams, the Cal-ISO coordinator said: “So take some of that money that you just raped us out of Alamitos 4 and buy some damn credits.”
Morgan laughed and said, “Good answer, man,” the report said. Morgan later confirmed to the Cal-ISO official that there was nothing wrong with the unit.
Williams subsequently changed its reason for the outage, saying the company needed to dredge mussel shells and other debris that were clogging cooling seawater tunnels that fed the power plant.
The Cal-ISO coordinator refused to accept that reason, saying he had worked at the plant when Southern California Edison owned it and mussel shells had never been a problem because Edison routinely flushed the tunnels with hot water. AES did not take that precaution, the FERC report said.
Williams later changed its explanation again for the outage, saying it was not for maintenance but was instead an unspecified “forced outage,” which Cal-ISO accepted.
FERC’s previously sealed report on Williams and AES can be viewed at www.latimes.com /fercreport.
