State to File Price-Gouging Evidence
California officials plan to submit a pile of newly discovered evidence Monday that they say will prove that price-gouging by power companies during the 2000-01 energy crisis was far more widespread than previously revealed.
The filing with the Federal Energy Regulatory Commission concludes an extraordinary, 103-day effort by California to uncover new evidence of energy price manipulation and to sketch the most-detailed picture to date of what happened during the chaotic months of rolling blackouts and exploding energy prices.
Most of the evidence is being filed confidentially with federal regulators, who are scrambling to complete their own investigation of the Western energy crisis by a March 31 deadline. Interviews with state regulators and utility officials suggest that California parties have collected a voluminous record documenting a broad pattern of price manipulation.
Those people say they can now prove what was first suggested -- but not documented -- in confidential Enron Corp. memos released last year: that a wide range of companies created shortages to boost profits during the energy crisis.
The filing, which exceeded 1,000 pages in a recent draft, is said to detail examples of power withholding by generators, various techniques to manipulate prices and even cases of collusion between energy traders and municipal utilities.
“We now know what we assumed was the case,” said John Bryson, chairman and chief executive of Edison International, a party to the filing. “There was very, very pervasive manipulation -- unlawful manipulation -- of markets, during the power crisis.”
During the energy crisis, California officials complained that federal regulators refused to investigate claims of market manipulation. Then last May, Enron -- under new management following its collapse -- released to federal regulators memos describing how the company rigged shortages through trading schemes with nicknames like “Death Star” and “Fat Boy.”
The Enron memos said other companies adopted similar ploys but provided no details.
The new state filing is said to include some transcripts of taped conversations in which energy traders for other companies described their methods. But much of the material is an analysis of data, which California officials maintain fills out the picture of market manipulation.
“We can show it’s not just Enron,” said Erik Saltmarsh, executive director and chief counsel of the state’s Electricity Oversight Board, referring to the new evidence. “Lots of people were Enron. Lots of people were doing this.”
Saltmarsh declined to name specific companies or instances of market manipulation, but said the apparent abuses involved a majority of the major energy providers to California.
A FERC administrative law judge ordered state officials not to make their findings public, citing concerns over disclosure of commercially sensitive trading information. California parties are pushing for full disclosure.
“We’re going to try to get that information,” Sen. Dianne Feinstein (D-Calif.) said in an interview. “If we have to file a [Freedom of Information Act request] we will. I think we’re entitled to it.”
Feinstein said disclosure would help the public regain faith in the energy marketplace. “If the energy sector is going to recover, it’s going to have to gain public confidence -- and that is nonexistent at this time,” she said.
FERC commissioners have the authority to overturn the order of secrecy. No decision has been made, but agency spokesman Kevin Cadden said the commission previously agreed to release the Enron memos.
The dash to gather final evidence was launched in August when the U.S. 9th Circuit Court of Appeals in San Francisco agreed with a group of California parties that they should be allowed to give FERC their own evidence of market manipulation. FERC had resisted that input into its own investigation.
Forced by the court, FERC in November established the special “discovery period,” later extended to 103 days, enabling the state to make sweeping requests for industry records, including the use of subpoenas and depositions.
FERC will review the new evidence and determine whether action against any companies or traders is warranted. The findings may also be a factor in a separate demand by California that its utilities are owed $9 billion in refunds because of excess charges by energy providers. In a preliminary ruling, an administrative law judge placed those overcharges at nearly $2 billion.
California’s filing will include a slew of new information obtained from energy companies. David Byford, a spokesman for Houston-based Dynegy Corp., said the firm produced about 1 million pages of documents in response to the state’s request, requiring thousands of hours of staff time.
Much of California’s interest involved details about plant outages and trading information from Dynegy plants, Byford said.
Others have made no secret of their frustration with the state’s request, comparing it to a fishing expedition -- or worse.
“This discovery process has been like the reign of terror for the last 100 days,” said Gary Ackerman, executive director of the Western Power Trading Forum, which represents traders and power plant owners.
By all accounts, the state’s request for information has been sweeping.
“I’ve seen some of the document requests, and they go for pages and pages [requesting] every scrap of paper that these companies generated dealing with California over a multiyear period,” said Mike Florio, a senior attorney with the Utility Reform Network, a consumer advocacy group. “I don’t know how much of it was actually produced, but the volume of material that’s implicated here is enormous.”
In December, when federal Administrative Law Judge Bruce L. Birchman found that energy suppliers overcharged California power purchasers by $1.8 billion, the figure was partly based on energy shortages that began October 2000.
But if the California parties establish that energy firms manipulated the marketplace, that would broaden the time frame for which refunds could be considered, pushing up the amount.
The infusion of new evidence may also complicate the goal of FERC Chairman Patrick Wood III to wrap up the agency’s investigation of the California market manipulation and the state’s requests for refunds by March 31. The agency will accept written replies to the filings until March 20 and could be faced with a significant amount of material to absorb at the very end.
As a result, some already are urging FERC to slow down. Rep. Doug Ose (R-Calif.) said last week in a letter to Wood that given the expected deluge of evidence, he was skeptical that FERC could complete its California work by the deadline.
Ose, who is chairman of a House subcommittee on energy policy, added that “if the people of California perceive that FERC rushed to judgment in the refund proceedings, a cloud will continue to hang over California’s energy future.”
