Calif. Report Widens Blame in Energy Plot

Times Staff Writers

New evidence being submitted by California officials to federal regulators today will show that more than a dozen public utilities and energy generators, including the Los Angeles Department of Water and Power, Sempra Energy, Mirant Corp. and Duke Energy Corp., participated in schemes to push up prices during the California energy crisis, officials said Sunday.

The details are part of a sealed, 1,000-page filing that is intended to show that the exploitation of California's deregulated energy market in 2000 and 2001 was far more pervasive than has been proved to date and involved more participants than the few that have previously been named.

The filing will be submitted to the Federal Energy Regulatory Commission by a coalition of state government agencies and the state's two largest electric utilities, Southern California Edison and Pacific Gas & Electric. The coalition wants federal regulators to order $9 billion in refunds for overcharges during the energy crisis.

Although the findings are covered by an order of confidentiality, a group of California officials Sunday directly accused companies and municipal utilities by name of exploiting the state's energy marketplace and complained that federal regulators have taken too long to compensate the state for the unfair practices.

"The massive cover-up by generators is unraveling," Gov. Gray Davis said in a statement. "The evidence of manipulation unearthed is so overwhelming even FERC can't hide from it."

He added: "To date, FERC has not returned a single dollar in refunds from the generators. It has a moral and legal responsibility to correct this outrage."

The accusations -- including the withholding of power when it was desperately needed by California -- were denied Sunday by power sellers contacted by The Times, including Sempra Energy, Mirant, Duke Energy and the Los Angeles, Glendale, Pasadena and Anaheim municipal utilities. Several said they looked forward to reviewing the state's evidence after two years of bitter fighting over the causes of the energy crisis.

But the filing by the coalition, which also includes the state attorney general, Public Utilities Commission and Electricity Oversight Board, describes a broad range of manipulative market behavior by power providers, traders and municipal utilities.

It accuses such power suppliers as Reliant Resources Inc., Williams Cos., Dynegy Inc., Mirant and Duke of withholding power to push up prices. It also accuses a range of companies of executing strategies to boost profits by misleading the marketplace.

The strategies are similar to tactics that Enron Corp., now under bankruptcy protection, employed, according to confidential memos released last year. Those memos suggested that other companies also were gaming the market, but provided no details.

For example, the Los Angeles Department of Water and Power, Sempra, Mirant, Williams and Powerex Corp. are said to have played the Enron game known as "Ricochet," which involved avoiding price caps by selling power out of state and then trading it back again, state officials said in a briefing with reporters Sunday.

Others are said to have employed a strategy made famous at Enron known as "Fat Boy," in which a company tells electricity officials that it plans to use more power than it actually does, in the process getting extra payments. This group included Sempra, Powerex, Mirant, Dynegy and Williams, according to California officials.

"This evidence should force FERC to recognize, at long last, just how egregiously and extensively California was plundered, defrauded and ripped off by the energy pirates," said Atty. Gen. Bill Lockyer, whose office coordinated the investigation. "FERC can no longer avoid providing California the long-overdue justice it deserves."

People familiar with the filing said that a few firms also allegedly engaged in a practice that Enron traders dubbed "Death Star," in which companies would create false congestion on the power grid and then get paid a premium for easing the problem. Companies in this group included Coral Power, Sempra, Mirant, Powerex and Duke, as well as the Modesto municipal utility.

Most details remained secret Sunday because of the broad order of confidentiality imposed by FERC. But the people familiar with the state's case said they had been legally advised that they could disclose the names of firms discussed in the filing. They said the firms and utilities whose names they released had knowingly engaged in practices that distorted the market and fueled skyrocketing electricity prices.

Asked about the Los Angeles Department of Water and Power's role in the crisis, one official said: "They worked cooperatively with traders on these ricochet deals -- and took steps to conceal what they were doing."

The filing also accuses the DWP of colluding in an arrangement to share power with Powerex, and alleges a similar collusive arrangement between Glendale and Enron and Coral.

Both DWP and Glendale Water & Power representatives said they already had been cleared of similar allegations by other investigations.

"It's surprising that they would put us in this category," said Randy Howard, the DWP's communications director.

An independent audit of the DWP released last month found no evidence that the municipal utility manipulated power prices, Howard said. The audit, conducted by the Washington energy law firm of VanNess Feldman, said that Enron used DWP transmission lines to implement some of its trading strategies, but noted that "transmission providers like LADWP do not have a duty to verify how transmission customers will use the transmission service they purchase."

The report went on to say that the DWP acted in a legal manner to help ease power shortages in the state during the crisis.

A Glendale internal investigation conducted last year found that its power traders did not knowingly participate in improper electricity trading ploys.

The utility has acknowledged that it had a profit-sharing agreement with Enron to sell electricity that Glendale did not need for its own customers. It now has a similar deal with Coral.

"It is our position that Glendale did not engage in any inappropriate Enron strategies," said Jack Dicanio, a lawyer representing Glendale. "Glendale has cooperated fully with all of the investigations."

Pasadena and Anaheim utility officials also denied gaming the market.

"The information concerning Anaheim is an incorrect characterization of how energy is scheduled with very small municipalities," said Marcie Edwards, Anaheim Public Utilities general manager

"I cannot see how we could drive up prices," said Eric Klinkner, Pasadena's director of power supply.

Sempra spokesman Doug Kline said Sunday's charges amounted to "more saber-rattling by California politicians" to force renegotiation of the long-term power contract the state Department of Water Resources has with Sempra, the San Diego-based parent company of San Diego Gas & Electric Co. and Southern California Gas Co.

"The state's allegations are untrue," Kline said. "Our trading company complied with all of the market rules and regulations and did not engage in any of the tactics mentioned."

Duke Energy spokesman Patrick Mullen said the company looked forward to seeing the state's evidence.

"For two years now, Duke Energy has had to face these types of allegations regarding operations in California, and they have repeatedly been proven short on facts and legally baseless," Mullen said. "We have operated appropriately and with integrity."

Mirant spokesman Patrick Dorinson denied any wrongdoing by the company, saying it operated its power plants "during the entire energy crisis within the rules set by the state and by FERC and set production records for our facilities above and beyond what the previous owners had produced."

Other companies and utilities accused of gaming the market could not immediately be reached for comment.

The aggressive drive to collect evidence of price manipulation was triggered last August, when an appeals court judge ruled that California was entitled to conduct such discovery.

The stakes are high because evidence of price manipulation would entitle the state and the major utilities to a significantly larger refund than the $1.8 billion that a FERC judge previously approved.

FERC, the nation's power watchdog, has the authority to change the judge's order and mandate a bigger refund.

In the fall, FERC approved a 100-day discovery period, later expanded to 103 days.

The California parties Sunday maintained that although they had found a great deal of evidence, the effort had been hindered by companies that responded slowly to their requests and indications that evidence had been destroyed.

Vickie Whitney, a deputy state attorney general, said that three Enron employees and one Mirant employee invoked their constitutional right to refuse to testify, frustrating the efforts of investigators. They held "several keys that we could not get through to open up other doors to this," she said.

In a statement, Davis said that in addition to withholding power, generators shared non-public outage information with the help of a subscription service that gave them the data. Additionally, he said, the California parties uncovered profit-sharing agreements between traders and public power entities to sell nonexistent services.

State officials Sunday said they hoped the new filing would force firms that have paid little price for the energy woes to come up with billions in refunds.

Until now, federal regulators in effect have told the energy companies, "You can keep the money you stole; just don't steal anymore," Davis said Sunday.

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Peterson reported from Washington and Rivera Brooks from Los Angeles. Times staff writers Richard Winton and David Reyes contributed.

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