California Document Calls Energy Market Abuses the 'Tip of the Iceberg'

Times Staff Writers

California officials, skirting a broad order of secrecy, Monday accused 70 energy companies and municipal utilities of using 10 principle schemes to push up prices in the state, and said the findings of a 103-day investigation represented only the "tip of the iceberg" of abuse during the energy crisis of 2000 and 2001.

The Federal Energy Regulatory Commission also came under mounting political pressure to release evidence contained in the filing.

FERC spokesman Kevin Cadden said the agency may release the information soon, after consulting the Justice Department and other investigating agencies.

The filing by three state agencies and California's two largest electric utilities was submitted to FERC as evidence in the state's bid to seek $9 billion in refunds for alleged price gouging by most major power companies and some municipal utilities.

While most of California's filing was kept under wraps Monday, the state released a detailed summary that alleged rampant manipulation of its energy market and collusion among power sellers during the time of rolling blackouts and soaring prices.

"This evidence, while substantial and compelling, is just the tip of the iceberg," the filing said. "As this investigation has shown, there is a snake under almost every rock one turns."

The filing represents California's most comprehensive effort to shed light on a vast, deregulated energy market that went awry, costing residents billions of dollars. It said the state's price tag for electricity between May 2000 and June 2001 exceeded $44 billion -- compared with less than $25 billion for all of 1998, 1999 and 2002 combined.

Gov. Gray Davis said the documents "establish an industrywide pattern of cheating and stealing from California ratepayers. More than a pattern, it was an epidemic."

"There's not just one smoking gun," Davis added. "There's an entire arsenal."

But several of the firms under scrutiny maintained that much of the filing -- said to exceed 3,000 pages -- recycles old allegations and mischaracterizes legal behavior.

"We have heard enough ... to know that their claims rest largely on after-the-fact judgments of the way a better-designed and differently regulated market would have performed," Reliant Resources Inc., a Houston-based energy firm, said in its filing Monday.

In January, Reliant agreed to pay $13.8 million for scheming to limit power to California on two days in June 2000. It said at the time that such abuses were isolated.

Duke Energy Corp. said it told FERC under oath last May "that our activities in the California energy market were appropriate." At that time, Duke and other firms were responding to the release of Enron Corp. memos detailing an array of trading schemes with names such as Death Star, Fat Boy and Get Shorty.

In the summary of their filing, the California parties Monday laid out several strategies that they contend firms used to manipulate the energy market. Some of the allegations were reported over the weekend, but the summary included new details about the state's chaotic energy marketplace during the crisis. The filing contended that firms:

* Withheld power generation. Major independent generating firms "engaged in the deliberate and systematic withholding of energy from the market, driving up prices by creating false shortages and scarcity," California parties claimed. Ploys included false reports that generators needed repair, and plant shutdowns when maintenance was unnecessary.

* Shared crucial information about outages. Houston-based Industrial Information Resources Inc. provided Dynegy Inc., Duke, Williams Cos. and other firms with "detailed, non-public information" about competitors' outages, the filing said.

* Purposely bid at high prices during system emergencies, knowing the state "would need all available power and would be willing to pay any price to get it."

* Manipulated the emissions market. The California parties said they have evidence that firms, including Dynegy and AES Corp., manipulated the market for pollution credits, creating the appearance of sharp price increases.

* Sold phantom "ancillary services," or the promise to deliver emergency power on short notice. Several power sellers in cooperation with various municipal utilities were accused of selling and repurchasing such services that were not intended to be delivered. Among those named were Enron, Sempra Energy, Coral Power, Williams, and the municipal utilities run by Glendale, Azusa and Modesto.

Power providers also created the appearance of congestion and reaped the benefits of congestion relief through a strategy known as Death Star. This behavior was associated with Enron, Coral, Sempra, Mirant Corp., Duke and Powerex. "Apparently willing partners" included the Los Angeles Department of Water and Power, the cities of Redding and Glendale and the Northern California Power Agency, the state filing claimed.

DWP spokesman Randy Howard noted that the utility has investigated the allegations and found no wrongdoing. Howard said officials had not seen the FERC filing to determine whether any new accusations had been levied.

"Nothing has been revealed or brought to our attention that would indicate there is anything new, any smoking gun," he said.

California politicians urged FERC to make public the documents filed by the coalition composed of California Atty. Gen. Bill Lockyer, the California Public Utilities Commission, the Electricity Oversight Board, Southern California Edison and Pacific Gas & Electric.

Keeping evidence secret is a chronic problem in FERC investigations, Sen. Dianne Feinstein (D-Calif.) said in an interview.

"The information goes into a lockbox and becomes a great classified secret, which I think is one of the largest problems FERC has," Feinstein said.

Loretta Lynch, a member of the state Public Utilities Commission, said FERC should use California's evidence not just to order refunds, but to sanction power sellers and to force the renegotiation of costly energy contracts the state signed during the crisis.

"I think it would be egregious if FERC only looked at the evidence that California has so carefully assembled and applied it only to the refund proceeding," Lynch said.

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Times staff writer Doug Smith contributed to this report.

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