State’s Consumers Deserve Justice in Energy Rip-Off

Gray Davis is governor of California.

Two years after an energy crisis that caused outrageous rate increases and several days of rolling blackouts, evidence to be released publicly Wednesday finally provides the truth about what happened: We were bilked and gouged by energy companies engaged in shady and illicit business practices. More important, the documents tell a far more troubling story: What happened in California could happen anywhere.

For much of the last few years, California stood alone, fighting an uphill battle against the Federal Energy Regulatory Commission, the energy traders and national public opinion. Observers said in effect, get over it; you passed a flawed deregulation law and are suffering the consequences. Deregulation is workable, they suggested. California just got it wrong.

But I believe the new evidence we obtained shows the depth and breadth of marketers’ manipulations. It also demonstrates that the illegal practices that sent California’s energy prices through the roof at huge cost to the state’s economy could happen to any state.

Federal energy regulators must now deliver justice to California consumers. They must act not just because California deserves relief but also because the energy companies must be served notice that their gouging will not be tolerated anywhere.


The proof came in early March when the state of California, including the governor’s office, the attorney general and our two largest electric utilities, sent more than 3,000 pages of evidence to FERC detailing widespread lying, cheating and stealing by energy companies.

The evidence provided a depth of detail to back up charges of market manipulation that the state had begun presenting to FERC nearly two years ago. We were certain the evidence was there but were not able to seek it out until a federal court forced FERC to open discovery proceedings last November. From the beginning, we’ve been emphatic in our arguments to FERC that California’s electricity market was being manipulated by energy generators and traders. In 1999, California paid $7 billion for electricity; in 2000, we paid $27 billion; and in 2001, we paid $26.5 billion.

We found that Enron-style tactics -- detailed in the company’s memos -- went well beyond Enron. For example, the evidence shows that many of the largest generators and traders intentionally submitted false load schedules to create scarcity and drive up prices, a practice Enron dubbed “Fat-Boy.” Some of these companies also participated in what Enron called “Ricochet” and “Death Star,” transmission and electricity export-import games that artificially raised prices in California.

The investigation also revealed that sellers and traders colluded in implementing these schemes. Generators withheld from the market plants that were capable of normal operation. They bid their power in at high prices during a system emergency, knowing that the system operator had no choice but to buy at outrageous prices. Until now, they’ve gotten away with it.


The revelations of illegal gaming include evidence that the sellers coordinated some of their market manipulations. For example, many generators shared outage information with one another that was not available to the public.

It is the responsibility of FERC to police the energy companies and ensure that, when there are overcharges resulting from malfeasance, at the very least those companies must provide refunds to ratepayers. So far, FERC has turned a blind eye. Californians haven’t seen a penny.

Unlike his two predecessors, who, at best, sat idly by, FERC Chairman Pat Wood says he is willing to right the wrongs. Now is his chance. The evidence filed with FERC has been covered by a protective order requiring the California parties to keep the evidence confidential. FERC says it will release this evidence Wednesday. If energy deregulation is to be viable at all in the nation, the whole story in California needs to be understood.

Now, with the evidence in FERC’s hands, Californians deserve justice. It’s time for FERC to act in the consumers’ interest and stop protecting the energy companies. California has asked FERC for $9 billion in refunds for overpriced energy. We intend to get every dollar back.