Officials Weigh How to Distribute Refund

Californians shouldn’t look for refund checks in the mail any time soon -- if ever.

The state’s utility customers will eventually benefit from the federal order Wednesday that power suppliers must return $3.3 billion they netted by overcharging for electricity and natural gas during the California energy crisis.

But most consumers might not get their payback directly. They could see the benefits through lower electricity rates. Or the gains could reach people even more circuitously, in the form of bigger rainy-day reserves at their utilities or a more rapid pay-down of the $11.3 billion the state borrowed last year to cover electricity purchases made at the height of the crisis.

Unhappy that the Federal Energy Regulatory Commission order was for much less than the nearly $9 billion the state had demanded, Gov. Gray Davis said he is prepared to appeal the FERC order to federal court. But refunds could begin flowing as soon as this summer while attorneys argue.

The California Public Utilities Commission and the boards of public utility districts will decide how the money will be distributed.

With their order Wednesday, federal regulators intended to take away from power sellers that overcharged and give to buyers who paid too much.

The order means the California Independent System Operator -- manager of most of California’s transmission grid -- will have to recalculate electricity sales from Oct. 2, 2000, through June 21, 2001.

Hour by hour, Cal-ISO will figure out who charged too much and who paid too much, then send bills and checks accordingly. That process could begin in 60 days and then will probably require another 60 days to complete, said Erik Saltmarsh, chief counsel of the state Electricity Oversight Board.

The biggest buyers of electricity during the crisis can expect to be the biggest recipients of refunds. They are a smattering of publicly owned utilities and water districts and the state’s three largest investor-owned utilities: Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric.

For months, the dominant buyer was the state Department of Water Resources, which purchased electricity for customers of the three big utilities after they ran out of cash and couldn’t do the job themselves.

But it’s not clear from the FERC decision Wednesday that the DWR is eligible for refunds.

“We’re still analyzing that,” said Oscar Hidalgo, spokesman for the DWR branch that was thrust into large-scale power-buying by the risk of widespread blackouts. He added that if the DWR did get refunds, it probably would be up to the PUC to figure out how to allocate the money among the three utilities’ customers.

The utilities are ultimately responsible for the emergency electricity bill the DWR bought with money borrowed from the state’s general fund. The DWR paid the fund back by issuing $11.3 billion in bonds.

Right now, utility customers are making the bond payments through their monthly bills -- and will have to keep doing so for 20 years to pay the bonds off. Refunds could retire that debt earlier.

The utility customers most likely to get individual checks live in San Diego, Saltmarsh said. That’s because San Diegans directly paid soaring market prices in the summer of 2000, while others around the state were protected by a rate freeze.

The possibility of billions of dollars arriving in California might intrigue lawmakers wrestling with a budget deficit estimated at $35 billion over the next 16 months. But state officials say refunds shouldn’t be used to bridge the budget gap. Refund money “rightly belongs to ratepayers,” said Department of Finance Director Steve Peace.

Refunds or no, Californians can expect their electricity rates to fall in 2004, thanks to low market prices and renegotiated long-term energy contracts. They might get a break even sooner.

“It may be possible, depending on FERC’s remedies, to provide some relief in 2003,” the governor told reporters.

“We obviously can’t opine on that until we see how much money is forthcoming.”