Lockyer Calls for Stronger Energy Laws
California Atty. Gen. Bill Lockyer on Tuesday criticized federal laws and regulatory agencies that he said “sheltered wrongdoers” during the energy crisis and called for changes to prevent a repeat of the state’s experience.
In a report to Congress, the California Legislature, Gov. Arnold Schwarzenegger and federal and state regulators, Lockyer pushes for an overhaul of a legal framework that the report says continues to provide incentives for electricity market abuse and hinders the state’s push for refunds from companies involved in the 2000-01 energy meltdown.
“Laws, rules and regulators are supposed to protect consumers and deter misconduct, but in the case of the California energy crisis, the system has sheltered wrongdoers and left ratepayers out in the cold,” Lockyer said in a statement. He stressed the need for “substantial reforms” in federal and state regulations to strengthen enforcement powers and expand the remedies for unlawful conduct in the energy market.
The report takes aim at the so-called “filed rate doctrine,” an arcane federal rule that has been interpreted by the Federal Energy Regulatory Commission as prohibiting refunds to California for wholesale electricity rates set before Oct. 2, 2000 -- even though FERC has determined that those rates were unjust and unreasonable.
That stance, which California has challenged, wiped out a large portion of the $9 billion in refunds the state believes it is owed for overcharges during the crisis. FERC has set the refund amount at about $3 billion and has collected just $85 million in company settlements thus far.
Ken Alex, supervising deputy attorney and the head of Lockyer’s energy task force, said in a conference call with reporters that California’s ability to recover more than $3 billion “is constrained in ways that we believe creates really enormous incentives on the part of generators to try to create an energy crisis in the future, because of the massive potential for profits.”
FERC fired back immediately. Agency spokesman Bryan Lee accused Lockyer, presumed to be an eventual candidate for governor, of “political posturing and press pandering” and labeled the report “a political stunt designed to generate headlines, not solutions to California’s problems.”
Lee also said that the attorney general downplayed the “fatally flawed” design of California’s deregulated energy market.
As for FERC’s actions in the three years since the energy crisis, Lee said the agency “has done everything within its legal authority to rectify the unjust and unreasonable prices that occurred in 2000 and 2001.” For FERC to do more, he said, laws would have to be rewritten.
Lockyer’s report recommends that. Federal law should be changed, it says, to allow for retroactive refunds, the cancellation of power contracts inked in a dysfunctional market, larger penalties from FERC for proven violations and the expansion of refunds to address overcharges at other entities that stem from the market-distorting actions of a single company.
In addition, the report says, lawmakers should boost enforcement budgets and extend policing powers to state entities, and modify or eliminate the filed rate doctrine protections that prohibit challenges to past rates in situations where electricity prices are constantly changing and set by the market.
“I think there is truth on both sides here,” said Roger Berliner, an attorney in Washington whose firm has represented power companies at FERC. “It is true that FERC’s performance during the crisis was abysmal.... I think a lot of people agree that FERC’s disgorgement of $85 million is grossly inadequate compared to the harm that took place.”
In addition, Berliner said, “FERC is absolutely right in pointing out that California has more than its fair share of the blame for the crisis in the first place.”
Gary Ackerman, executive director of the industry-backed Western Power Trading Forum, was blunt. “The whole document smacks of sour grapes,” he said. “They have a really poor batting average [in court], and I think they are venting their frustration on paper.”
A spokeswoman for the governor, Ashley Snee, said he would “take a look at” the report, adding, “The governor does agree that in a restructured market, it’s important to have strict market monitors.”
In other energy developments Tuesday, California Treasurer Phil Angelides and two consumer groups urged California legislators to reject a proposal by Schwarzenegger to eliminate the state’s power authority, known formally as the California Consumer Power and Conservation Financing Authority.
“It is deeply troubling that the only agency the governor is proposing for elimination today is one that protects ratepayers and consumers and imposes no costs on taxpayers,” said Angelides, who appeared at two hearings in the state Legislature on Tuesday to oppose the plan. “It ought to be defeated, and it ought not to even be considered until the governor comes forward with a comprehensive energy plan.”
The power authority was created at the height of the energy crisis, with backing from Angelides, to encourage energy efficiency, conservation and the use of renewable resources and to finance energy generation projects through bonds.
