Power Refund Faces Delays
Regulators have some news for Californians who think they paid too much for electricity during the energy crisis: The check won’t be in the mail anytime soon.
The debate over the size of a refund for alleged abuses by power suppliers in 2000 and 2001 -- once expected in 2003 -- has proved so contentious that a decision isn’t expected before late this year. Legal wrangling over billions of dollars has clouded the outcome.
“It could take many more months than we had hoped,” said Patrick H. Wood III, chairman of the Federal Energy Regulatory Commission, in a Jan. 26 conference call with Wall Street energy analysts.
Wood’s comment came shortly after the California power grid operator told federal regulators it could not meet their timetable for cranking out revised charges for energy transactions during the crisis, a crucial step toward reaching a refund number.
The question of a refund for California ratepayers is the last major piece of unfinished business from the market meltdown that rattled the state’s economy and political system before abruptly ending in the summer of 2001. State Atty. Gen. Bill Lockyer, major utilities and the state Public Utilities Commission have demanded $8.9 billion from power sellers and are pressing the matter in the courts.
But U.S. regulators, who ultimately will set an official dollar amount, have suggested that the refund would be much lower, perhaps about $3 billion. Officials on all sides hope to resolve the issue this year, although the timing remains far from certain.
“We’ve just had a tremendous war over how you count,” said Michael Kahn, chairman of the California Independent System Operator, which runs the power transmission grid for much of the state and in December began recalculating tens of millions of energy transactions made during the crisis.
Even now, more than three years after federal regulators ruled that prices charged in California during the crisis were not always just and reasonable, the bottom line continues to shift.
The federal energy panel is weighing pleas by generators that regulators underestimated the amount paid for natural gas to fuel power plants during the energy debacle. Those arguments could cut the refund by as much as $500 million.
Federal regulators also are hashing out how to account for certain purchases by the state Department of Water Resources, a decision that could reduce the refund by another $250 million.
On top of that, the U.S. 9th Circuit Court of Appeals may soon rule on a case brought by Lockyer that some claim could add as much as $3 billion to the refund pot by extending the time period under consideration.
“It could be a significant turn of events in the refund process,” said Ken Alex, a supervising deputy attorney general working on the refund case.
Customers of Edison International’s Southern California Edison Co. and PG&E; Corp.’s Pacific Gas & Electric Co. would be most affected by the outcome of the struggle. Decisions on how a refund would be passed on, such as through rate cuts, have yet to be made by state regulators, but utility spokesmen said customers would benefit.
The administrative process for obtaining a refund, which began in August 2000 with the filing of a complaint by Sempra Energy’s San Diego Gas & Electric Co., has been slowed by a series of battles over matters including the proper time period to include in the case, the admissibility of evidence of wrongdoing by generators and the manner of accounting for gas costs to produce electricity.
“It’s been a gut-wrenching deliberation,” said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., group whose members include electricity generators that would have to pay the refund.
Most agree that the quest for justice has proven unduly time-consuming. Wood, FERC’s low-key chairman, expressed his frustrations in unusually blunt terms during the Wall Street conference call, saying he wanted the California grid operator to explain in writing “whose fault it is why this thing is taking so damn long.”
On Dec. 15, grid officials notified the federal energy panel that the January deadline for a crucial data calculation would have to slide until about April, probably pushing the final refund calculation into the summer.
The grid operator said that it has had to work through 17 technical issues, such as corrections to meter data, and that federal regulators might have misunderstood how long certain procedures take.
“I don’t blame him [Wood] for being impatient,” said Kahn, the grid operator’s chairman. “But the fact that he’s impatient and frustrated doesn’t mean we should do it faster. We’re frustrated too, but this is a massive undertaking, and we have to do it right.”
For their part, generators still dispute that any refund is owed, contending that they should not be penalized for shouldering the risks of providing energy in a marketplace that was gravely flawed in design.
Ackerman described the $8.9-billion claim as “a bunch of hooey.” Former Gov. Gray Davis, he said, “got people all excited about a number that never existed.”
Whatever the final number, it is likely to be controversial and few are counting on a speedy delivery.
Asked about the timing, Wood, whose term ends in June 2005, told the energy analysts: “California, oh dear, it will be done by the time I’m ever out of this job -- but boy it’s going to be close.”
Said Kahn: “In ’05 we’ll be fighting it out in the courts over these same issues.”
