Energy Supplier Settles With State

By Jonathan Peterson

July 14, 2004 12 AM PT

Times Staff Writer

California officials said Tuesday that they had reached a $207.5-million settlement with Duke Energy Corp. to end disputes from the 2000-01 energy crisis -- the latest in a series of deals to resolve conflicts with power suppliers and provide some relief to consumers.

The settlement reflects a push by the state to negotiate refunds for past overcharges rather than leave matters to the Federal Energy Regulatory Commission or rely entirely on lawsuits.

“This is a good settlement for residential and business ratepayers, who were stuck with a multibillion-dollar tab after energy companies ran amok in an unprecedented gouging spree,” California Atty. Gen. Bill Lockyer said in a statement.

Electricity sellers have steadfastly denied wrongdoing during the energy emergency, which was marked by record power prices, insolvent utilities and rolling blackouts.

In the new accord, Duke went further than federal regulators have demanded, agreeing to compensate major utilities for alleged overcharges in the summer of 2000 as well as emergency electricity purchases by the state Department of Water Resources. Although the federal energy panel has ruled that it can’t demand refunds for those charges, the state succeeded in including some relief in agreements with Dynegy Inc. in April and Williams Cos. in February.

The settlement with Duke, which had combined net income of $3.67 billion in 2000 and 2001, includes $38.1 million for the summer of 2000 and $8 million for the emergency purchases by the Department of Water Resources. The department took over utility power-buying duties during the market meltdown.

Overall, the settlement would provide $172 million in ratepayer benefits, Lockyer’s office said, with most of it going to PG&E; Corp.’s Pacific Gas & Electric Co., Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric Co.

The form of any relief to ratepayers will be determined by the California Public Utilities Commission. The PUC and the Federal Energy Regulatory Commission must approve the settlement, and both are expected to do so.

California politicians, regulators and utilities have long been at loggerheads with FERC over the size of refunds owed by power suppliers for alleged overcharges in 2000 and 2001. The state has sought $8.9 billion, with the federal energy panel signaling that it would approve perhaps one-third that amount.

Increasingly, it appears, energy firms are willing to pay more than federal regulators have demanded, in a bid to wipe the slate clean with California.

The announcement Tuesday “brings welcome closure to these protracted proceedings, removing the associated risks and burdens of regulatory and legal uncertainty,” Duke President Fred Fowler said. Fowler, in a statement, maintained that the Charlotte, N.C., energy company abided by market rules during the energy crisis.

Duke shares rose 12 cents Tuesday to $20.59 on the New York Stock Exchange.

The Duke settlement demonstrates a recent willingness by California to accept amounts that are sharply less than it initially sought from energy companies but are more than federal regulators appeared inclined to grant.

Erik Saltmarsh, executive director of the state’s Electricity Oversight Board, said that state calculations had suggested that Duke’s refund ideally would be about $300 million and that FERC had been moving toward a number closer to $120 million.

Saltmarsh said such settlements were in the best interests of California consumers, given the alternative of lengthy legal and regulatory dueling.

“Does it get us everything we wanted when we first went to FERC? Of course not,” he said of the Duke-style settlements. “The reality of the world is that when there are still undecided courts and things like that, you can never get someone to agree to 100 cents on the dollar.”

California also bent on its initial demands in the April settlement with Dynegy for $281.5 million, a deal touted as a model for the future. State officials originally wanted something closer to $400 million. FERC, meanwhile, seemed to be headed toward a settlement of about $170 million, Saltmarsh said.

“There is a huge gap between what FERC’s decisions would provide California and what California is owed,” said Lockyer spokesman Tom Dresslar. “Our goal is to structure the settlements in a way that fills as much of that gap as possible.”

The deal with Duke would bring ratepayer relief from various state-negotiated settlements and law enforcement proceedings to almost $1.8 billion, in addition to $305 million in potential savings from revisions in long-term contracts, according to Lockyer’s office.

In the Duke settlement, more than half the overall figure would be accounted for by payments to Duke that have been withheld by utilities.

The company would provide a cash payment of $85 million for much of the rest. Duke also agreed to pay $3.25 million each to the states of Washington and Oregon.

Duke would be freed from refund claims and civil enforcement actions by Lockyer, as well as market price investigations in Washington and Oregon.

In late June, the federal energy panel held a conference in which California officials issued about 80 settlement offers to energy providers to settle hundreds of millions of dollars in long-standing disputes.

That session has yet to yield new accords, although Saltmarsh said Tuesday that some of the firms had “expressed interest” in resolving the disputes.

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Power payoffs

Settlements reached between California and electricity sellers for disputes from the energy crisis of 2000-01 (in millions)

El Paso Corp.: $1,700

Williams: $417.0

Dynegy/NRG/West Coast Power: $281.5

Duke Energy and affiliates: $207.5

El Paso Electric: $15.5

Portland General Electric: $6.1

Calpine: $6.0

Constellation: $2.5