Power Refunds Still Up in Air
In its battle for energy-crisis refunds, California has returned to the bargaining table with newfound muscle, courtesy of the U.S. 9th Circuit Court of Appeals.
A recent appeals court ruling on issues stemming from the electricity market meltdown of 2000-01 has raised the possibility of a much larger refund for power overcharges than federal regulators had planned. And it may also provide state officials with new leverage in settlement talks with power suppliers.
At the same time, the September ruling by the three-judge appeals panel could prompt further skirmishing at the Federal Energy Regulatory Commission and in the courts, taking years to sort out, according to government officials and energy suppliers.
“It may bring things back on the table that were previously decided, that we believed were put to rest,” said Elisha Moreno, spokeswoman for Powerex, the marketing arm of British Columbia’s utility. The ruling, she said, was “a backward step.”
One large item back in play is the state’s claim for refunds prior to Oct. 2, 2000, a figure once estimated at $2.8 billion.
FERC had steadfastly maintained it couldn’t order relief for the initial phase of the energy crisis because the Federal Power Act required regulators to wait 60 days after a complaint was filed to consider refunds. The ruling strongly affirmed the panel’s authority to order refunds retroactively, prior to a formal complaint.
Beyond that, state attorneys contend that the appellate decision opens the door to refunds for another pool of money regulators had ruled off limits: $2 billion to $3 billion in purchases of emergency electricity by the state Department of Water Resources at the height of the crisis.
“That’s how we read it,” said Ken Alex, chief of the state attorney general’s energy task force and acting senior assistant attorney general. “Frankly, we think it’s fairly clear that’s what the 9th Circuit had in mind.”
While those matters are far from decided, they underscore the potentially far-reaching effects of the appellate decision, which scolded FERC for “abdicating its regulatory responsibility” during the collapse of California’s wholesale energy market.
FERC officials suggested last year that they were moving toward an overall refund of about $3 billion, much of which California’s major utilities already owed to power suppliers. State officials have long claimed that the amount should be much higher -- about $8.9 billion.
But the larger figure may be eroding in light of recent settlements in which the state has absolved those who made deals from further liability.
Agreements with Duke Energy Corp., Dynegy Inc., Williams Cos. and others are valued at more than $800 million -- but have trimmed perhaps $1.5 billion from the $8.9-billion claim. That’s because the state accepted less than 100 cents on the dollars sought, said Erik Saltmarsh, executive director of the state’s Electricity Oversight Board, which is among those negotiating with power suppliers.
For those that haven’t settled, the 9th Circuit ruling raises the possibility that refunds may be larger than they once had expected. This prospect hasn’t gone unnoticed in Washington, where federal regulators would like nothing more than to see the stubborn California controversies go away.
“If there’s ever a good excuse to settle, it’s that opinion,” FERC Chairman Patrick Wood III said shortly after the court ruling.
As some see it, the appellate decision has changed the calculus for power companies as they weigh the risks and benefits of continuing legal challenges versus resolving their disputes.
“Nobody is unaware of the order. It affects everybody’s thinking on both sides of the table,” Saltmarsh said. “It definitely strengthens the state’s argument that we have a good chance of getting a significant part of the money that’s on appeal.”
Neither the state nor energy companies would disclose details about negotiations or identify the firms participating.
“We would be happy to reach a global settlement,” Stephanie Slavin, a spokeswoman for Reliant Energy Inc. in Houston, said, alluding to the sorts of deals reached by Duke and Dynegy that resolved all their disputes with the state. But she would provide no further details and noted that it wasn’t known how FERC would respond to the judicial order.
James Peters, spokesman for Atlanta-based Mirant Corp., said the company was disappointed by the ruling. “Mirant is evaluating its options in relation to this decision but won’t speculate on what those options are at this point,” he said.
Mirant symbolizes some of the challenges the state faces in recovering overcharges as time passes and conditions change. In July 2003, Mirant filed for Chapter 11 bankruptcy protection. If FERC orders the company to pay new refunds, Peters noted, “the Bankruptcy Court will oversee and rule on the claim.”
While the state’s push for refunds has retained significant political currency, it’s murkier than ever when utility customers might see a dime.
The California Independent System Operator, which runs the electricity transmission grid for much of the state, is putting together a slew of statistics on past electrical charges that will help determine a refund number. The long-awaited data dump is expected to be forwarded to FERC early next year.
But as the 9th Circuit demonstrated, the outcome of the controversy increasingly may be influenced by legal rulings. The appeals court is still sorting out disputes on more than 40 FERC decisions related to the refund case.
And some of the conflicts will inevitably wind up at the Supreme Court, Powerex’s Moreno predicted. “It will take years to resolve,” she said.
