State Sues Canadian Utility, Alleging Past Overcharges

California Atty. Gen. Bill Lockyer sued British Columbia’s provincial utility Thursday, accusing it of finagling up to $850 million in electricity overcharges during the state’s 2000-01 energy crisis.

The suit, filed in Sacramento County Superior Court, claims that Powerex Corp. gouged the Department of Water Resources on thousands of occasions, manipulated Western energy markets and contributed to phony shortages of electricity. Powerex is a unit of the British Columbia Hydro and Power Authority.

“Powerex gamed the market, then gouged the state, taxpayers and ratepayers,” Lockyer said in a statement. “It created conditions that allowed it to hold California businesses and consumers hostage, and left the state no choice but to pay the ransom. We want that money back.”

The damages sought aren’t specified in the suit, but state investigators peg the overcharges at $850 million, allegedly incurred between January and June 2001.

The suit focuses on a period at the peak of the energy crisis, when private suppliers stopped dealing with the state’s financially reeling utilities, forcing the Department of Water Resources to fill the void in a desperate bid to keep the lights on.

Powerex, with vast stores of hydroelectric power, emerged as a crucial supplier during that time. State officials claim Powerex contributed to the crisis, while abusing the leverage it held over California as a result of the problems.

Powerex expressed outrage over the suit Thursday, noting that the company continued to send electricity when the state was in dire need.

“It is frankly the height of bad faith for California to seek to [renege] on its contracts and demand money back, when it still owes Powerex more than $280 million for the power that was delivered during 2000-2001,” Powerex Vice President Doug Little said.

California’s suit came longer than a year after Powerex agreed to pay $1.3 million to settle charges by the Federal Energy Regulatory Commission of market gaming in California. Powerex officials Thursday cited language from that 2003 settlement as exoneration of the firm’s conduct, adding that FERC didn’t rule that it had abused the marketplace.

Powerex said it would respond vigorously to the allegations.

“We believe that California grossly mismanaged its energy affairs prior to and during the crisis, which was largely self-inflicted,” Little said. “They failed to construct adequate generation, did not have adequate transmission in place and passed some of the worst energy statutes ever enacted. Now they seek to make Powerex a scapegoat to divert political attention away from their own ineptitude.”

Lockyer’s suit describes the utility as often the only supplier able to provide the huge amounts of power the state needed to avoid blackouts.

“Powerex used this knowledge to demand exorbitant prices and impose onerous transaction terms for the energy it supplied,” the suit says. In so doing, “Powerex unfairly extracted millions of dollars” from the state.

Powerex has long been accused by California officials of exploiting the marketplace during the crisis.

The company allegedly worked with other power suppliers to evade price caps on electricity generated within California, according to documents California officials filed with FERC in March 2003 as part of the state’s quest to win as much as $9 billion in electricity refunds from the energy crisis.

California officials charged that Powerex repeatedly helped to disguise the origin of electricity through complex deals that made it appear as though power generated inside of California’s borders was coming from out of state and therefore could command a higher price.

The utility, the documents said, also made extensive use of a so-called Fat Boy scheme made famous by Enron Corp. In that trading technique, a company would tell electricity officials it planned to use more power than it actually needed, in the process getting extra payments when it appeared to deliver more power than promised.

In one April 2000 e-mail filed with FERC, a Powerex trader noted of the over-scheduling technique that “the more we do it, the more comfortable and better we will get so that we can really take advantage of high summer prices.”