Hearings ordered on power pacts : (Fed) Regulators to eye long-term deals made during (Cal ) crisis

The San Diego Union Tribune ^ | April 11, 2002 | Toby Eckert

[Ernest_at_the_Beach]

WASHINGTON – Federal regulators yesterday ordered hearings into whether California's power crisis unfairly inflated the cost of some long-term power contracts and whether the contracts should be modified.

The move, which affects hundreds of contracts negotiated by utilities in Nevada, Washington and California, buoyed California officials. They have asked the Federal Energy Regulatory Commission to cancel or modify some of the $43 billion in contracts the state struck with power providers during the crisis, when prices were far higher than they are now.

Although the state's case was not part of FERC's order yesterday, a spokesman for Gov. Gray Davis said the action may prod energy companies to renegotiate their contracts with the state.

However, in ordering the hearings, FERC cautioned that the utilities may have a hard time proving its case.

"It is our view that . . . parties who seek to overturn market-based contracts into which they voluntarily entered will bear a heavy burden," the commission said in its draft order. "In the evidence presented thus far, the complainants have failed to show that the dysfunctional California . . . spot markets had an adverse effect on the long-term, bilateral markets in California, Nevada and Washington."

It also urged the parties to continue negotiating settlements. The case is expected to last more than a year.

Still, the commission said the hearing was justified "based on the unusual circumstances presented."

The contracts in question were entered into between Nov. 1, 2000, and June 20, 2001, when California was in the grips of the power crisis and electricity prices in the West were at unprecedented levels.

In a complaint against Duke Energy, Enron Power Marketing and several other power providers, two Nevada utilities claim they entered into long-term contracts for electricity priced up to $290 per megawatt hour. The utilities say the prices resulted from a dysfunctional and uncompetitive market.

The Southern California Water Co. said it entered into a five-year contract at $95 per megawatt hour with Mirant after it was unable to purchase power from any other sellers at a lower price. It also contends the price was unlawful.

Spot market prices are now about $30 per megawatt hour.

The power sellers have responded that the contract prices were attractive at the time, when spot market prices were much higher. Mirant, for instance, pointed out that when it entered into the contract with the water company, spot prices were more than $200 per megawatt hour, according to a FERC summary.

A megawatt is enough to power roughly 750 homes.

"An evidentiary hearing will support all the things we've been saying for a long time," said Gary Ackerman, executive director of the Western Power Trading Forum, an industry group. "They mismanaged their procurement in such a way that they regret it now."

An administrative law judge will preside over the case.

FERC said it hoped to make a decision in the case by May 31, 2003.

The state of California entered into $43 billion in long-term contracts. The California Public Utilities Commission and the Electricity Oversight Board contend the state was overcharged by as much as $21 billion and want FERC to void or modify the deals.

Steve Maviglio, a spokesman for Davis, welcomed FERC's action in the other cases.

"The governor is pleased that FERC is apparently nudging some reluctant generators to get to the table to renegotiate these contracts," Maviglio said.

The state is "very close" to a deal with several generators, but others are refusing to bargain, he said.

[Ernest_at_the_Beach]

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[snopercod]

An administrative law judge will preside over the case.

Oh great, a political appointee...

[snopercod]

So Nevada is suing Enron, but not California.

I still think CalPERS is the 500 lb. gorilla ordering Davis to shut up regarding Enron.

[snopercod]

Unless it can be shown there was fraud Exactly.

And I can't see how that is possible since Davis was willing to sign the contracts at the agreed price. How could there be fraud involved?

Is Davis claiming that the generators are not living up to their end of the bargain. Is davis claiming that the energy companies somehow selling "defective" electricity - adulterated megawatts - limp waveform - too many harmonics - what?