Calif. Cites 60 Energy Firms in Report

SAN FRANCISCO (Reuters) - California, armed with what it calls hard, new evidence of rampant power market manipulation, handed federal regulators on Monday the names of about 60 energy companies it alleges were behind the state's 2000-2001 energy crisis.

Loretta Lynch, a member of the California Public Utilities Commission, told Reuters a 1,000-page final report on the crisis filed Monday at the Federal Energy Regulatory Commission names "almost 60 companies that participated in gaming our energy market."

The crisis, triggered by a badly flawed attempt to open the electric industry to competition, cost California billions of dollars, bankrupted the state's biggest utility, and subjected millions of residents to blackouts.

The sealed report charges that a host of merchant energy generators and a handful of municipally owned utilities engaged in trading schemes and withheld desperately needed electricity to jack up power prices tenfold.

Dozens of energy companies, including El Paso Corp. (EP.N), Dynegy Inc. (DYN.N), Williams Cos. (WMB.N), and Duke Energy Corp. (DUK.N) previously have denied wrongdoing in the crisis.

"There is nothing new in the allegations. It's an opportunity for the state to make its case and the generators to respond with facts. That's really the order of the day," Jan Smutny-Jones, executive director of the Independent Energy Producers Association, told Reuters. The group represents about 50 merchant generators operating in California.

Lynch, president of the CPUC at the height of the energy emergency, said California was to file motions at FERC on Monday to compel federal regulators to make the evidence in the report public and identify the energy companies.

A coalition of California's attorney general, the CPUC, the state's electricity oversight board, Edison International's (EIX.N) Southern California Edison utility, and PG&E Corp.'s (PCG.N) Pacific Gas & Electric utility unit said the new evidence supports their demand for refunds.

State officials said this latest report supports their outstanding demand for $7.5 billion in consumer refunds and bolsters a separate claim that generators still owe the state nearly $9 billion to cover the cost of emergency energy purchases.

"This is not just one smoking gun. It is an entire arsenal," California Gov. Gray Davis told an afternoon news conference in Sacramento, the state capital.

Davis said the "overwhelming" evidence of market manipulation "fully reinforces our long-held belief that we are entitled to $9 billion in refunds ... We are not letting go. We are getting the money back."

FERC's three commissioners have promised to issue a final ruling in the case by the end of March.

In a preliminary ruling in December, a FERC judge said the state was owed about $1.8 billion in overcharges. That amount can be upheld, rejected or modified by FERC commissioners.

Lynch identified five big energy companies she said "engaged in systematic withholding" of power supplies to drive up wholesale prices -- an AES/Williams joint venture, Dynegy, Mirant Corp. (MIR.N), Reliant Resources Inc. (RRI.N) "and then to a lesser extent," Duke Energy.

She also named other energy companies and traders included in the California report, among them the Canadian trading firm of PowerEx, Sempra Energy (SRE.N), El Paso Electric Co. (EE.N), and the PacifiCorp unit of Scottish Power Plc (SPW.L).

Lynch said several municipal utilities allegedly were involved in illegal market strategies, including the giant Los Angeles Department of Water and Power (LADWP) and smaller utilities and irrigation districts in Pasadena, Modesto and Turlock, California, plus the Snohomish County municipal utility in Washington state.

Companies and traders "played two different kinds of games" to rig prices that were previously disclosed in investigations of bankrupt energy giant Enron Corp. (ENRNQ.PK), Lynch said.

The strategies involved giving phony information to the California ISO, which operates the power grid, to inflate demand on the system, and also to "park" megawatts in neighboring states to create artificial in-state shortages.

LADWP director of communications Randy Howard said an independent audit last month by law firm VanNess Feldman found the utility had not participated in dubious trading schemes.

"I'm very surprised the governor would put us in this category or imply within his comments that we did participate in those kind of activities," he said.

The Modesto Irrigation District, which supplies power to about 100,000 customers in central California, said it had not seen a copy of the report but had done nothing wrong.

"Every transaction MID entered into provided some benefit for the California grid or the Western energy market," said Kate Hora, a spokeswoman for the utility, adding: "We're not large enough to move energy prices or manipulate anything."

The California ISO was among the first to raise the alarm that something was wrong in the California marketplace, warning in mid-2000 that generators appeared to be manipulating prices through a series of trading strategies.

By March 2001 the ISO reported that generators were deliberately withholding power to jack up prices, a practice the generators have strongly denied ever since.

Lynch said the investigation, led by California attorney general Bill Lockyer, also uncovered evidence that some trading documents had been destroyed, but provided no names citing the report's confidentiality.

Generators have until March 20 to file their rebuttals with FERC. (Additional reporting by Nigel Hunt, Los Angeles, and James Jelter, San Francisco)

"This is not just one smoking gun. It is an entire arsenal," California Gov. Gray Davis told an afternoon news conference in Sacramento, the state capital.

I guess the best defense is a good offense. Some articles say that Freeman may be the scapegoat on some of this study as LADWP cooperated with many of the "politically evil generating companies." Actually, if there is any truth to the report it will likely shread the Cal-ISO, but that is another story.

Seriously, in reading my issue of Clearing-UP a utility trade publication, it indicated that Ashcroft Justice Dept attorney's had supinoed (sp) Cal-ISO for a months worth of documents that are due to be produced by March 4th. I wonder if that is going to start making headlines?

This is a teaser version they post for the public of some articles

Actually they have an interesting story that is relevant.

The so-called "Death Star" strategy did not harm California's electricity market during the power crisis of 2000 and 2001; in fact, it benefited the state's electricity consumers. That's the position taken in testimony filed on behalf of Portland General Electric last week in the Federal Energy Regulatory Commission's investigation of whether PGE and Enron Power Marketing Inc. manipulated power prices. Testimony filed on behalf of EPMI claims the Death Star transactions were not improper because they actually relieved congestion in the Cal-ISO market--but even if certain EPMI-PGE transactions were found to be illegal, the refund amount would be less than $173,633.

Yes, it will be interesting to see how the dust settles on all the bluster that Davis has been spouting on the evil price gougers. I expect that FERC will make some findings that send money back to California, but probably not as much as FERC is going to make utilities pay certain power companies, labled by Davis as evil price gougers.

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