Generators bristle at gouging accusations Friday, 23 March 2001 20:30 (ET)

Generators bristle at gouging accusations By HIL ANDERSON UPI Chief Energy Correspondent

LOS ANGELES, March 23 (UPI) -- The power industry took umbrage Friday at accusations by state and federal officials that companies overcharged California for electricity this winter.

Generating companies that have been fetching lofty prices for their megawatts for the past year said Friday that the California Independent System Operator (ISO) and Federal Energy Regulatory Commission were off base in their separate findings on overcharges.

"In short, we didn't overcharge anybody," said Bill Hobbs, president of Williams energy marketing unit. "What all this appears to be is an attempt to install price controls, which have never been shown to be in the best interest of any healthy market, energy or otherwise."

The FERC earlier this month ordered 13 companies to justify $69 million in questionable charges made during January. On Thursday, the ISO increased its estimate of the amount of allegedly unreasonable charges the state was forced to pay this winter from $5.5 billion to $6.3 billion.

The issue of price-gouging has been an undercurrent in California's energy crunch ever since the rising price of electricity became an economic and political issue last summer. By being stuck in a seller's market, California has been forced to bid for electricity that the producers are free to sell elsewhere if they can get a better price.

And there have been suspicions that the power companies have engineered periodic shortages in order to inflate prices by shutting down generators for mechanical reasons that often cannot be confirmed.

The industry has maintained that their costs have gone up due to rising natural gas prices, and point out that they continue to provide power to California even though the state's cash-strapped utilities have large unpaid bills outstanding.

"Prices for electricity coming from these plants have always been fair and reasonable, particularly when you consider the cost of fuel, the severe imbalance of supply and demand in the state, and the mechanism the state established to dictate final prices," said Randy Harrison, CEO of Mirant's western operations. "And if a generation unit in one of our plants was offline during a critical time, it was because it was broken."

Harrison and other industry representatives said the latest confrontation with the ISO stemmed from an overhaul of the ISO board by Gov. Gray Davis, who earlier this year bounced members with ties to the industry and replaced them with gubernatorial appointees.

"Generators have been playing by the rules and have been offering to sell power at substantially lower long-term contract rates since last summer," said Jan Smutny-Jones, director of the Independent Energy Producers trade association. "This latest attempt by the ISO to poison the atmosphere against the generators and use them as scapegoats is clearly more about politics than trying to solve the problem and keep the lights on in California."

The FERC was not spared from the industry's retorts, even though the Washington-based regulators have steadfastly resisted calls from Davis and other Western lawmakers to put a cap on wholesale power prices. The criticism of the FERC, however, was more tempered and focused more on methodology than political motives.

"We believe that the FERC's approach does not reflect all relevant costs, including any payment for return on investment, lost opportunity or credit risk taken by power suppliers," said Hobbs. -- Copyright 2001 by United Press International. All rights reserved. --

-- Tom Flook (tflook@earthlink.net), March 24, 2001