Regulators say they're close to proving power manipulation

MICHAEL LIEDTKE, AP Business Writer

Thursday, May 31, 2001, ©2001 Associated Press

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2001/05/31/state1749EDT7580.DTL&type=news#sections

(05-31) 14:49 PDT SAN FRANCISCO (AP) --

A year after California's electricity price shocks began, regulators say they are close to proving how power wholesalers aggravated a crisis that so far has raised customer rates by $5.7 billion, saddled two utilities with $8.2 billion in losses and dumped a $13 billion bailout bill on taxpayers.

California lawmakers and regulators are determined to recover some of that money from the power wholesalers who have cashed in on the crisis.

Toward that end, the California Public Utilities Commission, Attorney General Bill Lockyer and the California Electricity Oversight Board are trying to prove out-of-state wholesalers illegally manipulated the market to create artificial supply shortages that have driven wholesale electricity prices as high as $1,900 per megawatt hour.

Before California's power woes began in June 2000, wholesale prices on the spot market rarely climbed above $150 per megawatt hour.

California's Legislature also has formed two special investigative committees to look into the allegations of market misconduct. And at least five suits, including one filed by San Francisco City Attorney Louise Renne, are seeking damages from power wholesalers on behalf of all Californians.

At the very least, the investigators say they will show the wholesalers violated federal laws against "unjust and unreasonable" electricity prices.

"I don't think these are going to be very hard cases to make," said Owen Clements, chief special litigator for San Francisco. "Even if they didn't break the letter of the law, they clearly have violated the spirit of the law."

The investigators also suspect that the wholesalers have orchestrated a variety of more sinister abuses, possibly by colluding. Those allegations will be hard to prove, according to legal and energy experts.

The power wholesalers say they have done nothing wrong, arguing that they are being turned into scapegoats by a 1996 deregulation law sculpted by California lawmakers and the two utilities, Pacific Gas and Electric and Southern California Edison, that have reported a combined $8.2 billion in losses since June 2000.

Michael Aguirre, a San Diego attorney handling one of the private suits, fears California regulators and politicians are spending more time rattling cages than digging into the labyrinthine operations of the power wholesalers.

"Investigations like this require a lot of hard work, not a lot of rhetoric," Aguirre said. "So far, everyone seems to be talking loudly while carrying a small stick."

The PUC investigation appears to be the farthest along. With the help of former utility workers hired to assist in the investigation, the PUC has been poring through power plant documents in an effort to prove that some facilities shut down unnecessarily -- sometimes at the direction of Houston energy traders monitoring the market over the Internet -- to diminish supply and drive up prices.

Once prices spiked, the plants ramped up production to reap big profits, under the theory being investigated by the PUC and Lockyer's office. "I feel very confident that we are finding compelling evidence to prove our case," said Gary Cohen, the PUC's general counsel.

Cohen said the PUC could file a civil suit against the wholesalers by the end of June. Lockyer expects to wrap up his investigation in late July, at the earliest. "The (wholesalers) say they are just playing the market the way that it was set up to operate, and to a certain degree, that's true," Cohen said. "We need to come up with a legal theory to show what they did was wrong."

Both the PUC and Lockyer also are investigating allegations that the power wholesalers used industry Web sites to accumulate sensitive supply and demand information in a possible violation of antitrust laws.

To gain insight into the behind-the-scenes decisions made by wholesalers during the past year, Lockyer is offering multimillion dollar rewards to power plant workers and energy traders who provide the state with inside information that helps prove the power companies manipulated the market.

Power wholesalers say regulators are way off base in their probes. Industry officials maintain that the plants, many of which are 30 to 40 years old, shut down for legitimate equipment repairs and maintenance.

"No one in our industry cuts back on production so a competitor can make more money. It just doesn't happen, at least not on planet Earth," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park trade group.

On The Net:

California Public Utilities Commission: www.cpuc.ca.gov

California attorney general: www.caag.state.ca.us

©2001 Associated Press

-- Swissrose (cellier3@mindspring.com), May 31, 2001

Answers

How many times in the past have the politicos tried this kind of scapegoating--and always came up empty?

-- Uncle Fred (dogboy45@bigfoot.com), May 31, 2001.

This is nothing more than a throwback to the 1970's when thousands of lawsuits flooded the courts claiming every sort of conspiracy theory imaginable as being responsible for the oil crisis.

Nothing ever came out of any of it. It's difficult to prove that anything about natural free market forces is illegal.

-- Wayward (wayward@webtv.net), May 31, 2001.

Now I think I've heard it all, as to the got-the-goods-on-ya enthusiasm of the state's prosecutors. The generators broke the 'spirit' of the law. Boy, that sounds like a sure-fire conviction alright.

-- Billiver (billiver@aol.com), May 31, 2001.