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Industry News

California Capsule: FERC Says 2 Power Firms Cheated

LCG, March 15, 2001--The Federal Energy Regulatory Commission yesterday told two big California power suppliers to answer charges that they manipulated the state's wholesale electricity market to artificially inflate prices.

The two companies, AES Southland, a unit of AES Corp. that purchased some power plants from Southern California Edison Co., and Williams Energy Marketing & Trading Co., a subsidiary of The Williams Cos. that markets the plants' power for AES, were given 20 days to pay the California Independent System Operator $10.8 million or show cause why they "should not be found to have violated the Federal Power Act by engaging in actions that inflated power prices in the California market."

The charges stem from a FERC investigation into the unavailability of the Alamitos 4 and Huntington Beach 2 units, Orange County plants that were designated "must run" for system reliability. Cal-ISO designates certain plants as "must run" so that they can be called on for power when the grid is threatened.

The ISO pays a must run plant's owner for this availability and also for energy not used if the plant is kept on standby when its output could otherwise be sold in the open market. In accepting payment, the owner agrees to supply power when it is needed.

FERC says that the two companies appeared to have financial incentive to withhold generation from the two units. Both companies deny any wrongdoing.

And there is more, from where the sun goes down along with other forms of energy.

  • Jumping on the FERC order, California Senate leader John Burton said yesterday that a panel of the Senate would ask officials of electricity supply firms to testify, under subpoena if necessary, about possible manipulation of the state's wholesale power market. "Clearly, evidence suggests that there has been market manipulation by the power generators," Burton said, "which led to rolling blackouts and then higher electric prices."
    Jan Smutny-Jones, executive director of the independent power producers industry group, called Burton's investigation a "witch hunt" and predicted it "will find nothing except that power producers have been working around the clock to keep the lights on in California." Reliant Energy spokesman Richard Wheatley called the probe "a negative development" while Tom Williams of Duke Energy said the accusations are "wearing thin."

  • In Washington, U.S. Energy Secretary Spencer Abraham said this morning that blackouts appear "inevitable" in California this summer. In written testimony, he told the Senate Energy Committee "The problem will get worse, and blackouts this summer appear inevitable when peak demand is expected to be 61,125 megawatts while supplies are anticipated to be only 56,159 megawatts." Abraham's figures include all of California, not the three-quarters of the state over which Cal-ISO has jurisdiction.

  • Also in the U.S. Senate, an amendment tacked onto a bankruptcy reform law that would have forced California utilities to pay Bonneville Power Administration and other Northwest power producers for electricity sold into California under a federal order, even if the companies declared bankruptcy, was rejected in a motion on the Senate floor. Opponents said it would have set a dangerous precedent, establishing two classes of creditors, and could force the companies into involuntary bankruptcy.

  • The California Public Utilities Commission was expected today to discuss whether to prevent Pacific Gas & Electric Co. and SoCal Edison from laying off about 3,000 workers. A PUC administrative law judge has recommended that the regulators block the layoffs, saying they would slow response times to customer outages and hurt reliability. The companies say the layoffs are necessary to reduce the drain on their meager cash resources.

  • Also today, the PUC may decide how much money the state will be able to extract from householders' monthly electric bills to finance the long-term power purchase contracts being entered into by the California Department of Water Resources. The water agency has so far committed about $43 billion of public funds for those contracts and the state plans to issue $10 billion in revenue bonds to fund the program. Whether the bonds can be issued depends on how the debt is to be serviced, and funds for debt service will ultimately come from those who use the power.

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