California's Davis calls for refunds in testimony

Now that federal regulators have instituted price controls on spot electricity transactions throughout the West, regulators 'must order energy companies to give us back our money' resulting from overcharges for power, California Gov. Gray Davis told the US Senate Committee on Governmental Affairs.

Jun 20th, 2001


Kate Thomas
OGJ Online Staff

HOUSTON, June 20 -- Now that federal regulators have instituted price controls on spot electricity transactions throughout the West, regulators "must order energy companies to give us back our money" resulting from overcharges for power, California Gov. Gray Davis told a US senate oversight committee.

Testifying Wednesday before the Committee on Governmental Affairs, Davis said the committee must hold the Federal Energy Regulatory Commission's "feet to the fire" on the refund question because Californians "have been bilked out of $9 billion." Davis said under law FERC must order refunds, if the agency has found prices are not "just and reasonable" as it has in the California market.

Sen. Joseph Lieberman (D-Conn.), chairman, said he shared the governor's concerns that refunds have not been ordered and because of the "importance" of the electricity crisis the committee is "going to stay on the case." Under intense pressure and with the political tide appearing to turn in favor of Democrats who threatened legislative action, FERC Monday modified an Apr. 26 order imposing electricity price controls during emergencies in California.

The agency extended the order to spot electricity transactions throughout the West for the first time and imposed the controls on transactions throughout the day, not just during emergencies called by the California Independent System Operator. However, the agency resisted more stringent measures such as a hard price cap or cost-based rates favored by Davis.

Gov. Davis said California paid $27 billion for power in 2000, a 400% increase over 1999, and anticipates power will cost $50-$60 billion this year, even though demand is falling 9%/month. "It's clear energy companies are exercising power over the market and driving up prices," Davis said, noting units of Reliant Energy Inc., Houston, charged $1,900/Mw-hr for electricity and Duke Energy Corp., Charlotte, NC, charged $3,800/Mw-hr.

"California has been a cash cow for these companies," he said. "Many have a wildcatter mentality." Refunds are a primary weapon FERC has for policing the market, and are the "only message energy companies will understand," he said.

Davis said he was pleased newly named FERC commissioner and Texan Pat Wood appeared sympathetic to refunds.

As part of a June 18 order, FERC called for a 15-day settlement conference on the refund question, but Davis complained the order does not give much guidance to the administrative law judge who will preside over the proceedings. Moreover, he said, the state is excluded from having a seat at the table. If the results are not satisfactory, Davis recommended the committee call FERC commissioners back to testify after the 15-day hearings are completed.

Davis said three new power plants representing 1,700 Mw will be operating by July and 5,000 Mw more will come on line for the next 3 years for a total of 20,000 Mw by 2004. In response to a question, the governor said he stood by comments that municipal electricity suppliers should be subject to the same refund rules as private energy companies.

Next, the governor said FERC needs to turn its attention to natural gas. Gas prices were higher in California than elsewhere in the US and did not begin to come down until a contract between El Paso and an affiliate expired and was "divided up among 30 companies," Davis said. Unreasonably high gas prices helped drive up power prices, he told the committee.

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