Generators to respond by Thursday in FERC California case

By Kate Thomas
OGJ Online Staff

HOUSTON, July 10 -- Electric generators said they will file comments by Thursday with the Federal Energy Regulatory Commission after refund talks with California reached a stalemate.

Administrative Law Judge Curtis Wagner ended the talks Monday, the deadline set by the commission, when no settlement was reached. California is demanding $9 billion in refunds for alleged overcharges for electricity. Generators offered a reported $716 million to resolve the dispute. Other western states asked for an additional $6 billion in refunds.

Wagner said he had prepared an outline of the refund recommendations he will make to the five-member commission, which has the power to impose refunds. He set a Thursday deadline for the state and power generators to comment on his proposal.

"We'll do some additional comments by Thursday," said Richard Wheatley, a spokesman for Reliant Energy Inc., Houston. Meanwhile, he said, Reliant is "trying to get an arm around" what the judge will report back to the commission.

A spokesman for Dynegy Inc., Houston, said the company believed the generators made a "substantial offer" to California and is disappointed the offer was not accepted. Dynegy, which is in a 50% joint electricity venture with NRG Energy Inc., Minneapolis, Minn., in California, will be reading and studying the judge's methodology, said Steve Stengel.

California Gov. Davis claimed victory, noting the judge "rejected the generators' position that no refunds are due." State negotiators also threatened to go to court if compensation is less than they believe the state is owed.

California chief negotiator Michael Kahn said that in 15 days of secret talks the state received no "meaningful offers" from the generators.

In public comments, Wagner said the refunds should be in the "hundreds of millions" to possibly $1 billion, but not the $9 billion California Gov. Gray Davis is demanding. Because California likely owes the generators more money in unpaid receivables than it is entitled to in refunds, there is the possibility the state could come away empty handed.

Noting "there are billions of dollars in unpaid bills," Joel Newton, an attorney who spoke on behalf of Reliant; Dynegy; Duke Energy Corp., Charlotte, NC; Mirant Corp., Atlanta, Ga.; and Williams, Tulsa, said the refund question is just one piece of a much larger puzzle.

He said the commission should continue its past approach of allowing suppliers to offset any refund liability against the billions of dollars owed. "It is ludicrous to require payments in cash when suppliers are owed massive sums of money," he said.

Furthermore, Newton recommended the commission should insure any refund order include the entire market, including nonjurisdictional sellers whether or not the commission can enforce the refund order. Nor is there a basis for exempting the California investor-owned utilities from refund liability, he said.

In an preliminary oral assessment, Wagner said methods used in FERC's June 19 order that instituted price controls in the western US should be applied retroactively to October 2000 rather than May 2000 as the state has demanded. Electric generators have contended refund claims can only be made for power bought after November 2000, reducing California's claim to about $6 billion.

Wagner also said he would consider recommending several changes to the commission's method of calculating electric prices in the June 19 order. He said the California gas market should be divided into north and south for pricing purposes rather than the single market used to calculate prices in the June 19 order. Prices in southern California have tended to be substantially higher than in northern California.

Wagner said the hourly heat rate used for calculating electricity prices should be the actual heat rate reported on marginal dispatch for the California Independent System Operator market, said FERC spokeswoman Tamara Young-Allen.

Wagner agreed with the June 19 order that electricity sold in California should include a 10% credit risk, she said, among other recommendations.

Davis earlier said he would consider some noncash compensation as part of the refund package, including renegotiated contracts with the state for electricity, debt forgiveness, and below-market prices in future contracts.