Posted:
February 19, 2008
Editor’s note: This story by Elizabeth Douglass and David G. Savage appeared in the Feb. 19 edition of the Los Angeles Times.
“This is exactly what happened during the
energy crisis. The utility companies were forced, on a very short time frame,
to go out and buy power from people who knew they had them over a barrel.” State Assemblyman
Lloyd Levine
California’s
energy crisis ended seven years ago, but electricity customers are still paying
for it, lawyers are arguing over it and regulators are reigniting debate over the
policies that led up to it.
The U.S.
Supreme Court will hear arguments today about whether the high-priced energy
contracts signed amid the crisis can be reopened to make sure the rates are
fair.
And later this
month, state utility regulators are expected to move toward allowing
Californians to buy electricity from companies other than the traditional
utilities -- a central feature of the previous deregulation effort.
“All this
stuff that got put on the side burner for a while is all coming back,” said
Michael Shames, executive director of
If you’re
wondering why these things matter, check your utility bill. Customers of
A sample bill
from Edison lists the ways.
There’s the “DWR
bond charge” to repay bonds the state Department of Water Resources issued so
it could buy power during the crisis. And there’s the cost of the electricity
the agency bought -- and is still buying -- under long-term contracts. Edison’s
bill lists that as “DWR generation.”
Then there’s
the “trust transfer amount,” earmarked for repaying 10-year bonds that funded
rate reductions for the first four years of the deregulation plan. The
utilities’ customers are paying an estimated $3.4 billion more than they will
have gotten from the rate rollback.
Finally, there’s
the competition transition charge, which Edison calls “ongoing CTC.” That
reimburses the utilities for expensive energy contracts and power plant
investments that weren’t fully recovered when the companies sold them as part
of deregulation.
The CTC is
getting smaller but will be on Edison bills until 2028. There’s little chance
of relief on the bond charges. But the cost of DWR’s power contracts is another
matter. The state believes it is due between $1.45 billion and $3.08 billion on
four contracts that were never renegotiated -- money that could go back to
electric customers in some form, possibly by reducing or eliminating future
charges.
That’s what the
Supreme Court fight is about.
In 2002, the
California Public Utilities Commission, the California Electricity Oversight
Board and others complained to federal energy regulators that the DWR contracts
should be nullified because they contained unreasonably high prices resulting
from a rigged market. Similar complaints were filed by
The Federal
Energy Regulatory Commission refused to void the agreements. It cited a “long-standing
policy . . . to recognize the sanctity of contracts.”
In a separate
case, however, the commission acknowledged that energy prices were unreasonably
high during the crisis and approved refunds and settlements that returned
nearly $6 billion to the utilities and their customers.
State lawyers
won a potentially significant victory in the U.S. 9th Circuit Court of Appeals.
In December 2006, a three-judge panel said the long-term contracts could be
voided if “market manipulation” resulted in rates that were above what was
reasonable. The decision ordered FERC to reconsider contracts from all three
states.
But before the
commission could do so, wholesale energy traders and providers asked the
Supreme Court to throw out the 9th Circuit’s rulings. They argue that a deal is
a deal.
Erik
Saltmarsh, former executive director of the Electricity Oversight Board, said
such an argument was “almost synonymous with saying, ‘If you’re lucky enough to
find someone who desperately needs power in the middle of a crisis, you want
the right to lock them into a bad deal that nobody can get them out of.’ “
During today’s
session, the justices will hear arguments in a related case brought by a
Washington state utility, and they will rule by late June on whether FERC
should reconsider its decision allowing the long-term power contracts to stand.
Whatever is
decided will be applied to the pending cases from California and Nevada.
Move to Deregulate Again
Back at the
California Public Utilities Commission, there’s a move afoot to deregulate
again, beginning with a system known as direct access. That change would give
customers a choice of electricity providers.
A group of big
power users and energy providers called the Alliance for Retail Energy Markets
asked the commission to reinstate direct access, arguing that the state law
that prohibited that move no longer applied even though the DWR contracts
extended through 2015.
“It wasn’t
direct access that caused the energy crisis,” said Norm Plotkin, executive
director of the Sacramento-based alliance. He added that now, “everything is
normalized . . . and there is an urge for competitive options.”
Mary Orem, a
resident of the San Diego County city of Carlsbad, is intrigued by the concept.
“It’s risky,
because obviously it failed before,” said Orem, a big proponent of alternative
energy. “But I like the idea of opening up to new choices.”
The group’s
request alarmed legislators and consumer advocates. Several lawmakers sent a
letter to PUC President Michael Peevey warning him that he shouldn’t consider
actions that “contravene existing statutes and are not within the discretion”
of the commission.
“Direct access
was the justification for deregulation,” said Shames of the San Diego consumer
group. “Here we are trying to fire it back up, saying basically that the
lessons have been learned. I wish I could be that sanguine about it.”
In December,
Peevey agreed that the state shouldn’t bring back direct access until DWR was
out of the power business. However, in a decision that won’t be final until it
is voted on later this month, Peevey also said the commission should forge
ahead and “explore proactive alternatives” that would bring back competition
more quickly.
He said the
state wouldn’t have to wait until 2015 if DWR canceled, renegotiated or handed
off the remaining contracts to the utilities.
State
Assemblyman Lloyd Levine (D-
Levine said he
believed that’s what happened in December when DWR renegotiated a contract with
Calpine Corp. that was one of the few long-term agreements considered to be a
good deal.
PG&E
said the new contract left it with 82% less power and would force it to pay an
extra $150 million to $200 million to make up the shortfall. DWR disputed
PG&E’s estimates, contending that the revised contract was “a clear winner”
when all the provisions were considered.
SDG&E and
Edison both rely on DWR contracts for 28% of their power. In a hearing last
month, Edison warned DWR that making contract changes that required utilities
to replace thousands of megawatts of energy on short notice “could increase
costs significantly.”
Levine, who
hosted the state hearing on the Calpine contract changes, echoed their concern.
“This is exactly what happened during the energy crisis,” he said. “The utility companies were forced, on a very short time frame, to go out and buy power from people who knew they had them over a barrel.”