Who pays price for California electricity?

Governor wants rebates for 'overcharged' consumers. Getting any money will be hard.

The Washington phase of the 2001 energy crisis began in earnest this week, as federal regulators and lawmakers plunged into the business of ensuring that the power prices are "fair and reasonable."

The high drama unfolded in front of the television cameras. At congressional hearings Wednesday, California Gov. Gray Davis hurled thunderbolts at power generators ("pirates") for what he claimed was some $9 billion in overcharges and at the Federal Energy Regulatory Commission (FERC) for "stiffing" the state by not going after it.

In turn, Republicans fired back questions on why the governor "let things get totally out of hand," and whether, in fact, threatening power executives with jail terms or confiscation of their plants would encourage needed new investment in the state.

But next Monday, the hard work of sorting out who owes what to whom moves away from the cameras and into a back room in Washington. The outcome could set the tone for energy regulation for years to come.

At the heart of the dispute is the federal role in ensuring "fair and reasonable" prices for wholesale electricity. California says that power generators vastly exceeded reasonable prices and owe the state a refund.

"California has been a cash cow to a lot of energy companies around this country who have done extraordinarily well, and we're not going to take it anymore," Mr. Davis said in testimony before the Senate Government Affairs Committee on Wednesday. He called on lawmakers to "hold FERC's feet to the fire so they give us our refund. That's the only message energy companies will understand."

Federal regulators have been reluctant to take on this more activist role. Until this week, the FERC has restricted its oversight on pricing to emergency periods in California.

On Monday, it expanded its "soft" price controls to apply 24 hours a day to California and 10 other Western states. It also established a 15-day settlement period to sort out the problem of refunds for alleged overcharges. In addition, it will look at as much as $2.5 billion in unpaid electricity bills that power companies say is owed to them by two California utilities.

Here's how the rebate plan works: The FERC provides the room, an administrative law judge, and a deadline - 15 days, including weekends. If the representatives of state electric utilities and power-generating companies cannot come up with a settlement in that period, the judge and five FERC commissioners will do it for them.

"The abuse of market power will not be tolerated," the commissioners said in their June 18 plan. On Wednesday, the commissioners said that the settlement plan could be extended to Washington and Oregon, states that also have complained of overcharges during this period.

Experts say that finding agreement on rebates will be challenging, especially in such a short period of time. One point of contention is how much of the state surplus has been used to purchase electricity. Several organizations are suing the Davis administration to clarify the matter.

"Until there is an adequate airing of that issue, we won't know with precision what we have paid," says economist Steve Frates at the Rose Institute of State and Local Government at Claremont McKenna College. "There has been an indication that the state has been overcharged and snookered, but until we see the figures, we won't really know...."

To date, federal regulators have identified some $125 million in potential refunds owed to California. This covers price hikes during periods designated energy emergencies. But California officials say potential overcharges since May 2000 are closer to $8.9 billion. And some power generators outside the state are contesting both state and FERC estimates.

"That $9 billion figure sounds like the price of all the power they've bought in the last year in California, and we obviously don't accept that figure," says Pat Hammond, a spokeswoman for the Houston-based Reliant Energy.

Even the formula for calculating overcharges is up in the air. California officials are basing their refund estimates on what the state would have paid for power if the old regulatory system were in place. FERC commissioners have proposed a new system of flexible price caps based on operating costs of the least efficient producer. And power generators vary widely in what they view as fair prices.

"There are at least 60 sellers of power in the West.... And there is no unified front on this," says Arthur O'Donnell, editor of California Energy Markets, an independent newsletter.

Whatever the outcome, lawmakers and FERC commissioners say that the public can expect much more intense scrutiny of wholesale electricity prices.

(c) Copyright 2001. The Christian Science Monitor