Federal regulators said yesterday that they expect to collect an extra $1.5 billion from power companies that they said overcharged California during the state's energy crisis two years ago, bringing refunds ordered in the year-long investigation to $3.3 billion.
The Federal Energy Regulatory Commission yesterday released results of a 13-month investigation of the causes of California's power meltdown, finding that the price of natural gas -- a crucial fuel for power plants -- was frequently manipulated during the crisis by energy traders. It cited examples of rapid-fire "churning" transactions by several companies' traders that inflated gas prices throughout the market.
The higher refund number is a long way from the $9 billion that California officials sought , especially since the state owes $3 billion in unpaid bills to power providers.
California Gov. Gray Davis (D) said the FERC report confirms "a massive rip-off of California ratepayers," and he said it has yet to be determined whether FERC "will have the grit to order the remedies that are necessary."
The huge escalation of electricity and gas prices that began in California in the summer of 2000 and quickly spread to Pacific Northwest states was the result of California's badly flawed energy deregulation plan, a shortage of power capacity and overt manipulation, said Donald J. Gelinas, FERC's associate director, who headed the investigation.
California's energy-market rules, which caused most power to be sold a day or less before it was needed, "made this fertile ground for the manipulation we found," he said.
"The price gouging abounded," said William L. Massey, one of three commissioners of the agency, which oversees wholesale electricity and gas markets.
FERC had hoped to wind up its California probe with the release of yesterday's investigative report. "At this stage we're trying to clean that up and do justice by all the participants and customers in that market," Chairman Pat Wood III said in an interview last week. "And make sure it never happens again there or anywhere else."
But key issues remained unsettled. The state's power companies will have to document their gas purchases, and their calculations will determine the exact amount of the new refund. FERC spokesman Kevin Cadden gave the estimate of $1.5 billion in overcharges related to gas prices, to be added to the $1.8 billion in refunds ordered last year by an administrative judge.
The commission said it will begin a new investigation of more than 30 energy companies and utilities to determine whether they drove up electricity prices by shutting down power plants unjustifiably, falsely reporting their power output or using improper trading tactics. California regulators say the companies engaged in trading strategies with names such as "Ricochet," "Fat Boy" and "Death Star," as disclosed last year in an internal investigation at Enron Corp.
FERC said the companies and utilities that apparently employed the trading strategies are among the nation's largest energy suppliers, including American Electric Power Co., Duke Energy Corp., Dynegy Inc. and Reliant Resources Inc., as well as California's largest utilities, Southern California Edison Co., Pacific Gas and Electric Co., and Sempra Energy.
The regulators said they will complete a review of which trading tactics violated California energy regulations and then hold hearings at which companies would be told to show how they did not violate the regulations. Additional refunds could be ordered, they said.
The commission deferred action on requests by California and neighboring states to overturn long-term power contracts at high prices that the states signed two years ago. Wood and commissioner Nora Mead Brownell said that overturning the contracts might discourage energy companies from signing long-term power deals, or scare away energy industry investors.
"Investors will not participate in a market where disgruntled buyers are allowed to break their contracts," Brownell said.
But Massey countered that high power prices, built into long-term contracts signed during the peak of the crisis, were directly linked to the unjustified short-term spot market prices for West Coast power caused by trading manipulations.
As one example of churning, Gelinas cited an unidentified trader at Reliant in Houston who executed a flood of buy and sell orders for gas late in 2000. The trades, coming every 10 seconds, were displayed on an Enron online trading site used throughout the power industry. Other energy companies, not knowing that the trades all came from Reliant, took them as an indication of heavy demand and were prompted to buy, driving up prices, FERC said.
Reliant traders using this tactic sold at the top, and one trader earned $18 million for his company during the crisis, the Gelinas report said.
A spokesman for Reliant said the company was confident that it complied with state and federal regulations. But the trades cited by FERC violated company rules, and the trader was fired when Reliant discovered the conduct, the spokesman said.
In another case, the Commodity Futures Trading Commission yesterday assessed a $20 million fine on El Paso Corp. in settling charges that the company's energy trading unit reported bogus trades to energy publications whose reports on electricity and gas market prices are widely used by utilities and industry.
El Paso, which said it will soon close its trading operation, did not admit wrongdoing. FERC dropped its investigation of the company, noting that El Paso has agreed to pay $1.7 billion to settle civil lawsuits brought by California officials over its actions during the energy crisis.
Staff writer William Booth in Los Angeles contributed to this report.