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Attorney General Lockyer Announces $207.5 Million Electricity Price Gouging Settlement With Duke

Settlement Resolves Refund Claim and Civil Enforcement Actions
Tuesday, July 13, 2004
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer today announced a $207.5 million proposed settlement with Duke Energy that will provide California ratepayers about $172 million to resolve claims that Duke overcharged for wholesale electricity during the state's Energy Crisis of 2000-01.

"This is a good settlement for residential and business ratepayers, who were stuck with a multi-billion dollar tab after energy companies ran amok in an unprecedented gouging spree," said Lockyer. "Viewed with previous settlements, the agreement properly accounts for Duke's culpability and puts us over the $2 billion mark in our effort to return to Californians the money stolen from them during the Energy Crisis."

The proposed settlement – reached with Duke Energy and several affiliates – must be approved by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). It would resolve the state's and utilities' refund claim against Duke pending before FERC. Additionally, Lockyer would end civil enforcement actions against Duke based on its conduct in the electricity market.

The agreement would, however, permit Lockyer to continue investigating for 30 days Duke's actions in the natural gas market. If the "due diligence" review turns up no evidence of wrongdoing, Lockyer's probe of Duke's natural gas activities also would cease.

Additionally, the settlement would preserve the Attorney General's right to pursue claims based on fraud or criminal conduct.

Besides Lockyer, who represented the people, other California parties to the proposed agreement include: the California Department of Water Resources (CDWR), the Electricity Oversight Board (EOB), Pacific Gas & Electric Company (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E). If CPUC and FERC give their approval, they also will become parties.

The $207.5 million settlement would provide approximately: $172 million in ratepayer benefits; $3.25 million each for the states of Washington and Oregon, and the San Diego County District Attorney's Office; a combined $2.7 million for several cities, counties and water districts; a combined $13 million in attorneys fees for the Attorney General, SCE, PG&E, SDG&E, CPUC, EOB and CDWR; and $7 million for private plaintiffs.

The amount of ratepayer benefits that would be allocated to the state's three electric utilities remains undetermined. Preliminary estimates, however, indicate PG&E would receive at least $86.3 million, SCE $39.3 million and SDG&E $17.3 million. Pursuant to PG&E's bankruptcy settlement, the utility's payment from Duke would be used to reduce by an equal amount its ratepayers' financial burden under the bankruptcy plan.

The proposed settlement would allocate an estimated $16.6 million to CDWR. Those funds would be used either to reduce consumer rates or ratepayers' obligation to pay off bonds sold by the state to finance CDWR's purchase of electricity on behalf of utilities. The CDWR purchases began in 2001.

The proposed settlement is structured in a way that would require Duke to pay cash to resolve its refund liability for post-October 2000 overcharges and pre-October 2000 overcharges. Additionally, Duke would have to reimburse CDWR for overcharges incurred when CDWR was forced to buy power directly from Duke in so-called "out-of-market" transactions. Duke's estimated payments in each of those categories would be $122.1 million for post-October 2000, $38.1 million for pre-October 2000 and $8 million for the CDWR purchases.

The pre-October 2000 and CDWR payments are especially significant, because FERC has ruled the state parties cannot collect refunds for those transactions. The California parties have appealed both rulings to the U.S. Ninth Circuit Court of Appeals. In the refund proceeding before FERC, the California parties have sought a total of about $9 billion. FERC's denial of refunds for the pre-October 2000 period, and for CDWR's purchases, covers up to $6 billion of the $9 billion.

The Duke settlement is the eighth produced by Lockyer's Energy Task Force, working in cooperation with the CPUC, EOB, Governor's Office, CDWR, PG&E and SCE. The eight settlements have a combined value of $2.63 billion. Of that total, roughly $2.1 billion represents ratepayer relief.

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