Attorney General Lockyer Petitions FERC to Order Refunds of Billions of Dollars for Power Company Overcharges

(WASHINGTON) – Attorney General Bill Lockyer today asked the Federal Energy Regulatory Commission to order power companies to refund billions of dollars that were overcharged for electricity during California's energy crisis.

"California wants full refunds from power companies that charged unjust and unreasonable prices for short-term sales in California before October, 2001," Lockyer said. "Under the Federal Power Act and FERC's own orders, California energy wholesalers should have filed every rate they charged in California with FERC so that the regulatory agency could do its job of determining whether the prices were just and reasonable. The power companies have not filed any of their market-based rates, making every sale illegal and subject to review and refund for excessive charges."

The new complaint filed with FERC challenges all power sales into markets administered by the California Independent System Operator (ISO) and the California Power Exchange during the energy crisis in the state going back before October 2, 2000. FERC already has ordered refunds on energy purchases between October 2, 2000 and June 21, 2001. Experts estimate that rates charged before October 2001 exceeded just and reasonable levels by $1.8 to $2.8 billion. The new complaint filed with FERC seeks refunds of those illegal charges.

The largest sellers in the California market – Mirant, British Columbia Power Exchange, Williams, Dynegy, and Reliant – alone may have overcharged California electricity purchasers by billions of dollars. The ISO, which manages the power grid delivering electricity to the state, has estimated total power company overcharges at nearly $6 billion. Before the new complaint filed by the Attorney General, FERC proposed refunds for only $124 million in alleged overcharges for energy sales in January and February 2001 when power reserves in the state dropped below 1.5 percent.

"In addition to not filing their rates for review by the public and FERC, the power generators provided only cursory, after-the-fact quarterly reports that lack information required by law," Lockyer said. "We are asking FERC now to make an ‘after-the-fact' review of rates that were previously not filed, and refund all excessive charges."

The Attorney General's complaint filed with FERC also challenges short-term sales of energy to the California Department of Water Resources (DWR), which spent an estimated $10 billion for electricity on the "spot market" from January through October 2001 to keep the lights on in California. Although DWR paid grossly inflated prices for power, FERC has refused to take any action to refund overcharges on these sales. The Attorney General's complaint demands that FERC order refunds to the extent that any rate charged was unjust and unreasonable. In separate action, the California Public Utilities Commission has sought to have FERC find that the prices paid under the state's long-term contracts are unreasonable.

The complaint notes that the Federal Power Act requires that all power rates be filed before they take effect so that FERC, energy purchasers and the public can review whether the prices are justified. The complaint states that California wholesalers failed to meet this requirement, filing only pro forma tariffs, indicating that rates would be established "by agreement" between buyers and sellers, and thereby preventing any meaningful review by FERC. The complaint further states that in order to sell power at market-based rates, all wholesale power providers are required to file their rates in reports to FERC no later than 30 days after the end of each quarter. Companies selling power to the ISO, the California Power Exchange and DWR have consistently violated this reporting requirement, providing additional grounds for refunds.

"By not filing their rates, either before or after the fact, wholesale power providers have managed to evade any meaningful rate regulation by FERC," Lockyer said. "That is neither what Congress intended when it enacted the Federal Power Act nor what the law clearly requires."

"Not only was FERC denied the ability to prevent the charging of excessive rates beforehand, the power companies have also unjustly and illegally shifted to consumers the burden of proving that a rate is unreasonable," Lockyer added. "This means the public and energy purchasers must now bring complaints in order to obtain any relief from FERC,"

The petition for refunds is the latest energy filing by the Attorney General, whose Energy Task Force has been investigating potential illegal conduct by power companies and others during California's energy crisis. Last week, the Attorney General filed complaints against four major power generators seeking refunds of more than $150 million for illegal, unfair and fraudulent business practices in the sale of electricity on the market that had been sold earlier for reserve capacity to protect the safe and reliable operation of the power grid serving the state. In January, the Attorney General charged Pacific Gas & Electric Corp. with illegal, unfair and fraudulent business practices that drove its California utility into bankruptcy after siphoning over $4 billion from the subsidiary and violated promises to the state to protect California ratepayers.