Attorney General Lockyer Announces $281.5 Million Settlement with Dynegy in Energy Refund Case

(SACRAMENTO) – Attorney General Bill Lockyer today announced he and other California parties have reached a proposed $281.5 million settlement with Dynegy that will provide state ratepayers at least $256.4 million in benefits to compensate for price gouging by Dynegy during the Energy Crisis of 2000-01.

"This settlement provides Californians with a measure of justice from one of the most rapacious pirates of the Energy Crisis," said Lockyer. "We will continue, in the courts, to seek full justice for ratepayers and full accountability for Dynegy."

Before it is final, the settlement must be approved by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). It will resolve only the state's refund claim against Dynegy pending before FERC. Lockyer will continue to pursue lawsuits against Dynegy that allege the company charged illegal rates and unjustly profited by double-selling power it failed to provide as promised under contracts. Additionally, Lockyer remains free to investigate Dynegy for other potential civil or criminal wrongdoing.

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 will become parties to the settlement.

The $281.5 million includes at least $256.4 million in monetary relief for California ratepayers, and another $13.3 million for market participants owed money by Dynegy. Those market participants include private energy companies, as well as publicly-owned utilities. The proposed settlement also calls for Dynegy to pay an additional $3 million to resolve a market manipulation proceeding pending before FERC, and $8 million in cost recovery for the California parties.

Of the $256.4 million in ratepayer benefits, $133.2 million will be allocated through the state's three electric utilities: PG&E will receive $82.3 million, SCE $34.4 million and San Diego Gas & Electric (SDG&E) $16.5 million. Pursuant to PG&E's bankruptcy settlement, the utility's $82.3 million payment from Dynegy will be used to reduce by an equal amount its ratepayers' financial burden under the bankruptcy plan.

Another $123.2 million of the ratepayer relief money will be allocated to CDWR. Those funds will 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 settlement is structured so that Dynegy pays 100 percent of its refund liability for overcharges after October 2000, or $216 million, using FERC's method for calculating refunds. The structure also requires Dynegy to $50.9 million to resolve its refund liability for pre-October 2000 overcharges. The pre-October 2000 payment is especially significant, because FERC has ruled the state parties cannot collect refunds for gouging that occurred before that date.

The settlement structure also reflects payment by Dynegy of 10 percent of the amount it owes CDWR for overcharges incurred when CDWR was forced to buy power directly from Dynegy in so-called "out-of-market" transactions. That figure works out to $3.6 million. The refund of overcharges to CDWR represents another important victory for the state parties, because FERC has determined CDWR is not entitled to refunds.

"Hopefully, this settlement will serve as a template for future refund agreements with other energy companies," said Lockyer.

The California parties have appealed to the courts FERC's denial of refunds for CDWR purchases, as well as FERC's decision to prohibit refunds for pre-October 2000 overcharges. 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 Dynegy refund settlement is the seventh produced by Lockyer's Energy Task Force, working in cooperation with the CPUC, EOB, Governor's Office, CDWR, PG&E and SCE. The seven settlements have a combined value of $2.37 billion. Of that total, more than $1.9 billion represents ratepayer relief.