Bid for Power Refunds Heard

Bid for Power Refunds Heard

Apr 14 - The San Diego Union-Tribune

In the latest court battle over the California energy crisis, lawyers for San Diego and the state of California asked a federal appeals court yesterday to order $6 billion in refunds from power companies that allegedly rigged the market in 2000 and 2001.

But an attorney representing a dozen power suppliers -- including San Diego's Sempra Energy Trading -- argued that it is improper to order rebates because such payments would damage the rights of the companies' shareholders.

And the Federal Energy Regulatory Commission, or FERC, which has already ordered $2.9 billion of refunds, has balked at ordering any more, arguing that the federal courts have no jurisdiction in the case.

"You do not have authority to review how we settle a case or how we dealt with past conduct," FERC attorney Dennis Lane bluntly told a three-judge panel of the 9th U.S. Circuit Court of Appeals. It held a special hearing at the Joan B. Kroc Institute for Peace and Justice at the University of San Diego.

The lawsuit emanates from the California energy crisis, in which some of the country's leading energy suppliers manipulated power orders and supplies to create shortages and push the price of electricity through the roof.

Audio tapes of traders from Enron and Reliant Energy from 2000 and 2001 have them boasting about manipulating the market. Electricity prices in some regions tripled or quadrupled during the crisis, which included rolling blackouts throughout the state.

The California government estimates that state utilities and consumers were overcharged $9 billion during the crisis, based on the difference between what the state was being charged and the fair market value of the power.

In partnership with Southern California Edison and Pacific Gas & Electric, which was pushed into bankruptcy during the crisis, the state has spent the past three years pushing power suppliers to give back some of the money they took in at the time.

"Equity and just and reasonable principles demand we get paid," Stan Berman, a lawyer representing the state, told the 9th Circuit panel.

"For a long time, (San Diego) citizens have been seeking justice," said attorney Robert A. O'Neil, representing the city.

But FERC has so far given the state only a third of what it has requested.

The commission has declined to order any rebates for energy purchases before October 2000.

In San Diego, which was the first market to deregulate, the energy crisis began in May 2000, and the state estimates that $2.8 billion in overcharges occurred before October.

In addition, FERC has declined to order $3.5 billion in refunds to the state Department of Water Resources, which was forced to buy power at the peak of the crisis to prevent the state's energy network from collapsing.

In yesterday's hearing, attorney Lane argued that FERC had "absolute discretion" over deciding what remedies to provide and that the courts could not tell it what to do.

That did not sit well with the judges, some of whom had flown to San Diego specifically for the energy case.

Judge M. Margaret McKeown -- a San Diego-based judge with the 9th Circuit -- asked Lane a hypothetical question: If FERC decided that it would only prosecute companies whose name began with the letter "S," would the courts have the right to review that decision?

"The way we read the law is that such a decision would not be reviewable," he said.

"So in your view, we may as well just pack up our notebooks and go home," McKeown said. "That's exactly what you want us to do."

"In our view, that's exactly right," Lane said, provoking laughter from the audience.

Erik Saltmarsh, chief counsel of California's Electricity Oversight Board -- one of the state agencies suing FERC -- questioned whether Lane's assertions would play well with the judges.

"In general, courts tend to assert that the judiciary does have an oversight role when it comes to administrative decisions," Saltmarsh said after the hearing concluded.

Meanwhile, attorney David Frederick, representing such energy suppliers as Sempra Energy Trading, Portland General Electric and Puget Sound Energy, told the judges that the charges of market manipulation were based on "largely false charges" involving a handful of suppliers.

Even if there was market manipulation, Frederick argued, Congress decided decades ago that rebates were not an appropriate remedy.

"The reason is to provide comfort to the investors," Frederick argued.

But Judge Richard Clifton responded that when Congress opined against rebates, it was in an era when the utilities were tightly regulated, so utility shareholders had a right to expect a predictable return on their investments.

"It's one thing to talk about investor confidence when you have fixed (utility) rates," he said. "But it's another thing when you're talking about market-based rates. Investors don't know what the market-based rate is going to be."

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