California Attorney General Cites Power Oversight Flaws

California Attorney General Cites Power Oversight Flaws

Apr 14 - The San Diego Union-Tribune

Apr. 14--California Attorney General Bill Lockyer said yesterday that flaws in the regulatory framework governing power markets continue to leave consumers vulnerable to gouging and blocked from billions in potential refunds from past overcharges.

In a 90-page report submitted to Congress and the state Legislature, Lockyer also criticized the performance of the Federal Energy Regulatory Commission during the state's power crisis. He said the commission "disregarded" its responsibilities as the debacle raged during 2000 and 2001 but noted that it was also hamstrung by inadequate regulation.

Electricity prices in California soared in 2000 after the state ended nearly a century of tight regulation in exchange for a partly deregulated market that promised lower power prices.

Lockyer estimated the experiment cost the state at least $40 billion and wrote the report as the state continues to press FERC for refunds.

The attorney general's report makes 33 recommendations for tightening regulation and enforcement should deregulation continue, including boosting the clout of the state grid operator, improving cooperation between state and federal authorities, and allowing consumer input to federal regulatory proceedings.

Topping the list of Lockyer's recommendations, however, are changes to a key legal construct known as the "filed rate doctrine."

The doctrine bans adjustments to power rates unless prior notice is given and a waiting period elapses. So although the Federal Energy Regulatory Commission determined that California's electricity rates beginning in May of 2000 were unjust and unreasonable a violation of federal law the regulator says it cannot order refunds for any overcharges prior to Oct. 2, 2000.

That date was 60 days the required waiting period after San Diego Gas & Electric filed the first formal complaint with FERC over the soaring rates.

"The filed rate doctrine gives energy companies a license to steal from California ratepayers," Lockyer said. "We are asking Congress to revoke that license."

In response to the report, a FERC spokesman agreed that statutory changes were needed to increase the commission's authority. Bryan Lee, the commission's spokesman, further noted that the current commission was not in place during much of the crisis.

But the FERC spokesman also said California had rejected the advice of the commission and others by refusing to enter into long-term electricity contracts until late in the power crisis. The federal regulator and others argued that California's excessive reliance on buying power in daily market exacerbated the crisis.

FERC also criticized Lockyer who briefed reporters on his report a day before its public release for engaging in what it called a "political stunt."

"Continued politicization of the energy crisis will only serve to discourage the investment necessary to assure that power shortages and spikes don't occur again," said Bryan Lee, the FERC spokesman.

The attorney general's report underscores the degree to which California ceded oversight of its electricity market to FERC through deregulation and then asserts that FERC failed on several fronts.

Though the federal commission later found widespread market rigging during the crisis, the report concluded that FERC's method for determining if an individual seller was capable of manipulation was flawed. FERC conducted reviews of potential market rigging ability prior to granting companies the right to sell electricity at market rates.

The report also said FERC failed to require power sellers to file quarterly pricing reports, leaving the regulator unable to determine if prices were just and reasonable as required by law. The reports were supposedly required by FERC.

Lockyer also said the California Independent System Operator whose monitors identified market rigging patterns during the crisis should have the authority to penalize market rule violations.

Michael Shames, executive director of the locally based Utility Consumers Action Network, said the report was heavily critical of FERC.

"It reads like a primer, probably most useful for other states that want to avoid unsafe deregulation," said Shames. "It's very heavy on what the federal government should be doing, but there's little proscriptive for what California should do."

A spokesman for an electricity suppliers group said he was troubled by Lockyer's suggestion to alter the filed rate doctrine.

Jan Smutny-Jones, executive director of the Independent Energy Producers, based in Sacramento, said the doctrine was required for market stability, an essential condition for producers to do business.

Electricity generators need to know that transaction prices will stand, he explained, and not be subject to arbitrary retrospective review.

"Tinkering with the filed rate doctrine would create a bigger problem," said Smutny-Jones. "Changing it would make the market unwieldy."

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