California asks FERC to void long-term energy contracts

Feb 25, 2002 01:00 AM

California's utility officials filed a complaint with the Federal Energy Regulatory Commission asking the agency to void about $ 40 bn in long-term electricity contracts. The complaint alleges that 32 contracts with 22 energy sellers are not "just and reasonable" as required under FERC's guidelines.
California's regulators claim that the state was overcharged about $ 21 bn for $ 45 bn worth of long-term contracts. The filing comes at a critical time for California Gov. Gray Davis (D), who faces a fierce contest for re-election this year. His rivals have blamed him for bungling the power crisis and plunging the state into debt.
Last winter, California was dependent on day-to-day purchases of power and was hurt when energy prices soared. The Davis administration responded last spring by signing long-term power-purchase contracts.

At the time, Davis praised the long-term contracts for rescuing the state from its power woes. But he changed his opinion this past fall as electricity prices dropped. Barbara Connors, a spokeswoman for FERC, said that the commission would seek comments from outside parties but that it was unclear at this point whether the federal agency would take any action.
"We just literally got this," Connors said. "I don't think anybody's in a position to say how involved FERC can get in it." California regulators said that under the long-term contracts, California is paying about three times the current market price for energy.
"We feel that the contracts burden the state and the citizens and businesses in the state with unreasonable power prices for the next 10 years and more," said Gary Cohen, general counsel for the California Public Utility Commission. "For us to really be able to say that we have been able to emerge from this crisis, we need to get some meaningful changes in these contracts."

The energy companies said they were not to blame and, in fact, had helped resolve the energy crisis by agreeing to the long-term deals. "These types of agreements helpedend a volatile situation in California and are partly responsible for the low spot prices seen," said Pat Dorinson, a spokesman for Mirant.
"Our contracts are the lowest-priced contracts in the state," said Joe Ronan, vice president of government regulatory affairs for Calpine. "We're very confident that our contracts will be found reasonable." David Byford, a spokesman for Dynegy, said, "Our position has been and will continue to be that even though we have a legally binding contract with the state, we've been very open to discuss a mutually beneficial solution."

Steve Maviglio, a spokesman for Davis, said the governor urged the state's utility commission to file the complaint now because of "market manipulations by Enron" that have come to light in recent weeks. But he added that the governor would like FERC to rework the deals rather than completely void them. Davis still wants to have long-term contracts, but "he wants a better deal for what we have," Maviglio said.
California averted a power crunch this year through the combination of new power plants, conservation and mild weather.

Source: The Washington Post Company
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