Two weeks of marathon settlement talks on refunds for California electric customers came to a grinding halt at FERC yesterday, with neither side even coming close to resolving the contentious issue. While the state had insisted that it was owed $8.9 billion in alleged overcharges on electricity sales, the offers by the out-of-state generators and other suppliers came to less than one-ninth of that.

Chief Administrative Law Judge Curtis L. Wagner Jr., who mediated the talks, said yesterday that he had received $715.1 million in settlement offers, and planned to certify them to the full Federal Energy Regulatory Commission. They included $510 million from the “Big Five” generators (Dynegy, Reliant, Williams et al); $125 million from PowerX; $49.6 million from 15 power marketers; $25 million from load-serving entities outside of California; and $6.5 million from state municipal utilities.

Earlier Monday, Reliant Energy opened its books to reveal an unspectacular profit in California and made public an analysis of power sales in the state that showed most of the revenues went to California’s three big utilities and the Los Angeles Department of Water and Power. “The real money stayed in California itself,” Reliant said in an Securities and Exchange Commission filing (see separate story).

“I am saying that there [are] refunds due that total hundreds of millions of dollars, and maybe a billion dollars,” Wagner told reporters Monday after the settlement talks ended. At the same time, he said the funds owed by the California Independent System Operator (Cal-ISO) and the state’s investor owned utilities to out-of-state generators and other suppliers were potentially higher than any overcharges that may ultimately be determined.

Although no resolution was reached, Wagner characterized the overall settlement talks as “successful,” adding that he couldn’t “work miracles” in the 15 days that the Commission allotted him to settle this controversial issue. The judge now has about five days in which to make his initial decision to the full Commission.

Michael Kahn, the chief negotiator for California, indicated that the state wasn’t giving up its quest for $8.9 billion. He noted that Wagner never had the opportunity to make refund recommendations for the period between May 2000-October 2000. “That’s $3 billion right off the table.” The state will now look to the full Commission to accomplish what the settlement talks failed to so, Kahn said.

But Brent Bailey, vice president and general counsel for Duke Energy North America, suggested that California’s $8.9 billion estimate for refunds was so off-the-wall that it never had a chance. It was a “pie-in-the-sky number that nobody in there [the settlement room] believed in their right mind was a legitimate number to begin with,” he told reporters.

In a related development, Wagner disclosed that Calpine was close to reaching a separate settlement with California, but neither he nor a Calpine official would give any details.

Given that the settlement discussions raised a number of issues of disputed material fact, Wagner said he planned to recommend that the Commission order a fast-track hearing, to be completed in 60 days or less, to help “bridge the gap” between California and the other parties.

He also indicated that he will suggest to FERC that its June 19 price-mitigation order, which went into effect shortly after the order was issued, be applied retroactively to Oct. 2, 2000. In addition, Wagner noted he intends to propose that the Commission make alterations to its complex mechanism for mitigating electric prices — specifically with respect to the gas prices used and the heat-rate factor.

Wagner’s proposal would differentiate between the natural gas prices for the northern and southern zones of California, and it would allow for the use of actual hourly heat rates, said Duke Energy’s Bailey.

As for refunds to power customers in the Pacific Northwest, Wagner said he may recommend further settlement talks with a settlement judge to address issues that were raised during the past two weeks.

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