A finding last week by a regulatory judge that power generators don’t owe California anywhere near the $8.9 billion in overcharges claimed by the governor for power deliveries in 2000-2001 didn’t play well in Hollywood or its environs, but Wall Street appeared to like it a lot.

Stocks of Williams, Dynegy, Reliant and Mirant, primary players in the California drama, jumped on Friday, following issuance of the decision late Thursday that they and other suppliers were on the hook for only $1.8 billion in refunds. Further, since California agencies haven’t paid $3 billion of their power bills, the generators would stand to actually collect $1.2 billion.

This isn’t the end of the story, however. The preliminary findings by FERC Administrative Law Judge (ALJ) Bruce Birchman must be reviewed and voted on by the Federal Energy Regulatory Commissioners, who also will consider the results of an on-going investigation into alleged market manipulation.

The 235-page ruling by the judge came in the case involving bills owed and refunds due the California Independent System Operator (CAISO) and the California Power Exchange (PX). The refunds were estimated according to a complex formula instituted by the Commission to cap runaway power prices during the western energy crisis. They still are subject to final mitigation formulas, FERC interest, emission offsets and the judge’s rulings.

The stock prices of Reliant Resources jumped over 22% to $2.75; Williams was up over 20% to $2.82; Dynegy was up nearly 17% to $1.05 and Mirant rose over 4% to $1.86.

Gov. Gray Davis immediately called a press conference to express his “outrage” and blame the calculation on politics. “We have been fighting the federal regulators — dominated by Bush appointees — for months to get refunds for California,” Davis said. “The ALJ concluded that we are entitled only to $1.8 billion because the [FERC] rigged the rules. They threw out just about everything we could claim. These folks are not on our side, and nothing short of political pressure will get them to do the right thing.”

He was followed onstage by California Public Utilities Commission Chairwoman Loretta Lynch, who declared the “proposed decision represents the culmination of a raft of pro-generator decisions the Federal Energy Regulatory Commission has issued in the past 18 months, all against California consumers and businesses.” Lynch’s prepared statement claimed “Californians are owed at least $8.9 billion for unjust charges the energy sellers extracted in 2000 and 2001.

It also “continues FERC’s refusal to reexamine shortsighted decisions made in July 2001, before many of the admissions of wrongdoing came to light, including: FERC’s refusal to count in refund calculations any overcharges suffered by the California Department of Water Resources (DWR); FERC’s refusal to allow the full period of wrong-doing to be considered in determining refunds owed; and FERC’s continuing assumptions that excessive natural gas prices caused by now-confirmed gas price manipulation were fair and should be passed through to California businesses and families.”

Responding to a court order, FERC last month said that it would allow parties in the California refund proceedings to conduct discovery over the next 100 days into alleged market manipulation by various sellers (see NGI, Nov. 25). The Commission said at the time that the new angle would not delay issuance of the judge’s decision, but evidence unearthed in the new investigation would be considered in the Commission’s final decision. FERC is heading toward a decision on all the issues involving California in the first quarter of 2003.

The judge’s decision in the long-running case ruled on numerous issues, ranging from use of heat-rate data to factoring in congestion, all of which were used in calculating the mitigated market clearing price (MMCP) for determining refunds. The judge ruled out use of suppliers’ data in calculating refunds, saying “their underlying methodology is either unstated or unclear and is not useful in determining final obligations.” Instead calculations by CAISO and the Cal-PX done according to FERC specifications were used.

Some parties reportedly are close to settlement with the state on refunds and renegotiation of high-priced long term contracts the state signed during the energy crisis. Williams and the state announced late last Friday that they ratified a settlement of all their issues, including refunds (see separate story). Previously the ALJ in another FERC case involving California’s challenges to long-term contracts, has said as many as six other parties were negotiating settlements (see NGI, July 22).

FERC staff also has proposed changing the gas price indexes used in the mitigation formula, a change that would increase the amount of refunds due to a level essentially equal to the $3 billion the state owes in back power bills, making the competing claims a wash (see NGI, Aug. 16).

If the Federal Energy Regulatory Commission eventually upholds the ALJ’s proposal, the state will appeal it, Davis said, but in the meantime, California is gathering evidence to convince FERC to expand the refund case to consider a larger portion of the “$30 to $40 billion” the governor claims the state is really owed. For two years, California has asked for about $9 billion in refunds.

Regardless of what happens at FERC and in the courts, Davis acknowledged that the consumers of the state’s three major private-sector electric utilities will not see lower rates in the next two years, but after “24 months, rates will go down, and if we get the refunds we are due, they will go down even further at that time.”

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