Dynegy, QFs Cited in Border Price Bash

From FERC hearing rooms to California courtrooms the lawyers and regulators are huddling to bring some order to the chaotic western energy markets and address the muddled future of California's once omnipotent-appearing private sector utilities. Energy industry, political and regulatory heavyweights are mixing it up, including the closed-door FERC-called session in Washington, DC.

Meanwhile, on the left coast California officials are meeting with utility representatives over what could result in some pass-through of some spot market power costs to ratepayers. On the gas side among the items turned up in a review of the two class action lawsuits filed by customers Monday are a host of anti-trust charges and claims that El Paso and Dynegy (formerly Natural Gas Clearinghouse) conspired to create the price differential that has developed between spot or "index" natural gas prices in the San Juan Basin of New Mexico, compared to the Arizona-California border. (see Daily GPI, Dec. 19)

"This was, in fact, accomplished because the large block of capacity (1.3 Bcf/d) that El Paso sold to Dynegy, gave Dynegy market power to restrict pipeline capacity and to lower total volumes of gas delivered to the market, thus raising prices," the lawsuits filed by an LA-based firm alleged.

The complaints also accuse Dynegy and El Paso Merchant Energy of purchasing California qualifying facility (QF) electric generation plants for which they could use their market power to inflate the California border prices to increase their profits from "must-run" generation units.

".under the rules of California's electric industry restructuring, such QF's are 'must-run' facilities that sell a very high percentage of their maximum capacity on a daily basis," the lawsuits argued. "With a guaranteed pass through in place, if the operator of the QF --- Dynegy or El Paso --- is a company with the market power to raise border prices and increase price spreads between the supply markets and the border markets, such increased spreads are pure, riskless profits." Even geothermal plants operated by El Paso Merchant, the lawsuit alleged, have benefited from pricing formulas tied to the California-Arizona border natural gas prices.

A coalition of consumer groups, including the utility watchdog group, TURN, Monday lashed out at state regulators for "backroom bargaining" that they allege is ongoing between Pacific Gas and Electric, the state's largest investor-owned utility, and Southern California Edison to reach a compromise on the two utilities' requests for substantial rate increases to become effective Jan. 1, 2001 to begin a five-year process of recovering more than $8 billion in excess wholesale electricity costs incurred in the last six month that exceed the utilities' level of frozen retail rates.

Elsewhere among the western states, Oregon's Gov. John Kitzhaber has appealed to DOE Secretary Bill Richardson to address California's problem as a regional one in which a "failed deregulation experiment" is having negative impacts on other surrounding states. The Oregon governor urged the forum that FERC held Tuesday that surrounding states must be part of the discussions leading to longer-term solutions.

Power sharing between California and adjoining states has been a long-standing practice, although traditionally at this time of year, the flow is out of California into areas like the Pacific Northwest with a lot of electric heating.

The advent this winter of industry shutting down in the Pacific Northwest, conservation and voluntary curtailments spreading throughout the region and prices staying high while supplies are tight has officials in other western states complaining that "California's problems" are becoming the concern of the entire 12-state Western States System Reliability Council.

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