From FERC hearing rooms to California courtrooms the lawyers andregulators are huddling to bring some order to the chaotic westernenergy markets and address the muddled future of California’s onceomnipotent-appearing private sector utilities. Energy industry,political and regulatory heavyweights are mixing it up, includingthe closed-door FERC-called session in Washington, DC.

Meanwhile, on the left coast California officials are meetingwith utility representatives over what could result in somepass-through of some spot market power costs to ratepayers. On thegas side among the items turned up in a review of the two classaction lawsuits filed by customers Monday are a host of anti-trustcharges and claims that El Paso and Dynegy (formerly Natural GasClearinghouse) conspired to create the price differential that hasdeveloped between spot or “index” natural gas prices in the SanJuan Basin of New Mexico, compared to the Arizona-Californiaborder. (see Daily GPI, Dec. 19)

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

The complaints also accuse Dynegy and El Paso Merchant Energy ofpurchasing California qualifying facility (QF) electric generationplants for which they could use their market power to inflate theCalifornia border prices to increase their profits from “must-run”generation units.

“.under the rules of California’s electric industryrestructuring, such QF’s are ‘must-run’ facilities that sell a veryhigh percentage of their maximum capacity on a daily basis,” thelawsuits argued. “With a guaranteed pass through in place, if theoperator of the QF — Dynegy or El Paso — is a company with themarket power to raise border prices and increase price spreadsbetween the supply markets and the border markets, such increasedspreads are pure, riskless profits.” Even geothermal plantsoperated by El Paso Merchant, the lawsuit alleged, have benefitedfrom pricing formulas tied to the California-Arizona border naturalgas prices.

A coalition of consumer groups, including the utility watchdoggroup, TURN, Monday lashed out at state regulators for “backroombargaining” that they allege is ongoing between Pacific Gas andElectric, the state’s largest investor-owned utility, and SouthernCalifornia 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 $8billion in excess wholesale electricity costs incurred in the lastsix month that exceed the utilities’ level of frozen retail rates.

Elsewhere among the western states, Oregon’s Gov. John Kitzhaberhas appealed to DOE Secretary Bill Richardson to addressCalifornia’s problem as a regional one in which a “failedderegulation experiment” is having negative impacts on othersurrounding states. The Oregon governor urged the forum that FERCheld Tuesday that surrounding states must be part of thediscussions leading to longer-term solutions.

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

The advent this winter of industry shutting down in the PacificNorthwest, conservation and voluntary curtailments spreadingthroughout the region and prices staying high while supplies aretight has officials in other western states complaining that”California’s problems” are becoming the concern of the entire12-state Western States System Reliability Council.

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