CA Governor, Companies, Stock Market React to FERC Decision

"Show me the money" continued to be the refrain from California state officials from the governor on down in the wake of the Federal Energy Regulatory Commission's conclusion that wholesale energy markets were significantly manipulated in 2000-2001. Duke Energy claimed vindication, while stock prices of Mirant, Reliant Resources and Dynegy took large hits, and a state legislative leader said the unfolding saga of the past energy crisis is "far from over."

Duke Energy and Williams noted their favorable standing in the FERC investigation, but a statement from the electric power suppliers group warned that "today's rulings by the Federal Energy Regulatory Commission are unfortunate and may have serious effects on the stability of electricity supplies throughout the United States."

Before the ink was dry and the meeting concluded by FERC, California's Gov. Gray Davis fired off a prepared statement: "It took two years for FERC to confirm what we knew all along -- there was widespread market manipulation and a massive ripoff of California ratepayers. Now the question is whether the FERC Commissioners will have the grit to order the remedies that are necessary (up to $9 billion in refunds)."

Davis said he will only feel vindicated when the state gets all of its refund monies back. He told news reporters that he wants to be thought of as a "bulldog" who won't let go until the refunds are paid. He is now publicly promising utility ratepayer refunds late this year and next year.

Reliant Resources stock was off over 23% or 95 cents to $3.05; Mirant's dropped over 13% to $1.56 and Dynegy's fell 19 cents to $2.33. Duke Energy, which said Wednesday it felt somewhat vindicated by the latest FERC action, registered a small rise in its stock price, going up 8 cents to $15.23.

"We're pleased that they appeared to have differentiated our actions in the market from those of others," said California-based spokesperson, Patrick Mullen, noting that there were "some open concerns and issues expressed by FERC, and our facts will continue to demonstrate that our activities were appropriate.

"FERC recognized that Duke Energy did not participate in any economic withholding in California's market, and on the natural gas pricing index issues, we changed our practices when the issue first surfaced in late 2002. So we're pleased to see the process we use is cited by FERC as a example (having prices for trade indexes come from the chief risk officer, not the traders)."

EPSA, the electric suppliers association, said its members had hoped that following Wednesday's meeting, "the industry and this issue would be at the bottom of the ninth inning, but unfortunately we're only at the seventh-inning stretch - and uncertainty continues in the energy sector. FERC's failure to bring to closure the California energy crisis and continued search to assign blame have diminished the incentive for would-be suppliers to invest in generation or transmission in areas where needed, including California. The rulings also extend the regulatory uncertainty that is exacerbating the financial plight of the industry."

"Nobody in California is going to look at (FERC's refund of) $3.3 billion number and call it a day, said state Sen. Debra Bowen, chair of the California Senate's energy committee. "I've believed since Day One this whole thing is eventually going to end up in court because the stakes are just too big. The power generators turned California ratepayers upsidedown to shake $8.9 billion in overcharges out of their pockets, and if FERC isn't willing to enforce the Federal Power Act, we're going to have to go to court to get that money back.

"There are a couple of things to like and plenty of questions that still need to be answered, but overall it's terrible news for California ratepayers. FERC finally said the 'm' word. It finally acknowledged California's power market was being manipulated on a day-by-day, hour-by-hour, and sometimes minute-by-minute basis by power generators and natural gas providers. On the other hand, to hear FERC recognize the long-term contracts signed by DWR were driven by a market that it finally concedes was being manipulated, then brush that aside and refuse to fix the contracts because the state didn't file a complaint fast enough is ridiculous," Bowen said.

Late Wednesday state Attorney General Bill Lockyer said he was posting on its website 1,770 pages of testimony and evidence supplied by his office to the FERC investigation. The action followed a Commission decision to make public the evidence. Documents can be viewed at http://ag.ca.gov/newsalerts/2003/03-037.htm

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