Far from the opening federal settlement hearing in Washington, DC, on potential electricity refunds, California’s Gov. Gray Davis used the bully pulpit of orchestrated media events Monday in Sacramento to drive home his contention that his state’s consumers have been “ripped off,” and they have up to $9 billion in refunds coming to them.

The governor wrote last Friday to the administrative law judge handling the settlement talks to emphasize that California’s delegation to the talks has only one issue on its agenda — refunds.

To underscore the point before and during the formal hearing in the nation’s capital, Davis gathered news media on a conference call Sunday to announce that he would meet with three former Duke Energy power plant employees who allege their former employer kept generation units offline to manipulate prices (see Daily GPI, June 25), and then with the two newest commissioners on the Federal Energy Regulatory Commission to discuss refunds and California’s out-of-pattern natural gas prices, which ultimately influence electricity prices in the state.

In going through with the sessions, following an unusual amount of preliminary promotion to the news media, the governor was strongly supporting the veracity of analyses by the state transmission grid operator, Cal-ISO, that developed an $8.887 billion estimate of overcharges from May 2000 through May of this year, although industry sources question the accuracy of the estimates.

According to Davis, the FERC administrative law judge handling the settlement proceeding has estimated the potential refunds are in the $2 to $2.5 billion range, although this may be only charges associated with FERC-jurisdictional suppliers (not government suppliers), and only dating back to Oct. 2, 2000. The Cal-ISO estimates for the full 13-month period attribute $5.4 billion to FERC-regulated suppliers, and $3.4 billion to non FERC-covered entities, such as BC Hydro, Bonneville Power Administration and the Los Angeles Department of Water and Power, all big sellers to California.

While saying that FERC’s June 18 wholesale price mitigation order “will have a downward pressure on prices” and is “clearly a step in the right direction,” Davis said the federal regulators have to “finish the job. Finishing the job means returning approximately $9 billion that the Cal-ISO believes was excessively charged. Under law, FERC has no choice but to return the money.”

Cal-ISO, in its 10-page June 19 report, “Potential Overpayments Due to Market Power in California’s Wholesale Energy Market,” identified four principal differences that have so far caused FERC to issue orders for $125 million in refunds, while Cal-ISO maintains the overcharges by FERC-jurisdictional suppliers are around $5.4 billion:

Davis’ meeting with the three former power plant employees was scheduled so he could hear first-hand what the workers told a state senate committee hearing last Friday, according to the governor’s press secretary Steve Maviglio. Duke already has refuted the charges, saying its plants operations were directed by the Cal-ISO.

In response to another question, the governor’s energy adviser Nancy McFadden ruled out the possibility of the state offering immunity from future litigation as part of the settlement negotiations. The governor’s advisers were unsure whether the state would be willing to drop requirements that the generators take discounts of the unpaid amounts owed them on wholesale power deals until after they see how large a refund is ordered by FERC.

Davis began the week on a upbeat note, with the state so far fending off the need for power alerts and rolling blackouts, and the advent of three new power plants totaling 1,200 MW starting operations by July 9 and an overall total of 4,000 MW coming online by the end of the summer. The first unit starts up Wednesday in Bakersfield — 320 MW that are part of the first phase of Edison Mission Energy’s Sunrise Power Plant near Bakersfield.

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