Houston-based Dynegy and California officials late Monday reached a $281.5 million settlement over pending refunds that are part of the $9 billion the state has relentlessly pursued from energy companies for more than three years through FERC and the courts.

Indicative of the magnitude of the deal in California is the fact that three different state government sources and the state’s largest private-sector utility all announced the agreement, which includes $256 million in refunds for customers of California’s three private-sector utilities.

The settlement was reached with the staff of the California Public Utilities Commission (CPUC) and other parties. It still must be ratified by the five-member CPUC and the Federal Energy Regulatory Commission. Most of the monies in the settlement will be paid by Dynegy giving up more than $200 million in unpaid power supply bills it is still owed.

State Attorney General Bill Lockyer, one of the parties to the settlement, said he hopes it will “serve as a template for future refund agreements with other energy companies.”

California Gov. Arnold Schwarzenegger called the settlement a “major victory.” Lockyer, who has pursued refunds at the federal regulatory and court level, called the deal “a measure of justice” extracted from what he characterized as “one of the most rapacious pirates of the energy crisis.”

The Dynegy settlement, however, was considerably less than the $1.4 billion in benefits Californians received from a settlement with Williams and the $1.7 billion settlement with El Paso Energy.

Pacific Gas and Electric Co., which was one of the California parties reaching the agreement with Dynegy, said in a prepared announcement that its customers will receive about $80 million from the deal. The PG&E utility’s general counsel and senior vice president, Roger Peters, called the settlement “another positive development in our efforts to resolve the market manipulation claims resulting from California’s energy crisis.”

Besides the CPUC staff, state attorney general and PG&E, the parties to the settlement are the California Department of Water Resources (DWR), Southern California Edison Co. and San Diego Gas and Electric Co.

CPUC President Michael Peevey said the regulatory panel will “look carefully at this settlement and determine whether to give our approval, but our staff has recommended what they feel is in the best interest of consumers and the state.” In lauding the “hard work” of the regulatory staff, Peevey provided the following highlights of the deal:

According to Schwarzenegger’s announcement, DWR will receive $123 million, which ultimately will be used to decrease retail rates or retire electric revenue bonds. Another $137 million will go to the customers of the three major utilities: PG&E ($82.3 million), Edison ($38.2 million), and SDG&E ($16.5 million). (The attorney general’s office had a slightly lower amount to the utilities, with $4 million less going to Edison.)

“The settlement structure also reflects payment by Dynegy of 10% of the amount it owes DWR for overcharges incurred when DWR was forced to buy power directly from Dynegy in so-called ‘out-of-market’ transactions,” a prepared statement from the attorney general’s office said. “That figure works out to $3.6 million. The refund of overcharges to DWR represents another important victory for the state because FERC has determined DWR is not entitled to refunds.”

Lockyer said the Dynegy refund settlement is the seventh produced by his “energy task force,” working with the CPUC, state Electricity Oversight Board, governor’s office, DWR, PG&E and Edison. California continues to appeal FERC’s denial of refunds for DWR purchases and its decision prohibiting refunds for pre-October 2000. The combination represents about $6 billion of the $9 billion that California continues to argue it is owed.

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