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California PUC claims $4 billion in overcharges

Nov. 22, 2000—California households and businesses were overcharged more than $4 billion for wholesale electricity and there is evidence some power companies “manipulated” the market to increase prices in recent months, the California Public Utilities Commission (PUC) says.

The PUC said the findings highlight the need for the Federal Energy Regulatory Commission (FERC) to grant a recent motion that would allow the California regulatory agency to compel generators to respond to subpoenas with data about their sales and operations.

In filings Wednesday with FERC, the PUC said a staff analysis suggests claims of tight supply and increased costs are overstated and “do not alone explain the price spikes over the past several months.”

The FERC found California’s problems were exacerbated by tight demand and supply, existing emergency conditions, increased load, unplanned outages, and below normal hydroelectric imports. All these conditions sent electricity prices combined with higher costs of environmental compliance credits to record levels.

FERC’s own analysis of the wholesale power markets underestimates the extent of market power exercised in California, the PUC claims. It argues FERC’s proposed remedy issued Nov. 1 is inadequate to protect California consumers because of FERC’s findings California electricity prices are not “just and reasonable.”

The PUC criticized FERC’s proposed remedies as ineffective to restrain market power under existing conditions. FERC’s proposed “soft cap” will allow generators to recover rates exceeding $150/MWh, under certain circumstances subject to FERC review.

The FERC-proposed “soft cap” on prices will not result in reasonable prices during times of high demand, the PUC argued, because California wholesale markets have experienced “extraordinary” prices during periods of moderate demand.

The PUC also opposes FERC’s proposal to penalize underscheduling as one-sided and fails to recognize the role of power sellers in creating supply and demand imbalances. FERC recommended a penalty for buyers who purchase more than a certain percentage of their load in the real time market rather than scheduling it in the day-ahead and other forward markets.

Under federal law, FERC has jurisdiction over wholesale power markets, including insuring wholesale prices are reasonable and fair. But commissioners have noted FERC’s mandate makes no exception for whether prices are set by the market or under a cost-based system.