Energy companies file evidence refuting California allegations

By Sylvie Dale

March 21, 2003 — Several energy companies have already filed evidence with FERC refuting allegations made by several entities in California about how they conducted their energy marketing and trading business during the California energy crisis.

Williams, Duke Energy, Mirant, Sempra Energy Trading, Exelon Corp., PPL Montana and PPL EnergyPlus, Portland General Electric Co., Bonneville Power Administration, Allegheny Energy Supply Co. and many other energy companies have all filed detailed rebuttals to the March 3 FERC filing by a coalition of California government agencies and the state’s two largest utilities.

The coalition includes Southern California Edison (SCE), Pacific Gas and Electric Company, the California Attorney General’s Office, the California Public Utilities Commission, and the California Electricity Oversight Board.

The coalition claimed to offer compelling new evidence that generators, traders and municipal power entities withheld significant amounts of electricity, engaged in collusion and pervasive Enron-type market manipulation, and should be made to return $7.5 billion in profits to the state.

The filing, which represents the results of over three months of investigation into why the state’s wholesale power costs skyrocketed during the recent energy crisis, includes evidence supporting consumer refunds of more than $7.5 billion.

However, it does not diminish the state’s overall claim for refunds to buyers of approximately $9 billion, according to a statement from California Gov. Gray Davis’ office.

To see the state’s original filing (Docket EL00-95) in PDF format, click on this link: http://www.governor.ca.gov/govsite/pdf/press_release/PR03_066_FERC_Filing.pdf

In the March 3 filing, the coalition made the case for charging all participating sellers of power in the market from May 2000 through June 2001. Referring to a July 25, 2002 FERC order, the coalition said that because all sellers charged excessive rates through the ISO and PX single-price auctions, “it is fair that all those who benefitted from this market also bear responsibility for remedying any potential unlawful transactions that might have occurred in the market.”

However, quite a few commenters have voiced the concern that they should not be made to pay refunds if it can’t be shown that they manipulated the market.

“Not all parties engaged in wrongful conduct in the California market and the Commission should limit any remedy to those entities that actually engaged in wrongful conduct,” Bonneville Power Administration (BPA) said in its statement. “The Commission should deny the request by the California Parties for a global remedy that punishes those who engaged in wrongful conduct as well as those who did not.”

Duke Energy filed a detailed, point-by-point rebuttal to the coalition filing and said it can prove the innacuracy of each statement the coalition made about the company.

“Regrettably, throughout this proceeding, the California parties simply have not done the hard and exacting work of investigating the facts,” Duke’s statement read. “The facts are that Duke Energy’s generating units performed at unprecedented levels, making exemplary contributions to the reliability of the California grid.”

“What is clear is that these repackaged accusations fail to examine transaction-specific information, rely on erroneous data, make computational mistakes and use faulty assumptions, the filing said. For example, at different points, the California parties use incorrect capacity figures or carelessly rely on expert analysis that includes Sundays, Christmas, New Year’s Day and the Fourth of July as days with “on-peak hours.” Fundamental errors in fact do not become “fact” simply because they are repeated over and over. They remain errors of fact.”

“All along, it has been up to the California Parties to prove their allegations,” said Rick Pershing, executive vice president, Mirant. “We’ve cooperated fully with their investigation and have provided over 3,500 hours of audio recordings of employee conversations, over 5,000 pages of e-mail, and over 70,000 pages of other documentation.

“They’ve failed in a desperate filing to reinterpret the facts. We’ve carefully reviewed their 3,000-page filing and found so many mischaracterizations about our conduct that we considered filing sanctions against the people responsible.”

Sempra Energy, in its response to the filing, said that it produced more than 100,000 pages of data to respond to the California parties’ information requests and that out of that mountain of information provided, state officials were not able to produce even a “molehill” of credible evidence to support their dramatic claims. Instead, Sempra Energy Trading asserts that the California parties are relying on distortions, innuendo and guesswork to weave a fabric of unsubstantiated charges.

Portland General Electric Co., in its response to that of the California parties, admitted that it used the “Death Star” strategy, but not with the intent of cheating the market. PGE said that the strategy instead benefited electricity consumers in the state of California by giving the CAISO access to additional transmission facilities that the CAISO then was able to use to relieve congestion between Northern and Southern California.

About Duke

Duke Energy is a diversified multinational energy company with an integrated network of energy assets and expertise. The company manages a dynamic portfolio of natural gas and electric supply, delivery and trading businesses — meeting the energy needs of customers throughout North America and in key markets around the world. Duke Energy, headquartered in Charlotte, N.C., is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com.

An executive summary of the FERC filing is available on the Internet at: www.duke-energy.com. Much of Duke Energy’s filing is subject to FERC’s protective order, and the full document will be unavailable until the commission makes it public.

About Sempra Energy Trading

Based in Stamford, Conn., Sempra Energy Trading — a subsidiary of Sempra Energy Global Enterprises, the umbrella for Sempra Energy’s growth businesses — is a leading participant in marketing and trading physical and financial commodity products, including natural gas, power, petroleum products and base metals. Sempra Energy Trading combines trading and risk-management experience with physical commodity expertise to provide innovative solutions for its customers worldwide.

Sempra Energy, based in San Diego, is a Fortune 500 energy services holding company with 2002 revenues of $6 billion. The Sempra Energy companies’ 12,000 employees serve more than 9 million customers in the United States, Europe, Canada, Mexico, South America and Asia.

Sempra Energy Trading is not the same company as the utilities SDG&E/SoCalGas, and it is not regulated by the California Public Utilities Commission.

The public version of the FERC filing by Sempra Energy Trading is available on the company’s Web site at www.sempra.com .

The full text of Williams’ filing can be found at http://www.williams.com/about/features/032003_adherance.jsp .

Mirant’s filings to FERC and supporting documents will be available on www.mirant.com.