FERC Hears Calif. Plea To Revise, Drop Power Deals

WASHINGTON, DC -- - California agencies made a last-ditch effort on Thursday to convince skeptical federal regulators that $16 billion in long-term electricity contracts signed at the height of its 2000-01 energy crisis were unfair, which suppliers dismissed as buyer's remorse.

California's Electricity Oversight Board and Public Utilities Commission argued at a hearing before the Federal Energy Regulatory Commission (FERC) that those contracts should be scrapped or rewritten, alleging manipulation by suppliers.

Energy suppliers argued that California was trying to escape blame for the high prices it locked in with the contracts once short-term markets dropped significantly lower.

"We have little more than a buyers' remorse case with a significant political cost," said Thomas McCormack, an attorney for Allegheny Energy Inc. ((AYE.N)), one of the suppliers.

FERC will issue a final decision on two separate but linked cases involving contracts signed by California agencies and the giant PacifiCorp utility in the near future, FERC Chairman Pat Wood said on Wednesday.

Two of FERC's three commissioners in March signaled they support upholding the contracts. If their views remain unswayed there is little hope that FERC will give them any relief.

Faced with rolling blackouts and financial insolvency of its utilities, California in 2001 inked 52 long-term contracts with 29 suppliers with a face value of about $43 billion, some at prices that were ten-fold above year-ago levels.

The state has since renegotiated 23 of the contracts with 14 suppliers representing about half their original dollar value, reducing their value by about $5.5 billion.

The rest of the contracts with seven suppliers, including Dynegy Inc. ((DYN.N)), El Paso Corp. ((EP.N)), and Mirant Corp. ((MIR.N)), are subject to the upcoming FERC ruling.

GOUGING?

FERC in March said California was due $3.3 billion in refunds from short-term power sales signed during the crisis, citing "epidemic" manipulation by energy companies like Enron Corp. The reward fell far short of the $9 billion in refunds the state demanded.

Wood and Commissioner Nora Brownell do not concede that such manipulation affected long-term contract prices, and have insisted that the deals should stand.

Energy suppliers have repeatedly denied that they plotted to drive energy prices higher, despite allegations that some suppliers switched off their plants and manipulated shipments on the state's power grid to boost prices.

"We didn't have any secret plots we were engaged in," said Dynegy attorney John Estes.

FERC should not allow suppliers to "harvest the fruit and windfalls of a traumatic market at the expense of consumers," said William Kayatta at the Electricity Oversight Board, citing a "critical interdependence" between short-term and long-term prices.

California officials said FERC should allow the state to cut about $7 billion from the cost of the contracts, or to release them from obligations with the suppliers entirely.

FERC also heard similar arguments on whether to cancel $66.9 million in contracts signed by Pacific Northwest utility PacifiCorp with Reliant Resources Inc. ((RRI.N)), Morgan Stanley ((MWD.N)), Williams Cos. Inc. ((WMB.N)) and El Paso.

PacifiCorp, a unit of Scottish Power Plc. ((SPW.L)), argued that suppliers overcharged by about $53 million. Suppliers denied any wrongdoing and again pointed to buyer's remorse.

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