Suddenly, two new figures are appearing regularly on the floor
of the California Independent Service Operator, the agency
parceling out energy on this state’s electricity grid.
Thomas D. Elias
Suddenly, two new figures are appearing regularly on the floor of the California Independent Service Operator, the agency parceling out energy on this state’s electricity grid.
They are an engineer and an economist dispatched from the Federal Energy Regulatory Commission’s offices in Washington, D.C., in an attempt to prevent any new power crisis in the nation’s largest state. Their job is to make sure no one tries to manipulate the power market, using shortages and the threat of blackouts to drive the price of electricity skyward.
“If this works well, then I will do this everywhere,” says FERC chairman Patrick Wood, who dispatched the new federal watchdogs.
The questions Wood doesn’t answer: Why now, rather than long ago? Why didn’t he or his predecessor send monitors with substantial authority to the floor of the ISO in early 2001, when prices were skyrocketing because of the very kind of manipulation Wood now says he wants to prevent? One trader has already pleaded guilty to criminal manipulation of the market at that time.
And why, since such manipulation unquestionably occurred, is Wood’s commission waiting so long to order the billions of dollars in rebates that are surely due to Californians?
One clear-cut reason this fall was politics. Democratic Gov. Gray Davis began blaming the power crisis on “out of state companies…buccaneers and pirates” as early as January 2001, even threatening a state takeover of power plants if they kept producing at well below capacity.
To order rebates before the election would have vindicated the Davis rhetoric at a time when Republican challenger Bill Simon was loudly blaming Davis for the crisis. Wood, a Republican appointee, had no desire to help out the Democratic governor who has been one of his agency’s steadiest critics.
But the mere act of sending in monitors was an admission that something crooked has gone on and that repeats of the criminality must be prevented. Trouble is, the action is too little and comes too late.
For what if FERC does order massive rebates during the winter, as many expect, and targets Enron, among other companies? The onetime energy trading giant is not only discredited, but broke and also under investigation by a federal grand jury in San Francisco for possible fraud in its market manipulations. Impose a billion-dollar rebate on Enron now and you’d get little or nothing.
Ordering repayments from other companies, like El Paso Energy, might be more productive. El Paso, according to a formal report from a FERC administrative law judge, deliberately ran its natural gas pipeline from Texas to California well below capacity during the energy crunch. That forced the price of gas up to levels more than triple what prevailed at the time on the East Coast, and power generators whose California plants run mostly on natural gas passed that cost along to consumers and businesses. Consumers also paid those ultra-high gas prices. El Paso is still a healthy company and could fork over plenty if compelled to.
So could firms like AES, Duke Power and Mirant, all of which now stand accused by the state Public Utilities Commission of deliberately idling generating capacity during the crisis to keep the price of electricity up.
All of them, of course, deny wrongdoing and FERC will be the first judge of whether they or the PUC are correct. Later, the whole mess could be tossed in the lap of the U.S. Supreme Court. For now, FERC will merely require owners of power plants to certify under oath that plant outages leading to higher power prices are due to mechanical or other legitimate problems.
Fully one-third of California’s generating capacity was idled during much of February and March 2001, when prices rose by 1,000 percent and more. The PUC says that was deliberate, but the companies say it was all due to necessary maintenance work.
Forcing companies to certify their outages makes power company executives “personally responsible” when their plants go out of service, said the director of FERC’s new Office of Market Oversight.
Another legitimate question: Why was there no office in 2000 and 2001? And even in its absence, why wasn’t FERC doing some oversight at a time when Davis was daily begging it to?
There are no solid answers to these questions yet. But one thing is for sure: What FERC is doing now is barely a Band-Aid over a potential gaping wound that could reopen at any time. Plus, the measures come more than a year too late to help very much. If the motivation for this can be shown to be purely political, it is FERC’s boss, President George W. Bush, who ought to pay the price at the ballot box in 2004.
