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Calif ISO Cuts Power Refund Estimate To $6.1B From $8.9B =20
Updated: Wednesday, July 18, 2001 11:53 AM=01;ET =01;=20 =01; By Mark Golden=20 Of DOW JONES NEWSWIRES=20 NEW YORK (Dow Jones)--California's estimate of how much the state was=20 overcharged by power suppliers dropped to $6.1 billion from $8.9 billion wh= en=20 an adjustment requested by a Federal Energy Regulatory Commission judge was= =20 taken into account, according to data submitted to FERC last week.=20 The California Independent System Operator's estimate fell when the grid=20 operator excluded power bought by utilities not under its purview, and its= =20 estimate could fall again as it works in other recommendations made by the= =20 judge following the conclusion of 15 days of talks between power suppliers= =20 and the state over potential refunds last week.=20 Even as the ISO continues to recalculate its refund estimate, however, the= =20 state is sticking to the original $8.9 billion figure, which has been calle= d=20 arbitrary by critics. The $6.1 billion estimate merely establishes "a=20 potential framework for settlement discussions," Eric Hildebrandt, the ISO'= s=20 chief analyst on the matter, told the FERC.=20 FERC administrative law judge Curtis Wagner, who has dismissed the $8.9=20 billion figure as baseless and criticized California's delegation for not= =20 negotiating in good faith, estimated in his report on the talks that refund= s=20 due may amount to about $1 billion. Power suppliers offered just over $700= =20 million.=20 Wagner has recommended FERC hold a 60-day hearing to set the level of refun= ds=20 and has told the ISO to revise its estimate of what California is owed.=20 The ISO's original $8.9 billion figure included electricity sales to=20 municipal utilities and alternative energy suppliers that didn't go through= =20 the ISO's wholesale markets, the California Power Exchange or the Californi= a=20 Department of Water Resources. Without direct knowledge of the prices of=20 those purchases, the ISO made estimates.=20 "We know the volume (of the bilateral deals)," Hildebrandt said. "The refun= d=20 amount was based on extrapolation of observed prices in the spot market."= =20 Resetting The Baseline=20 Wagner told the ISO to recalculate its figure using only sales through the= =20 ISO and CalPX markets - which were set up by the state's deregulation law f= or=20 California's three investor-owned utilities to purchase power - in addition= =20 to sales to the California Department of Water Resources.=20 The DWR has been buying power for the utilities since PG&E Corp. (PCG, news= ,=20 msgs) unit Pacific Gas & Electric Co. and Edison International (EIX, news,= =20 msgs) unit Southern California Edison ran out of cash in January. DWR has= =20 also been covering the needs of Sempra Energy (SRE, news, msgs) unit San=20 Diego Gas & Electric Co.=20 In arriving at his new estimate, the ISO's Hildebrandt also recalculated fa= ir=20 prices - the baseline against which refundable amounts are determined - by= =20 retroactively applying the price controls FERC imposed June 19. Those=20 controls set prices by the operating costs of the least efficient generator= =20 needed to meet demand each hour.=20 But last week, after Hildebrandt completed his $6.1 billion estimate, Wagne= r=20 recommended to FERC commissioners that the June 19 price control formula be= =20 modified when used retroactively to determine refunds.=20 Those modifications, if applied to the ISO's estimate, would cut refunds mu= ch=20 further. For example, FERC's price limits are now based on a monthly averag= e=20 of natural gas prices covering supplies throughout the state. Wagner=20 recommended using power producers' actual gas costs. Since gas is=20 considerably more expensive in southern California, using actual prices wou= ld=20 cut potential refunds sharply.=20 Also, Wagner said that refunds should be ordered on sales only as far back = as=20 Oct. 2, which would reduce the total amount claimed by California by about= =20 one-third, according to Hildebrandt's previous monthly breakdown.=20 ISO staff is again recalculating the refund estimate to reflect some of=20 Wagner's recommendations, but the ISO will still include sales back to May= =20 2000, said spokeswoman Stephanie McCorkle.=20 "The reason we're not going back just to Oct. 2 is that all of the=20 overcharges going back to May should be repaid," McCorkle said. "We just=20 maintain that position."=20 FERC Baseline Questioned=20 In addition, Hildebrandt argues in his recently released estimate that when= =20 fair prices are calculated retroactively using FERC's new formula, the pric= e=20 cap should be based on the least efficient generator the ISO knows to have= =20 been available, not the least efficient generator actually used to meet=20 demand.=20 That's because the FERC's new price controls require all available generato= rs=20 be made available to the ISO at any time, Hildebrandt said.=20 Applying that rule would raise the ISO's revised estimate substantially: to= =20 $7.7 billion from $6.1 billion.=20 One of the ways generators managed to manipulate prices higher, Hildebrandt= =20 said, was to not offer cheaper power from more efficient units. Considering= =20 only the least efficient generator actually used would make permanent the= =20 rewards for such withholding, he said.=20 "The judge is in error to suggest that the actual (least-efficient) unit us= ed=20 would have been called on if the must-offer requirement were in effect,"=20 Hildebrandt said in an interview.=20 In arriving at his estimate, Hildebrandt determined the difference between= =20 actual sales prices and what prices would have been for every seller and fo= r=20 every hour since May 1, 2000, had price controls been in effect. The ISO=20 released only the total potential refund, not the company-specific shares.= =20 Hildebrandt took issue with generating companies that have complained his= =20 numbers aren't justified.=20 "These are based on very tangible records," he said. "The idea that it's a= =20 black box is misleading."=20 -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.co= m=20 (Jason Leopold in Los Angeles contributed to this article.)=20
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