California energy mess: the tab nobody picks up

"We wuz ROBBED!"

That's the bitter conclusion many Californians have reached since their energy crisis three years ago cost them billions of dollars and sent utility bills soaring like a Barry Bonds home run.

The big question now: How much of their massive losses will be refunded - and by whom?

Californians may hold out hope the nation's taxpayers could help out in their financial crisis. After all, their new governor, Arnold Schwarzenegger, is a Republican and might be able to wheedle some funds out of the Republican administration in Washington.

If not, he might get the Republican-led Federal Energy Regulatory Commission (FERC) to be tougher in dragging money out of power-trading firms that manipulated electricity prices.

Mr. Schwarzenegger met with President Bush in California Thursday.

But massive federal budget deficits make it unlikely Washington can find substantial sums to offset the costs of California's crisis.

The California Department of Water Resources issued $11.9 billion in bonds last November to cover the cost of the high-priced power bought in the crisis. Nearly 10 million customers of California electric utilities are stuck paying off those bonds in their monthly bills during the next decade. As a result, their rates are the highest in the nation.

"The odds of Californians being made whole are very low," says a congressional staff expert.

But the state is trying. Bill Lockyer, California's attorney general, has been seeking $8.9 billion in refunds from a multitude of power providers. Earlier this month, Mr. Lockyer asked a three-judge panel in San Francisco to require energy companies to refund consumers $6 billion in allegedly excessive electricity bills. He charges the federal regulators with a "piecemeal approach," inadequate to recover much money.

That regulating agency, FERC, has identified 43 firms that may have used illegal electricity-trading strategies. The agency ordered the firms to "show cause" why they should not have to repay the profits gained from such trades. Though not admitting guilt, about one-third have settled tentatively with FERC for fines that Lockyer's office considers "pretty paltry." By settling, the firms avoid lengthy litigation over trading violations. Many settlements are for less than $75,000.

"The commission has to follow due process and procedures," notes Barbara Connors, an FERC spokeswoman.

FERC is also seeking $1.8 billion in refunds, maybe more if it determines that natural-gas prices used in generating electricity were also manipulated.

Even with a Republican governor in California, it's not clear the Republican-led FERC will be any more aggressive.

For his part, Attorney General Lockyer won't go away, since his is an elective office. He can't be fired.

If FERC recoveries are not adequate, Lockyer will "seek redress" with court appeals, says spokesman Tom Dresslar. But he's concerned the FERC settlements may have damaged that process.

Certainly, Schwarzenegger will have to deal with the energy-crisis repercussions. On his website, he advocates moving to the "standard market design" advocated by FERC - a type of free-market regulation for electricity.

To critics, this reregulation resembles the mess that got California into trouble in the first place. But the new governor emphasizes that his proposal will require power firms to maintain "minimum-reserve requirements" - much as the old utility rules did - in order to prevent power shortages that facilitate market manipulation.

But Schwarzenegger may be too close to the energy industry to push adequately for refunds, says Douglas Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights (FTCR) in Santa Monica, Calif.

FTCR has written the governor-elect asking for an explanation of a private May 2001 meeting with Enron chief Ken Lay and others. Schwarzenegger has said he didn't recall that session.

Mr. Heller charges FERC with failing to enforce its own rules that power companies should charge "just and reasonable prices" during the energy crisis. It took six months before the agency finally put caps on electricity prices.

"FERC sat idly by and watched as Californians were robbed blind," he says. "Whether it was for political reasons or [free market] ideological reasons doesn't matter, because the result was terrible for California."

Three weeks ago, the Democratic California delegation in Congress wrote FERC, charging, "The refund process has dragged on too long." FERC has not yet responded. So far, it looks as if Californians will be paying big energy bills for a long time.

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