Pressure is building in both Sacramento and Washington for the state’s municipal utilities, chiefly the Los Angeles Department of Water and Power, to refund hundreds of millions of dollars to the state for alleged overcharges last winter.
The municipal utilities deny any overcharging, saying prices reflected rising costs. Several utilities have already filed lawsuits seeking to prevent the state or the federal government from ordering refunds.
Last week, the Federal Energy Regulatory Commission voted to seek refunds from municipal utilities, even though the agency has not in the past exercised regulatory authority over those utilities. The previous week, Gov. Gray Davis said the state would seek refunds from “all price gougers,” whether they are public utilities or private wholesalers.
FERC has not attached a dollar figure to the refunds. However, the California Independent System Operator issued a report on July 9 estimating that public power sellers overcharged the state $623 million from last October through May.
State seeking relief
The FERC vote followed the release of another set of state documents showing that municipal utilities including the DWP, Glendale Water and Power and Burbank Water and Power sold surplus power to the state at prices higher than out-of-state wholesalers like Houston-based Reliant Energy or Enron Corp.
The state is seeking at least $6 billion in refunds from those private generators, but hasn’t yet put any figures out for how much it is seeking in refunds from government utilities.
The LA DWP made up the lion’s share of power sales from in-state municipal utilities, according to data released by the state Department of Water Resources earlier this month. The DWP charged an average of $292 per megawatt hour for 805,000 megawatts of power sold to the state during the first quarter. Glendale charged an average of $327 a megawatt-hour for 27,000 megawatts and Burbank charged an average of $273 per megawatt hour for 29,000 megawatts.
(These agencies were by no means the highest in their prices: Powerex, the trading arm of British Columbia Hydroelectric sold 804,000 megawatts of electricity for an average price of $498 per megawatt hour during the first quarter.)
By comparison, the state report said the average price charged by private wholesalers was $247 per megawatt hour.
“Many of these government power authorities took us for a lot more than the private guys,” said state Sen. Ray Haynes, R-Riverside, who has tried unsuccessfully so far to pass an amendment demanding that municipal power authorities pay refunds on power sold at prices higher than $80 per megawatt hour.
‘We have not gouged the state’
Municipal utilities said numbers put out by the state are misleading, because they don’t take into account higher costs faced by municipal utilities and the hundreds of millions of dollars they themselves are owed by the now-defunct California Power Exchange and the insolvent investor-owned Southern California Edison and Pacific Gas & Electric utilities.
“Our position is that we have not gouged the state and therefore should not in any way be forced to give refunds,” said LA DWP spokesman Eric Tharp.
The DWP, Tharp said, has been selling power to the state at 15 percent above the cost to generate the power. From May of 2000 to May, 2001, Tharp said, the DWP used $145 million in profits from excess power sales to pay down its debt. Another $45 million was sent to the city of L.A.’s general fund as part of the required annual transfer of 5 percent of all revenues.
As to why the power cost so much more to generate than the power sold by private generators, Tharp said that, unlike private generators, the DWP is required to use its cheapest power for its own ratepayers, leaving more expensive power to be sold as surplus power to the state.
“That surplus power sold to the state came from plants that are 45 or 50 years old and run on natural gas,” Tharp said. “Those plants are nowhere near as efficient as newer plants and, because they were offline, we had no long-term natural gas contracts to fuel them, so we had to turn to the spot market.”
Besides, Tharp said, if refunds are ever ordered, they likely would be entirely offset by the $180 million the agency is owed by the defunct Power Exchange and PG & E; and Edison.
The DWP was lucky enough to have a lot of excess power to sell. Burbank and Glendale sold relatively small amounts of electricity to the state at certain peak periods. Officials with those two agencies said that whatever revenues they received from those power sales were more than offset by the cost of power they had to purchase on the open market to supply the needs of their own customers.
“We’ve had to raise our rates 10 percent because of this deregulation fiasco, so I ask you, where are the profits the state says we have?” asked Fred Fletcher, assistant general manager for power at Burbank Water and Power. “I don’t see anybody trying to get refunds for our customers. If we are ordered to pay refunds, that’s going to mean another rate increase.”
