Power Sellers Allege State Violates Rules

SACRAMENTO —  Power plant owners accused of gouging California last winter complained to a Senate committee Tuesday that the state is now slighting them and going to the Pacific Northwest to buy electricity.

And the state responded: Tough luck.

“There’s no ‘buy California’ rule here,” said Oscar Hidalgo, spokesman for the California Department of Water Resources, which has been buying much of the power California uses since January. “They didn’t step up and help us in a moment of crisis, and now they have objections that we are seeking the lowest-cost power by whatever means necessary.”

During a break in a five-hour hearing on generators’ complaints that state agencies are colluding to the disadvantage of power sellers, Hidalgo said, “They didn’t have an obligation to us earlier in the year. They said, ‘It’s business.’ This is business.”

The Senate committee created last spring to investigate alleged price manipulation by power sellers shifted its focus Tuesday from possible wrongdoing by private energy companies to complaints by a couple of those companies that two state agencies are violating the federal rules guiding what’s left of California’s largely defunct electricity market.

Led by Sen. Joe Dunn (D-Santa Ana), the committee questioned top officials with the California Independent System Operator (Cal-ISO), which balances most of the state’s transmission grid, and the Department of Water Resources.

As the power market California created under a 1996 deregulation scheme went badly awry last winter, the water department was thrust into the business of buying electricity for the 27 million people served by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. Months of high wholesale electricity prices had driven those utilities into deep financial trouble.

Once overwhelmed by its emergency task, pitted against ruthless private energy traders and described by Gov. Gray Davis as a stickball team going against the Yankees, the water department has clearly become more sophisticated as the biggest power buyer in the West.

Reliant Energy of Houston and Mirant Corp. of Atlanta, which own major power plants in California, have accused the department and Cal-ISO of violating federal wholesale electricity rules, and those accusations were the subject of Dunn’s hearing.

When it must buy electricity on short notice, Cal-ISO is supposed to choose the cheapest bid from bids submitted by suppliers.

But in an Oct. 18 filing to the Federal Energy Regulatory Commission, Reliant and Mirant accuse Cal-ISO of playing favorites by ignoring the suppliers’ bids and instead pumping onto the grid electricity purchased by the Department of Water Resources in one-on-one deals with power generators. That ends up costing the consumer more money, said Reliant and Mirant officials, and makes for an inefficient use of power plants.

Cal-ISO officials agreed that the department’s so-called “out of market” purchases were more expensive than the bids offered in the months January through August. But since August the gap has narrowed, and now the price is roughly the same.

Power companies and consumer groups have suggested that the department is manipulating the Cal-ISO market for last-minute electricity to help hide surplus electricity that the department agreed to buy under $43 billion worth of long-term power contracts signed last spring.

But Pete Garris, acting director of the department’s power-buying branch, denied that the power the department is obligated to purchase under the long-term contracts is being laundered as “out of market” calls for electricity.