Energy pirates owe state billions after phony crisis
Fifteen years ago, greedy traders plunged California into the energy crisis with its first supplier-caused blackout. That crisis almost bankrupted California. As then-president of the California Public Utilities Commission, I immediately launched an investigation into the cause of the supply shortage. A month later, the Lynch-Kahn report accused the energy marketeers of intentionally manipulating California’s market. We were right. Now we know that energy traders such as Enron and others were playing games with the California economy. They created energy shortages by withholding electricity and gas from our homes and businesses, artificially driving up prices and then taking bets on just how much the price would rise. When the withholding games caused a blackout, California’s energy prices rocketed into the stratosphere. The energy marketeers made billions of dollars. Our economy staggered.
Incredibly, we are still waiting to recover billions of dollars in overcharges and increased costs stemming from this blatant fraud. From 2000 through 2001, California overpaid for electricity by at least $20 billion. To prevent the utilities from going bankrupt and to keep the lights on, the state paid those overcharges by selling bonds. We will pay the costs of that fraud in our utility bills every month until 2022. We need to ensure that justice — so delayed — does not, by inaction, become justice denied.
In 2000, the PUC issued more than 120 subpoenas for information from all energy companies in the California market. But the Federal Energy Regulatory Commission stymied California’s efforts to obtain critical information that would prove the energy sellers’ collusion. Those sellers, and the Wall Street banks that backed them and bet on them, ran to the FERC to quash California’s subpoenas. The federal commission accommodated the conspirators then, and continues to do their bidding now.
From 2000 through 2002, the PUC brought case after case before the federal commission to challenge myriad schemes of the energy pirates. In response, the FERC started secret proceedings to determine whether specific sellers manipulated our energy markets. California was excluded from those proceedings.
At every turn, the federal commission obstructed California’s efforts to obtain refunds of unjust charges — and refused to require sellers to turn over documents proving the collusion and withholding. California took the federal commission to court and, start- ing in 2004, the courts sided with California. FERC had to be ordered repeatedly by the U.S. Court of Appeals for the Ninth Circuit to allow California to obtain and present evidence.
Once Mike Peevey became the PUC president, he and Gov. Arnold Schwarzenegger took a different, more conciliatory approach to the FERC and the wrongdoers. Instead of fighting the collusion, the PUC settled with the offenders, often for pennies on the dollar. In one case, California’s settlement permitted the wrongdoer, NRG, to “pay back” a portion of its ill-gotten gains by creating a for-profit electricvehicle charging infrastructure, using our money to build its business.
Instead of trying to return all ener- gy crisis excess profits to ratepayers or to California, backroom deals were made.
But there is still hope for a modicum of justice. At least two marketmanipulation cases brought by California are still pending before the federal commission and haven’t yet been settled by the state PUC. Winning these cases could mean billions of dollars for California families and businesses.
I urge the PUC, the governor and the attorney general not to settle those cases cheap, but to fight for California ratepayers and present a full case, with evidence, in the FERC hearings this fall. Just this April, the Ninth Circuit ordered FERC to hear California’s evidence of gaming and market manipulation and to decide the case under the correct legal standards. New decisions from the Supreme Court and the Ninth Circuit give momentum to California’s energy crisis claims. Now is not the time to settle the remaining energy crisis cases. Now is the time to prove the fraud and obtain full refunds for Californians.