California Power Cases Nearing End 16 Years After Crisis

  • Shell, Iberdrola have until May 27 to respond to ruling
  • Suppliers put ‘excessive burden on consumers’ by overcharging

Sixteen years after California experienced rolling blackouts and soaring power prices, two of the last companies accused of taking advantage of the shortage are facing a decision by federal regulators.

Royal Dutch Shell Plc and Iberdrola SA have until May 27 to respond to a Federal Energy Regulatory Commission judge’s initial ruling last month that they sold electricity at inflated prices during the California power crisis of 2000-2001. While other companies that sold power under long-term contracts in the state have long since settled charges, Shell and Iberdrola elected to fight the case.

The preliminary ruling that units of both companies placed an “excessive burden on consumers" by inflating the price of electricity as much as three to six times the market rate, marks one of the final chapters in a 14-year legal battle by California that went all the way up to the U.S. Supreme Court. It dates back to the aftermath of a flawed deregulation law that forced utilities to sell off generation plants and buy power on the spot market.

“It’s vindication for California but it’s also a shame that it took a decade and a half to get,” Jamie Court, president of Consumer Watchdog, a public advocacy group in Santa Monica, California, said by phone May 4.

The reality of deregulation was a series of rolling blackouts as companies including the now defunct Enron Corp. manipulated the electricity market to create artificial shortages, sending prices skyrocketing. With the state’s biggest utility filing for bankruptcy, and the survival of two others in jeopardy, California was forced to step in to negotiate long-term contracts with sellers directly to ease the situation. Consumers were saddled with $1.15 billion in excessive charges, including interest, under the long-term contracts with Shell and Iberdrola, according to the ruling.

"The California Energy Crisis was unprecedented in the modern history of the U.S. electric industry in terms of its severity, duration, and consumer impacts," administrative judge Steven Glazer wrote in his April 12 ruling. “The public was clearly, palpably, seriously harmed."

If the commission approves the administrative law judge’s decision, the companies could then appeal it in federal court.

‘Exorbitant Prices’

Shell pushed California’s Department of Water Resources "into offering Shell exorbitant prices for power during 2001 through 2003 by falsely claiming that it would suffer losses," Glazer said. The agency "did not know, but Shell knew, that these prices were the product of Shell’s manipulation in the spot market."

Taped recordings of conversations and e-mails from that period showed traders pondering the ethics of their questionable actions. "Do you still believe there’s a Santa Claus?" one Shell trader asked another, according to a transcript of their comments cited in the judge’s decision. "If you think there’s a Santa Claus then, then I would say, no, it’s not ethical, to be getting the best price you can get.”

Such behavior spurred California’s utilities regulator to press the Federal Energy Regulatory Commission to seek recompense for contracts that were signed under pressure. To date, about $11.7 billion has been recovered, according to the California Public Utilities Commission. Shell and Iberdrola are the only two out of 22 long-term power suppliers not to have settled.

‘Very Seriously’

“Shell Energy has received and is reviewing the administrative law judge’s initial decision," Ray Fisher, a company spokesman, said by e-mail. "We take our business and compliance with regulations very seriously."

Iberdrola was charged with harming consumers by hiking prices as much as two to three times above competitive rates.

Iberdrola is reviewing the decision and "continues to believe that the full Commission will accept our arguments and those of FERC staff presented at the hearing," Art Sasse, a company spokesman, said by e-mail. The unit in question, Iberdrola Renewables LLC, was previously PacifiCorp Power Marketing Inc., a subsidiary of Scottish Power Plc, until it was acquired by Iberdrola in 2007.

“People have completely forgotten about the California energy crisis,” Tyson Slocum, Washington-based director of energy at Public Citizen, said by phone. “It’s critically important, even after 14 years, that companies that were involved and profited be held accountable.”

Spot wholesale power for California’s SP15 hub, serving Los Angeles and San Diego, gained $32.68 to average $17.35 a megawatt-hour during the hour ended at 2 p.m. New York time on Friday from the same time a day earlier, grid data compiled by Bloomberg showed.

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