SCE Challenges FERC Settlement With Reliant, Says FERC Failed to Protect Consumers

February 10, 2003

February 10, 2003

WASHINGTON, D.C., Feb. 10, 2003—The Federal Energy Regulatory Commission (FERC) has failed to protect and fully compensate California consumers for the damages they suffered when Texas-based Reliant Resources deliberately manipulated the California electricity market by withholding power, Southern California Edison (SCE) said in a request for rehearing, filed today.

On Jan. 31, 2003, FERC approved a settlement with Reliant, calling for the company to pay $13.8 million for shutting down power plants and limiting the amount of power offered to the now-defunct California Power Exchange (CalPX) for delivery on June 21 and 22, 2000. In announcing the settlement, FERC purported to put consumers back in the position that they would have been had Reliant not engaged in its market-manipulation scheme.

SCE called the very limited penalty “surprising,” given that Reliant misled FERC concerning the cause of high prices experienced in California during the summer of 2000. 

“If there was ever any doubt concerning the causes of the California energy crisis, the evidence now released by the Commission removes that doubt—sellers helped create the crisis by withholding power in a successful exercise of market power,” SCE said in its filing with FERC, which is charged with regulating wholesale electricity markets. “What is truly appalling is that although the direction to engage in this market manipulation came from the highest levels of Reliant’s management . . . other Reliant operatives continued to insist to this Commission and to the United States Congress that the price spike in the summer of 2000 was due to market fundamentals rather than to the unmitigated exercise of market power which we now know was taking place.”

SCE calculated that Reliant’s profits from its market-power abuse totaled at least another $15.5 million when the impacts on the ancillary services, real-time and forward- contract markets for the third quarter of 2000 are calculated. 

“Reliant’s behavior affected more than just the CalPX market analyzed by FERC staff,” explained SCE Director of Market Monitoring and Analysis Gary Stern.  “In fact, the transcripts released by FERC state that Reliant’s chief motivation for exercising market power was to raise prices for the third quarter of 2001.”  SCE does not have access to the data necessary to calculate Reliant’s ill-gotten gains during that period.

In addition, since Reliant was able to inflate prices for all generators, the cost to consumers is likely to be many times Reliant’s own gain from this abuse, SCE said.

“Approving a settlement agreement that covers only a fraction of the profits Reliant gained from its schemes sends exactly the wrong message to market participants concerning this Commission’s willingness to act as an effective cop on the beat,” SCE said in its filing. “[F]urther, approving a settlement agreement that returns to California consumers only a small fraction of the unjust and unreasonable rates that they were forced to pay as a result of Reliant’s scheme does a disservice to the very group that this Commission is charged with protecting. “

SCE noted that preliminary investigations indicate that Reliant engaged in other behaviors on the relevant dates that were designed to increase CalPX prices and that SCE reserves the right to present evidence concerning these other behaviors.

SCE also asked FERC to clarify that the Commission is not settling SCE’s claims against Reliant.

“Edison was overcharged billions of dollars and driven to the brink of bankruptcy by the market games that Reliant thought were ‘fu-un!’ the company said.  “The Commission may not simply settle these claims away behind closed doors and in a manner that denies Edison its due process rights.”

Given the ambiguities in the FERC order, SCE will seek a rehearing and ask the Commission to clarify that its Jan. 31 order “in no way impacts the claims that SCE is in the process of developing against Reliant and/or any other sellers for any period, including the days of June 21 and 22.”

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An Edison International (NYSE:EIX) company, Southern California Edison is one of the nation’s largest electric utilities, serving a population of more than 12 million via 4.5 million customer accounts in a 50,000-square-mile service area within central, coastal and Southern California.  For more information on the California electricity market, see www.sce.com.