Powerex, California seek quick approval of $750m settlement

The California Public Utilities Commission (CPUC) said Aug. 16 that it has reached a $750m settlement with Powerex in a deal to resolve one of the largest remaining claims of overcharges arising from the California Energy Crisis of 2000-2001.

Powerex is a subsidiary of British Columbia Hydroelectric, or BC Hydro, which is a unit of the Provincial Government of British Columbia. It has agreed to refund U.S. $750m to electricity consumers in California.

The settlement with California utilities, the California Attorney General and other California parties (California Parties) resolves claims related to the 2000 – 2001 California power crisis that resulted in rolling blackouts and record-high electricity prices. Powerex was one of over 60 electricity sellers in the California market during the crisis.

A settlement document of more than 240 pages was filed with FERC by the state of California, Powerex and other parties on Aug. 16. The settlement was achieved through the Ninth U.S. Circuit Court of Appeals mediation process.

The settlement tries to put to rest about a decade of legal wrangling between California and Powerex.

Following the power crisis, numerous lawsuits and regulatory proceedings were launched by the California Parties, demanding refunds and penalties, Powerex said Aug. 16. In 2003, FERC concluded the California market was “dysfunctional” and ordered refunds from all sellers who sold electricity during the crisis, Powerex said. The majority of the settlement provides refunds to the California Parties as previously mandated by that order, Powerex said.

The settlement, which is subject to approval by FERC, will be achieved by a payment from Powerex to the California Parties of US $273m and a credit for monies owed by the California parties to Powerex valued at US $477m. As a result of the settlement, Powerex will incur a net loss of about C$101m, this year, Powerex said in a news release.

“This was a tough but necessary decision to protect taxpayers,” said British Columbia Minister of Energy and Mines Bill Bennett. “We have learned that the U.S. court system can be unpredictable. When you weigh this settlement versus a potential $3.2 billion legal liability, we determined it was in the best interest of taxpayers to settle and put this long standing dispute behind us,” Bennett said.

“This agreement expressly recognizes that Powerex admits to no wrongdoing,” said Powerex President and CEO Teresa Conway. The settlement represents an opportunity to move forward and enhance our relationship with California which will continue to produce benefits for ratepayers in British Columbia.”

FERC settlement approval sought by October

Because it is hoping to close out the books on the energy crisis legal battle, CPUC is seeking an expedited, shortened comment period on the settlement in Docket No. EL01-10-085.

CPUC proposes that initial comments be due Aug. 26. Reply comments would then be due Sept. 5. The parties are also seeking action on the settlement by FERC by Oct. 4, 2013

If approved by FERC, the settlement will bring to $4bn the amount of money the CPUC and its aligned California parties have obtained in refunds from wholesale electricity sellers during and after the crisis, CPUC said.

The refunds paid by Powerex will be passed through to consumers in California as an offset against their current electric bills. The refund money will be distributed among the customers of California’s three major investor-owned utilities: Pacific Gas and Electric, San Diego Gas & Electric, and Southern California Edison.

The settlement arises from alleged market manipulation in the Western energy markets during 2000 and 2001, which resulted in what current CPUC President Michael Peevey called “excessively high electricity prices” that almost “crippled” the state economy.

CPUC Commissioner Mike Florio said, “I hope the remaining sellers who have not yet agreed to settle our refund claims will wake up and take notice of this major settlement by Powerex. I encourage them to follow suit and reach their own settlements with us.”

The settlement was negotiated with the assistance of Judge Edward Leavy of the United States Court of Appeals for the Ninth Circuit, and Lisa Jaye of the Ninth Circuit’s mediation office. Judge Leavy and Ms. Jaye served as mediators in the negotiations.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.