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B.C. Hydro, TransAlta owe California millions, U.S. judge rules

The sun sets on high tension power lines and spinning turbines in May 2001, at the San Gorgonio Pass near Palm Springs, Calif.

Le Celano/Agence France-Presse

Gripped by drought and with rolling blackouts crippling the state, California utilities faced soaring prices when they bought power on the wholesale market in the summer of 2000.

Now the U.S. Federal Energy Regulatory Commission has concluded that 17 of the agencies selling power to the state during that crisis – including BC Hydro subsidiary Powerex and Alberta-based TransAlta – unfairly drove up prices through market manipulation.

In an initial decision, which has yet to be finalized, FERC decided that nearly $1-billion in overcharges should be refunded to California by the power suppliers. The decision states Powerex owes about $28-million, but it does not give specific figures for claims against TransAlta.

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This is the first of two FERC cases related to the energy crisis, which could prove to be costly for Canadian suppliers.

In a related matter that is expected to come before FERC in April, California entities are claiming Powerex owes $900-million, and TransAlta owes $200-million, for allegedly engaging in unlawful market activity in 2001.

John Irving, chief legal officer for Powerex, said the initial ruling will be appealed by the company, which has long denied any wrongdoing.

"Since the California energy crisis ended in 2001, U.S. regulators have consistently ruled in Powerex's favour. … These rulings clearly reinforce our position that Powerex has always acted lawfully while working hard to ensure Californians received the electricity they needed during their extraordinary energy crisis," Mr. Irving said in a statement Thursday.

"We see this latest decision … as another step in a legal process that has been under way for over a decade and may go on for years," he said.

"We take issue with the administrative law judge's initial findings in this matter. This regulatory process remains at an early stage, and TransAlta will file 'exceptions' to the initial findings and continue to defend itself," TransAlta spokesperson Stacey Hatcher stated in an e-mail.

TransAlta booked a $50-million charge in two instalments in the years after the blackout to cover possible damages that might arise.

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Michael Peevey, president of the California Public Utilities Commission, hailed the ruling as a major victory, saying the decision "finally vindicates California's legal claims on behalf of ratepayers."

He said California had to pay the highest electricity prices in its history through the summer and fall of 2000.

"The extremely high prices in the wholesale electricity market eventually drove the state's two largest utility companies into insolvency and forced the state to step in to purchase billions of dollars in electricity to keep the lights on in California," the CPUC said in a statement.

In 2006 the U.S. Court of Appeals for the Ninth Circuit ordered FERC to examine the claims of overcharges.

"We've been saying for years that California was victimized by rampant manipulation, not just by Enron but by many other electricity sellers as well," said CPUC commissioner Mike Florio. "This money was stolen from ratepayers in California by a bunch of sellers who conducted business like pirates."

In 2000, Powerex, with the blessing of the NDP government, jumped into the hot California market, which had been deregulated two years earlier.

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That was seen as a smart business move at the time, but FERC ruled Powerex, and other suppliers, used a "gaming strategy" to unfairly drive up prices.

B.C. Energy Minister Rich Coleman predicted it will be years before the case gets resolved and he endorsed Powerex, saying the agency "wasn't one of the ones driving the price of power in any way … they weren't involved in any price-fixing."

NDP energy critic John Horgan also defended Powerex.

"I'm confident that what happened was within the confines of a free market," he said, blaming Enron for any misdeeds.

"Powerex kept the air conditioners flowing and kept the lights on. Enron gamed the system," he said.

Enron Corp. played a leading role in the California energy crisis and in 2002 former officials pleaded guilty to fraud and criminal conspiracy for manipulating the market. The company went bankrupt in 2001.

BC Hydro had record profits of $7.9-billion in 2001, up from $4.4-billion the year before.

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About the Authors
National correspondent

Mark Hume is a National Correspondent for The Globe and Mail, based in Vancouver, writing news and feature stories on a daily basis about his home province of British Columbia. His weekly column, which often challenges the orthodoxy on environmental issues, appears every Monday. More

B.C. politics reporter

Based in the press gallery of the B.C. Legislature in Victoria, Justine has followed the ups and downs of B.C. premiers since 1988. She has also worked as a business reporter and on Parliament Hill covering national politics. More

Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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