Tulsa, Okla.-Based Power Wholesaler Defends California Pricing

Mar. 23, 2001

Tulsa, Okla.-Based Power Wholesaler Defends California Pricing
The stated overcharges only scratch the surface, according to California's power grid manager.

By Russell Ray

Accused of selling over-priced electricity to power-starved California, Williams Cos. Inc. says it can justify the rates it charged for wholesale power.

Federal regulators claim Williams Energy Marketing and Trading Co., a unit of Tulsa-based Williams, owes California more than $40 million in refunds for power it sold to the state's Independent System Operator.

According to the Federal Energy Regulatory Commission, Williams is one of several power providers that illegally inflated power prices in California markets. The alleged overcharges total $124 million and were made from transactions conducted in January and February.

However, the alleged overcharges claimed by FERC only scratch the surface, according to the California ISO, which manages the state's power grid. In papers filed Thursday with FERC, ISO officials claim the state was overcharged $6.2 billion by 21 wholesale power providers, including Williams, between May and February, an ISO spokesman said.

The FERC filing did not list the companies or how much they owe individually.

Williams denies the allegations, saying the rates it charged California were fair and were based on production costs and market conditions.

"Williams is confident that it performed within the guidelines established by the ISO," said Williams spokeswoman Paula Hall Collins. "We felt like we had worked within the regulations set up by ISO."

According to the commission, power prices levied by Williams in January and February exceeded federal price ceilings based on the cost of natural gas and other market conditions.

"Anything above that (ceiling) would lead to potential refund liability," FERC spokeswoman Barbara Conners said.

The January ceiling was set at $273 per megawatt hour, and the February ceiling was set at $430. Although the ceilings are nine to 15 times higher than last year's prices, they are considered reasonable and appropriate by regulators. Last year, electricity in California was sold for about $30 per megawatt hour.

However, the price ceilings were established after the ISO accepted Williams' power prices, Collins said.

"Sixty days later, FERC determined that the highest price that should be paid is $273," Collins said.

Williams has until Friday to justify its January charges. After reviewing the company's explanation, the commission will either accept the justification or order the company to pay refunds. In January, Williams overcharged the state by $8 million, FERC contends.

Last week, Williams and five other companies were ordered by FERC to justify $55 million in February power sales to California or pay refunds. Williams was cited for $21.5 million in February overcharges.

Duke Energy, Dynegy and Reliant Energy are among the companies ordered by FERC to pay refunds. The January and February charges, FERC said, "have not been shown to be just and reasonable."

FERC officials also have accused Williams and AES Southland Inc. of deliberately shutting down two power generation units in order to sell power from other units at higher prices. Williams markets power from several AES power generation units.

The two suspect units, which were shut down between April 25 and May 5, are known as "must-run" generation units, which means they must be available to the ISO when power supplies are low.

"When they are called upon by the ISO, they have to generate for the reliability of the system," said FERC's Conners. "On these occasions, the ISO said we need the power and they said it's not available. As a result, the ISO had to go to other units to get the power they needed."

ISO paid Williams $750 per megawatt hour for power from other AES units, well above $63 per megawatt hour, the price it would have paid had the two must-run units been operating, FERC officials claim. If Williams can't justify the shutdowns, it may be forced to pay $10.8 million in refunds.

The two units in question were shut down for maintenance work, said AES spokesman Aaron Thomas.

"Our decisions regarding maintenance during that period were reasonable," Thomas said.