Energy price probes widen to include state officials

Energy price probes widen to include state officials
Chief of power grid to be questioned

By Mark Martin
CHRONICLE SACRAMENTO BUREAU

November 6, 2001

SACRAMENTO -- In June, as Californians braced for a summer of rolling blackouts, television cameras captured allegations from former Duke Energy employees that seemed to pin the state's energy mess on power providers.

The self-described whistleblowers told a legislative committee that Duke withheld power during the peak of California's electricity shortage to boost prices, charges the company denied.

But more than four months later and at a cost that could top $10 million, state-sponsored investigations into the energy crisis have yielded no civil or criminal penalties against power providers. In fact, some probes started to scrutinize energy companies are now targeting other big players in the California energy market: state officials.

Investigators are looking into a range of accusations, from why the head of the state power grid helped open the flood gates to massive electricity price hikes to new complaints that the state department buying power is manipulating the market. Under subpoena, Terry Winter, who runs the California Independent System Operator, will be deposed today in the state Capitol.

The new questions have broadened the scope of the investigations into who the real culprit is in the state's electricity crisis.

"Who's the bad guy? The better question is who is wearing the white hat?" said Gary Ackerman, spokesman for the Western Power Trading Forum, a trade group representing generators.

When California blackouts became a punchline for late-night comedians, several state agencies began investigations:

-- Attorney General Bill Lockyer announced he was investigating price- gouging by generators. He convened a grand jury in June to discover whether generators had purposely withheld power to the market to drive up prices.

-- The Senate Select Committee to Investigate Price Manipulation was created by the Legislature. Run by Sen. Joe Dunn, D-Santa Ana, the committee hosted the Duke whistle-blowers and issued a flurry of subpoenas for records kept by energy providers.

-- The Public Utilities Commission also began looking into the market and into allegations that generators had idled plants at key times.

All three investigations are continuing. The PUC has spent more than $800, 000 on its review, Lockyer has $9 million to spend on his work and Dunn's committee is spending about $14,000 per month.

Lockyer has said he is looking into complaints that energy consultants hired by Gov. Gray Davis had conflicts of interest. One consultant allegedly helped negotiate a long-term energy contract with an electricity provider he had recently worked for.

The state's Fair Political Practices Commission and the U.S. Securities and Exchange Commission are also exploring conflict-of-interest charges that led Davis to fire five consultants.

Dunn's committee is still looking into market manipulation by generators. But he has spent more time recently investigating the actions of state officials.

Dunn wants to know why the head of the ISO, Winter, asked federal regulators on Dec. 8 to drop caps on the price companies could charge for power. Winter made his pitch to the Federal Energy Regulatory Committee without telling Davis or his bosses, the 26-person ISO board that had regularly voted for strict price caps.

The committee quickly approved Winter's request, and energy prices began soaring. While ISO officials contend Winter had to kill price caps to keep generators interested in selling power to the state, Dunn is looking into whether Winter and the generators somehow colluded to drive up prices. ISO officials deny that Winter worked with generators to drop price caps.

"It seems ludicrous that Terry Winter wouldn't tell his bosses that he was about to take the boldest step in ISO history," Dunn said.

Dunn's committee also is probing recent complaints from generators that the state is manipulating the energy market.

The state Department of Water Resources, which began buying power in January after cash-strapped utilities no longer could, is demanding exclusive information about the power market from the ISO, generators allege. The department also has refused to pay generators for electricity it's buying unless it's told what generators' costs are.

That information could lead to one of the biggest buyers in the market -- the state -- with more data than other competitors, creating an unfair playing field, generators argue.

While a DWR spokesman said the department is working with generators to address their concerns, the generators have asked federal regulators to step in. But Dunn said he'll investigate whatever group is wreaking havoc in the energy market.

"If those allegations are true, we now have a market participant exercising an undue influence on the market," he said. "They're doing the same things the generators were accused of."

E-mail Mark Martin at markmartin@sfchronicle.com.