State investigators have uncovered evidence that a "cartel" of
power companies shut down plants for unnecessary maintenance to ratchet
up prices, the head of the California Public Utilities Commission
PUC President Loretta Lynch said her agency, working with the state
attorney general's office, is probing patterns of plant outages that have
created "artificial shortages," particularly when the state has issued
emergency alerts because of seriously low levels of electricity.
"There are instances where plants could have produced, and they chose
not to," Lynch said in an interview at The Times.
"And it is clear that there are instances that plants, when called to
produce, chose not to produce," even when they were obligated to do so
under special contracts with the state and utility companies.
Lynch said the ongoing investigation has already produced enough
information for the PUC and attorney general's office to take legal
action against the generators next month. The exact nature of that
action, she said, is still under review.
Lynch, who is an attorney, did not name specific suppliers or provide
documentation of her assertions. She said that information will remain
confidential until court proceedings are undertaken.
Generators have long denied any attempt at manipulating the power
market in any unlawful way, including orchestrating plant shutdowns. They
say the facilities are so old and have been run so hard during the power
crisis that breakdowns are a recurring problem.
Lynch and Gov. Gray Davis, who has been particularly critical of
out-of-state generators, have not suggested that every plant shutdown has
In fact, the governor's top advisor on power plants released a
statement last week saying inspectors determined that a Bay Area plant
shutdown was justified and that the company's officials were
State Atty. Gen. Bill Lockyer was not available for comment on his
joint investigation with the PUC. A spokesman would only confirm that
Lockyer's office is investigating plant shutdowns as part of a
wide-ranging probe of possible civil and criminal violations.
So far, the attorney general's office has subpoenaed documents in 91
categories from generators, including records of plant operations,
pricing practices and information the merchants may have shared with one
another about California's power market.
"We're looking for behavior that would violate antitrust or unfair
business practice laws," Lockyer has told The Times.
Although he has not provided details of his office's findings, he
recently said the inquiry is "beginning to get interesting."
Lynch said evidence of allegedly unnecessary plant shutdowns was
amassed during interviews by investigators and in a review of the
voluminous subpoenaed records, obtained after intense legal battles with
the power companies.
In addition, investigators have been entering plants where unplanned
shutdowns have occurred to examine operations and maintenance records,
Lynch said. At times, the investigators have been denied access and have
had to exert legal pressure to get in, she said.
The plant shutdowns are a key factor in the soaring power prices,
which have gone from $200 a megawatt-hour in December to as high as
$1,900 last week.
"I would argue it's no accident," Lynch said of the high prices. "That
in fact it's [due to] the coordinated behavior of a cartel."
The power generators have repeatedly said they have acted within the
rules of California's flawed deregulation program, which allowed them to
buy power plants formerly run by the state's three largest utilities.
Gary Ackerman, a spokesman for a trade association of large power
producers, said Lynch's allegations were "the height of idiocy."
The reason many plants have been down in recent months, he said, is
that power producers must perform maintenance now in anticipation of
heavy summer demand.
He said he doubted that state investigators could prove wrongdoing
because there was no conspiracy to turn off supplies.
"My members do not make money by shutting down their plants so their
competitors can make money," said Ackerman, executive director of the
Western Power Trading Forum.
State analysts have argued, however, that power traders can reap
extraordinary profits by withholding power because the prices for the
power that is sold are so high.
According to Lynch, investigators have found that some companies were
more aggressive than others in allegedly using plant shutdowns to
manipulate the state's power market.
She said investigators have also found a suspicious pattern: When
operators of the state electricity grid declare a Stage 1 alert--meaning
that electricity reserves have dropped below 7%--plants that do not need
repairs suddenly are yanked offline. That, she said, aggravates the
shortages, and the cost of wholesale electricity soars.
Before December, state analysts alleged that power traders had driven
up prices primarily through bidding. At the time, the market was designed
to pay all power suppliers the highest amount accepted by the state's
That changed in December, when new federal regulations restructured
California's wholesale power market to loosen price controls, Lynch said.
Since then, a new pattern of plant shutdowns has emerged--"not
coincidentally in my view," she said. Now, she added, the state has
endured "historically high levels of unplanned plant outages."
The investigation is not focusing on power plants still operated by
utility companies because they have not been "going off [line] at record
levels," Lynch said.
The California Energy Commission reported last week that the state's
electrical grid has been sorely tested by plant shutdowns at a rate
several times higher than in the last two years.
A Times analysis of state data found that, throughout the last two
months, about 12,000 megawatts of production was offline, more than a
third of the peak power used in California on a typical day. That has
been about evenly divided between scheduled and sudden plant shutdowns.
By contrast, shutdowns in the same period of 1999 and 2000 took only
3,300 to 5,700 megawatts offline.
Last month, the Federal Energy Regulatory Commission ordered
electricity supplier Williams Energy Marketing and Trading to pay $8
million in connection with allegations that plants were improperly shut
down to raise prices. The company agreed to settle the case without
admitting any wrongdoing.
However, FERC released a study in February of closures at three other
California plants that it concluded were not undertaken to create a
scarcity of power.
After talking to plant operators by telephone, reviewing documents and
visiting the three plants, federal inspectors concluded that "the
companies appeared to have taken whatever steps were necessary to bring
the generating facilities back online as soon as possible by accelerating
maintenance and incurring additional expenses."
Times staff writer Nancy Vogel in Sacramento contributed to this
Copyright 2001 Los Angeles Times