B.C. to shell out $750m as Powerex settles out of court with California

B.C. taxpayers will be on the hook for $750 million as a result of Powerex, BC Hydro's power trading arm, agreeing to an out-of-court settlement ...

B.C. taxpayers will be on the hook for $750 million as a result of Powerex, BC Hydro's power trading arm, agreeing to an out-of-court settlement with the State of California and California utilities over alleged market manipulation during the 2000-01 energy crisis.

Powerex was among the dozens of power traders that sold power to California during an energy shortage – a crisis that was in part caused by deregulation, but also by market manipulation by Enron and other participating traders and utilities.

They were sued by the State of California, and a number of court rulings have gone against Powerex, which insisted all along it had done nothing illegal.

Under the settlement agreement, subject to approval by the Federal Energy Regulatory Commission (FERC), Powerex will pay back $273 million in cash. It will also forgo payment on $477 million that was still outstanding from California.

B.C. Energy Minister Bill Bennett characterized the out of court settlement as a move that would protect B.C. taxpayers from $3.2 billion in potential legal costs and repayments, should U.S. courts rule against Powerex.

"I can't say I'm happy about it," said Bennett at a press conference this morning (August 16).

"But we know this is the right decision made for the right reasons."

Teresa Conway, president and CEO of Powerex, echoed Bennett's sentiments, repeatedly stressing that "Powerex had done nothing wrong" and the decision to settle was made to protect the B.C. from potentially incurring more costs.

"Powerex admits to no wrongdoing," she said.

"But to take further risk in the U.S. court system – we cannot rely on what the results will be."

But the move also appears to be aimed at resolving the ongoing dispute so that Powerex can continue to make profits from selling power to California, which is once again facing a major power shortage.

"This was a tough but necessary decision to protect taxpayers. We have learned that the U.S. court system can be unpredictable," Bennett said. "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.

"Since 2003 we've sold over $3.5 billion worth of electricity to California. This settlement allows us to move forward on a very productive commercial relationship."

NDP Energy Critic John Horgan blasted Bennett’s assertion that the settlement would ensure a productive energy trading relationship between B.C and California because trading between the two continued during the dispute.

"We’ve been trading with them for a dozen years," he said.

"This dispute was not impairing our opportunities to trade."

Horgan added the NDP would have continued to fight the case in court to protect BC Hydro ratepayers from an inevitable hike.

Bennett said earlier the settlement will not affect rates, a claim Horgan dismissed as "lunacy." 

"The province is out $750 million and that has to come from ratepayers," said Horgan.

"How can it not? If Hydro spends money, it comes from ratepayers."

As a result of the settlement, Powerex would incur a net loss of $101 million this year.

The 2000-01 California energy crisis was caused by a perfect storm of power utility deregulation, drought and market manipulation that drove wholesale electricity prices up by 800%.

As reported last year by Business in Vancouver, California's energy deficit was in part artificially created.

The state had installed generating capacity of 45 gigawatts, but at the time of rolling blackouts, it had a demand of just 28 gigawatts.

But FERC found that Enron and other power producers deliberately scheduled power plant maintenance shutdowns at peak demand times, creating a demand for power from other providers, which are accused of colluding with Enron to inflate power prices.

The FERC sued in 2003 and 47 of the companies accused of gaming the system have since settled out of court.

In February, a federal judge for the FERC ruled that more than a dozen electricity wholesalers – including Powerex, a wholly owned subsidiary of BC Hydro – were guilty of market manipulation.

Powerex's settlement is still subject to approval by FERC, which Conway said could take up to six months receive.

nbennett@biv.com

@nbennett_biv

With files from Sean Kolenko

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