CA -- "Air emission credits are being snapped up by outside companies and resold to power generators at a steep profit"

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Emission credits, plant sales probed by panel

State investigating price manipulation in power market By Jennifer Coleman The Associated Press June 15th, 2001

SACRAMENTO --

Air emission credits are being snapped up by outside companies and resold to power generators at a steep profit, air quality managers told state senators Thursday.

Carol Coy, of the South Coast Air Quality Management Board, told the Senate committee investigating price manipulation in the energy market that the agency has seen an increase in third-party transactions in air emission credits recently.

Coy said one company, Pinnacle West, registered a $412,500 air emissions credit purchase on March 12, then sold the same credits March 29 for more than $1 million.

Sen. Joe Dunn, D-Santa Ana, chairman of the committee, said wholesalers often blame the cost of the credits in part for the high price of electricity.

Power plants are allowed to include air emissions credit costs in their variable costs when justifying their prices to federal regulators. The Federal Energy Regulatory Commission includes the cost of air emissions credits in their proxy price for establishing a benchmark.

Dunn said he’s concerned there has been "a laundering of NOx credits" that’s driving up both the cost of the credits and electricity.

The committee is also seeking information on the sale of power plants to see if sellers promised buyers they could make huge profits.

Senators are reviewing documents from the investment firm Morgan Stanley regarding its role in selling several California power plants following deregulation.

"We are curious about what sort of representations were made about the California generation assets at the time of the sales," Dunn said.

Private utilities became able to sell their plants as part of the 1996 plan to deregulate the electricity market. Although the plants were expected to sell below their book value, they instead sold for up to three times that price, although the state then had an oversupply of electricity and old plants, Dunn said.

While the public was told deregulation would lead to lower electricity prices, it’s unlikely investors would buy aging power plants if they believed that to be true, said Larry Drivon, the committee’s special counsel.

Dunn asked if there was any kind of plan or advertising that said the plants, if bought a certain way, would give of the buyers market power in the wholesale electricity market.

The committee has also asked for documents from Southern California Edison, Pacific Gas and Electric Co., and San Diego Gas and Electric Co. about the plants that were sold, including maintenance and operations records.

An Edison employee was also scheduled to testify at Thursday’s hearing, but the company canceled the appearance, saying in a letter that their "resources are devoted to survival" and implementing the Memorandum of Understanding with the governor.

That MOU would have the utility sell its transmission system to the state to pay off billions of dollars in debt.

If Edison doesn’t cooperate with requests for testimony and documents, Dunn said he would subpoena both.

-- PHO (owennos@bigfoot.com), June 15, 2001

Answers

Subpoena? Nothing like kicking a dead horse.

-- Uncle Fred (dogboy45@bigfoot.com), June 15, 2001.

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