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Ninth Circuit Court Revives California Bid for Electricity Refunds by Bob Egelko San Francisco Chronicle, August 25, 2007

A federal appeals court has revived California's request for at least $1 billion in refunds to electricity customers, saying federal regulators who denied the repayments had ignored tapes in which Enron traders joked about gouging customers during the energy crisis of 2000-2001.

The ruling was issued Friday by the Ninth U.S. Circuit Court of Appeals in San Francisco, which repeatedly has found that the Federal Energy Regulatory Commission abused its authority or violated its own rules in considering the state's claims of multibillion-dollar overcharges during the energy crisis.

The commission eventually imposed limits on the energy charges in mid-2001 but has rejected most of the state's refund requests. Friday's ruling was the third since 2004 in which the appeals court has ordered the commission to reconsider separate refund claims of at least $1 billion.

In Friday's case, the court overturned two of the commission's decisions on refunds that California is seeking for power purchased by a state agency from suppliers in the Pacific Northwest.

In one, the commission said the state was ineligible for refunds because it had taken possession of the electricity in California rather than in the Pacific Northwest. The appeals court found that conclusion to be baseless.

The commission's second decision was to disregard evidence that energy companies had manipulated the market during a period of shortages and soaring prices, the court said.

That evidence included tape recordings of traders working for Enron, the now-bankrupt energy broker. In one conversation, an Enron employee refers to demands for refunds of "all (the) money you guys stole from those poor grandmothers in California," and his colleague replies, "Yeah, Grandma Millie, man."

Later, the two mention a fire under a power line and chant, "Burn, baby, burn."

The federal commission was given the tapes and related documents in 2003 but did not take any of them into account in its decision that the short-term energy market in the Pacific Northwest was competitive and that no refunds were justified, the court said.

The commission's "failure to consider or examine the new evidence showing intentional market manipulation in California and its potential ties to the Pacific Northwest was arbitrary and capricious," Judge Sidney Thomas said in the 3-0 ruling.

He said the evidence might show, among other things, that Pacific Northwest suppliers had been involved in schemes with Enron to withhold energy and drive up prices.

The court told the commission to take another look at the case and consider the Enron evidence in deciding whether California was overcharged. Although the ruling does not require refunds, Attorney General Jerry Brown, whose office represented the state, said the court opened the door to as much as $1.3 billion in consumer repayments.

Brown's office said it had no details on how the refunds would be distributed if the commission approved them. Lawyers for power suppliers could not be reached for comment late Friday.