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California, energy, and foul play

Probe of two-year-old electricity crunch gains momentum in courts and legislature.

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Two years ago, as California stood on the brink of blackouts that would plunge it into darkness and debt, Gov. Gray Davis made a sensational accusation.

"There is no question in anyone's mind in California that the market here and the rules it operates by have been manipulated to generate obscene profits," he said.

Now, slowly and steadily, a half dozen investigations are turning up evidence to support his claim. The findings have provided some measure of vindication for the state, which has seen its complaints go largely ignored in Washington. Moreover, they have given the investigations - and California's appeal for billion-dollar refunds - fresh momentum.

To some, the evidence is a clear sign that fraud was widespread in the energy industry, and that it was a leading factor in the power crisis. Yet for many, the new revelations still fall short of a slam dunk. The question of whether industry schemes caused the crisis, or merely sharpened the edges, remains in doubt.

Still, the new reports have brought some measure of unanimity: It seems some cheating almost certainly occurred. The next few months will go a long way toward determining how significant it was.

"The story is still only partially told," says state Sen. Joseph Dunn, who is leading one of the investigations into energy companies' activities during the crisis. The investigations "are just picking up steam."

Among the developments:

• Last week, the Federal Energy Regulatory Commission (FERC) released a taped conversation that suggested two energy companies colluded to drive up prices by producing less energy. Speaking about a plant that was closed for maintenance, an official at Williams Co., which buys power to sell it to California distributors, told a plant employee that Williams "wanted the outage to run long." With this plant closed, Williams could sell power from other, more-expensive plants. The employee at the plant said, "I understand," and the plant stayed closed for another week.

• In September, a FERC judge ruled that El Paso Corp., which sells natural gas to California, illegally restricted supply. With many of California's power plants fueled by natural gas, a restriction would make it more expensive to produce power. El Paso has appealed.


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