Allegations of Price Gouging By Duke Energy Stiffens Review
San Diego Unified Port District officials may revoke a lease to run a port-owned power plant due to accusations the operator deliberately created shortages in order to increase the price of electricity.
Former employees of the plant, leased by Charlotte, N.C.-based Duke Energy North America, testified in a state Senate hearing June 22 that Duke management allegedly engaged in actions designed to create shortages of electricity and increase the price.
These actions may include cutting power production during emergencies, frequently running its least-efficient turbine engine, and tossing out new spare parts in order to increase the amount of downtime for generators, they said.
This prompted the Port District to take another look at the lease it provided to Duke Energy to run the Chula Vista plant, which sits on port-owned land. Under the terms of the deal, Duke has a 10-year, three-month lease on the facility, ending in June 2009.
Port spokeswoman Diana Lucero categorized the port’s actions only as a “comprehensive review” of the lease. Earlier published reports said the port would act to take back the lease, but at this point that is only one option out of many, she said.
Lucero did say, however, that the port had actually begun the process of reviewing its lease well before testimony from the former Duke employees had been made public.
“The energy crisis is a very important issue for people,” she said. “And because we own property on which a power plant sits that was the impetus behind requesting the review.”
Port commissioners ordered a review of the lease, Lucero said.
“That review has not yet been finalized. In the interim, we have new information , it’s in the public eye, it’s in the media , regarding these employees who have testified before the Senate committee,” she said.
The commission is now drafting a letter to state Sen. Steve Peace requesting he remit pertinent information from those hearings, to include in the port’s review. The port also voted to hire an independent consultant with expertise in the energy industry and legal counsel to determine the next step, Lucero said.
The review could take several weeks. Lucero had no timeline on when the port would make its decision, nor any specific information on what the decision would be.
Charges Called ‘Baseless’
Tom Williams, a spokesman for Duke, downplayed the possibility that the lease would be revoked.
“We’ve had a very cooperative relationship with the port and the port staff since we leased the plant. We’re in full compliance with all aspects and all terms of the lease,” he said.
As for the accusations which focused renewed attention on the plant, Williams called them “baseless.” Duke’s plants in California produced 50 percent more electricity in 2000 than in 1999, he said.
Also, at the same time production increased, outages for maintenance and other reasons were actually reduced compared to the time these plants were run by San Diego Gas & Electric Co.
In the previous five years of operation by SDG & E;, the power plant was forced out of operation 1.8 percent of the time, Williams said. Throughout the year 2000, Duke was able to reduce that figure to 1.1 percent of the time, he said.
That 1.1 percent figure is the lowest of all the plants Duke operates in the state of California. The Morro Bay plant had been out 11 percent of the time before Duke’s takeover; now it’s down to 2.8 percent, Williams said.
Any powering up or powering down of units was done in accordance with instructions from the California Independent System Operator. Duke has an “ancillary services” contract with the Cal-ISO, which allows it to run the power plant at will. In return, Duke is paid for the service as well as the energy it provides, he said.
“The ISO purchased the ability to move the units up and down to help ensure the state’s supply and demand is in balance. This is a common practice and done every hour of every day by the ISO at plants that are able to provide this service,” Williams said.
Gregg Fishman, spokesman for the Cal-ISO, did not comment specifically on Duke’s actions. He had not seen Duke’s logs on the days in question, nor did he have a chance to compare them to the ISO’s orders, he said.
Furthermore, it is not the ISO’s policy to release information about specific bids from specific generators, as this is market-sensitive information, Fishman said.
He did say that a plant may bid all or part of its power into the ancillary services market for reserve power. When that happens, the ISO would call on a plant to increase or decrease its output on a very short notice.
This could explain some of what was occurring at Duke’s Chula Vista plant, Fishman said. However, he did not know what the plant was actually doing, nor whether its actions matched ISO orders on any particular day, or particular hour, he said.
As to how many times such a power plant would be called on to increase or decrease its power, that could vary widely, depending on the type of ancillary services contract. Neither Williams nor Fishman were able to say how often a power plant could be powered up and powered down before it began to affect the operational safety of the equipment.
Fishman noted the Cal-ISO released a report June 19 stating out-of-state generators had bilked California ratepayers out of $8.9 billion in overcharges due to market manipulation. Duke’s actions could possibly be an example of just that sort of manipulation, he said.
Fishman also said Cal-ISO has drafted a list of generators which it specifically accused of “market power.” That list, however, has not yet been made public, he said.
Michael Shames, executive director of the Utility Consumers’ Action Network, said the accusations against Duke couldn’t have been timed better. Gov. Gray Davis is demanding a refund of $8.9 billion in alleged overcharges from the energy industry. Duke’s alleged actions, if true, are a perfect example of what generators are suspected of doing to drive up prices, he said.
However, the workers’ testimony against Duke, though helpful in confirming those suspicions, are not a “smoking gun,” Shames said.
This information from inside sources could assist the state attorney general’s ongoing investigation into market manipulation. It could also help the Port District as it seeks to determine whether Duke violated the terms of its lease, he said.
Shames noted the port is looking to hire an independent consultant to look at Duke’s records to determine, among other things, whether the power plant was damaged by the constant starting and stopping of the plant.
“They’re clearly looking into what they need to do,” he said. “The port is going to take some action to protect its asset.”