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BC Hydro's Powerex agrees to settlement in California claims

Tiffany Crawford & Derrick Penner, Vancouver Sun,  August 16, 2013

VANCOUVER - Powerex, the electricity trading subsidiary of BC Hydro, has reached a $750 million out of court settlement related to an electricity dispute with California that began more than a decade ago.

Powerex will pay $273 million US in cash and offer California electric utilities a credit worth $477 million US to settle claims against it related to allegations that it helped inflate the California power market during that state’s electricity market crisis of 2000 and 2001.

The settlement, Powerex said, relieves it of a potential $3.2-billion liability from the ongoing actions of the U.S. Federal Energy Regulatory Commission against the 60 electricity trading companies that sold power into the California market during that period.

B.C.’s Minister of Energy and Mines Bill Bennett said Friday that the decision to settle was not a happy one but that it was the right decision in order to avoid a long court battle with California.

The potential $3.2 billion liability would go up $125 million every year in interest, he said, plus another potential $50 million in lawyer fees.

“I know there will be some folks over the next few days who say, well, if (Powerex) didn’t do anything wrong they should just fight it out in the U.S. court system,” he said. “That is a huge risk to the taxpayers of British Columbia.”

Bennett said the money was on the books, with the largest share of the $750 million to be paid off using a credit that California owes British Columbia.

California suffered rolling blackouts and record-high electricity prices during the 2000 and 2001 crisis in a market that FERC concluded had become dysfunctional.

The agency has since ordered refunds from the trading companies that sold power into that market and the province said the majority of its settlement will provide refunds as previously mandated.

In unveiling the settlement, the province, in a press release, said the agreement “expressly recognizes that Powerex admits to no wrongdoing,” pointing to a 2003 review of Powerex by the regulatory body concluded there was no evidence Powerex engaged in illegal practices and were a reliable supplier during the crisis.

However, Energy and Mines Minister Bill Bennett added that government does not want to risk a different outcome from a trial.

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

Powerex will run a net loss of $101 million this fiscal year as a result of the settlement, according to the press release.

Bennett added that it allows Powerex to “enhance its relationship” with California electric utilities, to which it has sold $3.5 billion worth of electricity over the last decade.

The settlement, which is subject to FERC’s approval, was made with California utility companies, the California Attorney General and other parties to resolve the claims. To date, the press release said, 47 sellers have made separate settlements with parties in California.

The province added that the settlement also stems its mounting legal costs, which it estimated could increase by $50 million if they continued the case to court and savings of $125 million per year in interest costs on the claims of California utilities.

“By reaching this settlement with California, Powerex is now in a better position to solely focus on our mandate which is to effectively market our electricity in British Columbia to our customers and to create value for BC Hydro through our broader marketing activities,” Powerex CEO Teresa Conway said in the press release.

© Copyright (c) The Vancouver Sun

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