CPUC Chief lashes out at regulators, companies for gaming Californians.

It would be difficult to determine who California's top regulator wanted to save her best shots for: the Federal Energy; Regulatory Commission. The previous administration of GOP Governor Pete Wilson. or energy companies, especially like El Paso Corp. and Enron.

But Loretta M. Lynch,

Lynch, a keynote speaker who opened the two day Ziff Energy Group North American Strategies conference in Calgary on Oct. 28. seemed equally dismayed with all of the above during her 30 minute prepared talk.

"Every week, we've learned something new about the California energy market There was no supply shortage. Electric merchants withheld generation at a time when we had plenty of in state capacity to be able to serve our own California customers. There was very little fuel shortage," she said, claiming there is now proof that U.S. west basin pipeline companies deliberately withheld capacity to transport natural gas. While she later lambasted El Paso for allegedly withholding 20% of its pipeline capacity into the state, a charge that El Paso hotly denies, saying it reduced capacity because of a federal order for safety reasons. Lynch said power merchants were equally to blame for "gaming" her state.

"There were no transmission bottlenecks," she asserted "We now know that electric shippers over-reported their trades and manipulated the grid and in fact, were just had some criminal guilty pleas (from an Enron power trader) that showed exactly how they manipulated the transmission grid in order to create phantom bottlenecks which in tact did not occur."

She bitterly criticized regulators for taking a hands-off view on how deregulation should work. saying their failure to enforce the rules of the game they invented led to disaster. "Not just a disaster for consumers and utilities, but also for the market players who do try to play by the rules, because it breeds conditions ripe for the kind of market volatility and uncertainty that we've seen," she said.

On the natural gas side. She said her state saw the El Paso Pipeline practice of with holding interstate capacity and its price gouging, which ale classic symptoms of the kind of unlawful market power that the U.S. Natural Gas Act was intended to prevent it victimized California during the peak of our winter healing season in 2000-01." Later, she sidestepped a question about that federal Department of Transportation's order to El Paso requiring the capacity cutback for safety reasons following a deadly explosion in New Mexico.

The alleged manipulation of the wholesale natural gas and electricity markets since spring 2000 has cost California many tens of billions of dollars, Lynch said, as the state was consummating its largest bond sale ever, nearly $12 billion. "committing our children and our grandchildren lot the next 20 years to pay back for the lack of energy regulation, trading rules and enforcement. That's 20 years of payment for 18 months of purchases."

She urged FERC to make amends by adopting Administrative Law Judge Curtis Wagner's new finding (reversing his earlier decision) that El Paso did illegally withhold capacity.

"It must order El Paso to disgorge the $900 million in ill gotten profits they made through their violation of FERC regulations. If PERC does not adopt the judge's ruling, we will all be doomed to relive this," Lynch concluded.