Why BC Hydro’s Powerex settled for $750 million

Playing it safe

 
(Ed Freeman/Getty)
(Ed Freeman/Getty)

Electromagnetic waves can move at nearly the speed of light. The wheels of justice, not so fast. After a decade of litigation, the British Columbia government has opted to cut its losses and settle with California-based customers of B.C.’s Powerex who claim they were fleeced during the state’s 2000–01 electricity crisis.

Powerex, the power-trading subsidiary of BC Hydro, agreed to pay the plaintiffs US$750 million (plus $50 million in legal fees) to avoid a potential liability of $3.2 billion. The opposition NDP attacked the Liberal government for failing to stand up for B.C.’s interests. But others see the settlement as an act of realism. “I do not think we should look at this as a loss. We simply did not get the full, crazy windfall we once hoped we might,” says Simon Fraser University environmental economics professor Mark Jaccard.

California has long alleged that a cartel of utilities and trading entities, which included Powerex and the infamous Enron, orchestrated the energy crisis—collusion depicted in the documentary Enron: The Smartest Guys in the Room—to drive up power prices in the state’s newly deregulated market. Evidence made public in 2002 after Enron’s bankruptcy revealed a host of price-fixing schemes, some with colourful names like Ricochet, Fat Boy and Death Star. One document described Powerex as “hogs at trough.”

California then launched legal action to recoup at least $7 billion from 60 traders, including Powerex. Most had reached settlements as of Aug. 16, when Energy Minister Bill Bennett announced that Victoria had finally caved. The die was cast last February when the U.S. Federal Energy Regulatory Commission found that Powerex had committed 2,708 trading infractions during the crisis.

Powerex’s legal options were limited by FERC’s regulatory powers in the U.S., says Vancouver energy lawyer David Austin. “Because you are a regulated entity, you are not allowed to gang up on somebody who needs electricity. You don’t have to sell it to them, but you can’t gang up on them—and this presumably is what the evidence showed.”

Even if Powerex did not manipulate the market, it “nonetheless benefited from such actions by other market players,” adds Jaccard. The lesson of B.C.’s 2001 windfall, says Austin, could be that “if it looks too good to be true, it usually is.”

Bennett insists that the deal won’t lead to rate increases for Hydro’s customers. But Austin’s not so sure. “You’d need a roomful of accountants to sort this one out,” he says. Meantime, Powerex has sold another $3.5-billion worth of electricity to California since the dispute began.

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