Powerex, the electricity trading subsidiary of BC Hydro, has reached a $750 million out of court settlement over claims it drove up electricity prices in California 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.

Of the more than 40 settlements the state has already received, Powerex is the largest.

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 thing to do in order to avoid a drawn-out court battle with California.

The potential $3.2 billion liability would go up $125 million every year in interest, he said, plus another $50 million in legal 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 is on the books, with the largest share of the $750 million to be paid off using a credit that California owes B.C.

Powerex will run a net loss of $101 million this fiscal year as a result of the settlement, but Bennett insisted that will not mean an increase in rates.

There will be no impact on the taxpayer, he said.

The settlement stems from a legal battle in which the state of California attempted to recover billions of dollars it paid for expensive electricity in 2000 and 2001 after it bungled the deregulation of its wholesale power market.

Power companies went bankrupt and consumers suffered rolling blackouts and record-high electricity prices during the 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, Bennett 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.

Bennett added that government does not want to risk a different outcome from a trial, and drew parallels to the province's softwood lumber dispute.

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, 47 sellers have made separate settlements with parties in California, according to the provincial government.