Friday February 2, 9:59 pm Eastern Time

Calif. seizes stranded SoCal Edison energy contracts

(UPDATE: adds CalPX reaction, value of contracts, paragraphs 6-10)

SAN FRANCISCO, Feb 2 (Reuters) - California Gov. Gray Davis on Friday blocked the California Power Exchange from liquidating stranded energy contracts held by cash-strapped utility Southern California Edison, seizing the assets for the state.

The governor's office said the order, issued late on Thursday and put in effect on Friday, was needed to ``preserve'' the contracts' value for power-starved California consumers.

``I am using my emergency powers to seize options to buy very inexpensive power that would otherwise be lost forever,'' Davis said in a statement.

``These options will provide reliable power through the end of the year. It is important to protect these contracts for the people of California,'' he said.

A Los Angeles judge on January 24 issued a temporary injunction, valid for a week, blocking the exchange's sale of the contracts.

The California Power Exchange (CalPX) said Davis' order nullified a Los Angeles County Superior Court decision earlier Friday that authorized CalPX to liquidate Edison's forward market positions.

The exchange said they had sought to liquidate the contracts to recover about $255 million that Edison has failed to pay to CalPX market participants.

While agreeing to transfer the contracts to the state, the exchange pointed out that the law requires that California pay a ``reasonable value'' for them, which it estimated at nearly $652 million on today's market.

Delivery of the first contracts, which total 2.8 million megawatt hours, is scheduled to begin Monday, February 5.

One megawatt hour is roughly the amount of electricity needed to light 1,000 homes for 60 minutes.

Davis is desperately seeking cheap power for the state after the utilities' financial meltdown pushed them to the market's sidelines. Spot market purchases for the state are currently being made by the Department of Water Resources, but at typically higher prices than in the ``forwards'' market.

Block forward energy contracts secure electricity deliveries over a given ``block'' of time at a price agreed months in advance, shielding the buyer from the kind of price volatility that has recently roiled the short-term ``spot'' market.

The overall value of SoCal Edison's contracts, agreed last year for power to be delivered in 2001, was not immediately known, but CalPX officials said last month they hoped their liquidation would cover the $215 million SoCalEdison owed the exchange.

SoCal Edison, the utility subsidiary of Rosemead, Calif.-based Edison International (NYSE:EIX - news), has warned it is no longer able to meet its financial obligations after running up a debt of nearly $5 billion buying wholesale power in the spot market, where prices have soared ten-fold over the past few months amid a regional energy shortage.

The utility is blocked by the state's 1996 deregulation law from passing these high wholesale prices down to consumers, who are still protected by a rate freeze.

That same deregulation legislation created the CalPX, making it the state-sanctioned exchange for electricity trading. SoCal Edison was among the biggest buyers on the exchange.

CalPX, crushed by a mountain of debt it is unable to recover from Edison, has shut its spot market operations and is winding down its business affairs.

-- Swissrose (cellier@azstarnet.com), February 03, 2001