http://www.contracostatimes.com/news/california/stories/doeorder_20010206.htm

Published Tuesday, February 6, 2001

Federal electricity help ends POWER CRISIS

Bush allows order to expire to uncertain effect; Davis is expected to announce long-term state contracts today

By Mike Taugher TIMES STAFF WRITER

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An emergency federal order that has saved California from additional blackouts during the past two months will run out tonight, the Bush administration confirmed.

The expiration of the order, which has been in effect most of the time since it was first issued in mid-December, sets off renewed concerns about the reliability of the state's power system and increases pressure on state officials trying to wrap up long-term contracts for relatively low-cost, reliable electricity.

Gov. Gray Davis said he would announce details today of one or more electricity contracts, which he expected to finalize Monday.

The federal order requires a long list of power generators -- some of whom have not been paid for electricity delivered to California utilities -- to sell power into the state unless that power has already been sold or promised to customers in other states.

That has aggravated politicians and utility officials in other states, particularly in the Northwest where hydroelectric reservoirs that will be needed this summer have been drawn down to generate power for the Golden State.

The Bush administration renewed the order two weeks ago but made it clear immediately that there would be no further extensions.

Although official estimates determined that the order was responsible for a small percentage of power used in the state, many believe it was probably enough to avert additional blackouts.

"My sense is we would have had a significant number of outages," said Jan Smutny-Jones, director of the Independent Energy Producers Association, a trade organization of power plant companies.

"It's obviously pretty significant. Otherwise, they wouldn't be asking for it," he added.

Exactly how much electricity has been shipped to California as a result of the order is unclear, but the state's Independent System Operator estimates that it probably helped get between 100 megawatts and 500 megawatts into the state on some days. One hundred megawatts is enough to power about 100,000 homes.

ISO spokeswoman Lorie O'Donley said it was unclear what would happen after the order expires.

"We're looking at that right now," she said. "We're not sure at this point."

Meanwhile, Davis said he hoped this week to complete negotiations with the state's two largest utilities over how much state relief should be granted to offset nearly $13 billion in losses that the utilities claim to have suffered since last summer because of the state's botched deregulation scheme.

The governor said the utilities have exaggerated their losses by not including the amount of money they have earned by selling electricity from their own power plants during the same period.

"We don't accept that math," he said.

The governor said the negotiations will have to wrap up before a federal judge Monday hears a lawsuit filed by Southern California Edison, in which the utility argues that it should receive an immediate rate increase to offset its losses. Pacific Gas & Electric Company has filed a similar lawsuit, which is pending before the same judge.

In a related action, Davis also seized options to buy electricity that PG&E negotiated at relatively low cost last year.

Because PG&E failed to pay more than $600 million in electricity bills last week, the state Power Exchange obtained court permission Monday to sell that electricity to others in order to help pay PG&E's bills.

"This will ensure that the price of power is less than it would have been had we had to go on the open market," Davis said.

Last week, the governor made a similar move, seizing electricity contracts purchased by Southern California Edison.

But power exchange officials said that Davis may have actually cost the state hundreds of millions of dollars because the power now must be purchased at market rates.

"He created a situation for the state where they have to pay the fair market value," said Power Exchange spokesman Jesus Arredando.

Arredando said the Power Exchange would have sold the electricity contracted by Edison for about $250 million, which would be enough to pay Edison's unpaid bills. But he said the fair market value of that electricity is about $650 million. Davis conceded that the ultimate cost to the state might be determined in court.

PG&E's failure to pay its latest bill resulted Monday in energy companies receiving 2 cents on the dollar for more than $600 million in electricity bills racked up by the utility in November.

Gary Ackerman, executive director of the Western Power Trading Forum, said that the utilities' failure to pay might reignite pressure within the power industry to force them into bankruptcy.

"I'm hopeful the state can come up with a way to pay off the accumulated debt," Ackerman said. "But if they don't, I would have to say bankruptcy is imminent."

-- Martin Thompson (mthom1927@aol.com), February 06, 2001