February 7, 2001

California Narrowly Averts Power Cutoff

By TODD S. PURDUM

Fair use for educational purposes only!

LOS ANGELES, Feb. 6 — A federal judge in Sacramento ordered a major electricity supplier tonight to keep selling power to California, despite the scheduled midnight expiration of a federal order requiring suppliers to do so.

The judge's ruling averted a possible cutoff of current that power officials feared might have led to another round of rolling blackouts on Wednesday.

After a morning in which aides to Gov. Gray Davis initially expressed optimism that the state would have enough power, tensions rose this afternoon when officials of the Independent System Operator, which runs the state's huge power network, sought a temporary restraining order in Federal District Court to force Reliant Energy Services Inc. to keep selling power into California.

The state began its fourth straight week of a full-scale power emergency, with electricity reserves at, or below, 1.5 percent of demand.

This evening, Judge Frank Damrell said he would issue the order requiring Reliant, which is based in Houston, to continue selling. Power officials had threatened to take two other suppliers, Dynegy and Williams AES, to court but said the companies agreed tonight to continue supplying power, providing enough energy to avoid severe trouble on Wednesday.

Since mid-December, the federal Energy Department has ordered power generators and natural gas producers to sell surplus supplies to California, despite the multibillion- dollar backlog of debt and financial uncertainty of the state's two major investor-owned utilities.

The Bush administration extended the order two weeks ago but declined to renew it beyond midnight tonight.

California has been spending about $45 million a day to buy power on behalf of the near-bankrupt utilities, which have not paid most of their bills for weeks.

State officials had hoped that the passage of a measure last week authorizing the state to negotiate long-term contracts to buy power at lower rates and to float revenue bonds to help finance the operation would reassure nervous suppliers and keep the power flowing while the Legislature considered longer-term measures to resolve some $12 billion in utility debts, increase generating capacity and, possibly, raise electric rates.

But power officials said late today that generators remained skeptical about the state's efforts to address the problem and were reluctant to keep selling power to California without guarantees of payment. Meanwhile, the Standard & Poor's credit- rating agency issued a statement warning that a longer-term remedy to the problems remained elusive.

Officials of Reliant, which last week filed suit in federal court contending that it should not be compelled to sell surplus power to California, said they were seeking assurances that the state would pay for the power it buys after tonight.

They said the legislation passed last week stipulated that Department of Water Resources pay reasonable prices for electricity, and the generators want assurances about exactly what reasonable means.

"We do not intend to pull the plug at midnight, but we do intend to resolve the issue in the next 24 hours," said John Stout, senior vice president of asset commercialization for Reliant, who has been involved in negotiations in Sacramento.

A company spokesman, Richard Wheatley, said: "We're in a wait- and-see posture. Don't assume it all falls apart. We're still looking for some constructive solutions."

State officials said that about 4,000 megawatts of electricity, enough to power nearly four million homes, was in jeopardy if the generators stopped selling.

Grid managers also said they feared that on Wednesday they would only get about half the 8,000 megawatts they typically draw from the Pacific Northwest during peak morning and evening use periods.

They blamed high demand and low supplies of water to run hydroelectric plants, a problem now because of a lower-than-average snowpack throughout the West and one that could worsenseverely this summer.

Governor Davis and his aides went out of their way to play down any suggestion of heightened problems. In an interview on CNN, Mr. Davis dismissed the request for a restraining order as "a tempest in a teapot," and said that generators were "just using this imminent deadline as a way of getting our attention."

Under the generators' agreements with California, they are required to sell power into the state if asked to do so by the Independent System Operator, the agency set up to manage the power grid after the state deregulated its electricity market. There are no penalties for failing to do so, but Mr. Davis said he expected the generating companies to comply.

"We are going to do everything in our power to ensure that all generators continue serving the market," Mr. Davis said, noting that the state was "paying cash dollars for the power they are providing, so I have every reason to believe the lights will stay on and they will continue to serve the customers of this state."

In fact, Mr. Davis had hoped that this would be a relatively smooth day, and he announced that the state had reached tentative agreements on the first long-term electricity contracts, totaling about 5,000 megawatts, on terms ranging from three to 10 years.

But initial deliveries are to start at about 500 megawatts, enough to power only about 500,000 homes, amounting to what even one of the governor's senior advisers acknowledged was "a first baby-step" toward solving the shortage.

W. David Freeman, Mr. Davis's negotiator, declined to provide specifics of the new contracts, saying he was still negotiating others. Mr. Freeman solicited new proposals for contracts to be submitted by this evening.

Even as the state grappled to keep power flowing, an influential legislative leader in Sacramento offered the latest version of a longer-term proposal helping the state's two largest shareholder-owned utilities,Southern California Edison and the Pacific Gas and Electric Company, regain some financial health.

State Senator John Burton, the Democratic leader, proposed that the state buy the utilities' 26,000 miles of transmission lines — about two-thirds of the state's power grid — in exchange for easing their debt.

Mr. Burton, who wants the state to assert control over its own electricity system along the lines of other states like New York and Washington, proposed the creation of a state public power authority to buy and operate the lines.

"It allows us to make badly needed upgrades in the system and it gives cash to utilities in exchange for assets that are of real value," Mr. Burton said. "There's also a steady revenue stream that comes from owning the lines, enough that we will be able to buy the system and finance upgrades without dipping into the state's general fund."

Spokesmen for both utilities declined comment on the proposal on the ground that negotiations over the crisis were too sensitive, but Republican legislative leaders have been opposed to such ideas, and state officials have said the utilities are cool to surrendering ownership of assets or stock warrants, an idea Mr. Davis has floated.

"If this crisis teaches us anything, it teaches us that the government has no experience in the power business and even less expertise," said the Assembly Republican leader, Bill Campbell.

Mr. Davis and other government officials feel some urgency to draft a plan because Edison has a hearing scheduled in Federal District Court next Monday on its request to recoup its costs through a compulsory rate increase on customers. PG&E has a similar suit pending.

Copyright 2001 The New York Times Company

-- Swissrose (cellier@azstarnet.com), February 08, 2001