http://www.contracostatimes.com/news/california/stories/energy_20010208.htm Published Thursday, February 8, 2001

Power crisis' day in court

A federal judge will decide today whether energy generators can be forced to sell power to California when supplies run low By Andrew LaMar TIMES STAFF WRITER

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SACRAMENTO -- After spiraling unpredictably for months, California's energy problems have landed squarely in federal court.

In the coming days, two federal judges are poised to issue key rulings that promise to alter fundamentally the landscape of California's power crisis.

In Sacramento, District Court Judge Frank Damrell Jr. said he will decide today whether Reliant Energy and other energy generators can be forced to sell California power when the state's supplies run short.

Reliant told state authorities that once a federal order mandating the sales ended at midnight Tuesday, the company would ignore calls for help if the state wouldn't guarantee it would get paid. California's two cash-strapped utility companies owe Reliant $300 million.

The California Independent System Operator, the agency that oversees 75 percent of California's electrical grid, swiftly filed suit. ISO is seeking a temporary restraining order against Reliant and three other companies that echoed the company's sentiment: Dynegy, AES and Williams.

Meanwhile, in Los Angeles on Monday, District Court Judge Ronald Lew is scheduled to preside over arguments in a case brought by Southern California Edison against the Public Utilities Commission. Edison wants a court order allowing it to lift the utilities commission's rate freeze and pass on as much as $5.5 billion in costs to ratepayers.

State lawmakers fear a favorable decision would open the door to Edison and Pacific Gas & Electric Co. billing consumers for $12 billion in costs of buying high-priced wholesale electricity over the past nine months. Until now, the utilities commission's rate freeze has limited what the utility companies could recover from ratepayers.

The high-stakes gamesmanship being waged by state authorities, utility companies and energy generators came to the forefront in Damrell's courtroom Wednesday. The legal arguments disintegrated into finger-pointing, with attorneys representing the state and Reliant accusing each other of using legal maneuvering to give themselves the upper hand in bargaining over long-term energy contracts currently being negotiated.

At one point, Damrell offered his own opinion: "I believe there's a little brinkmanship on both sides here."

In addition, the hearing displayed the deep level of distrust running between state officials and energy generators. Jim Detmers, the managing director of operations for the system operator, testified that Reliant did not respond to four calls seeking information about power the company was about to take off-line during a critical period late Tuesday night.

"It was not usual. Normally we have a response on the first or second try," Detmers said.

Reliant, however, disputed the testimony. Greg Copeland, an attorney representing Reliant, said company records showed a Reliant employee had heeded the calls and talked with the system operator.

All along, Reliant challenged the notion that its withholding of up to 1,000 megawatts of electricity would throw the state into crisis. State representatives said the loss of Reliant's power could throw the state into uncontrolled blackouts.

"We're not dealing with turning off hospitals," said another Reliant attorney, Terry Houlihan. "We're not dealing with blackouts for the entire state. We're not dealing with cutting off emergency services."

At the heart of the case is whether energy producers can demand assurances they will be paid when the state enters an emergency situation where supplies run dangerously short. For six weeks, the point was moot, thanks to a special emergency order issued by the U.S. energy secretary.

The Bush administration, though, has told California it will not renew the orders because it believes the state must solve the problem on its own.

Reliant argued it couldn't be forced to sell to Edison and PG&E, which have credit ratings near junk bond status, but would be happy to sell if the state Department of Water Resources would guarantee payment. The department is negotiating long-term contracts but only buys power on the spot market, for use immediately, if it believes the price is reasonable.

"It's just like if you don't pay your electric bill," Houlihan said. "If you don't pay your electric bill, the electric company will cut you off."

But Norma Formanek, who represented the system operator, said the ISO is between a rock and a hard place because it can't count on Water Resources to step in to buy power at any price to avert a blackout.

Damrell issued a temporary restraining order against Reliant requiring it to continue selling to California until he could issue a final ruling in the matter today.

-- Martin Thompson (mthom1927@aol.com), February 08, 2001