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http://www.contracostatimes.com/news/topstory/power_20010209.htm Posted at 7:21 p.m. PST Friday, February 9, 2001 Fair use for educational/research purposes only

Duke Energy calls state seizure of energy contracts illegal By Gary Gentile ASSOCIATED PRESS

LOS ANGELES -- One of California's largest power suppliers claims Gov. Gray Davis violated the Constitution when he seized power contracts owned by the state's near-bankrupt utilities.

Duke Energy Corp. of North Carolina is suing both the California Power Exchange and the governor, saying it is no longer obligated to deliver power it had promised to Southern California Edison and Pacific Gas and Electric.

The federal court lawsuit filed Thursday was one of several new developments to emerge as power suppliers grow increasingly frustrated with the pace of the state's efforts to find a long-term solution to California's energy problems.

In other developments Friday:

-- A federal court judge prevented the power exchange from seizing millions of dollars in collateral put up by power generators who say they are being forced to pay bills rightfully owed by Edison and PG&E.

-- Three of the state's largest energy suppliers formed a creditor's committee to explore options for collecting the millions they are owed for power delivered since December.

While most of the attention this week has been on legislative efforts in Sacramento to resolve the energy crisis that resulted in two days of mandatory blackouts last month, key developments next week will switch to courtrooms in Los Angeles.

As early as Monday a federal judge could order the state to grant rate increases of nearly 50 percent to Edison so that it can recoup the billions of dollars it owes to power generators. Attorney General Bill Lockyer has asked the court to delay a ruling while the Legislature debates various plans to help cash-strapped utilities pay their debts.

On Thursday, a federal court judge will hear claims by Enron Corp., Avista Energy Inc. and other power generators against the power exchange. The generators want to avoid sharing responsibility for nearly $1 billion owed to the exchange by Edison and PG&E.

Attention will turn to Sacramento again next Friday, when Davis says a final plan to help the utilities pay their mounting debt should be ready for consideration.

Duke Energy's suit, filed in U.S. District Court in Los Angeles, says the governor had no legal right to use state law to seize power contracts that are regulated under federal authority.

"Wholesale power sales are interstate commerce and subject to exclusive federal jurisdiction," Tom Williams, a Duke spokesman, said Friday. "Our contracts were with Edison and PG&E and they defaulted. We are under no obligation to continue the contracts."

The suit claims Davis violated the supremacy clause of the U.S. Constitution, which prohibits the states from exercising authority over matters under federal control.

On Feb. 2 and again on Feb. 5, Davis seized contacts both utilities had signed for future delivery of power, saying it was necessary to prevent the power exchange from selling them to pay the utilities' debts.

The exchange said the contracts were collateral that must be liquidated because Edison and PG&E defaulted on millions they owed for short-term power they bought on the exchange.

Davis had no comment on the lawsuit Friday, a spokesman said. A court hearing is expected to be scheduled next week.

In a separate action, several power generators went to court this week to prevent the power exchange from seizing their assets to make up for Edison and PG&E's defaults.

Under a federal tariff that governs the exchange, if a buyer of power defaults on payments, every member of the exchange -- including power sellers -- must pay a portion of the debt, an exchange spokesman said.

"We are obligated to divvy up the pain to make the market whole," Jesus Arredondo, an exchange spokesman, said Friday.

Arredondo said the exchange would have preferred to sell the long-term power contracts to pay the debts. But that option was eliminated when Davis seized them for the state.

"We wouldn't have had to do this if the governor hadn't commandeered the contracts," he said.

Arredondo said some power generators have already paid their shares of the utilities' debts. Others, including Enron and Avista, balked at the demand.

In those cases, the exchange tried to seize letters of credit posted by the power companies. That action triggered a federal lawsuit.

Friday, a federal court judge prevented the exchange from seizing the generators' collateral and ordered a hearing on Thursday.

Also Friday, Reliant Energy, Dynegy Inc. and Mirant formed a creditor's committee to explore options for recouping their investment in the state.

"We are troubled over the pace of progress toward a comprehensive solution," the group said in a joint statement. "As publicly held companies, we have a responsibility to our respective shareholders and must now examine our alternatives."

Gov. Davis said Friday a plan to help utilities pay their debts should be ready by the end of next week.

The aid plan probably will involve some combination in which utility shareholders must write off some of their debt, the state would gain some stock warrants to hold in trust for ratepayers and also would gain control of some assets such as transmission lines, Davis said.

The utility holding companies, "to which most of the money went," might also have to provide some funding, Davis said.

"Do we need the utilities back in business? Yes, because they know better than anyone else how to keep the lights on," Davis said. "But they pushed very hard for this flawed deregulation scheme . . . and they should have to give back assets of commensurate value."

In still another related development, California power regulators braced Friday for an electricity-sucking cold snap that could make it even tougher for the state to draw much-needed power from the Pacific Northwest.

California's strapped power grid remained under a Stage 3 alert with reserves threatening to fall below 1.5 percent. The state has been in a Stage 3 alert for nearly a month straight.

The Independent System Operator, which oversees the grid, anticipates California will use an additional 1,000 megawatts next week because of the cold, spokeswoman Stephanie McCorkle said.

As state power regulators prepared for rising demand, law enforcement officials gave the Davis administration their plan for enforcing an energy conservation mandate Davis issued last week. It will take effect by mid-March.

The executive order mandates $1,000-a-day fines for retailers who fail to "substantially reduce" outdoor lighting after business hours. The goal is to reduce retail outdoor lighting demand by 50 percent.

-- Martin Thompson (mthom1927@aol.com), February 09, 2001