California Water Unit Balks at High Power Prices

LCG, Feb. 12, 2001—The California Department of Water Resources, the state agency authorized by the legislature to spend up to $10 billion purchasing power in lieu of the state's two largest electric utilities which are on the brink of bankruptcy, said Friday it would purchase only that power it felt was reasonable priced.

That surprised some who were behind the legislation. "We thought we'd be covering the entire 'short' position," said Guy Phillips, energy adviser to the bill's sponsor, Assemblyman Fred Keeley. "Now we find that's not so."

The Water Resources Department's position may be related to the governor's call to power producers last month for bids on long-term power contracts. When the bids were in, Gov. Gray Davis triumphantly announced that the prices averaged $69 per megawatt-hour.

It turned out that was, in the governor's words, a "weighted average," and included power delivered only during periods of low demand. It may be that the Water Resources Department plans to purchase electricity for use only between 9:00 p.m. and 6:00 a.m.

The California Independent System Operator will be severely tested if the state will not buy power 24 hours a day. The ISO has purchased power to keep the state transmission system from collapsing, and has passed the bills on to the state's electric utilities, principally pacific Gas & Electric Co. and Southern California Edison Co.

But those two companies have no more money with which to pay for power, so the ISO was looking forward to the Water Resources Department providing fresh cash. No one knows who will pay the bills, and that includes the people who own the power plants.

Those firms, which purchased the power plants sold by the utilities under the California electric deregulation law, are supplying power today under a court order which will expire on Friday. The order covers three generators and one marketer.

The three marketers, Reliant Energy Inc. AES Corp. and Dynegy Inc., on Friday said they were forming a creditors committee "to explore options for receiving payment" from the ISO and the utilities. A creditor committee is frequently the first hint of a company's involuntary bankruptcy.

http://www.energyonline.com/news/articles/b12ca1.asp

-- Martin Thompson (mthom1927@aol.com), February 13, 2001