FERC-POWER FERC says it won't make generators sell to California utilitiesBC-FER Filed: 02/15/2001

Washington, Feb. 15 (Bloomberg) — Electricity generators can refuse to sell power to California utilities unable to assure they can pay, a government agency ruled, even as a shortage of energy in the state threatens blackouts and bankruptcies.

Duke Energy Corp., Reliant Energy Inc. and other generators have balked at being forced by the state's power network to sell to PG&E Corp. and Southern California Edison, which racked up $12 billion in debt buying power at higher prices than they could sell it.

The Federal Energy Regulatory Commission rejected a request by the California Independent System Operator to waive a requirement that utilities prove their creditworthiness. The ISO was concerned that skyrocketing electricity prices would compound a shortage of power.

"It's clear from the order that the FERC expects those who provide electricity to the market to be paid for the electricity supplied," said Bryant Kinney, a spokesman for Duke Energy.

The cost of electricity in California has soared over the last year as natural gas prices surged and a drought reduced hydroelectric power from the Northwest. The state's 1996 deregulation law caps utility rates, squeezing the utilities since they can't pass on their rising costs. The situation has brought the utilities to the verge of bankruptcy.

In yesterday's order, the FERC sided with the generators, saying that relaxing previously agreed-upon credit requirements for the utilities would only create more instability in the California power market.

"We are concerned that a lowering of the financial creditworthiness standard, without some assurance of payment for third-party sales, would further increase prices paid by consumers," the commission said in its written ruling. "This is because ... the tariff revisions likely would increase the risk premium added to the price of power due to the exposure of non-payment."

Duke sued California's power-grid manager and its Department of Water Resources earlier this week, saying they are violating their own rules by delivering power to insolvent utilities. California recently passed a law saying that the Department of Water Resources would purchase the state's power, since the utilities' bonds were reduced to near "junk" status.

Kinney, the Duke spokesman, refused to speculate on what the FERC ruling may mean for the company's lawsuit against Cal-ISO.

"We're going to take it and review it and see what it means to us," he said.

Yesterday, British Columbia's Hydro & Power Authority, which has been selling the state as much as 1,200 megawatts, said supplies may end at any moment. Last week California missed making a partial payment to BC Hydro of the $300 million it owes them, according to ISO spokeswoman Lisa Szot.

http://www.bakersfield.com/oil/Story/308959p-307358c.html

-- Martin Thompson (mthom1927@aol.com), February 15, 2001