Federal judge orders major power wholesaler to sell to California

Updated: March 21, 2001 - 8:23 p.m. A federal judge issued a preliminary injunction Wednesday ordering a major electricity wholesaler to continue selling to California despite its fear that it will not get paid.

U.S. District Judge Frank C. Damrell Jr. said Californians were at risk of irreparable harm if Reliant Energy Services stopped selling power to the Independent System Operator, which oversees the state's power grid. The ISO buys last-minute power on behalf of utilities to fill gaps in supply to try to fend off blackouts.

Damrell dismissed Reliant's attempt to force the state Department of Water Resources to back the ISO's purchases for the state's two biggest utilities. The state has been spending about $50 million a day on power for Pacific Gas and Electric Co. and Southern California Edison, both denied credit by suppliers after amassing billions of dollars in debts.

The judge said he had no authority to force the DWR to pay for that power.

Gov. Gray Davis has said the state isn't responsible for purchasing the costly last-minute power ISO buys for Edison and PG&E, despite a law authorizing state power purchases on the utilities' behalf.

ISO attorney Charles Robinson said the ruling gives ISO operators "a tool to assist them in keeping the lights on in California."

"Had the decision gone the other way, one could expect other generators to simply ignore emergency orders," Robinson said.

Damrell's preliminary injunction will remain in effect until the Federal Energy Regulatory Commission rules on the matter.

Damrell denied the ISO's request for preliminary injunctions against three other wholesalers, Dynegy, AES and Williams, who agreed to continue selling to the ISO pending the FERC ruling.

Spokesmen for Reliant, Dynegy, AES and Williams were out of the office Wednesday night and didn't immediately return calls from The Associated Press seeking comment on the ruling.

The ISO went to court in February after a federal emergency order requiring the power sales expired. The judge then issued a temporary restraining order, requiring the sales, but dropped it after the suppliers agreed to continue sales to California, pending his Wednesday ruling.

The ISO said it would lose about 3,600 megawatts if the suppliers pulled out, enough power for about 2.7 million households. One megawatt is enough for roughly 750 homes.

Grid officials said Reliant's share alone is about 3,000 megawatts. Reliant said the amount at issue actually is less than a fourth of that, because most of the power is committed under long-term contracts.

Reliant, which provides about 9 percent of the state's power, worries it won't get paid due to the financial troubles of PG&E and Edison.

PG&E and Edison say that together they have lost about $13 billion since June due to soaring wholesale electricity costs that California's 1996 deregulation law bars them from passing onto customers.

At the same time, the state has faced a tight electricity supply, due in part to California power plant shutdowns for maintenance and to a tight hydroelectric supply in the Pacific Northwest.

Managers of the state power grid imposed rolling blackouts across the state Monday and Tuesday as supply fell short of demand. Wednesday, cooling temperatures and the completion of repairs at several power plants allowed the state to avoid blackouts.

State Controller Kathleen Connell said Wednesday that the energy crunch also imperils California's financial health.

Connell said the state's power-buying on behalf of Edison and PG&E is is gutting its budget surplus. Since the state started making emergency power buys in January, the surplus has fallen from $8.5 billion to about $3.2 billion, she said.

Connell ordered an audit of the state's power-buying, saying Davis is withholding key financial information from her office and the Legislature.

She is refusing a request by Davis and the Legislature to transfer $5.6 billion into a "rainy day fund" she said was set up to impress Wall Street as the state prepares to issue $10 billion in revenue bonds to cover its power-buying.

Transferring the money would leave the state general fund $2.4 billion in debt, Connell said.

Sandy Harrison, spokesman for the state Department of Finance, and Keely Bosler of the Legislative Analyst's Office, said such transfers are routine and required by law.

They put the state's budget surplus at $5.6 billion.

"The law says she has to do it. The law does not give her the power to demand that kind of audit information," Harrison said.

He said the state's budget isn't in danger because it will be repaid with the $10 billion in long-term debt.

Wells Fargo & Co. chief economist Sung Won Sohn said he sees little progress in efforts to fix the state's power problems and end state electricity purchases.

"If we're going to pour money into a bottomless pit, I would worry about the state's finances," he said. "At some point we're going to run out of money."

The controller's criticism of fellow Democrat Davis won support from Assembly Republicans and Secretary of State Bill Jones, a Republican considering challenging Davis next year.

Jones said he wants to announce his own plan to solve the state's energy woes, but can't unless Davis releases more financial details.

Davis spokesman Steve Maviglio dismissed the criticism.

"Political grandstanding doesn't generate one more kilowatt of energy for California in this time of emergency," he said.

Maviglio said the administration has released the financial information it can without jeopardizing negotiations for long-term power contracts with wholesalers.

Also Wednesday, a report by Davis' chief power negotiator appears to show that as much as 75 percent of the state's power purchases will have to be on the expensive short-term market this summer, said Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate Energy Committee.

"The prices may be phenomenol," she said, particularly given predicted hydroelectric shortages due to drought in the Pacific Northwest.

The report by David Freeman, who is negotiating the state's long-term power contracts, shows California has finalized 19 contracts and has 25 agreements in principle. Freeman said DWR is continuing to negotiate other contracts.

Bowen said FERC should impose short-term price caps or let generators to charge enough to make a reasonable profit "or we could be subject to enormous price-gouging this summer."

http://www.sacbee.com/news/beelive/show_story.cgi?forcesale

-- Martin Thompson (mthom1927@aol.com), March 22, 2001

Answers

Reliant To Appeal Fed Judge Ruling To Sell Pwr To Calif

Updated: Thursday, March 22, 2001 12:10 PM ET

LOS ANGELES (Dow Jones)--Reliant Energy Inc. (REI, news, msgs) said Thursday it will immediately file with the 9th Circuit Court of Appeals in San Francisco in response to a federal judge's ruling late Wednesday that the company continue selling power to California regardless of whether it is paid.

U.S. District Court Judge Frank Damrell granted California's Independent System Operator, which makes last minute power purchases in the spot market, a preliminary injunction against Reliant, saying Californians were at risk of irreparable harm if Reliant stopped selling power to the state.

The ISO, manager of the state's electricity grid, said the judge's ruling will allow the agency to keep the lights on in California.

Reliant, which is owed more than $300 million from the state's cash- strapped utilities, supplies California with about 3,000 megawatts of electricity from power plants it owns in the state.

Reliant spokesman Richard Wheatley said the state Department of Water Resources, the agency that buys California's bulk power needs on behalf of PG&E Corp. (PCG, news, msgs) unit Pacific Gas & Electric, Edison International (EIX, news, msgs) unit Southern California Edison and Sempra Energy (SRE, news, msgs) unit San Diego Gas & Electric, should back the ISO's last minute power purchases.

In a filing with the Securities and Commission, Reliant said it is owed $108 million by the DWR for last minute power purchases the ISO made during the six weeks prior to the agreement Reliant made with the DWR.

Damrell dismissed Reliant's claim, saying he does not have the authority to force the DWR to pay for that power.

"We're going to immediately appeal Judge Damrell's order," Wheatley said. "Clearly the judge understands the implications of his order. We are required to do business with creditworthy entities. Unfortuantely the judge did not force the ISO to post a surety bond, which would allowed us to do business with the ISO."

Gov. Gray Davis has said the state is not responsible for the last minute power purchases the ISO makes, despite a law passed authorizing the DWR to buy power on behalf of the utilities.

Wheatley added that the company will also seek relief on the issue at the Federal Energy Regulatory Commission. Damrell's ruling remains in effect until the Federal Energy Regulatory Commission rules on the matter.

Separately, Wheatley said a short-term power supply contract that Reliant signed with the DWR expired Monday and the DWR has not renewed the contract.

A spokesman for the DWR would not comment on the issue

http://quicken.excite.com/investments/news_center/article/printer.dcg? story=/news/stories/dj/20010322/BT20010322004016.htm

-- Martin Thompson (mthom1927@aol.com), March 22, 2001.