Thursday April 12, 6:42 pm Eastern Time

Calif. utility defies demand to shut generators

(UPDATE: updates with additional details, Dynegy reaction, reworks throughout)

SAN DIEGO, April 12 (Reuters) - Utility San Diego Gas & Electric said Thursday it had resisted and was ``appalled'' by a demand to shut 18 power generators it operates on behalf of Houston-based energy company Dynegy Inc. (NYSE:DYN - news)

The utility, a unit of Sempra Energy (NYSE:SRE - news) , said Dynegy has threatened legal action if it refuses to comply.

The combustion-turbine generators, located in San Diego County, produce around 250 megawatts of electricity, enough to power 250,000 homes.

``Given the energy crisis gripping our state, we are appalled that you would even consider such an action,'' said SDG&E president Debra Reed in a letter to Dynegy.

The utility said Dynegy notified them of the decision Wednesday, citing credit issues associated with the California Independent System Operator.

The credit-worthiness of the California ISO, which operates 75 percent of the state's power grid, had been impacted by the financial woes of its two largest customers, utilities Pacific Gas and Electric and Southern California Edison.

Last week California's largest utility, San Francisco-based Pacific Gas and Electric, filed for Chapter 11 bankruptcy protection. The utility had spent billions of dollars buying electricity which it was not allowed to pass on to its customers under the state's 1996 deregulation legislation.

``To insist that the combustion turbines be silenced under these conditions reveals a callous indifference to the basic needs of call Californians and their right to receive reliable electric service,'' Reed's letter to Dynegy said.

Dynegy spokesman Steve Stengel said his company wanted to sell the power to a credit-worthy entity. He said under an order issued by the Federal Energy Regulatory Commission (FERC) on April 6 it was not required to sell to the California ISO unless the agency could provide a credit worthy buyer.

Most of the power produced by Dynegy in California is sold to the credit worthy California Department of Water Resources under long-term contracts.

SDG&E sold the generators to Dynegy in 1999 and is under contract to run them until May 22.

The utility said the sales agreement provides SDG&E with the legal authority to continue operating the generating units, if the ISO calls for such action.

California is in the midst of a chronic power shortage that last month triggered rolling blackouts.

Pacific Gas and Electric is a unit of PG&E Corp (NYSE:PCG - news) and Southern California Edison a subsidiary of Edison International (NYSE:EIX - news).

http://biz.yahoo.com/rf/010412/n12380794.html

-- Martin Thompson (mthom1927@aol.com), April 12, 2001