New California power law suspends retail competition

Feb. 2, 2001
California Gov. Gray Davis signed a measure passed Thursday appropriating $500 million from the general revenue fund for future electricity purchases and allowing the state to issue revenue bonds to buy power under long-term contracts. The bill suspends the ability of retail customers to select alternative providers of electricity for as long as the state is in the power purchasing business and prohibits the Water Resource Department from signing new contracts after. Jan. 1, 2003.


Kate Thomas
OGJ Online

California Gov. Gray Davis signed a bill passed Thursday appropriating $500 million from the general revenue fund for future electricity purchases and allowing the state to issue revenue bonds to buy power under long-term contracts.

The bill suspends the ability of retail customers to select alternative providers of electricity for as long as the state is in the power purchasing business and prohibits the Water Resource Department from signing new contracts after. Jan. 1, 2003.

The measure will allow Davis to claim a victory at the western governors' meeting Friday in Portland, Ore. It failed to pass on an initial effort Thursday, but on the second try carried by three votes, after Davis and legislative leaders lobbied holdouts.

Republicans protested the bill will lead to higher consumer electricity prices. The legislation does not address the billions of dollars in power purchases already run up by Southern California Edison Co., a unit of Edison International, and Pacific Gas & Electric Co., a unit of PG&E Corp. Lawmakers next could consider a plan to let the state pay some of the utilities' debts in exchange for a stake in the companies.

The utilities are under a retail rate freeze and have not been able to pass on the full amount of their purchased power costs.

Responding to the legislative action, a spokesman for Dynegy, Inc., an independent power producer and owner of about 3,000 Mw in California, said the company is "supportive" and "pleased" the bill was passed. But the company is also going over the bill to read the fine print, according to the spokesman.

Pacific Gas & Electric called it a "positive step" to ensure the continued reliability of electricity for its 4.6 million customers. But the company warned, "There is still much that remains to be done, however, before California can declare the crisis over. Over the next few days, we will continue to work with policymakers and others to find solutions to the remaining issues.�

The measure was adopted against the backdrop of Pacific Gas & Electric Co.'s Thursday disclosure, the company will not make its full payment of $611 million owed the California Independent System Operator (ISO) for November energy purchases and the $437 million due to qualifying generators (QFs) for December deliveries. Instead, Pacific Gas & Electric said it's making partial payments of $161 million.

Bills come due
Southern California Edison's payment to the ISO is also due, but the company hasn't said whether it will pay what it owes. The ISO is then scheduled to pay generators for power it has purchased on behalf of the utilities. No one is sure how the generators will respond if they do not get their money.

The bill is a "good first step in dealing with credit issues," the number one concern for generators, said Tom Williams, a spokesman for Duke Energy Corp. unit Duke Energy North America, which owns about 3,000 Mw in California. Duke is monitoring the utilities' credit hourly and keeping its options open, he said.

Secondly, the legislation permits forward contracting, he said.

Generators emphasized the state must also address the need to increase electricity supply and boost conservation. Most are pressing for streamlined siting rules. Under California's complex system, obtaining a permit to build a plant can take more than a year.

Jo Bob Perkins, president of Reliant Energy Wholesale Group, a unit of Reliant Energy Inc., said the state must also find a solution to the investor-owned utilities' past due bills. Defaults by Pacific Gas & Electric and Southern California Edison Co. means the generators have no guarantee of payment for past sales. Reliant Energy's current account receivables are $300 million, and AB1X doesn't address these past due bills, Perkins said.

The state has already spent $400 million since mid-January buying power for the two utilities, after they defaulted on payments and their credit ratings were downgraded to junk bond status. California officials say they are spending $40 million-$50 million/day on power.

Under the bill passed Thursday, the Water Resources Department can enter into long-term contracts with generators to buy power in the wholesale market to make up the difference between what the investor-owned utility can provide and what consumers need.

The gap between the cost of power and rates charged to consumers will be made up by issuing revenue bonds secured by electricity revenue and will not be a general obligation of the state under the law. The bill also limits the amount that may be issued to four times the amount of annual revenues generated from wholesale power.