Gov. Davis reportedly warns generators won�t get paid in full

Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 1�California Gov. Gray Davis has put nonutility generators on notice they might not receive full compensation for power sold into the California market, according to published reports.

Davis spoke to a group of analysts Wednesday in New York where he commented on state plans to address the energy crisis in California. Davis�s press office could not confirm specifically what the governor said.

But Ron Barone, analyst with UBS Warburg in New York who attended the meeting, reported the governor said generators made billions of dollars in California over the past several quarters, and they will have to be part of the solution, in addition to long-term power contracts being negotiated now.

California authorities have accused generators of overcharging for electricity.

In Thursday's UBS Warburg report, Barone quoted Davis as saying the generators will have to accept a "modest retribution" or something less than 100� on the $1 for what they are currently owed by the utilities.

Davis also was quoted as saying generators have �already agreed� to not getting full payment in the context of working on long-term deals.

Independent generators have been providing power to California�s utilities since the beginning of the year without compensation. The unpaid balance for power sold to the California Independent System Operator (ISO) and the California Power Exchange for November is $500 million, according to an ISO report.

The outstanding balances for December will be announced soon. There is a 3-month lag between power delivered to the ISO and payment for that power.

Dynegy Inc., Williams, and Reliant Energy Inc. denied they had agreed to any deal even though all are in the midst of negotiating long-term contracts to sell power directly to the state.

�What we said all along is our goal is to be paid in full for what we are owed,� said Steve Stengel, Dynegy spokesman.

No deals
Julie Gentz of Williams said the company hasn't cut such a deal, and Reliant's Richard Wheatley said his company has never indicated a willingness to receive anything less than full payment for power already delivered.

�They have been trying for weeks for that but we have never agreed,� Wheatley said.

Barone was wary of the governor�s �saber rattling.� But, he suggested, even if the companies do take a haircut, they have established sizeable reserves in anticipation of potential payment shortfalls. And more importantly, he said, most of the generators, including Reliant, Dynegy, Williams, El Paso Corp., and AES Corp. will be signing lucrative long-term contracts with the state.

He said the profitability of the long-term deals should "dwarf any potential net receivable write-offs.�

Negotiations are ongoing with several companies and about a dozen additional deals beyond the long-term contracts already announced with Calpine Corp. and Williams are on the table, according to the governor.

Contact [email protected]