Power generators, California settlement talks under way

By the OGJ Online Staff

HOUSTON, June 25 -- Settlement talks over billions of dollars for refunds and unpaid wholesale power bills got under way in Washington, DC, Monday between California and some 60 participants in the western electricity markets.

While California Gov. Gray Davis and the California Independent System Operator claim power generators owe $9 billion in overcharges for electricity, power generators say they haven't been paid for much of the electricity they delivered to the state.

In a letter to Administrative Law Judge Curtis Wagner, Davis said the conference must address the need to have the Federal Energy Regulatory Commission order power sellers to refund the estimated $8.9 billion they overcharged Californians.

FERC said the two sides must reach a deal in 2 weeks or face a plan imposed by the commission. Wagner said he would propose a refund and payment plan to the full commission for a final decision, if negotiations are unsuccessful.

Wagner asked both sides to produce records Friday for Monday's hearing, and said it was essential the two sides agreed on the numbers in questions. In addition to issues of refunds and unpaid bills, and crediworthiness, Wagner listed other issues to be addressed, including:

� The independence of the ISO board and whether it should be reorganized. The board is now dominated by Gov. Davis's appointees. Critic say it is no longer independent.

� Natural gas issues, especially delivery constraints in southern California.

� Questions of whether the settlement should include provisions protecting generators from existing and future lawsuits.

California's electricity bills begun piling up last summer after wholesale prices skyrocketed and state investor-owned utilities operating under a retail rate freeze couldn't collect the full amount from consumers. Under the state's deregulation plan, most power was bought and sold on the spot market through the California Power Exchange.

Nearing insolvency, Southern California Edison Co., a unit of Edison International, Rosemead, Calif., and Pacific Gas & Electric Co., a unit of PG&E Corp., San Francisco, quit paying their wholesale power bills. In January, the Department of Water Resources (DWR) was authorized by the state legislature to begin buying power on behalf of the state's three investor-owned utilities.

But generators have said they are still concerned about the DWR's creditworthiness. To compensate for the credit risk, FERC allowed sellers in California to charge an extra 10% in its June 19 order.

Last week Davis issued an executive order authorizing the state to borrow up to $5 billion as a bridge loan to buy electricity, pending issuance of a record $13.4 billion in revenue bonds to replenish the general fund. State Treas. Philip Angelides Friday said the bonds will be sold in September or October rather than mid-August as previously forecast.