California judge scheduled to rule on ISO suit today

Ann de Rouffignac
OGJ Online

HOUSTON, Feb. 8�With credit issues resurfacing as a threaten to California electricity supplies raising the specter of rolling blackouts, a Sacramento federal judge is scheduled to rule Thursday on whether a group a generators must continue supplying power, without assurance of getting paid.

Certain in-state California generators have supplied power to the California Independent System Operator (ISO) under court order since Tuesday, after the grid operator took several to court. The generators were asking for the state to guarantee payment to continue selling to the ISO. Late Wednesday US District Court Judge Frank C. Damrell Jr. extended until 5 pm Thursday a temporary restraining order requiring Reliant Energy to continue selling power to California if asked by the ISO. Damrell said he will rule Thursday.

Events were set in motion after the ISO failed to pay $650 million owed generators for power delivered in November. The ISO couldn�t pay the generators after the utilities on whose behalf it buys power defaulted on debt owed the grid operator.

The crisis ramped up after the ISO, searching for ways to keep the lights on but without the financial wherewithal, sent letters to generators Feb. 1 demanding commitments to sell power and informing the sellers the ISO would not be able to pay for it.

�The strategy of the ISO is to invite us to sell power without promising to pay for it,� says Richard Wheatley, spokesman for Reliant Energy, a large merchant generator in California.

Legal volleys
With a $300 million bill outstanding, Reliant Energy first filed suit in a Washington, DC, court seeking a order halting sales to the ISO so long as the grid operator couldn't assure the company it would get paid for power deliveries.

The ISO responded to Reliant�s legal action Feb. 5 with its own suit filed in Sacramento federal court asking for an order requiring Reliant, Dynegy Inc., AES Corp., and Williams to keep selling power to California until Wednesday's hearing.

In a Feb. 6 letter to California Gov. Gray Davis, Reliant offered to continue selling power, if some �official assurance� could be given that the state is backing up the purchases. Reliant previously has offered to sell power to the ISO for 2�/kw-hr, if the ISO or California provides the natural gas necessary to produce the power.

Wheatley said participants in the California market believe the state legislation signed Feb. 1 not only gave the DWR $500 million to buy power but also authority to back power purchases by the ISO given the near bankrupt state of the utilities. He said �legislative intent� as interpreted by market participants included providing state backing to keep the power flowing.

�The state is forcing a return to credit driven blackouts because of withholding the credit of the DWR from the ISO,� says Wheatley.

As of mid-January utilities and other end users owed the ISO more than $3 billion. On Feb. 1, Pacific Gas & Electric Co., a unit of PG&E Corp., made a partial payment on its $611 million November bill and Southern California Edison Co. defaulted on $34 million.

Through Feb. 5, Southern California Edison, a unit of Edison International, had deferred $743 million of payments owed to the ISO and the California Power Exchange, according to a Feb. 1 filing with the US Securities and Exchange Commission. The utility also warned its $733 million payment due Feb. 28 is in doubt.

Over the long-term, California officials hope to resolve the crisis by signing contracts with power suppliers, but in the short-term the crisis appears to be deepening. The state has lined up 500 Mw for immediate delivery, according to the governor's office, only a small percentage of what's needed to supply the ISO's daily winter load of 30,000-32,000 Mw. About 8,000 Mw comes from the utilities' own generation, putting payment for about 22,000 Mw into question.

Meanwhile, Steven Maviglio, press secretary for the Gov. Davis, confirmed the California Department of Water Resources (DWR) has already spent most of a $500 million appropriation, and the state Finance Department has sent a letter to the legislature asking for more money to buy power.

To date Calpine Corp. is the only generator reporting completed negotiations for a long-term contract with the state. The company said it signed a $4.6 billion contract to provide electricity for 10 years at a fixed price, beginning with 200 Mw in October 2001 and building to 1,000 Mw by January 2004. The state said it has contracts for about 4,000 Mw on terms varying 3-10 years.