Power marketers billed for California utilities unpaid debt

Ann de Rouffignac
OGJ Online

HOUSTON, Feb. 9�Electricity marketers should not be liable for Southern California Edison Co. and Pacific Gas & Electric Co.'s billion-dollar debt to the California Power Exchange and the California Independent System Operator, nine energy companies claim in a filing with the Federal Energy Regulatory Commission (FERC).

In the emergency filing, the companies Thursday asked FERC for an immediate standstill and suspension of the so-called chargeback mechanism by Feb. 14. A California Power Exchange (PX) tariff permits the exchange to assess market participants for uncollected receivables, no matter who actually owes the money, says Jesus Arredondo, a PX spokesman.

The companies say the PX is misinterpreting its own credit and default provisions. When the provision was under discussion, the concern of all, including Pacific Gas & Electric (PGE), a unit of PG&E Corp., and Southern California Edison (SCE), a unit of Edison International, was directed toward default resulting from "failures to deliver power, not failures by the utilities to pay for it," they say in their petition. The companies allege the PX has no authority to force market participants to cover for payment defaults by SCE and PGE.

The PX has already sent a bill for $214 million and, as bill collector for the ISO, will be sending out payments demands to these companies as early as next week.

Suing the PX are eight power marketers and one purchaser, including Coral Power LLC, an affiliate of Shell Oil Co.; Enron Power Marketing Inc., a unit of Enron Corp.; Arizona Public Service Co.; Cargill-Alliant LLC, a joint venture of Cargill Inc. and Alliant Energy Corp.; San Diego Gas & Electric Co., a unit of Sempra Energy; Avista Energy Inc., a unit of Avista Corp.; Sempra Energy Trading Corp., a unit of Sempra Energy; PacifiCorp, a unit of ScottishPower PLC; and Constellation Power Source, a unit of Constellation Energy Group Inc.

Hobson's choice
The companies claim they are faced with a �Hobson�s Choice:" They can pay the money into a black hole and never recover the funds�even if the chargeback mechanism is ruled unjust and unreasonable. Or they can refuse to pay and the PX will cash their letters of credit.

The PX suspended operations in mid-January and is scheduled to permanently close in March because of the crisis in California energy markets and overhaul of the deregulated system. Under the California restructuring law, utilities were required to buy power marketed through the PX.

Under the tariff, if a power exchange participant refuses to pay another participant's unpaid bills, then that default is also charged back to the remaining participants in what the petition calls a �death spiral.�

The chargebacks are already expanding as PX participants refuse to pay them and they are then regarded as being in default by the PX, according to the complaint. If this process continues, chargebacks will eventually accumulate against a shrinking pool of participants to the �last man standing,� it states.

Such a mechanism means no matter how reasonable or prudent a market participant, it could be held liable for the defaults of others over which it has no control, according to the petition. The precedent will worsen the existing generation shortage, "as sellers of electricity will shun any market that inevitably results in unlimited liability that cannot be avoided," according to the plaintiffs.

Huge bills coming
On Jan. 9, SCE defaulted on a $214.5 million bill from the PX. The other market participants were assessed a portion of the $214.5 million bill. On Jan. 26, PGE and five others refused to pay. The PX is now assessing the portion refused by PGE and five other participants to the remaining participants, including the companies filing the complaint.

But defaults to the PX comprise only a part of massive debts which may be assessed against market participants. �It�s the potential financial damage we are really worried about,� says Mike Delaney, spokesman for Constellation Energy Group.

Not only will the PX use the mechanism to collect its own outstanding bills, it will also try to collect unpaid bills owed the ISO by the utilities. Both SCE and PGE have refused to pay their ISO bills for November which exceed $1 billion.

In addition, the utilities have warned they will not pay more than $1.5 billion in ISO transactions for December 2000 and January. The PX is sending out the first set of bills for the ISO real-time transactions for hundreds of millions of dollars to its market participants for defaults by SCE and PGE. These bills are due Feb. 15.

�We are in the process of sending out these bills to participants,� says Arredondo. �If they don�t pay by Feb. 15, we go after the letters of credit.�

(Contact Ann de Rouffignac at [email protected])