Court Orders Calif. Energy Supply To Continue

S A C R A M E N T O, Calif. , Feb. 6, 2001 -- A judge tonight ordered amajor electricity supplier to keep selling to California despitethe expiration of a Bush administration order requiring it to doso.

Just hours before the directive's midnight deadline, U.S.District Judge Frank Damrell issued a temporary restraining orderrequiring Reliant Energy Services Inc. to continue selling power tothe state. The order will remain in effect pending a hearingWednesday afternoon.

The judge's action, issued to avoid "obvious, irreparable harmto the public," came after the keeper of the state's power gridsought restraining orders to force three major electricitysuppliers to continue selling to California.

The other two, AES Pacific Inc. and Dynegy Power Corp., agreedto continue providing power at least until the Wednesday hearingand were not included in the court's order.

Scrambling for Power

At issue was enough electricity for roughly 4 million homes. "There are about 4,000 megawatts at stake here," saidStephanie McCorkle, spokeswoman for the Independent SystemOperator. "We have not gotten confirmation of their intentionscome midnight, when the order expires. The outcome of this is goingto give us a good indication of the risk of rolling blackoutstomorrow."

The U.S. Department of Energy's orders requiring powergenerators and natural gas producers to sell surplus supplies toCalifornia were due to expire at 12 a.m. PT. The orders, firstissued in mid-December by the Clinton administration and extendedby new Energy Secretary Spencer Abraham, will not be renewed, theBush administration said.

That left the managers of California's stressed grid — in thefourth straight week under a Stage 3 power alert — wonderingwhether enough electricity would be available to avoid rollingblackouts. The ISO ordered scattered outages twice last month.

Adding to the scramble, the ISO predicted that on Wednesday itwould only get about half the 8,000 megawatts it typically drawsfrom the Pacific Northwest during California's morning and eveningpeak periods.

High demand and a short supply of water for hydroelectric powerwere blamed. One megawatt is enough power for about 1,000 homes.

Balking at Power Loan

Gov. Gray Davis called the ISO's request for temporaryrestraining orders "a tempest in a teapot."

"I think they are just using this imminent deadline as a way ofgetting our attention but believe me, we are working on thoseproblems and we will get them resolved," Davis told CNN.

Reliant filed a lawsuit against the ISO last week in federalcourt in Washington, D.C., after receiving a letter the ISO sent to140 generators asking them to confirm that they will continue tosell power to the state despite the expiration of the federalorder.

Reliant's lawsuit contends the Houston-based company shouldn'thave to bear the cost of California's energy crisis.

"Incredibly, the ISO's basis for demanding that Plaintiffsprovide power … is the fact that the utilities ultimatelyreceiving the power will not be able to pay for it," the lawsuitsays.

Reliant spokesmen did not immediately respond to messages leftThursday afternoon at their offices in Houston and Washington byThe Associated Press seeking comment.

Search for Long-Term Solution Continues

The ISO says Reliant and other suppliers signed agreementspromising to send power to California in an emergency or the threatof one, such as today's Stage 3 alert, with power reservesthreatening to fall to 1.5 percent.

Davis told CNN he was confident the state's new role as a majorpower buyer would keep the lights on.

The state has been spending $40 million to $50 million a day tokeep the lights on despite the credit problems of the state's twolargest utilities, Pacific Gas and Electric Co. and SouthernCalifornia Edison.

PG&E and Edison together serve nearly 9 million residential andbusiness customers.

Davis said today that the state Department of Water Resourcesreached agreements on the first long-term electricity contracts,expected to provide power to PG&E and Edison customers more cheaply than the day-to-day purchases on the spot market the state has been making since mid-January.

The initial contracts total about 5,000 megawatts — enough powerfor about 5 million homes — and range from three years to a decade,DWR power adviser David Freeman said.

He did not disclose the purchase price or the suppliers.Legislation signed by the governor last week lets the state spendan estimated $10 billion, raised through revenue bonds, on thepower purchases.

Utilities' Credit Crippled

Wall Street was watching the action closely.

Standard & Poor's, a major credit rating agency, issued astatement chastising Davis, the Legislature and the PUC for nottaking more aggressive steps to assure the utilities are able topay their bills.

Power generators are reluctant to deal with the utilities untiltheir debts are paid and suppliers have assurances that they willbe paid for future energy deliveries.

The stocks of both utilities fell today. PG&E's sharesdeclined 68 cents, or 5 percent, to close at $12.92 and EdisonInternational's stock fell 40 cents, or 3 percent, to close at$12.83.

Meanwhile, PG&E officials were busy today trying to getcommitments from suppliers to keep providing natural gascontinuously.

"We're trying to get their trust," utility spokesman JohnNelson said.

PG&E currently has a nine-day supply of natural gas in storageso there would be no immediate impact if providers cut off suppliesas soon as the executive order expired, he said.

Nelson said a few suppliers have agreed to contractsguaranteeing they will be paid with money generated when PG&E'sresidential gas customers pay their bills. He declined to namethose providers.

The PUC recently approved the payment plan at PG&E's request.Under its provisions, gas suppliers would be paid within 60 days.

Multi-Dimensional Crisis

California's energy scramble came as lawmakers and the governorcontinued looking for a way to help PG&E and Edison restore theirfinancial health.

Senate leader John Burton said California should buy 26,000miles of transmission lines — nearly two-thirds of the state's grid — owned by PG&E and Edison in return for helping the cash-strappedcompanies out of debt.

"If they expect to get money from the ratepayer, the ratepayersget something in return. I give you a dollar, I get a hot dog,"said Burton, D-San Francisco.

California's electricity crisis is two-pronged.

First, PG&E and SoCal Edison say they have suffered $12.7billion in losses from spiraling wholesale electricity costs thatthey have been unable to pass on to their customers because of ratelimits imposed under California's 1996 deregulation law.

Second, the state's grid has been stressed by scant reserves,tight imports, high demand and power plants idled for maintenanceor repairs. A speeded-up construction program is under way, but thefirst plant isn't expected to begin generating power untilmid-summer.

California has been in a near-continuous Stage 3 emergency formore than three weeks.