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Court to Rule on Cal-PX 'Chargeback' Injunction

Court to Rule on Cal-PX 'Chargeback' Injunction

The controversial issue of whether the California Power Exchange (Cal-PX) has the authority to hold other buyers and sellers in the state's bulk power market liable for the ballooning unpaid power purchases of California's two insolvent utilities will move into a federal courtroom on Tuesday.

U.S. District Court Judge Carlos Moreno has ordered the Cal-PX to show cause why he shouldn't grant the request of Enron Corp. and Avista Energy Inc. to enjoin the power exchange from picking the companies' pockets to pay for the outstanding power bills of Southern California Edison and Pacific Gas and Electric (PG&E) at the PX. Moreno had been scheduled to rule on the preliminary injunction last Thursday, but all sides agreed to postpone it until Tuesday.

At the hearing, the judge will consider whether $36.5 million drawn by the Cal-PX from Enron's letters of credit on or about Jan. 31, 2001 and additional funds drawn after that date should be placed into an escrow account controlled by a third party pending the resolution of the dispute.

He also will take up the issue of whether the injunction should be expanded to apply to all participants in the Cal-PX markets. A favorable decision would prevent the Cal-PX from "declaring market participants in default; issuing further invoices based on so-called 'chargebacks;' or drawing on any collateral or security posted by market participants, or otherwise taking actions to collect funds from market participants."

Earlier this month, Moreno issued an order temporarily restraining the Cal-PX from billing Enron and Avista Energy for the unpaid power purchases of the utilities, pending the show-cause hearing. The judge said he took this action because the companies "are likely to succeed in showing that [the Cal-PX] has infringed and/or is likely to infringe [on] their rights," and they "will incur immediate and irreparable injury" if the Cal-PX is allowed to continue this practice. He further said the harm to Enron and Avista "outweighs any harm to any legitimate interests" of the Cal-PX.

This also has become a hot-button issue at FERC. Two complaints filed by marketers, generators and other parties have accused the Cal-PX of grossly misusing the so-called "chargeback" authority under its FERC tariff to recoup the mounting unpaid balances of SoCal Edison and PG&E from other participants in the Cal-PX, the state's clearinghouse for buyers and sellers of wholesale electricity. They have asked the Commission to immediately suspend the Cal-PX "chargeback" authority, saying it is "rapidly exacerbating the crisis in California"

Bowing to a firestorm of criticism, the Cal-PX said last week it would agree to an immediate "standstill" or suspension of its authority by which it has been attempting to pass through the utilities' debt load. But while it consented to the proposed standstill, the Cal-PX said it was not conceding the merits of the complaints brought against it.

If FERC does order a "standstill" of its chargeback authority, the Cal-PX asked the Commission also to suspend its financial liability to the California Independent System Operator (Cal-ISO) while the standstill is in effect, relieve it of its payment obligation to creditors during this period, allow it to engage in normal invoicing (minus the chargebacks) for its day-ahead, day-of, real-time and CTS markets.

One of the complaints, which was brought by nine major companies, claimed the Cal-PX not only was billing the companies for the unpaid power purchases of SoCal Edison and PG&E, but it was holding them accountable for those parties that were refusing to pay the chargebacks [EL001-36]. "A similar practice produced an untenable scenario in the savings and loan debacle of the 1980s, known as the 'death spiral' that ends only when it reaches 'the last man standing," the companies said. If allowed to continue, it will threaten the "financial viability of many power suppliers whose uninterrupted services the region so badly needs."

The complaint was brought by Coral power L.L.C., Enron Power Marketing Inc., Arizona Public Service Co., Cargill-Alliant LLC, San Diego Gas and Electric, Avista Energy Inc., Sempra Energy Inc., PacifiCorp and Constellation Power Source.

In a separate yet related complaint, the Salt River Project Agricultural Improvement and Power District (SRP) estimated that so far it has been billed about $17.5 million of the $778 million in payments that SoCal Edison and PG&E have defaulted on to the PX. The Sacramento Municipal Utility District (SMUD) has received a bill from the Cal-PX for about $3.2 million of the utilities' unpaid amounts. Both SMUD and the SPR said they have refused to pay the amount, and as a result have been sent default notices against them.

The city of Anaheim, CA, reported that the Cal-PX has billed it for nearly $2.4 million, while the city of Riverside, CA, has been charged $550,000 to date. Riverside told the Commission that its ultimate chargeback exposure, if the Cal-PX is allowed to continue, could reach $2 million to $3 million.

Susan Parker

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