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

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

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

He also will take up the issue of whether the injunction shouldbe expanded to apply to all participants in the Cal-PX markets. Afavorable decision would prevent the Cal-PX from “declaring marketparticipants in default; issuing further invoices based onso-called ‘chargebacks;’ or drawing on any collateral or securityposted by market participants, or otherwise taking actions tocollect funds from market participants.”

Earlier this month, Moreno issued an order temporarilyrestraining the Cal-PX from billing Enron and Avista Energy for theunpaid power purchases of the utilities, pending the show-causehearing. The judge said he took this action because the companies”are likely to succeed in showing that [the Cal-PX] has infringedand/or is likely to infringe [on] their rights,” and they “willincur immediate and irreparable injury” if the Cal-PX is allowed tocontinue this practice. He further said the harm to Enron andAvista “outweighs any harm to any legitimate interests” of theCal-PX.

This also has become a hot-button issue at FERC. Two complaintsfiled by marketers, generators and other parties have accused theCal-PX of grossly misusing the so-called “chargeback” authorityunder its FERC tariff to recoup the mounting unpaid balances ofSoCal Edison and PG&E from other participants in the Cal-PX,the state’s clearinghouse for buyers and sellers of wholesaleelectricity. They have asked the Commission to immediately suspendthe Cal-PX “chargeback” authority, saying it is “rapidlyexacerbating the crisis in California”

Bowing to a firestorm of criticism, the Cal-PX said last week itwould agree to an immediate “standstill” or suspension of itsauthority by which it has been attempting to pass through theutilities’ debt load. But while it consented to the proposedstandstill, the Cal-PX said it was not conceding the merits of thecomplaints brought against it.

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

One of the complaints, which was brought by nine majorcompanies, claimed the Cal-PX not only was billing the companiesfor the unpaid power purchases of SoCal Edison and PG&E, but itwas holding them accountable for those parties that were refusingto pay the chargebacks [EL001-36]. “A similar practice produced anuntenable scenario in the savings and loan debacle of the 1980s,known as the ‘death spiral’ that ends only when it reaches ‘thelast man standing,” the companies said. If allowed to continue, itwill threaten the “financial viability of many power supplierswhose uninterrupted services the region so badly needs.”

The complaint was brought by Coral power L.L.C., Enron PowerMarketing 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 ProjectAgricultural Improvement and Power District (SRP) estimated that sofar it has been billed about $17.5 million of the $778 million inpayments that SoCal Edison and PG&E have defaulted on to thePX. The Sacramento Municipal Utility District (SMUD) has received abill from the Cal-PX for about $3.2 million of the utilities’unpaid amounts. Both SMUD and the SPR said they have refused to paythe amount, and as a result have been sent default notices againstthem.

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

Susan Parker

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