State Power Bill Fades as CA Utilities' Debts Mount
While power outages were still viewed as an inevitability this
summer in California, a comprehensive legislative, regulatory and
commercial solution to mounting energy debts was less certain last
week as reports surfaced that creditors might force bankruptcy on
the state's two ailing utilities.
Observers speculated that the state political leaders'
three-pronged approach might be coming apart, and that is why both
state and federal officials are ordering ever-more investigations
of the energy transactions involving the state.
Both the financially-strapped utilities indicated they continued
in "active" separate negotiations with the political leaders, but
creditors and debtholders were growing obviously restless in the
continuing conference calls held twice weekly.
The governor and state legislature were quiet Friday, and the
week had few of the hyped news media announcements that became
weekly, if not daily, occurrences throughout the first two months
of the year. Most of the action and rhetoric regarding the
California situation was emanating from FERC and Capitol Hill in
Washington (see related stories). Indicative of the apparent
inertia on the West Coast was the fact that the state grid
operator's board meeting drew more attention than elected
A second inevitability arose by week's end --- namely, that rate
increases beyond the 19% accepted by Gov. Gray Davis will be needed
to secure a widespread deal with the utilities and others. When
pressed by bondholders at a conference call Friday, Southern
California Edison officials indicated that all of the costs being
accrued exceed the future revenues estimated to pay off those
costs. That leaves higher utility rates as the only means --- short
of higher taxes --- to cover the costs.
There is speculation that the Cal-ISO is going to propose to
FERC that California's transmission grid operations in the future
take steps to cap prices on bids into the state's market and
prevent in-state generation from going out-of-state. The two moves
are opposed by advocates for a wider, multi-state transmission grid
operation (RTO) in the West because they see it as further
attempting to isolate California, despite its dependency on imports
from other states for up to 25% of its peak-demand needs.
Responding to what he interprets as positive feedback from the
federal DOE, Davis last Thursday said Cal-ISO's new market
stabilization plan will lower wholesale electricity prices in
California. Meanwhile, a spokesperson for Cal-ISO said its board
met Thursday, but did not act on an agenda item covering the new
Davis, in a prepared reaction statement, thanked DOE Secretary
Spencer Abraham and the Bush administration for "their continued
cooperation" and their agreement "not to oppose our efforts to
purchase the transmission lines of our investor-owned utilities and
improve California's transmission system."
A representative with one of the state's major energy companies,
who attended the public part of the Cal-ISO board meeting, noted
that the lack of tangible deals with the utilities and any more
signed long-term contracts, have caused the state legislative
leaders and governor to press ahead with more investigations and
punitive actions against merchant generators and marketers. The
idea apparently is "to divert attention" from the lack of success
in addressing the basic problems.
"I'm sure there is a lot of pressure from the governor to have
these parties show some real results," the source said.
Meanwhile, the issue of creditworthiness was spreading to the
state from the two near-bankrupt investor-owned utilities.
SoCal Edison last Friday paid $8 million in interest on first
mortgage bonds to avoid debts growing by more than $240 million and
it continued discussions with its banks seeking extension of
forbearance that expired last week (March 14). It continued to
juggle court actions, with an added class action suit and rumors
(still unsubstantiated) of groups of QF generators petitioning for
Edison attorneys indicated the utility will resist an attachment
of Edison's interests in two Nevada-based power plants by a QF
generator who is not being paid by the utility.
"The increase in lawsuits is another indication that peoples
frustration levels are rising in this whole situation," said
Edison's Senior Vice President/Treasurer Ted Craver.
"The Cal-ISO and the Cal-PX are both no longer creditworthy and
the utilities are closer to bankruptcy, that is pretty much the
whole market in California and no one talks about that," said a
California-based executive with one of the large national energy
companies. "We talk about the high prices and how they continue to
be high prices (in the wholesale markets) and there is a huge
wealth transfer out of the state, but nobody talks about the fact
that the state is asking suppliers to sell a product to people who
"If we are going to make that silly move, wouldn't you put a
higher price on that product just to account for the additional
risk for doing business in that state?" (The Western Power Traders
Association has a consultant who is trying to quantify this premium
being paid as part of broader work for generators' and marketers'
trade group. It is expected to be filed as part of the
association's comments to FERC due later this week.)
Traders privately will tell anyone who asks that California's
"creditworthiness" status continues to be the biggest problem
facing the state. Suppliers are understandably reluctant to sell to
California, they say, and when they sell to the state they are
marking up their prices.
"It is still a huge problem," said the energy company executive,
"despite the fact that everyone from the governor on down is
patting themselves on the back for the legislation they passed (AB
1X) and the long-term contracts, but how many have they actually
"It is a huge problem that is getting worse, but everyone is
sort of sweeping it under the rug because the finger points
directly at the governor."
While the state legislature expanded its special session to deal
with related, and in some respects tougher, natural gas issues,
there were not a lot of results in terms of new laws getting out of
committee. Similarly, there was little publicly-acknowledged
progress in discussions involving the governor's and legislative
teams talking separately with utilities and qualifying facility
power generations to reach some settlements that will restore
creditworthiness and eventually bring down wholesale prices. The
California Public Utilities held a public business meeting, but
postponed most of its agenda items, except for one blocking utility
On a strictly partisan 3-2 vote, the CPUC last Thursday blocked
attempts by the state's two utilities that proposed further work
force and service cutbacks to conserve cash, while awaiting a
settlement with the state on its future financial viability. Two
Republican-appointed CPUC commissioners opposed the move, calling
it "micromanagement" on the part of the regulators.
SoCal Edison and the PG&E utility. were ordered to rescind
"any layoffs of employees which are needed to fully staff customer
call centers, read meters monthly, timely respond to service calls
and outages, and connect new customers." Edison has laid off 400
workers in its transmission/distribution units and had proposed
eliminating an additional 1,600 jobs in the months ahead;
PG&E's utility had laid off 505 workers and announced plans to
eliminate another 675 jobs it its cash flow situation was not
Other stopgap measures for California's expected summer power
shortages included: the governor announcing rebates to customers
cutting their summer power use by 20% and Calpine Corp. striking an
immediate two-month deal for providing 550 MW to Southern
California markets. The short-term power pact is an interim one
with the state water resources department during the two-month test
phase of a new generating plant being opened at the Fort Mojave
Indian Reservation near the California-Arizona border.
Davis said the state will underwrite a "20/20" program (20%
power bill rebates from 20% reduction of electricity use) that is
designed to save 2,200 MW during summer peak-demand periods, saving
the state up to $1.3 billion in wholesale power costs. The
voluntary program applies to both households and businesses between
June through September, the prime peak-demand months.
Richard Nemec, Los Angeles