CA Gov. Gray Davis yesterday used his emergency powers again toseize a state utility’s defaulted contracts in the California PowerExchange (Cal-PX). In an afternoon press briefing, the governordeclined to discuss the details of the initial long-term powercontracts signed by the state with electric suppliers so far,saying only that an announcement will be made today and will be”positive.”

Late last week Gov. Davis had directed the state’s contractnegotiators to wrap up initial deals by the end of the day Monday,Feb. 5.

On Monday, Gov. Davis seized Pacific Gas and Electric’s(PG&E) forward spot market contracts that the utility haddefaulted on to the tune of about $500 million. A Cal-PXspokesperson said the state-chartered wholesale power exchange isstill trying to calculate the market value of the PG&E deals,but it speculated the total would be less than that of SouthernCalifornia Edison Co. whose contracts were seized late last week bythe state.

“By acting quickly and decisively, we have rescued thesecontracts from the auction block and preserved their low-cost valuefor consumers,” Gov. Davis said. “If we had not seized these assetswhen we did, they would have been lost to consumers at these lowcosts forever.”

The contracts, which were at risk by PG&E’s failure to makepayments to the Cal-PX, involve power supplies at prices negotiatedby the PG&E utility last year. The governor characterized theirprices as “substantially below the current spot market prices beingpaid by the state water resources department,” the state’s newlyauthorized electricity buyer under legislation passed lastThursday.

The governor characterized the PG&E deals as 12-monthcontracts for 100 to 500 MW at prices ranging from 6 to 13cents/kWh. A state court in San Francisco Jan. 23 issued atemporary restraining order preventing the Cal-PX from sellingPG&E’s contracts, and at the time, the judge specificallyacknowledged that the state should have the opportunity to acquirethem.

Gov. Davis last Friday issued an executive order allowing thestate to take over SoCal Edison’s contracts, which were in defaultfor an estimated $250 million, and which Cal-PX estimated were for2.8 million MW and valued at more than $651 million. The governorsaid then he “commandeered” the block forward contracts so theywould be “held subject to the control and coordination of the Stateof California.”

Cal-PX said that the governor’s action nullified a Los AngelesCounty Superior Court decision that last Friday authorized thestate exchange to liquidate Edison’s forward market positions.Cal-PX said it would transfer the Edison contracts to the state,and presumably it will do the same with the seized PG&Econtracts.

In his emergency order that extends from a blanket state ofemergency declared Jan. 17, the governor said current circumstancessuch as the Cal-PX contract defaults “require extraordinarymeasures beyond the authority vested in the California PublicUtilities Commission.”

In related action, SoCal Edison has asked FERC to issue a ceaseand desist order barring the Cal-PX from liquidating or disposingof any block forward market (BFM) contracts until an audit reporthas been filed with and approved by the Commission. The audit,which would be conducted by an independent accounting firm, wouldaddress whether the Cal-PX has violated FERC regulations andpolicies.

The Rosemead, CA-based utility sought this action in anemergency motion after the Cal-PX notified FERC last week that itwas suspending trading in its day-ahead and day-of markets. SoCalEdison contends the Cal-PX’s unilateral suspension of the marketsrepresented a violation of its tariff. Before suspending itsactivities, the Cal-PX’s tariff requires it to get the blessing ofthe Commission, according to the utility.

The suspension flies in the face of a Jan. 24 letter to ChairmanCurt Hebert in which the Cal-PX said it was told by its board to”wind down [its] business activities in an orderly manner thatcontributes to resolution and not exacerbation of the Californiacrisis,” SoCal Edison noted.

Instead the Cal-PX “is terminating operations without Commissionapproval, and in such a way as to cause irreparable harm to [SoCalEdison] and its customers,” the utility said.

“It is unclear what will happen to Cal-PX Trading Services (CTS)and BFM positions” as a result of the suspension of trading in theday-ahead and day-of markets, SoCal Edison noted.

As for SoCal Edison, it appears the Cal-PX is seeking to sellthe utility’s contracts at “distress terms” to a “select group ofgenerators” rather than award them to the “highest bidder fromamong all participants in the electric market,” the utility said.

©Copyright 2001 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.