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 its two near-bankrupt utilities will move into afederal courtroom today.

U.S. District Court Judge Carlos Moreno has ordered the Cal-PXto show cause today why he shouldn’t grant a request by Enron Corp.and Avista Energy Inc. to preliminarily enjoin the power exchangefrom collecting the debt for unpaid power purchases of SouthernCalifornia Edison and Pacific Gas and Electric (PG&E) out ofthe companies’ pockets.

Moreno will consider whether $36.5 million drawn by the Cal-PXfrom Enron’s letters of credit on or about Jan. 31, 2001 andadditional funds drawn after that date should be placed into anescrow account controlled by a third party pending the resolutionof 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 utility bills, pending the show-cause hearing. The judgesaid he took this action because the companies “are likely tosucceed in showing that [the Cal-PX] has infringed and/or is likelyto infringe their rights,” and they “will incur immediate andirreparable injury” if the Cal-PX is allowed to continue. Hefurther said the harm to Enron and Avista “outweighs any harm toany legitimate interests” of the Cal-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 its so-called “chargeback” authority torecoup the mounting unpaid balances of SoCal Edison and PG&Efrom third parties. They have asked the Commission to immediatelysuspend the Cal-PX “chargeback” authority, saying it is “rapidlyexacerbating the crisis in California”

Bowing to a firestorm of criticism, the Cal-PX said this 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 has agreed 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 to also 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, and allow it to engagein 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 majorcompanies, claimed the Cal-PX not only was billing the companiesfor the unpaid power purchases of SoCal Edison and PG&E, butthey were being held accountable for those parties that wererefusing to pay the chargebacks [EL001-36]. “A similar practiceproduced an untenable scenario in the savings and loan debacle ofthe 1980s, known as the ‘death spiral’ that ends only when itreaches ‘the last man standing,” the companies said. If allowed tocontinue, it will threaten the “financial viability of many powersuppliers whose uninterrupted services the region so badly needs.”

The complaint was brought by Coral power LLC, 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.

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