California ended last week without a definitive deal with theinvestor-owned utilities, but with the governor predicting a dealwould be in place by the end of the month. Gov. Gray Davis’optimism didn’t stop there, however. He also believes under-paidsuppliers will accept partial payments for the their mountingbills, and federal regulators somehow will bless the state’stakeover of the utilities’ transmission assets on a lease-backarrangement.
Nevertheless, signals were mixed from other sources on thecomplex crisis that moved into its fourth month since the FederalEnergy Regulatory Commission’s Dec. 15 order.
California’s independent transmission grid operator, Cal-ISO,filed with FERC seeking what could be refunds of more than $550million from generators and suppliers that it alleges overchargedthe state for emergency, real-time electricity in December andJanuary.
Meanwhile, the governor and California’s congressionaldelegation last week continued to push FERC for a wholesale pricecap – not the so-called $150/MWh “soft cap” that has been in placesince Jan. 1.
The reality that is recognized by both California and federalenergy officials is that even months into the western regionalenergy crisis – not just California’s – there is still a lot ofwork to do at all levels of government. Consider the majorunfinished business confronting Davis and the state legislaturethat began its third month of a “special” legislative sessiondealing exclusively with energy-related issues:
Cal-ISO last week asked federal regulators for help in possiblerefunds of up to $550 million for December and January wholesalecharges dealing with billions of dollars worth of power suppliespurchased in the emergency real-time market. Cal-ISO alleged thatprices it paid exceeded federally established benchmark levels. Itwas part of a motion to FERC that serves as a refund notice tosuppliers, a request for data and a hearing request.
A Cal-ISO report based on a $250/MWh federal cap in December and$150/MWh in January concluded that net revenues earned by powersuppliers “appear excessive when compared to their estimatedoperating costs.” The report accompanied the filing to FERC seekingadditional time, information and a formal hearing.
In the meantime, Davis was on the East Coast last week tellingWall Street and Washington, D.C. audiences that two suppliers haveindicated a willingness to take partial payments for some of theirpast-due billing to the state and its major investor-ownedutilities. Most generators confirmed the possibility has come up innegotiations, but publicly they maintain they expect to get allthey are owed.
The mounting debt got a bit heavier for PG&E last week. Inthe midst of trying to hang tough in ongoing talks with the stateover a bailout tied to selling its transmission assets it was hitwith additional debt payments of more than $1 billion coming due.PG&E said it could pay only a portion.
To make matter worse, the once mighty combination utility facedcharges imposed by the state water resources department forelectricity purchases and faced a shareholder class action suitagainst its parent holding company for more than $2 billion basedon past stock-buying requirements it placed on the utility.
PG&E’s utility is challenging the way the water resourcedepartment wants to bill it for power, alleging it would preventthe already deeply cash-strapped company from covering the cost ofits own generation and purchases from qualifying facilities (QFs).As of Wednesday, the utility had payments of $l.4 billion come duefor QFs and the Cal-ISO emergency supply purchases, but was onlyable to pay $228 million of that total bill.
Although the companies’ analysis of the shareholder lawsuit isonly at a “preliminary stage,” both the utility and parent PG&ECorp. told the SEC they think it is “without merit” and they intendto mount a “vigorous defense.”
PG&E Finds Some Relief
Meanwhile, PG&E Corp. on Friday said it closed a $1 billionloan agreement with GE Capital Structured Finance Group, as lenderand co-arranger, and Lehman Brothers as lender, administrativeagent, lead arranger, and book manager, to restructure thecorporation’s debt and pay obligations on which it has defaulted.
The loans, secured by the corporation’s equity interest in itsunregulated arm, PG&E National Energy Group, LLC, enabled it topay its outstanding debt obligations on which it has defaulted orwould default in the near future. The obligations that have beenpaid include: $501 million in payments to commercial paper holders,$434 million in borrowings under a revolving credit agreement, and$116 million owed to PG&E Corp. common shareholders for thedefaulted fourth-quarter 2000 dividend.
“The defaults created the risk that the Corporation might face abankruptcy in the near future,” said CEO Robert D. Glynn Jr., “andbankruptcy of the Corporation would benefit no one.” Glynnemphasized that the financing would be repaid with PG&E Corp.shareholder dollars only. “Unlike the Utility’s costs of procuringwholesale electricity for utility customers, this financing is ageneral corporate obligation of PG&E Corp., and it will berepaid entirely with shareholder dollars,” he said. “It has noimpact on the rates the Utility’s customers pay now or in thefuture.”
Calpine Makes Long-Term Commitment
On the more positive side for the governor’s variousinitiatives, San Jose, CA-based Calpine, the super-aggressive powerplant developer/operator, announced two more long-term contractswith California’s water resources department (DWR) to provide up to1,500 MW collectively in deals that span 10 and 20 years,respectively. The contracts’ estimated value collectively wasplaced at $8.3 billion by Calpine.
The new contracts involve both baseload and peaking supplies ofpower. The latter are contingent upon Calpine developing 11 newgenerating units for operation in peak-demand periods. Until thecompany has more site-specific proposals it cannot make anyestimates on the total added natural gas supplies it will have toline up for these projects. Calpine already owns both natural gasreserves and in-state pipelines in northern California.
The $5.2 billion, 10-year deal involves up to 1,000 MW, beginsJuly 1 this year with 200 MW, growing to the 1,000-MW maximumvolumes a year later (July 1, 2002). These supplies will be sold tothe state on a 24/7 basis, according to Calpine.
The other deal is for up to 495 MW over a 20-year period,totaling $3.1. Deliveries under this contract will begin once thenew units have been sited, fully permitted and brought intocommercial operation, Calpine officials said. “The company isproposing to build these natural gas-fueled peaking generators tohelp ensure the reliability of California’s power grid during highpower demand periods.”
While the negotiations and legislative activities continued,Cal-ISO declared a Stage Two power alert Feb. 28/March 1 after fivedays of adequate power reserves. The level-two alert, indicatingreserves would drop below 5%, was caused by a combination ofunexpected losses of generating units in northern California,Oregon and Montana, Cal-ISO said.
In total, 10,600 MW of generating capacity in California was outof service for planned or unplanned maintenance on Feb. 28 (thattotal had been at 8,000 MW or lower in recent days). The Oregon andMontana generating capacity decreased reduced the amount of poweravailable for import into California.
Richard Nemec, Los Angeles
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