There appeared to be nothing in the way of concrete progress towardresolving the California energy crisis, as much-talked about long termpower contracts have failed to materialize, and negotiations areapparently just beginning on the plan of state politicos to buy outthe power lines of the state’s investor-owned utilities (see DailyGPI, Feb. 20)

As of the end of this week (Feb. 23), the California Departmentof Finance estimates the state’s power bill will be $1.7 billionsince the water resources department (DWR) began buying electricityfor the state’s consumers in mid-January. This includes about $300million of real-time emergency purchases by the state-charteredgrid operator, Cal-ISO. The month’s worth of continuous StageThree alerts were broken with level-two alerts going into effectover the weekend and remaining Tuesday as the amount of offlinegenerating capacity was reduced by about 2,000 MW and peak demandremained low.

The governor’s press office on Tuesday pointed toward the “endof the week” for the next announcement on a potential settlementwith the state’s investor-owned utilities that can kick-start aviable solution. In the meantime, unpaid wholesale electricitybills and court action continue to mount.

Duke Energy’s California spokesperson reiterated that the powergenerator wants a resolution to past-due payments it is owed by theutilities before it will sign any long-term contracts, which thegovernor has been promising for the past two weeks. Suits infederal district courts in Los Angeles, Sacramento and SanFrancisco are pending on various aspects of credit disputes amongthe state, utilities and various generators. And an undercurrent of”the Emperor has no clothes” type of sentiment was beginning tobuild as power contracts failed to materialize and questions wereraised as to the legality of the proposal to buy out the IOUs powerlines.

Late last week a group of nine Southern California-basedrenewable generators, including CalEnergy Operating Corp. formed asecond creditors’ committee, and CalEnergy also sued SouthernCalifornia Edison Co., one of the two near-bankrupt majorutilities, for $45 million in unpaid bills since last November.

Anticipating a bailout agreement, the state has moved to have J.P. Morgan Chase & Co. underwrite what is shaping up as thelargest municipal bond sale in the nation’s history — about $10billion, nearly triple the previous record.

But the patience of creditors was wearing thin. “As the (our)Feb 7 letter (to Gov. Gray Davis) says, we will not sign long-termdeals until past dues are taken care of and there is someresolution to the governor “seizing” our PX contracts,” said Duke’sCalifornia spokesperson, Tom Williams. “This state’s behavior issimilar to someone stealing from a store — the store owner isaware of it — and then wanting to open up a charge account. Nobusiness would ever operate this way. Not in California, notanywhere.”

Almost two weeks ago, Duke wrote the governor regarding aconcern that momentum to address the crisis” was “being lost.”Williams characterizes the tone of the letter as “constructive andsolution-oriented.” Since then, the company has not seen a lot ofsolution-orientation.

While saying late last Friday that he thought the governor wasgetting down “close to closing a deal,” Jan Smutny-Jones, executivedirector of California’s independent power producers (IEP) said hewas getting concerned about time running out on the governor andthe state.

“I think we’re running out of time, and I hope in the next dayor two there is more meat put to the bones,” Smutny-Jones said inimmediate reaction to Davis’s latest proposals.

While he would not criticize any one individual or group fordragging feet, Smutny-Jones nevertheless said that there have been”a number of pushes and shoves going different directions. A lot ofstatements made subject to no rate increase; statements made withrespect to no bailouts. And they actually limit the ability ofpolitical leaders to maneuver. The primary reason state ownershipof the transmission grid is being pushed is to provide a perceptionthat in fact that the bonds floated are for transmission assets notfor paying for past energy.”

A federal district court judge in Los Angeles was scheduled torule late Tuesday on action brought by Enron and Avista to stop theCalifornia Power Exchange, the now nearly defunct state-runwholesale spot power market, from using the companies’ letters ofcredit to pay Edison and PG&E’s outstanding power bills.Another suit by Duke to get back its forward contracts seized bythe governor from the Cal-PX is scheduled for a court hearing thiscoming Monday (Feb. 26) in Los Angeles

There is a way out of California’s energy mess, but whetherthere will ever be a coordinated effort between the state and theprivate sector was still in doubt as evidenced at a one-dayindustry forum last week in San Diego, “Power Crisis in the West,”sponsored by Xenergy.

While the state’s ongoing role in buying and eventually owningelectricity infrastructure was looked at skeptically, it was alsoaccepted as inevitable by executives from Sempra Energy, Duke andReliant, all of whom indicated they have not given up on lastingsolutions eventually being hammered out in what is now a two-monthstruggle to bring stability to supply and prices.

Sempra has “bought the pipe and is ready to start construction”in a joint venture with PG&E Corp. to build a new natural gastransmission pipeline from the Arizona-California interconnect withEl Paso’s interstate pipelines through North Baja in Mexico,according to Stephen Baum, Sempra’s CEO. He also indicated that inaddition to several new merchant power plants, Sempra will consideradding a second plant near Boulder City, NV, where it jointlyopened the 480-MW El Dorado plant with Reliant last year, and it isconsidering another new plant in Arizona near another one it isdeveloping adjacent to the Palo Verde nuclear plant outside ofPhoenix.

William Hall, a senior vice president for Duke Energy’sCalifornia operations, said his company hopes to be able to sellsome extra megawatts into California by this summer for a plant itis developing near Kingman, AZ.

John Stout, senior vice president with Reliant, reiterated thata fundamental flaw in California’s now-abandoned restructuring thatcontinues in the ongoing negotiations with state officials is alack of valuing of generation. Until there tangible value placed ongenerating capacity, the market situation in the state and theworsening supply-demand imbalance will not be fixed, he noted atthe same energy conference.

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