Features

Alert declared, utilities’ finances in turmoil

The Associated Press
Wednesday January 17, 2001

SACRAMENTO — California declared another electricity emergency Tuesday as several plants fell short of natural gas and its two largest utilities edged perilously close to insolvency. 

State power regulators declared a Stage 3 power alert, anticipating electricity reserves below 1.5 percent for the second time in less than a week. 

Rolling blackouts were avoided after huge state pumps that move water from Northern California to the south were turned off temporarily, conserving enough electricity to power 600,000 homes, said Kellan Fluckiger, chief operating officer of the Independent System Operator. 

But imports were running about half of what they were last week, when California narrowly avoided blackouts, Fluckiger said. Then, about 4,200 megawatts was coming into the system from elsewhere, mostly the Pacific Northwest. 

On Tuesday, imports were running about 2,200 megawatts, he said. The Folsom-based ISO manages about 80 percent of the state’s electrical transmission lines. 

In Sacramento, the Legislature pondered a rescue plan in which the state would buy electricity from wholesalers and sell it to utilities at a reduced rate, perhaps a fifth of the going market rate, under long-term contracts. An Assembly committee approved it Tuesday afternoon; the full Assembly was to consider it Tuesday night. 

The legislative action came as Southern California Edison declared itself unable to pay hundreds of millions in wholesale electricity bills, and SoCal Edison and Pacific Gas and Electric Co. took another hit on Wall Street. 

SoCal Edison, which serves 11 million people, said it cannot pay $596 million in bills for wholesale energy and debt service, including $215 million to the California Power Exchange. 

The Power Exchange was considering whether to make the utility buy its power elsewhere and an electricity supplier threatened to force SoCal Edison into bankruptcy if it failed to pay its bills. 

The exchange, or “PX,” is the official clearinghouse of electrical power bought and sold in California. SoCal Edison’s decision gave the exchange, created by California’s 1996 deregulation law, the authority to seize Edison’s contracts to satisfy the debt. 

The PX could take over Edison contracts and sell them if the utility failed to post an immediate sum, perhaps $1 billion, with the PX, exchange spokesman Jesus Arredondo said. 

“They aren’t likely to do that if they don’t have the $215 million. So the scenario is that we begin the proceeding of determining what requirements for collateral we have,” Arredondo said. “We aren’t taking over any power plants, but they do have contracts.” 

Arredondo said no decision had been made to take over any of Edison’s contracts or any other assets. 

“The situation is very fluid. Negotiations are continuing,” he added. 

The default prompted Standard & Poor’s to downgrade the credit ratings of SoCal Edison and Pacific Gas & Electric Co. to junk-bond status. 

S&P said SoCal Edison’s delinquency also tainted PG&E. With just $500 million in cash left as of Jan. 10, PG&E faces due dates on bills totaling $1 billion during the first two weeks of February. 

“The downgrades reflect the heightened probability to the utility’s imminent insolvency and the resulting negative financial implications for affiliated companies,” the credit-rating agency said of PG&E. 

PG&E, restructured with the approval of the Federal Energy Regulatory Commission to insulate assets in the event of a bankruptcy, faces a $580 million bill on Feb. 1, a bill similar to that owed by SoCal Edison.  

PG&E has about $500 million in cash on hand. 

Between them, PG&E and SoCal Edison have lost at least $10 billion in wholesale energy costs that they have not been able to pass on to their customers because of a rate freeze imposed as the state phases in deregulation. 

California’s electricity crisis began this spring after San Diego Gas and Electric Co., its rate freeze lifted, began passing on the increased costs of wholesale electricity to its 1.2 million customers, whose bills doubled and tripled. 

The utility was the first to complete the transition to deregulation under the 1996 law, which took effect in January 1998. 

Under deregulation, investor-owned monopoly utilities were required to sell of their power plants and buy energy on the open market.  

The idea was to lower prices through competition, and have the utilities pass on those savings to customers. 

But wholesale electricity prices rose dramatically since June, in part of because of a hot summer and a cold winter. In 1999, they averaged perhaps 3.5 cents a kilowatt. Now, they are running about 30 cents, and sometimes far higher. 

State officials believe power producers exploited flaws in the market and charged huge prices for wholesale electricity. 

Demand has remained high, supplies are strapped because no new power plants have been built in the state in a decade and imports are tight because others states are fighting over the power. 

In addition, spiraling prices for natural gas are forcing power plants to raise their prices; most power plants are fired by natural gas. 

On the Net: 

California Independent System Operator: http://www.caiso.com