Judge: Energy sales to go on -- 5-day extension in ISO legal move

By Denny Walsh, Bee Staff Writer

(Published Feb. 17, 2001)

A Sacramento federal judge late Friday ordered three companies to continue providing emergency power to California for at least five more days.

After a full afternoon of arguments by attorneys for the companies, the state and the California Independent System Operator Corp., U.S. District Judge Frank C. Damrell Jr. reserved ruling on the two critical issues. Meanwhile, though, the judge extended to 5 p.m. Wednesday his Feb. 8 order compelling the companies to sell emergency power to the ISO.

It was the last act in a week full of high-stakes drama, much of which was played out in the relative obscurity of the federal courthouse while the limelight was directed at the Capitol and the efforts going on there to find a solution to the state's energy crisis.

The ISO is a nonprofit corporation created by the Legislature as part of the state's energy deregulation machinery. It purchases wholesale power on behalf of California's three major investor-owned utilities.

The ISO filed a lawsuit 10 days ago to force continued emergency sales by Houston-based Reliant Energy Services and Dynegy Power Corp., and Tulsa-based AES and its marketer, Williams Energy Marketing & Trading Co.

The three generators supply much of the state's wholesale electric power through sales to the ISO on behalf of Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric.

According to the suit, because PG&E and Edison are near bankruptcy and have lost their credit ratings, the suppliers threatened early this month to cut off unscheduled emergency power that has recently been regularly ordered by the ISO to avoid rolling blackouts.

The ISO seeks a preliminary injunction -- an order of open-ended duration --barring the suppliers from making good on the alleged threat.

The suppliers have countersued the ISO and the Department of Water Resources, the agency designated last month to buy and sell power for the state using hastily enacted appropriations. The companies claim the ISO and DWR are working together to enable the state to acquire power below market price.

The DWR has asked Damrell to dismiss that action, claiming the U.S. Constitution's guarantee of sovereign immunity insulates the state and its agencies from such legal attack.

The motions for a preliminary injunction and dismissal of the countersuit are what Damrell is now pondering. He hopes to rule before the temporary order expires Wednesday.

Attorneys for the companies argue that the dispute belongs before the Federal Energy Regulatory Commission, not a judge. They insist that Damrell's order forcing them to respond to the ISO's emergency power purchases runs counter to an order issued Wednesday by the commission.

The commission denied the ISO's request that PG&E and Edison be allowed to purchase power even without the ability to pay for it. The commission urged the utilities to obtain financial backing from creditworthy entities and suggested that DWR would be a good candidate for that role.

However, the agency refuses to stand behind purchases if the price is more than the state is willing to pay. That figure is a secret, but it is less than the market rate, the three companies contend, and less than they are willing to take for their power.

The companies say that, when DWR can't find power at its price, the ISO puts in an emergency order on behalf of utilities that are broke and can't pay for it. Damrell is perpetuating the cycle by forcing them to sell, they say.

The companies' lawyers came within a hair this week of obtaining DWR's power-buying guidelines, but Damrell excised what he described as "numeric and formulaic references" from the document before turning it over to attorneys for Reliant and Dynegy.

On Thursday, U.S. Magistrate Judge John F. Moulds ordered the document turned over to two Reliant lawyers intact. But Damrell modified that order Friday, much to the relief of attorneys for the state and to the chagrin of power company attorneys.

The latter argued that the document would help them show the ISO will not suffer irreparable harm without the court's intervention in its favor. No injunction will simply mean that DWR will have to operate on an equal footing with all other buyers and live with going rates, they insisted.

But DWR argued that disclosure of its market strategy would destroy its prospects of mitigating the state's energy crisis by negotiating long-term purchase contracts with major power generators at prices the Davis administration is willing to pay and utilities can afford.

"The taxpayers and the ratepayers would be at the mercy of the wholesalers," Supervising Deputy Attorney General Richard Thalhammer told Moulds.

Once Thalhammer saw what Damrell deleted from the document, he was willing for it to be turned over to the power companies.

Friday's was the first district court hearing in the ceremonial courtroom on the 16th floor of the new federal courthouse.

Damrell scheduled the proceeding there because so many lawyers are involved and in anticipation of a big audience. He guessed right. The spectator portion of the 4,000-square-foot room was jammed, as were the six counsel tables in the well.

The politically charged case was assigned to Sacramento's junior district judge. Damrell, a seasoned corporate attorney who headed his own firm before being appointed to the bench three years ago by President Clinton, appears to be maintaining his keen sense of humor and handling the pressure with equanimity.

Near the end of a long afternoon Friday, he told the attorneys he wanted additional briefing on one question and that he wanted the papers by Monday, a holiday.

The directive was greeted with some groans and grimaces. "We'll be here," he said of himself and his law clerks. "The lights will be on."

-- Swissrose (cellier@azstarnet.com), February 17, 2001