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Ruling on forced sale of electricity due today

By Bill Ainsworth STAFF WRITER

February 21, 2001

SACRAMENTO -- On many days, an emergency order that compels energy companies to sell electricity to the state is one of California's few defenses against the chaos of rolling blackouts.

Today, a blunt Sacramento federal judge will decide whether state officials can continue to rely on the order, which they contend is essential to their battle to protect taxpayers' money while keeping the lights on.

Last week, Judge Frank Damrell Jr. extended his order forcing energy sales until today, when his final ruling is expected.

In a lively court battle that provided a rare glimpse into how the state manages the electricity crisis, attorneys for the state and for three power companies argued over emergency orders and the causes of the crisis.

At one point, Damrell offered a frank assessment of the crisis, telling an out-of-state power generator's attorney: "The simple fact is that you got rich and the utilities went broke."

State attorneys say the reliability of the power system is at stake.

As much as 12 percent of the state's daily energy needs come from emergency calls, said Jim Detmers, manager of the Independent System Operator, the state agency charged with managing electricity. And that power is the last critical electricity needed to meet demand.

Because of the large number of power plants not working, the ISO made 2,000 emergency calls to generators from Jan. 28 to Feb. 11, he said.

Power company lawyers argue that the state is using the emergency orders to avoid paying the full market price for electricity needed by the state.

"What we're dealing with is not a real threat to turn out the lights," said Terry Houlihan, an attorney for Reliant, an energy company.

As part of the agreement that allows them to do business in the state, energy companies have to provide power to the California grid in an emergency.

The federal government has made those orders stronger by issuing a series of executive orders.

President Bush, however, allowed the last federal order to expire earlier this month.

After that, Reliant and several other energy companies argued that they no longer had to provide emergency power because the major buyers of energy, Pacific Gas and Electric and Southern California Edison, were broke.

State officials then sued Reliant, Dynegy and AES, asking a federal judge to compel them to respond -- regardless of credit problems.

"When the operator has to make a decision about whether or not to turn off traffic lights, disable elevators or leave the elderly and the infirm without heat, I suggest to you that credit concerns are not relevant," said Ed Berlin, an attorney for the state.

A lawyer for Dynegy, Robert Mittelstaedt, however, argues that the court order is being used merely to save the state money.

In early February, the state Department of Water Resources stepped in to buy power because of the utilities' credit problems.

Now, the department buys about 40 percent of the daily power needed by California at a cost of about $50 million a day, or $2.3 billion by the end of the month.

The DWR, however, does not buy all the power the state needs because it doesn't want to pay the full cost. Some emergency power, an ISO official said, is so expensive that it can cost up to $10,000 a megawatt.

Mittelstaedt said the department can leave a shortage because it knows that the ISO can use its emergency orders to compel power sales. Prices for such sales are decided later, but most likely at a far lower cost than the current spot market.

State officials introduced evidence that the court order is critical because energy companies are avoiding emergency orders, thus are willing to cause blackouts to ensure a high price for power.

One day last November, an ISO manager, fearing a shortage of electricity the next day, tried to order a Dynegy executive to produce power at his company's Southern California plant the next day.

The executive resisted, according to a transcript of a phone conversation that was entered into the court record:

"It's very difficult for me to make a decision to operate these plants," said Dave Francis, a Dynegy official.

"Well," said Christine Henry, an ISO manager. "We are taking that decision away from you by ordering those plants on. OK?"

"OK," Francis said. "You need to get somebody that has the authority to tell me how I'm going to get paid."

Eventually, another Dynegy official called back, saying the company didn't have the workers to start their plant.

Norma Formanek, an attorney who represents the ISO, said the transcript showed that the state needs a powerful tool to force companies to provide power.

"During an emergency dispatch is not the time to negotiate the price," she said. "It's time to solve the problem."

Mittelstaedt, however, said there was nothing wrong with wanting to get paid for supplying energy. He blamed the state for causing the problem.

"They can cure this whole problem," he said, "if they are willing to pay more money."

-- Martin Thompson (, February 21, 2001

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