Wall street keeps a close eye on Calif. power talks

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Wall Street keeps close eye on California power talks

Updated: Feb. 21, 2001 - 2:12 p.m.

Wall Street analysts expressed concern Wednesday about the state's increasingly expensive moves to resolve California's electricity crisis.

Power suppliers, meanwhile, urged the Davis administration to spend even more.

Standard & Poor's said it will keep the state on a credit watch "with negative implications" following the news last week that the state would need an additional $500 million to buy power on the expensive spot market for customers of financially strapped Southern California Edison and Pacific Gas and Electric Co.

"There are still a lot of uncertainties. There has to be some sort of long-term solution soon or the state will start running out of money," said David G. Hitchcock of Standard & Poor's.

Meanwhile, a major supplier, Duke Energy, said it will not sign long-term contracts to provide cheaper power to the state until the Davis administration promises to pay for all emergency power bought on Edison's and PG&E's behalf by the manager of the state grid to avoid blackouts.

The state has said it will buy power through the Department of Water Resources, but only at reasonable prices. Any remaining power the Independent System Operator buys to prevent blackouts is being bought the day it's needed at prices that have exceeded $1,200 per kilowatt hour.

Because the DWR has refused to pay for such power, the ISO plans to bill PG&E and Edison, which have said they cannot pay the bills.

Another large wholesaler, Reliant Energy, said it is concerned about the ISO power purchases and overdue payment by the utilities, though it has not made resolution of either issue a precondition in its contract negotiations.

The increasing impatience on the financial front came as the Davis administration continued negotiating with Edison, PG&E and a third investor-owned utility, San Diego Gas & Electric, over his proposal to have the state acquire their transmission lines to help Edison and PG&E pay their debts.

Talks moved from San Francisco to Sacramento so Gov. Gray Davis could become involved if necessary, Davis spokesman Steve Maviglio said.

Also Wednesday, a federal judge delayed until the end of the week a decision on whether the overseer of the state power grid can force generators to sell to it to avoid blackouts, even if the two main recipients of that emergency power, Edison and PG&E, can't pay for it.

State officials have already committed an estimated $10 billion to purchase power for Edison and PG&E customers. The state is currently spending roughly $45 million a day on short-term power purchases as the Davis administration tries to negotiate cheaper long-term contracts with wholesalers.

The power-buying and other fixes under consideration by Davis and lawmakers -- including a state purchase of 26,000 miles of transmission lines-- could cost consumers and taxpayers $20 billion, or roughly $590 for every California resident.

The bulk of the money would come from bond sales to be repaid by utility customers over many years.

PG&E and Edison spokesmen declined to comment on the transmission proposal. PG&E executives last week criticized Davis' plan, saying they would prefer permission to raise rates for their customers.

The two utilities say they have lost nearly $13 billion due to high wholesale electricity prices the state's 1996 utility deregulation law prevents them from passing along to their customers.

Federal regulators Wednesday denied Davis' request for a hearing on PG&E's corporate restructuring. The Federal Energy Regulatory Commission voted 2-1 without comment to reject the request.

Power suppliers worried that the restructuring would prevent them from getting paid hundreds of millions of dollars the utility owes them. Consumer groups criticized the move as a "shell game" to hide profits from the sale of power plants.

Commissioner William Massey, who opposed the restructuring, voted in favor of a new hearing. He warned in January that shielding parts of the company from creditors would make it harder for the utility to buy electricity and serve its customers.

Commissioners Curt Hebert and Linda Key Breathitt, however, ruled that improving the subsidiary's credit would increase the likelihood that the company could build more power plants.

The state remained in a Stage 2 power alert Wednesday morning. A 32-day-long string of Stage 3 declarations was lifted over the weekend as several power plants returned to service. A Stage 2 alert means reserves are close to 5 percent; a Stage 3 is called when reserves approach 1.5 percent and blackouts are possible.

-- Associated Press

-- Swissrose (cellier3@mindspring.com), February 22, 2001

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