Generators Have No Plans To Change Pwr Deals With Calif : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Generators Have No Plans To Change Pwr Deals With Calif Friday, October 12, 2001 04:05 PM ET


LOS ANGELES -(Dow Jones)- Some of California's largest power generators said they haven't been approached by state officials to discuss the possibility of renegotiating $43 billion in long-term power pacts the state entered into last spring and executives with the companies indicated they would unlikely be willing to restructure the deals.

The California Public Utilities Commission has urged the administration of Gov. Gray Davis to renegotiate the deals, saying the contracts will saddle ratepayers with expensive power for the next 15 years.

In addition, PUC President Loretta Lynch said the commission won't pass a rate agreement needed to sell $12.5 billion in bonds to pay for the power contracts until the deals are renegotiated. The rate agreement between the PUC and the state Department of Water Resources will ensure there is enough of a revenue stream in the current rate structure to pay off the bonds.

Barry Goode, legal adviser to Gov. Davis, said last week the state has no intention of opening up talks with generators to restructure the contracts. The PUC filed a complaint with the Federal Energy Regulatory Commission, the agency that oversees the wholesale price of power, saying the price of electricity in the contracts, which average about $79 a megawatt-hour for the first five years, are not "just and reasonable."

All of the energy companies have defended the contracts, saying the prices were based on natural gas futures and the market price for wholesale electricity. However, the price for power sharply declined shortly after the contracts were signed, for which Davis and Calpine Corp (CPN, news). (CPN) Senior Vice President of Power Marketing Jim Macias credit the deals.

Calpine, a San Jose-based company which holds the bulk of the $43 billion in long-term pacts, hasn't been asked to restructure the contracts, Macias said. He said many of the contracts are tied to the construction of new power plants and if the deals were changed the company could lose its financing and the facilities wouldn't get built.

"We don't think our contracts will be renegotiated," Macias said. "It's very difficult to see even how this would be renegotiated. We made a commitment to deliver the power and the state made a commitment to pay for it. If either party fails to perform, there is a provision in the contract that says you have to make the other party whole."

Macias said it wasn't "impossible" to restructure the contracts, but that it would be very "difficult to unwind the position."

Other Suppliers Say Financing Tied To Long-Term Deals

Tom Murnane, a spokesman for Sempra Energy (SRE, news) Resources, a unit of Sempra Energy (SRE), also signed a multibillion long-term contract with the state. He too said the company hasn't been approached by state officials to renegotiate the contracts.

"We're building a fleet of power plants based on these contracts," said Murnane. "In order to secure lending we had to show banks that we had this deal. Would the state allow us to renegotiate if power prices increase?"

The only legal recourse for renegotiation, Murnane said would be if both parties agreed to change the terms of the contracts.

"But then where do you stop?" Murnane said.

Steve Stengel, a spokesman for Dynegy Inc (DYN, news). (DYN), said the company has "no obligation" to renegotiate the long-term deal his company signed with California just because the price for power has declined recently.

"We have a legally binding agreement and therefore we don't have any obligation to renegotiate the contract," Stengel said. "However, we could choose to if it was mutually beneficial to both parties."

A spokeswoman for the FERC said the PUC complaint has been received but the agency wouldn't comment further.

Macias said the PUC would have a "very difficult challenge convincing FERC that these contracts were not reasonably priced when the were entered into."

"It's a high hurdle to demonstrate that FERC needs to step in and void these contracts, especially if the people who entered into them believe these contracts helped stabilize the market," Macias said.

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@

(This story was originally published by Dow Jones Newswires){A980E36F-BF50-11D5-B387-00508BD3AD3D}

-- Martin Thompson (, October 12, 2001

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