California plans transmission buyout; generators still under order


By Ann de Rouffignac
OGJ Online

HOUSTON, Feb. 19, 2001—As expected, California Gov. Gray Davis reported Friday the state is negotiating with the near bankrupt electric utilities to buy their transmission lines.

The plan is intended to give the utilities a cash infusion so they can pay debtors and buy power to serve customers. The utilities suspended debt payments the first of February and also stopped paying for wholesale power as well. When generators balked at providing power without any guarantees of payment, the California Independent System Operator (ISO) filed suit in a Sacramento federal court to force them to provide power to keep the lights on.

Also, on Friday, a Sacramento federal judge extended a temporary restraining order granted 2 weeks ago for another 5 days forcing the generators to continue providing power, even though Southern California Edison Co. (SCE), a unit of Edison International, and Pacific Gas & Electric Co., a unit of PG&E Corp. have mostly halted payments. A hearing is scheduled Wednesday

The utilities were plunged into insolvency because they were caught between soaring wholesale power costs and frozen retail rates. The state refused to raise rates enough to cover costs, even though many observers agree higher retail rates would have resolved the problems months ago and also sent the proper price signals to encourage conservation. It would also have encouraged new generation.

"Ratepayers did not ask for deregulation. They were promised that the rates would go down," Davis said in a press conference late Friday. "Believe me if I wanted to raise rates that could have solved this problem in 20 minutes."

The transmission purchase is expected to cost $4 billion-$9 billion and would put the state in the electricity business. Operations and maintenance would be contracted to the utilities. The purchase would provide funds to the utilities to pay their debts through rate-financed bonds. The governor and the utilities are still negotiating details.

One version of the financing structure suggested in Southern California Edison's recent 8-K filing with the U.S. Securities and Exchange Commission involves the state issuing revenue bonds to finance the acquisition. Under another mechanism outlined in the filing, the California Public Utilities Commission would create a "dedicated rate component" on customer bills. Then utilities would issue bonds secured by dedicated rate component charges.

In a Friday conference call, SCE creditors wondered when they will see the cash for missed principal and interest payments. SCE officials admitted there could be a delay. If legislators don't approve the plan by a two-thirds majority, the measure won't be effective for 90 days.

"There is a gap between resolution and cash flowing," said Theodore Craver, chief financial officer of SCE. "We will seek additional financing in the interim. That will be coupled with cash on hand to clean up the payment suspension."

Craver explained they would work out terms on a short-term basis among creditors and generators.

Meanwhile, there is considerable disagreement over who is responsible for "net short imbalance energy" provided by the generators after Feb. 1.

The net short is the power needed to serve customer load beyond that provided by the utilities own generation and that purchased by the Department of Water Resources (DWR) on behalf of the state. The utilities stated that the state is responsible for the ISO's purchase of imbalance energy since Feb. 1.

"It is our understanding that the state will pick up the full net short starting Feb. 1," said Craver.

Legislation (AB 1X) became effective on Feb. 1 authorizing the state to buy power on behalf of the cash-strapped utilities. But officials at the ISO said the DWR "was leaving a lot of power on the table."

The DWR does not buy power if negotiators don't like the price, leaving the grid with insufficient resources and the ISO scrambling to procure the power, officials said. Saturday was the 32nd day the ISO operated under its highest emergency level.

Since SCE and Pacific Gas & Electric Co. have virtually halted payments for wholesale power to the ISO, it has no money to pay generators for power. The governor was asked at Friday's press conference if the generators would get paid in full— a bill that is approaching $1 billion for power delivered and unpaid since Feb. 1.

"That's a matter of continuing discussion. That's the only way I can respond to it," said Davis.

Sponsored by FLSmidth

Related Articles

Day & Zimmermann land maintenance contract at Palo Verde Nuclear Generation Station

Day & Zimmermann (D&Z)'s Engineering, Construction & Maintenance group has been awarded a three-year contract by Arizona Public Service Co. (APS) to provide maintenance services at the 3,739-MW Palo Verde Nuclear Generation Station near Phoenix. 

SCE launches RFO for new renewable sources

In an effort to support its Preferred Resource Pilot (PRP), Southern California Edison (SCE) has launched a Request for Offers (RFO) to acquire up to 50-MW of renewable power in central and south Orange County.

Follow Power Engineering on Twitter
Latest News
08/26 Henry Hub Average Natural Gas Spot Prices

08/26 Henry Hub Average Natural Gas Spot Prices

The Henry Hub is the pricing point for natural gas futures contracts traded on the New York M...
Ameren Missouri moving spent nuclear fuel to dry storage casks Callaway Energy Center

Ameren Missouri to begin moving spent nuclear fuel

Ameren Missouri’s Callaway Energy Center will begin this week moving spent nuclear fuel to ne...
Millstone 2 nuclear unit has corrective actions from NRC

NRC issues corrective actions against Millstone 2 nuclear unit

FP&L to buy and sell Cedar Bay coal-fired power plant

FP&L to buy, close coal-fired power plant

Florida Power & Light will buy and shut down a coal-fired power plant under a settlement ...
The Weekly Coal Production Report has been updated for the week ended Aug 22, 2015.

08/22 Weekly Coal Production Report

The Weekly Coal Production Report has been updated for the week ended Aug 22, 2015.

Moody’s affirms Southern ratings, but changes outlook to negative

Deal for AGL comes at time of increasing "risk profile" for Southern, Moody finds

Now that Southern (NYSE:SO) has announced plans to buy AGL Resources (NYSE:GAS), Moody’s Inve...
Federal judge dismisses most coal-fired emissions claims against Luminant

Judge rejects most claims in federal NSR lawsuit against Luminant

A federal judge on Aug. 21 dismissed most of the claims of the U.S. Environmental Protection ...
IAEA, Kazakhstan to establish low-enriched uranium bank

Kazakhstan to host international uranium bank

The International Atomic Energy Agency and Kazakhstan have signed an agreement to establish a...

Power Engineering Current Issue

12/01/2014
Volume 118, Issue 12
1412pe-cover1
Products Showcase
Dynamic Fluoride Ion cleaning DFIC of industrial natural gas turbines Hi-Tech Furnace Systems

Dynamic Fluoride Ion Cleaning of IGT Parts

The Dynamic Fluoride Ion Cleaning (DFIC) Process from Hi-Tech Furnace Systems is able to clean deep, narrow cracks of oxides by cycling between negative, atmospheric, and positive pressure.

Archived Articles

2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013

Buyers Guide Company Listings

Power Industry Wire News

PyroGenesis Canada Inc. to Present at the 4th Annual Liolios Gateway Conference on September 10, 2015

PyroGenesis Canada Inc. to Present at the 4th Annual Liolios Gateway Conference on Sept...

American Power Group Announces Completion of a $3.25 Million Term Loan for the Purchase of Next Generation Natural Gas Flare Capture and Recovery Systems

American Power Group Announces Completion of a $3.25 Million Term Loan for the Purchase...

Anpath Group Signs Merger Agreement With Q2Power

Anpath Group Signs Merger Agreement With Q2Power

Cimation Selected by Shell for Global Cybersecurity Program Roll-Out

Cimation Selected by Shell for Global Cybersecurity Program Roll-Out

Nuclear, LNG Export Projects Dominate Top 10 Capital-Spending Plans in U.S. Southeast Region, an Industrial Info News Alert

Nuclear, LNG Export Projects Dominate Top 10 Capital-Spending Plans in U.S. Southeast R...

Power Engineering

Article Archives for Power Engineering Magazine

Continuing Education

Professional Development Hours

To access a course listing associated to a specific topic listed below, click on the topic of choice from the list below.

Latest Energy Jobs

View more Job Listings >>