SDG&E, Dynegy in standoff over California power plant

By the OGJ Online Staff

HOUSTON, Apr. 16, 2001—For the next month, San Diego Gas & Electric Co. Monday indicated it will continue to operate a 250 MW peaking power plant if ordered by the California grid operator, over the objections of Dynegy Inc., one of the plant’s owners.

While Dynegy and NRG Energy jointly own the 951 MW Cabrillo power plant in Carlsbad, Calif., San Diego Gas & Electric (SDG&E) operates the plant and the turbines under a contract that expires May 22. NRG will take over operation of the plant after the contract expires, a Dynegy spokesman said Monday.

The dispute flared over the Easter holiday after SDG&E claimed in a statement Dynegy ordered the California utility to shut down the units not under long-term contract to the California Department of Water Resources.

“Dynegy put us on notice not to go along with the ISO orders,” said a spokesman for Sempra Energy, SDG&E’s parent company. “We will see what occurs. We have to respond to the ISO. Our responsibility is to keep the lights on for our customers.”

In a letter to SDG&E Chairman Stephen Baum, Dynegy Pres. Steve Bergstrom said SDG&E misinterpreted its statements. The Houston company has not asked SDG&E to ignore “lawful ISO orders.” Bergstrom said both the US Court of Appeals for the Ninth Circuit and the Federal Energy Regulatory Commission have ruled the ISO may not compel generators to provide energy to the ISO, unless the ISO can provide a creditworthy buyer.

“After requesting, and not receiving, credit assurances from the ISO, and in accordance with the FERC order, Dynegy has restricted sales through the ISO to transactions which involve a creditworthy purchaser,” Bergstrom said. “The ISO cannot lawfully compel Dynegy or any other market participant to sell without providing a creditworthy buyer.”

In an Apr. 12 letter to SDG&E, David W. Francis, Dynegy vice-president of power trading-west, said if the utility continued to operate the units without prior verbal approval from Dynegy, SDG&E could expect to assume all risk, including gas commodity costs, gas imbalance costs, emissions costs, operating and maintenance costs, and equipment losses.

“If a creditworthy buyer stepped up today, we would sell it [power] today,” said Dynegy spokesman Steve Stengel. “The ISO is not a creditworthy buyer.”

A spokeswoman for the ISO said the grid operator sent a market participation notice to generators from the DWR in which the state agency agreed to assume financial responsibility for all purchases it deems reasonable, resulting from emergency ISO dispatch notices that are not paid or payable by a third party. As a result, the ISO said its expects suppliers to honor their obligations under the ISO tariff and related agreements.