A new kind of California Gold Rush

Pam Boschee
EL&P Managing Editor

There’s a flurry of activity in California revolving around collecting that which is due. Time is running out; patience is wearing thin. And, summer will soon bring new waves of heat most likely accompanied by new waves of power shortages.

The prospecting isn’t looking too good right now. Two creditors’ committees are reviewing options to address the failure of Southern California Edison Co. (SCE) to pay its wholesale bills. One group, comprised of wind, solar, geothermal, biomass and landfill gas electricity generators are seeking $210 million for power generated since November.

The second group, Reliant Energy Inc., Dynegy Inc. and Mirant Corp. (formerly Southern Energy Inc.), seeks payment for millions of dollars in unpaid power bills from SCE and Pacific Gas & Electric Co. (PG&E).

PG&E and SCE have accumulated $12 billion in uncollected power expenses. They’re looking over their shoulders, hoping to dodge notices of involuntary bankruptcy from creditors, such as banks.

Duke Energy backed off temporarily from its lawsuit against Gov. Gray Davis after the Department of Water Resources (DWR) agreed to buy power from Duke that was formerly being provided under contracts with SCE and PG&E. Davis had seized Duke’s long-term energy contracts with the utilities after the now defunct California Power Exchange threatened to sell them to pay off the utilities’ debts. Duke Energy also suspended a separate lawsuit against the California Independent System Operator (ISO). Duke and other power generators sued the ISO after it failed to pay for power purchased on behalf of SCE and PG&E.

At press time, generators including Reliant, Duke Energy, Dynegy, Mirant and Williams continued to be forced to sell power to the ISO without compensation. Litigation before the Federal Energy Regulatory Commission was pending.

The state is proposing what some consider to be a “let’s put it in reverse” solution. Others see a bailout on the horizon. Everyone agrees though that something must be done-and the sooner the better. The state is spilling its gold at an estimated rate of $45 million a day to buy electricity for utility consumers.

Put it in reverse. The state and SCE agreed in principal to return to cost-based regulation of the utility’s power plants. Edison International, SCE’s parent company, agreed to transfer back to the utility $420 million.

The bailout. The state proposed to buy what amounts to 60 percent of California’s transmission system owned by SCE, PG&E and San Diego Gas & Electric. The estimated outlay of $7 billion (more than double the estimated book value of $3 billion) is intended to help the utilities stave off bankruptcy, giving them some gold to pass along to their antsy creditors. No plans were finalized at press time, but PG&E Corp., parent of PG&E, said in a statement that it would continue discussions with the governor to resolve “outstanding issues.”

Taking the stance of an impatient creditor, my questions would be, “What ‘outstanding issues?’ Is there really a lot of room left for bargaining?”

The generators being forced to deliver power without compensation might also raise these questions.

Don’t forget that these same generators are also California’s only hope for avoiding such nightmares in the very near future. California’s outlook for summer energy resources is bleak. The ISO forecast a June shortfall of 6,815 MW during peak loads, enough electricity to power about 6.8 million homes.

The generators are going to need renewed incentive. Profits provide incentive-to continue to conduct business in the state, and much more importantly, to expand business (i.e., generation) in the state. Like all successful businesses, the generators are running theirs for the highest profits achievable. I don’t know of any businesses eager to supply without compensation under forced conditions.

Southern California hasn’t seen a new power plant in more than a decade, and there probably won’t be a stampede to do so now.

Panning for gold in California appealed to the rugged and hearty individualist in 1849. However, the shout then promising adventure, “California or Bust!” might now be changed to warn, “California and Bust!”

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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