California generators complain of not getting paid again

By Ann de Rouffignac
OGJ Online

HOUSTON, Aug. 27, 2001 – California independent electricity generators and others have not been paid for power delivered to the state’s independent system grid operator for 3 consecutive months in violation of a federal order, an organization representing the group said.

Following missed payments for April and May, the June payment was not received as scheduled in early August. “It wasn’t clear at first. But there was a systematic pattern of nonpayment,” said Steven Kelly, manager of policy at the Independent Energy Producers (IEP), a trade association in Sacramento.

Some generators received a letter stating they would be paid 12- on the dollar for power delivered during those 3 months. IEP sought an explanation from the California Independent System Operator, but Jan Smutney-Jones, IEP executive director, called the response “troubling” in a letter to the California Department of Water Resources.

The state DWR has been buying power to serve California residents after the utilities ran up huge wholesale electricity bills last year, which they couldn’t pay. Those outstanding bills are the subject of a hearing before the Federal Energy Regulatory Commission, along with a claim the generators owe the state $9 billion in refunds for alleged overcharges.

The ISO told Smutny-Jones it had been “frequently meeting” with the DWR since January to decide how the obligations of the ISO would be settled. “The parties involved in this have not as yet come to full agreement as to how such obligations are to be settled,” the ISO said in a letter.

“Market participants have been providing power, in good faith, to Californians for months without being paid,” said Smutny-Jones. “California ratepayers have been paying their bills, raising the question: Where’s the money? To date there is no explanation for nonpayment.”

Generator “forbearance” helping
After last winter’s protracted dispute between the generators and ISO over nonpayment, which threatened the state’s electricity supply, the Federal Energy Regulatory Commission issued an order in April requiring the ISO have a creditworthy counterparty backing all its purchases. The DWR stepped as a “creditworthy power” on behalf of the utilities.

“It would appear that FERC rules are not being adhered to,” said Kelly. “Where is the money going?” he asked. Contrary to earlier predictions, the state hasn’t experienced blackouts this summer. While unseasonably cool summer is certainly a major reason, the “forbearance” of the generators is another, a spokesman for one generator said. Most declined comment.

Politics appear to continue to play a major role with respect to California’s decisions about electricity, reflecting Gov. Gray Davis’s accusations the electricity generators engaged in price “gouging.” California lawmakers are presently considering a rescue package for Southern California Edison Co. that would include a $1 billion “haircut” for generators, said Matt Back, chief of staff for Assemblyman John Campbell (R-Irvine).

The legislation would not appropriate money for the financially struggling utility unit of Edison International, Rosemead, Calif., to pay off its debts to generators, Back said. “Someone knows they’ve [the incumbent administration] got them.” He said Campbell is looking into the bilateral contracts that DWR arranged with some of the power producers and other financial matters pertaining to the DWR.

Lawmakers also are considering a measure that would take away authority of local jurisdictions to tax energy facilities and give it to a state committee. The risk is the state would assess higher values to extract more taxes from the generators, said a generator spokesman.

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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

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