$1.6B Calif Pwr Bill Due Mar 2, Risks Seen For Suppliers
Dow Jones Energy Service, 02/16/2001

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$1.6B Calif Pwr Bill Due Mar 2, Risks Seen For Suppliers
By Mark Golden
Of DOW JONES NEWSWIRES

02/16/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- The biggest of all power bills for California's two 
main utilities comes due March 2: $1.61 billion for December real-time 
purchases. It represents an enormous amount of fourth quarter revenue at risk 
for suppliers to the utilities via the California Independent System 
Operator. 

Some independent generators, like Calpine Corp. (CPN), and western utilities 
did much in December to reduce their exposure to the cash-strapped California 
utilities. Other generators and trading companies, like Enron Corp. (ENE), 
Williams Cos. (WMB) and Mirant Corp. (MIR), increased their exposure by 
buying power for the ISO from Northwest utilities that had stopped selling 
directly to the ISO due to credit concerns. 

"We entered into contracts with utilities and third parties, like Enron, and 
avoided selling to those that had questionable credit," Calpine Executive 
Vice President Tom Mason told Dow Jones Newswires Thursday at an industry 
conference in New York. "Some of these folks were willing to take on that 
risk."

PG&E Corp. (PCG) unit Pacific Gas & Electric Co. will owe $1.2 billion for 
its December real-time market purchases through the ISO, the company said 
Thursday. Edison International (EIX) unit Southern California Edison's bill 
will come to $410 million, according to a person familiar with the billing. 

Barring a legislative solution to the state's energy crisis within the next 
two weeks, the utilities are expected to pay little of their March 2 bill. 
Earlier this month, Pacific Gas & Electric paid about 10% of its November ISO 
bill of $611 million, and Southern California Edison paid none of its bill 
for $34 million. 
As reported, Calpine, Avista Corp. (AVA), New Century Energies Inc. (NCE) and 
the British Columbia provincial utility BC Hydro are among those companies 
that aggressively reduced exposure to the California utilities and ISO by 
December. 

Calpine still has some exposure for the fourth quarter, but it's comfortable 
enough with that exposure that it didn't take reserves against its earnings 
as some other companies did, Mason said. 
Some Suppliers Stepped Into Middle As Prices Soared 

After colder temperatures moved in Dec. 5, wholesale power prices in the 
Northwest shot up to as high as $1,000 a megawatt-hour, up from $275/MWh in 
late November. The ISO's volume of purchases increased as well to meet higher 
demand for electric space heating, and it started paying a large credit risk 
premium on top of the regular market prices. 

From Dec. 5 until Dec. 14, when the U.S. Department of Energy ordered all 
historical suppliers to the ISO to deliver available electricity directly, 
companies that were willing to take on more California utility credit risk 
could buy Northwest power at an average price of about $400/MWh and deliver 
it to the ISO for about $600/MWh. Making that deal for 10 business days on 
250 MW supply, for example, would come to $8 million of profit in the event 
of payment, but $16 million in losses in the event of nonpayment. 

Enron chairman Ken Lay confirmed that the company stepped in to buy power 
from companies that wouldn't sell to the ISO and then sold that power to the 
ISO at a premium. 

"We make markets in California and elsewhere," Lay said. "That's what we do." 

Williams said Thursday that it, too, bought power for the ISO, in addition to 
delivering all available power it owns inside California. 

"Because of the ISO's desperate need for power from Northwest out-of-state 
state sources, when those historic sources dried up for the ISO, Williams was 
one of the companies that stepped in, and we did it at a reasonable margin," 
said Tim Thuston, Williams' managing director of government relations. "This 
wasn't profiteering." 

Power traders said that Mirant, which is the recently spun-off unregulated 
division of Southern Co. (SO), also was buying from Northwest utilities and 
selling to the ISO in the first half of December. 

"Specifically, I can't say if we bought from Northwest utilities and sold to 
the ISO," Mirant spokeswoman Jamie Stephenson said. "In general, we bought 
and sold power nationwide." 

The "sleeving" of power sales, as it is called by power marketers, stopped in 
the second half of December after the Department of Energy issued its 
emergency order. 

In-State Producers, Enron And TransAlta Owed Most 

On the receivable side of the March 2 bill, Dynegy Inc. (DYN) and partner NRG 
Energy (NRG), Enron, Mirant, Reliant Energy (REI), TransAlta (T.TA), 
Williams, BC Hydro and the Los Angeles Department of Water & Power are owed 
the most - tens of millions of dollars each, according to a person familiar 
with the billing. In-state energy producer Duke Energy (DUK) says it limited 
its spot sales to the ISO. 

All of the companies declined to say how much money they are owed for 
December, but Reliant spokesman Richard Wheatley pegged Reliant's "bleed 
rate" to the two utilities "conservatively" at about $2 million a day before 
the California Department of Water Resources started buying electricity in 
place of the utilities. 

Williams said it doesn't expect any material creditworthiness issues in the 
fourth quarter. 

"Ultimately, we expect to collect all the money that's due to us," Williams' 
Thuston said when asked if nonpayment for its sales to the ISO in the event 
of a utility bankruptcy would be material. "We've been operating in good 
faith to be part of the solution in California, and we assume that the 
governor and legislature are going to do what they said they were going to 
do." 

Mirant has taken reserves against the possibility of nonpayment, but 
Stephenson wouldn't say how much the reserves are. 

-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com 
-Christina Cheddar contributed to this article.