Dynegy threatens to shut down California power plants

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San Diego Union Tribune

Houston’s Dynegy Corp. is threatening to stop selling energy from its San Diego plants into the California power grid, a move that could deprive the state of enough electricity to serve more than 250,000 homes.

Dynegy says it no longer wants to sell power to the California Independent System Operator, which runs 75 percent of the state’s power grid, because it is afraid that it will not be paid.

”The ISO cannot lawfully compel Dynegy or any other market participant to sell without providing a credit-worthy buyer,” Dynegy President Stephen Bergstrom said yesterday.

A spokesman for Gov. Gray Davis questioned Dynegy‘s action and said the ISO has had no problem paying its bills. San Diego Gas and Electric, which is in charge of running Dynegy‘s 18 turbine generators through May 22, said it will continue to sell the power from the generators for as long as it can.

”To insist that the combustion turbines be silenced … reveals a callous indifference to the basic needs of all Californians,” SDG&E President Debra Reed wrote to Bergstrom yesterday. ”Given the energy crisis currently gripping our state, we are appalled you would even consider such an action.”

Consumer activists say there may be an ulterior motive to Dynegy‘s move: By taking the generators off-line, Dynegy can boost the prices it charges from its other plants in the state. Some are calling on the Davis administration to seize the plants.

”If Dynegy is willing to turn the lights out on California, we have to turn the lights out on Dynegy,” said Doug Heller, an advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica. ”They are in effect demanding a ransom payment, and we shouldn’t negotiate with terrorists.”

Steve Maviglio, spokesman for the governor, said that ”any threat by a generator to shut down plants while we’re in dire need of power is outrageous and irresponsible.” Maviglio added that the governor ”hasn’t ruled out taking over plants to keep the power flowing in California.”

Houston-based Dynegy entered the California market on the eve of deregulation in the late 1990s. In 1999, it bought 18 turbine generators from SDG&E and joined with NRG Energy to buy a power plant in Carlsbad.

Over the past year, Dynegy has been one of the main businesses profiting from the California energy crisis.

Last year, Dynegy sold power in California for a peak average of $113.51 per megawatt-hour. In comparison, its average peaks ranged between $36.43 and $39.96 per megawatt-hour in the other areas of the country where it operates.

The state of California is suing Dynegy and several other power companies, claiming they have manipulated the energy market to drive prices higher. The Federal Energy Regulatory Commission has slapped Dynegy with $22 million in fines for alleged overcharges that occurred in January.

An ISO survey named Dynegy as generating the fourth-highest amount of energy overcharges in the state last fall, after BC Hydro, Southern Co. and Reliant Energy, The Los Angeles Times reported this week.

Dynegy denies any wrongdoing. It says its chief concern is whether the ISO has enough money to continue paying its bills after the bankruptcy of its biggest customer, Pacific Gas and Electric.

”We are more than willing to sell to someone who can pay for it to a creditworthy entity,” Dynegy spokesman Steve Stengel told the Bloomberg wire service. ”We want to be paid for the output.”

This is not the first time Dynegy has been involved in such a dispute. During the spate of blackouts this winter, Dynegy joined Reliant in trying to get out of agreements to supply power in an emergency to avert outages. Dynegy‘s attorney essentially argued that the state should buy power at any price the generators determine.

On Tuesday, Bergstrom called Sempra Energy Chairman Stephen Baum and advised him that he intended to stop sales from the 18 generators, which provide power during peak energy usage. Baum, whose company owns SDG&E, balked at the request and then began a public relations assault against Dynegy, informing the press of Bergstrom’s intentions.

At the same time SDG&E is taking a firm stance against Dynegy, it is also trying to get the Davis administration to pay more for the utility’s transmission lines a key component to Davis’ proposed solution to the energy crisis.

Over the past month, Davis has been trying to buy transmission lines from the state’s three big utilities: Southern California Edison, PG&E and SDG&E. Although his plan was stymied by PG&E‘s bankruptcy filing last Friday, Davis on Monday announced an agreement to purchase Edison‘s transmission lines for $2.76 billion, or 2.3 times their book value a high price by market standards.

Davis is pitching a similar deal to Sempra, offering $1 billion to buy SDG&E‘s transmission lines, currently valued at $437 million, Baum said.

But Baum said the state must compensate Sempra for depreciation of its transmission lines, which would boost the price to between $1.2 billion and $1.4 billion.

”We’re cooperating with the state,” Baum said. ”I endorse the state’s ownership of the transmission grid. I think that would be a good thing. But we think something should be done to equalize the differences in depreciation (between Sempra and Edison).”

Davis spokesman Maviglio seemed skeptical as to whether Sempra will get its wish.

”The template we used for the Edison purchase is the one we’ll use for Sempra,” Maviglio said, although he added that ”everything’s under negotiation. We’ll give in some areas, get in others.”

Some market watchers say the state is already paying too much for the transmission system.

”The utilities are making out like bandits on this deal,” said Jesus Arredondo, spokesman for the now-defunct Power Exchange, which oversaw energy sales through much of the past year. ”For one thing, there’s a clause that allows the utilities to buy the whole thing back, which of course they’ll do at prices that are advantageous to them.”

Michael Shames, who heads the Utilities Consumers Action Network, said that the $1 billion price tag for the SDG&E transmission lines ”was on the high end of credible. To ask for $1.2 billion is lapsing into the laughable. To try for $1.4 billion is outrageous.”

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