Energy supply setback: Big generator can't be forced to sell emergency power 
to the state, a U.S. court rules.
By Denny Walsh and Carrie Peyton
BEE STAFF WRITERS
(Published April 6, 2001) 
In a development that does not bode well for California's energy supply, a 
federal appellate court Thursday halted enforcement of a lower court order 
that a big electricity generator must sell emergency power to the state 
without guarantee of payment. 
State energy officials said the ruling wouldn't have any immediate effect but 
could precipitate a power emergency if the generator decided to take a plant 
off-line for maintenance. 
On March 21, citing "rolling blackouts (that have) darkened the California 
landscape," U.S. District Judge Frank C. Damrell Jr. imposed an injunction 
against Reliant Energy Services Inc., one of the nation's major generators. 
Houston-based Reliant controls approximately 3,800 megawatts, or about 20 
percent, of the gas-fired generation capacity in the state, and Damrell found 
that loss of that production "poses an imminent threat." 
But Thursday, a three-judge panel of the 9th U.S. Circuit Court of Appeals 
granted an emergency stay of the injunction, saying Reliant has shown "a high 
likelihood of success on the merits" of its appeal. 
While not spelling it out, the panel apparently bases its finding on the 
question of the courts' jurisdiction over the energy market. The panel 
directed that a hearing on the appeal be scheduled for the second week in 
July. 
The decision leaves California's electric grid more fragile, at least 
temporarily, according to the state Independent System Operator, which 
maintains and controls power transmissions. 
It gives the agency no immediate recourse if Reliant chooses to shut down any 
of its plants for maintenance, said ISO Vice President Jim Detmers. 
"It's not going to change anything overnight, and it's not going to change 
anything over the weekend," said Detmers. "But if Reliant decided on a 
unilateral action to take their units off for maintenance ... we definitely 
could have a system emergency." 
Reliant officials, when told of the ruling, took a conciliatory tone but 
declined to specify their next move. 
"Reliant ... has pledged to keep the lights on in California," said company 
lobbyist Marty Wilson, and "is still of a mind to want to cooperate." 
Without further comment, the appeals court judges cited a 1980 U.S. District 
Court decision. In that case, 14 cities sued Florida Power and Light Co., 
alleging that it was violating a number of laws in its sales of power and 
production of electricity. 
The judge found, however, that the Federal Power Act reserves oversight of 
interstate utilities exclusively to the Federal Energy Regulatory Commission. 
He ruled that only the commission may bring an action involving energy sales 
into federal court -- unless it is a request to review a commission order, 
and that goes directly to an appellate court. 
The lawsuit before Damrell was brought by the ISO to force Reliant and two 
other generators to respond to ISO's emergency orders for power, even though 
the agency is buying on behalf of two retailers that are broke and hopelessly 
in debt. 
Because Pacific Gas and Electric Co. and Southern California Edison can't pay 
their bills -- about $14 billion -- some wholesalers want to cut off sales to 
the utilities. 
The other three defendants in the ISO's suit -- Dynegy Power Corp. of Houston 
and Tulsa-based AES Corp. and its marketer, Williams Energy Marketing & 
Trading Co. -- have entered into written agreements with ISO to continue 
supplying emergency power until the FERC decides whether they are required to 
sell to companies that are not creditworthy. 
But Charles Robinson, ISO general counsel, points out that the generators can 
rescind those agreements with 48 hours' notice. 
"My hope is this is a temporary setback," said Robinson. He added, however, 
that the practical effect is "at least for now, we don't have a tool to 
compel them to do what we believe they're obligated to do" -- respond to 
emergency demands for power. 
Reliant has insisted since the suit was filed Feb. 6 that Damrell has no 
jurisdiction over the rate schedules that govern dealings between generators 
and the ISO, and that the Federal Power Act mandates that the FERC must 
settle any disputes about terms of those tariffs. 
In issuing the injunction, Damrell acknowledged that the FERC has special 
expertise concerning agreements between generators and ISO. 
"Absent the extreme exigencies of the California power crisis, the court 
agrees that a stay pending further action by the FERC would be proper," he 
said. "But those are not the facts here. Electricity is in critically short 
supply. The health and safety of the people of California are potentially at 
risk." 
Immediately upon receiving the 9th Circuit's order Thursday, attorneys for 
the ISO asked Damrell to set an accelerated schedule for its motion to amend 
the suit. The agency apparently has crafted a new complaint stressing its 
view that the matter is an ordinary contract dispute over which the judge has 
jurisdiction. 
Damrell scheduled a hearing on the motion for Thursday. 
In a further development that could complicate the state's dire need for 
energy, an alternative supplier won a court fight Thursday to bypass the big 
utilities and sell its power on the open market. 
Timber giant Sierra Pacific Industries, which operates four biomass plants 
that produce power for PG&E, obtained a temporary restraining order in 
Sacramento Superior Court that says Sierra Pacific is not required to sell 
its power to PG&E. 
The ruling means PG&E and Southern Edison could lose power as alternative 
energy generators, fed up with months of nonpayment, sue to be able to sell 
their comparatively cheap product elsewhere, including outside the state.