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Utility Averts $1 Billion in Costs

Courts: PG&E and Cal-ISO agree to recognize Department of Water Resources as purchaser of the power.


SAN FRANCISCO — Pacific Gas & Electric Co. and the state's power grid operator reached an agreement Tuesday that insulated PG&E at least temporarily from more than $1 billion in power purchases the state made for its customers.

The California Independent System Operator sent $1.26 billion in invoices to the utility for power purchases by the state Department of Water Resources for PG&E customers from January through March.

But the utility contended in Bankruptcy Court proceedings that it was not liable for such purchases and that continued purchases would cause annual losses of $4 billion.

After arguments before Judge Dennis Montali, PG&E and Cal-ISO agreed that the Department of Water Resources, not PG&E, purchased the power. Cal-ISO had argued that it was making the purchases on PG&E's behalf.

"PG&E wants to be a utility and have obligations to serve customers, but they don't want to pay for it," Cal-ISO general counsel Charles Robinson said later.

If PG&E refuses to pay the invoices, Robinson said, Cal-ISO will send the bills to the Department of Water Resources, and officials there can decide whether to pursue claims in Bankruptcy Court. A spokesman for department, which has authorization to sell $13 billion in bonds for power purchases, said the agency will have no comment until the matter can be studied.

State agencies have stayed out of the bankruptcy proceedings, hoping to preserve their immunity from suits in federal court.

The agreement will be submitted for Montali's approval Monday, but the judge said it would not be binding on the department because no one represented the agency in court.

PG&E's own production and contracts provide the majority of the power for its customers. But state legislation adopted this year allows the department to secure power contracts to serve customers of ailing utilities. When a shortage threatens the power grid, the department purchases additional power through Cal-ISO on the spot electricity market.

PG&E filed for Chapter 11 protection from creditors on April 6, saying it was $9 billion in debt.

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