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California Will Ask FERC to Review Power Contracts Julie Earle in New York Financial Times, February 25, 2002

California energy officials will on Monday appeal to their federal counterparts to review the state's $43bn of power contracts negotiated with companies including Calpine, Williams, Duke and Reliant Energy, because they are "overpriced". The appeal to the Federal Energy Regulatory Commission (FERC) over contracts, signed when California power prices soared to record highs, has the support of California governor Gray Davis, his spokesman said on Sunday. Mr Davis has previously said the deals were necessary to try to control soaring power prices.

California negotiated power deals in January 2001, after steep power prices left the state's two largest utilities, PG&E Corp and Edison International bankrupt. Power prices have since fallen, and the state's energy officials claim the contracts have average prices of about $88 per megawatt hour, or about three times more than the current spot market. PUC and the state's Electricity Oversight Board are due to make the filings with FERC on Monday. FERC will be able to reject the contracts and may determine new terms.

Calpine, the California-based power company, said at the weekend however, that it was confident FERC would uphold the contracts.

Calpine is the state's largest energy supplier, and has two 10-year fixed price contracts with the state.

James Macias, a senior vice president said Calpine "had strong contracts in place with the California Department of Water Resources, which have gone a long way to stabilize California's power market."

"Our contracts are the state's lowest priced agreements and helped drive down energy prices in California during an extremely volatile period," he said. Mr Macias said the filings would set in motion "an orderly, fact-based process demonstrating that the terms of our power contracts are just and reasonable."

California officials have long accused Calpine, Enron and other power companies of "price gouging" and manipulating prices and FERC's chairman, Pat Wood, earlier this month promised to investigate those allegations.

Meanwhile, Calpine, whose shares have been hit hard by concern over a delay in completing a $1bn credit line, said late Friday the deal was progresssing and would close as soon as possible.

Calpine shares slid 13 per cent on Friday, when the deal was due to close.

The one year credit line would allow Calpine to borrow up to $350m and provide $1bn in guaranteed backing from banks.