Union Tribune

June 4, 2002

Justices side with Duke on contracts


WASHINGTON The Supreme Court yesterday let stand a lower
court ruling that California improperly seized electricity contracts
during its power crisis.

The case pitted Gov. Gray Davis against Duke Energy, one of the
nation's largest power sellers, and tested the limits of state authority during the crisis. Similar suits have been filed by other power providers whose contracts were seized.

Duke sued the state after Davis took control of the low-cost
contracts in early 2001, when wholesale power prices in California
were soaring and rolling blackouts threatened the state. Davis said
he took the unprecedented action to keep the contracts from being
auctioned and to keep the lights on.

The 9th U.S. Circuit Court of Appeals in San Francisco ruled last
fall that Congress had not granted the states such control over
energy matters and that Davis overstepped his authority.

Davis spokesman Steve Maviglio said the governor was
disappointed that the Supreme Court, without comment, declined to
hear the state's appeal.

"The larger issue is one of state's rights," Maviglio said.

A spokesman for Duke welcomed the decision.

"We believe these contracts were illegally seized. We're pleased
that the court upheld what we said all along," said Duke spokesman
Pat Mullen.

Davis seized the contracts, which were priced far lower than the
prevailing cost of electricity at the time, to keep the California
Power Exchange from liquidating them.

The now-defunct exchange acted as an intermediary between Duke
and the utilities that bought the contracts, Pacific Gas & Electric
and Southern California Edison. Both utilities were teetering on the
brink of bankruptcy because state law prevented them from
recouping from consumers the high prices they were paying for
wholesale electricity.

Duke argued that the power from the contracts should have been
re-sold at higher market prices when PG&E and Edison no longer
were able to pay for it.

Mullen said the company would press the state for some restitution,
though he declined to cite a dollar amount. The contracts, which
were valued at around $200 million, expired at the end of 2001, and
Maviglio said the state paid for them.

Davis said he seized the contracts to keep the power from being
sold outside California. "Even a minor loss of electricity could have
resulted in further blackouts," the state argued in asking the
Supreme Court to hear the case.

The case is Davis v. Duke Energy Trading and Marketing, 01-1312.