UK generator eyes California move

IP is considering investing in one of the world's most troubled power markets

International Power, the UK electricity generator formerly known as National Power, is planning to build power stations in the crisis-hit US state of California, the Observer newspaper reported.

The news comes as a federal court in Los Angeles prepares to hear pleas on Monday from the state's existing electricity suppliers who say they have been pushed to the verge of bankruptcy by laws preventing them passing on soaring wholesale costs to consumers.

California has suffered several blackouts in recent weeks and has an urgent need for more power, which the state's lawmakers are attempting to address by introducing a fast-track approvals process for new power stations.

The Observer reported IP chief executive Peter Giller as saying he had sent a team to California to study possible locations and make preparations for future contracts.

"There is something like 60,000-70,000 megawatts of plant there, so I would look at about 3,000 [megawatts], which would give us about a 5% market share," the newspaper quoted him as saying.

Debt mountain

California's two biggest power utilities, Pacific Gas & Electric and Southern California Edison, are struggling under the weight of a $12bn (£8.3bn) debt mountain built up buying electricity at wholesale prices.

The companies were prevented from passing on galloping price rises fully to consumers because of a rate freeze adopted as part of the state's 1996 deregulation law.

Both firms have defaulted on their debts and are close to collapse.

State lawmakers have already authorised the issue of up to $10bn in revenue bonds to fund long-term power purchases by the state as part of a rescue plan for the sector.

No higher prices for consumers yet

But they have so far resisted taking any - politically sensitive - measures that might lead to higher prices for consumers or accusations of "bailing out" corporations with taxpayers money.

On Monday, a federal court in Los Angeles will hear SoCal Edison's plea that the California Public Utilities Commission be forced to allow the company to pass on price rises.

Also in the week, the state legislature will debate how the companies' debt situation should be resolved.

California governor Gray Davis has already asked President George W Bush to ask federal agencies to accelerate approvals for construction of new power stations.

'Critical week'

Planning and environmental concerns have previously made obtaining building permits a cumbersome process.

It is "one of the more critical weeks for the industry," Bear Stearns utilities analyst Ted Olshanski said.

"The debts are continuing to mount, and with the court case hanging over any legislative action, it provides parties with greater incentive to resolve the crisis."

IP already has power stations in the US states of Georgia, Massachusetts, New Jersey and Texas.