New West Energy Suspends Energy Sales in California; Current Market Poses Risk to Company's Commodity Business Source: Business Wire Publication date: 2000-12-20

PHOENIX--(BUSINESS WIRE)--Dec. 20, 2000--New West Energy, the first energy service provider to compete in California's deregulated electricity market, Wednesday announced it will suspend electricity sales to business customers and transition them to their respective utilities.

The move is in response to recent regulatory changes and the growing financial uncertainty of California's two largest utilities, Pacific Gas & Electric and Southern California Edison, both of which have incurred billions of dollars in excess power purchase costs.

"The regulatory changes, current supply shortages, price volatility and the vulnerability of the utilities have had the effect of imposing unmanageable financial risks to energy service providers, including New West Energy," said Robert S. Nichols, managing director.

"We're taking immediate steps to mitigate this risk and to remain a viable energy service provider, preserving our future in the California electric market," he said. "The prudent thing to do is to temporarily step back and let the market evolve."

Nichols said the recent approval of the California Independent System Operator's Amendment 33 and the Dec. 15 Federal Energy Regulatory Commission order both demonstrate the attention the market has received from all regulatory levels. But more work is needed, including at the state level, to address long-term needs and re-institute a vibrant competitive retail market, he said.

"We were able to weather previous regulatory changes in California's market," Nichols said. "But these latest changes are significant and don't allow us to maintain an on-going business with an acceptable risk profile. Our objective is to offer competitive commodity service to our customers when the current market situation is resolved."

New West Energy was the first energy service provider to be certified by the California Public Utilities Commission and all three investor-owned utilities when the state opened its electric industry to competition on March 31, 1998. It is believed New West Energy was delivering nearly 600 megawatts of electricity -- the most energy of any competitor before suspending its commodity offering.

Nichols said New West Energy will continue to serve the California market by being an energy advisor, offering energy management and energy purchasing consulting services, leveraging market expertise to help customers minimize their risk. He said New West Energy customers should expect little impact as a result of the transition.

Nichols said New West Energy also is concerned about the financial stability of PG&E and SCE. Both utilities have informed regulators that in order to avoid insolvency, the current rate freeze that has been in place since 1998 must be replaced by a higher frozen tariff that allows the utilities to recoup current and future excess power purchase costs.

To date, a mechanism for utilities to recover the incurred costs and future excess costs has not been resolved. The issue poses a risk to New West Energy because the utilities provide New West Energy with a credit that is equal to the Power Exchange market price of electricity, according to the current regulatory structure.

"It is crucial to ensure the financial integrity of the entire California market, just as it is crucial for us to make the right decisions that keep New West Energy financially strong and in a position to provide much-needed services to retail customers," Nichols said.

Publication date: 2000-12-20

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-- Martin Thompson (mthom1927@aol.com), December 20, 2000