FIRM WINS LAWSUIT ON ENERGY HIGH COURT REBUKES DAVIS FOR INTERVENTION.

Byline: Bill Hillburg Washington Bureau

WASHINGTON - In its effort to keep the lights on, California was stripped of a weapon Monday when the U.S. Supreme Court declined to hear an appeal from Gov. Gray Davis and effectively outlawed him from seizing electricity contracts from power companies.

Without comment, the high court upheld a decision in favor of North Carolina-based Duke Energy. Duke sued the governor last year, accusing him of acting illegally in February 2001 when he took control of $200 million in long-term contracts during the state's energy crisis.

The San Francisco-based 9th Circuit Court of Appeals agreed with Duke, ruling that Congress had not granted the states such rights in energy matters.

``We're obviously disappointed,'' said Sandra Michioku, spokeswoman for California Attorney General Bill Lockyer. ``Now Californians are left to trust the federal government and the Federal Energy Regulatory Commission to protect them from blackouts, rather than having their own governor take needed steps.''

Michioku said Monday's court action would probably have little impact on consumers because the state has added additional power plant capacity, has implemented a conservation program and has new long-term power contracts in place.

The state and Duke Power are still locked in a legal conflict over rival compensation claims stemming from the contracts, which expired in December. The case is to be heard June 21 in Sacramento Superior Court.

``The court's action is yet another indication that all of our actions in California have been appropriate,'' said Pat Mullen, public affairs manager for Duke Energy's California operations, based at Morro Bay.

``Those contracts were our collateral for power sold, and federal law provided for the sale of those contracts by us at market value,'' added Mullen. ``The state seized them illegally for face-value costs. That was an unfair taking of an asset.''

Davis seized the contracts after Duke officials, who had arranged to sell power to Pacific Gas and Electric and Southern California Edison, withheld the electricity and indicated they might sell it outside California to obtain a higher return. Company officials also feared that PG&E, which later declared bankruptcy, and Edison, which was also having severe financial difficulties, would not be able to pay for power from Duke.

California deregulated its energy market in 1996. As part of the program, a nonprofit board acted as a middleman to sell wholesale electricity from generators such as Duke Energy to utilities such as PG&E and Edison.

California utilities went through the now-defunct board to buy contracts in 2000 at prices well below the going rate. The contracts expired at the end of 2001.

The California power market blew a fuse in late 2000. The price of electricity soared, and the state later experienced rolling blackouts. Davis declared an emergency in January 2001 and then used his emergency powers to commandeer future energy contracts.

Davis said he acted to prevent the power from being resold to buyers outside California.