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SAN FRANCISCO — Gov. Gray Davis illegally seized an estimated $200 million in energy contracts from Southern California Edison Co. and Pacific Gas & Electric Co., a divided federal appeals court ruled Thursday. 

Invoking constitutionally vested powers, the governor seized the energy contracts in January and February to keep the California Power Exchange from liquidating them. 

The now-defunct exchange, which was the state’s middleman for the buying and selling of electricity, wanted to sell the contracts so it could recoup hundreds of millions the two utilities owed it for previous power buys. 

Now the state is the middleman for the buying and selling of power. The state uses the contracts in question to buy electricity at a set price, and can avoid the high prices it has to pay for power in a fluctuating market. Therefore, the value of the contracts changes with the volatile price of electricity. 

North Carolina-based Duke Energy sued the governor, alleging that Davis illegally took control of the long-term contracts that required the company to deliver energy at a generally cheaper price than the going market rate. The 9th U.S. Circuit Court of Appeals agreed, ruling 2-1 that Davis did not have the authority to take the contracts because Congress has not granted the states such rights in energy matters. 

“This is great news,” Duke spokesman Tom Williams said Thursday. 

Attorney General Bill Lockyer’s office, which defends the governor in suits, said it was reviewing whether to ask the circuit to reconsider its decision, spokeswoman Sandra Michioku said. 

Among other things, Duke claimed the Power Exchange should have been able to liquidate the contracts so it could repay Duke and other energy concerns the millions in outstanding debt the exchange accumulated as the state’s power buyer. Duke also said it should have been able to sell those contracts to other utilities for perhaps even a greater profit than when they were originally sold to the exchange. 

The Power Exchange’s debt began accumulating when wholesale energy prices started skyrocketing. That is because California law did not allow its utilities to increase consumer rates to keep up, which caused the utilities to default on their payments to the exchange. 

PG&E has since filed for bankruptcy protection, and Edison has said power companies to which it owns billions could force it to do the same. 

The case is Duke v. Davis, 01-55770.