Californians will keep paying for 2001 power pacts

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The San Diego Union-Tribune

Power contracts signed during the state electricity crisis will hammer utility customers with high rates again next year, with charges more than double recent market prices and $3 billion above pre-deregulation rates.

The only solace for ratepayers from projections made yesterday by state officials is that next year’s costs won’t require a rate increase — because rates have already been raised high enough to cover the charges.

The Department of Water Resources, the agency that bought power for state utilities during the crisis, each year calculates the cost of the long-term contracts it signed in 2001, when federal officials urged California to sign the deals to bring down spiraling spot electricity prices.

California initially signed agreements valued at $43 billion but has since renegotiated most of the deals and is pursuing legal challenges to those it has not been able to revise.

The costs of the contracts vary as fuel prices fluctuate and as new power plants called for under the agreements are completed. Quantities of power purchased by California also fluctuate under the agreements.

The water agency, known as DWR, projected yesterday that costs under the contracts in 2004 will be about $4.5 billion, bringing the state 49 million megawatt hours of electricity.

On top of that, utility customers will pay $873 million next year for charges on bonds floated by California to pay for power purchases it made in 2001.

The water agency filed the costs with the California Public Utilities Commission, which will divide the charges among customers of San Diego Gas & Electric and other major utilities.

The projected 2004 costs translate to about $91 per megawatt hour, down 13 percent from $105 paid under the contracts in 2003, according to DWR. A megawatt hour can power about 1,000 homes for 60 minutes.

By comparison, the average price paid by SDG&E customers in 1997, the year before deregulation adjustments began, was $29.20 per megawatt hour. At the 1997 prices, the total cost for 49 million megawatts would be about $1.43 billion, or nearly $3 billion less it will cost next year.

The spot price of electricity in recent weeks has been between $35 and $50 per megawatt hour, according to SDG&E. Most residential utility customers are billed at least $65 per megawatt hour, however, to pay for crisis-related costs.

The total $5.4 billion in crisis-related costs next year is “a shocking reminder of how devastating the crisis was and continues to be,” said Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Heller said he factored in the expected costs of the long-term power contracts when he authored a study in 2002 that estimated the total cost of deregulation to the state would be $71 billion. That total included $22 billion the consumer advocate said was paid to utilities during the attempt to make the transition to a deregulated market.

Heller also said said the continuing high costs underscore the idea that state efforts to renegotiate electricity prices under the long-term contracts have not gone far enough.

California continues to seek changes in agreements with companies with whom it has been unable to revise contract terms, contending these deals violate federal law mandating just and reasonable prices. The largest of those unrevised deals is a $6 billion contract with Sempra Energy, parent company of SDG&E.

Both the Federal Energy Regulatory Commission and a state court have upheld the Sempra deal, but California is appealing the decisions. Sempra has said it will agree to new terms if they are beneficial to both sides.

A Sempra spokesman noted yesterday that the agreement with California is providing power at about $67 per megawatt hour, measuring by current fuel prices.

Oscar Hidalgo, a spokesman for the DWR, said the state’s costs under the long-term power contracts, some of which run until 2012, are expected to decline in coming years. Yet he warned that expectation could be upset if the price of natural gas were to rise.

Natural gas is burned to produce electricity and many of the contracts require the state to pay for that fuel.

At the time the contracts were signed in 2001, state officials predicted they would cost residents an average of $70 per megawatt hour.
Craig Rose: (619) 293-1814; [email protected]

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