California’s Electricity-Buying Deals Fall Short of Need

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San Jose Mercury News

 After weeks of promising that it would secure low-cost electricity for California, the Davis administration unveiled power-purchase deals Tuesday that meet just a fraction of the state’s needs.

State leaders were upbeat about their progress in securing long-term power contracts, sought to contain costs by locking in supplies at steady prices, and said they expect many more to follow over the next several months.

No one expected the state to have all its power supplies signed up overnight. But the sketchy details unveiled Tuesday left critics wondering how long the state will keep paying top dollar for power on the spot market, where it’s been spending $ 45 million a day.

Gov. Gray Davis gave a partial answer to that question Tuesday, when he sent a letter to lawmakers asking for $ 500 million by Feb. 15 to continue buying power. He expects the $ 1 billion the state has already allocated to run out by then.

The long-term deals came amid a heightened crisis, with the power grid critically short, federal aid expiring and officials seeking court orders to stop energy companies from pulling the plug.

S. David Freeman, who has been negotiating the contracts on behalf of the state, said the deals announced Tuesday put the state on the road to recovery.

“I am satisfied that this first round of proposals has met our expectations,” said Freeman, general manager of the Los Angeles Department of Water and Power. “These power purchases are a critical first step as we begin to build a balanced portfolio of contracts.”

But Republicans and consumer groups found nothing to cheer about.

“I don’t find a lot of encouragement here,” said Assemblyman John Campbell, R-Irvine.

State leaders gave few details about the long-term power deals they have reached so far. According to Freeman, the deals initially will deliver 500 megawatts and build to 5,000 megawatts “over the next couple of years.”

Because California now buys 10,000 and 12,000 megawatts of power on the spot market each day, state and industry officials say, the deals reduce that amount by only three to five percent.

Assemblyman Keith Richman, R-Granada Hills called 500 megawatts “a drop in the bucket” that would do little to ward off blackouts.

Consumer advocates feared the news means power companies will get richer while customers face higher rates.

“After two weeks of legislators, utilities and Wall Street lobbyists screaming that we had to use the state treasury to keep the lights on, we’re not getting any energy,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights. “Five hundred megawatts does not solve the energy crunch.”

But a Davis administration spokesman said the state plans to continue seeking bids and eventually meet the governor’s goal of securing 95 percent of needed power in long-term contracts. And as the state signs more long-term contracts, he added, spot prices will fall.

“It’s wise not to get all your bids at the same time because you’re dealing with the same market environment,” said Mike Sicilia, spokesman for the Department of Water Resources. “We hope over the next couple of months or so to have that portfolio built up.”

The terms of the contracts range from three to 10 years, but state leaders would not disclose the cost, saying that would jeopardize ongoing efforts to secure contracts at good prices.

“The deals we have completed are competitive,” Freeman said.

It was unclear Tuesday when the state would begin receiving power under the contracts, which have yet to be signed. The state is still negotiating “non-price issues,” Freeman said.

The deals were announced hours before the midnight expiration of federal orders requiring companies to sell electricity and natural gas to California despite concerns that they won’t get paid.

The Department of Energy orders have kept about 500 megawatts of power flowing to the state, enough for half a million average homes.

With the state now in its third straight week of Stage Three shortages, any loss of power supplies could force the state over into blackouts. Nonetheless, blackouts weren’t expected to result today.

Grid officials said at least one major power company, Houston-based Reliant Energy, was threatening to pull the plug on California after the federal order expired. But power grid operators obtained a federal court order late Tuesday to block such a move.

Reliant, a big supplier with five major California power plants generating 3,800 megawatts, denied that it had plans to cut off the state.

“We’re not saying what we’re going to do,” said Reliant spokesman Richard Wheatley. “We’re still trying to reach some solutions out there.”

Gov. Gray Davis told CNN that with the state stepping in to buy power, he isn’t worried about companies pulling out of the California electricity markets.

Meanwhile, critics assailed his administration for offering so few details about the long-term contracts.

“We’re experiencing an information blackout — or grayout,” said Assemblyman Tony Strickland, R-Camarillo.

State Controller Kathleen Connell, a Democrat, announced plans to unveil a website this week showing the state’s daily power costs, saying it is public information.

But Steve Maviglio, spokesman for Davis, said the website could undermine the state’s negotiating process.

“The more information we give away, the harder it is for us to get the best deal,” Maviglio said.

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