Renegotiated Power Deals Include $200 Million Trade-off In New Payments To Calpine

San Jose Mercury News

The state’s renegotiated power contracts include more than $200 million in new upfront payments to San Jose’s Calpine in exchange for an agreement to shorten two high-cost deals, a trade-off consumer advocates said does little to benefit ratepayers.

“It’s a lost opportunity — several lost opportunities,” said William Marcus, principal economist at JBS Energy, who has been reviewing the contracts for consumer and environmental groups.

The comments came a day after Gov. Gray Davis announced that renegotiated deals with Calpine and four other energy companies will save consumers $3.5 billion over the next decade.

Administration officials insisted Tuesday that the deals were much improved.

“In a perfect world would we be happy with these contracts? The answer probably is no,” said Richard Katz, senior policy adviser to Davis. “But starting with really bad contracts that we negotiated when we had a gun to our head, these are significantly better.”

The state signed 56 contracts last year worth $43 billion.

Critics cautioned that they had little time to study the deals, which Davis unveiled late Monday, and noted some significant improvements in them, such as requirements to build needed power plants and more flexibility to avoid buying unneeded electricity.

But Marcus outlined several concerns:

* Added to the two largest contracts, both with Calpine and each supplying up to 1,000 megawatts around the clock, are $216.3 million in “capacity payments” to reserve additional power supplies during peak demand times through the end of next year.

* The two largest Calpine deals still force the state to buy unneeded electricity.

* A contract with Maryland-based Constellation Power Source still carries a high price of $154 per megawatt-hour, well above the $30 peak price in today’s daily markets.

* And most of the savings are from shortening the deals, benefits that won’t be seen for years.

Both Davis and Calpine were under pressure to rework the contracts. Davis is seeking re-election amid criticism that he mishandled the energy crisis. Meanwhile, Calpine’s stock was pummeled as the Enron scandal raised questions about energy company finances.

Some critics speculated that Davis, who has close ties to Calpine and has praised it while bashing its competitors, was eager to help the struggling California company.

Katz dismissed the assertion, noting that the state also renegotiated with an East Coast company.

But John White of the Center for Energy Efficiency and Renewable Technology said, “For whatever reason he felt a need to give them a deal they could live with, rather than using all the leverage at his disposal.”

Katz said the upfront capacity payments were for additional power that state officials were planning to reserve anyway.

“It’s not a question of buying something we didn’t need,” Katz said.

“If we are going to buy additional capacity, we might as well buy it from the people we are doing business with rather than the people who are saying, ‘See you in court.’ ”

Gary Ackerman, executive director of the Western Power Trading Forum, an industry group, said the new deals appeared to be a wash, benefiting both sides.

In a letter to Davis, the Foundation for Taxpayer and Consumer Rights in Santa Monica said the savings are largely illusory because they come not from significantly lower prices but from fewer years of payment. The foundation noted the state will still buy power in those years, meaning the savings are less than the state claims.

But Katz said it’s fair to put the savings at $3.5 billion because the value of such contracts are measured over the life of the deal.

Contact John Woolfolk at [email protected] or (408) 278-3410.