The Associated Press
California signed long-term electricity contracts at prices higher than those now available on the daily spot market, Gov. Gray Davis acknowledged Wednesday as a judge ordered him to release the pacts’ details.
But Davis said the long-term contracts between the state and power generators helped break the price spiral that had driven electricity prices to record heights.
Critics said other factors played a larger role in what they warned is a temporary price drop, and said Davis foolishly locked in long-term rates at the market’s peak.
“The price, the spot market on electricity is coming down because we’ve locked in long-term contracts,” Davis said. “This is Economics 101. … We were paying a lot more in January and February than we are now on the spot market because we have dramatically shrunk the spot market, providing reliable power for California at affordable rates.”
By next month, the state will have to buy less than half the power it needs on the daily market, making the generators compete for a smaller share of the market and forcing prices down, he said.
Davis said that will stabilize a wildly fluctuating market for the long term, although the cost may exceed market costs in years to come.
The contracts, along with new plants, more conservation, criminal and regulatory investigations into price gouging and possible price caps have combined to cut costs, Davis said.
Saying “there will be a day of accounting” for price gougers, Davis also said a “pincer effort from Sacramento and Washington” forced energy producers to lower prices.
Davis appeared Wednesday as a San Diego superior court judge ordered the state to release the contract details by noon Friday.
Several news organizations and Republican Assemblyman Tony Strickland, R-Thousand Oaks, sued Davis, saying the contracts used state money and should be open to the public.
For months, Davis had refused to do so, saying that would hurt the state’s negotiating position. Earlier this week, however, he asked San Diego Superior Court Judge Linda B. Quinn to lift the confidentiality clauses in the 38 contracts, because the secrecy was no longer that important.
The contracts, worth almost $43 billion, could keep long-term rates relatively high for years if the recent decline in prices remains in place.
Contract records obtained by the Los Angeles Times showed the state is committed to buying power at prices up to $154 a megawatt-hour during peak demand periods and more than $95 for power at times when demand is low.
By comparison, the state recently bought peak power for less than $100 an hour and less than $20 an hour at night when demand is less.
Wholesale prices have dropped recently, but they could rise this summer when temperatures and air conditioning use climb.
Energy analysts agreed with Davis that a convergence of factors led to lower prices, not just the long-term contracts.
Severin Borenstein, director of the University of California Energy Institute, called the prices in the state’s contracts “disturbingly high” compared to those available a few years ago, but the state didn’t have much choice.
In essence, Borenstein said, the contracts mean California now pays its high power bill “on an installment plan” in which generators agree to string out their profits over years instead of recouping them now.
But Peter Navarro, an economist at the University of California, Irvine, said the Davis administration negotiated “from a position of severe weakness. They (generators) had us over a barrel and they stuck it to us.”
Davis, Navarro said, “adopted a long-term strategy to fight a short-term crisis.”
The administration will look particularly foolish if the Federal Energy Regulatory Commission acts next week to rein in higher power prices after months of refusing to intervene, Navarro said.
“This is a huge mistake that’s been made by the state and what’s being shown here is the depth of it,” said Assemblyman David Cogdill, R-Modesto, who supported Strickland’s suit.
“In effect, we locked in an energy crisis for the next 10 years,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. He called for Attorney General Bill Lockyer to toss out any contracts he determines overcharge the state.
Davis energy adviser S. David Freeman, former head of the Los Angeles Department of Water and Power, said the contracts altered the marketplace and freed the state from its nearly total reliance on the volatile spot market.
“The war ain’t over,” Freeman said, “but we have landed on enemy territory and we are rolling them back.”