Increased hydropower behind price drop

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The San Diego Union-Tribune

Experts say state electricity prices are falling because of a surprising level of hydropower, cooler weather, increased supplies and pressure from investigations into industry practices.

But despite the recent price declines, they note, electricity costs remain nearly 50 percent above last year and volatile, with few believing California has seen an end to its power crisis.

Peak prices slipped yesterday another $15, falling to a range of $62 to $79 per megawatt hour, according to Bloomberg News. This compares with market prices that were routinely more than $300 per megawatt hour from late winter into the early weeks of spring.

Future prices have also declined with contracts for delivering power in July reportedly available for about $175 per megawatt.

Gary Ackerman, executive director of the Western Power Trading Forum, an industry group, said hydropower — the cheapest electricity source — has been running at roughly average levels despite below average levels of snowpack in the mountains.

Ackerman said the correlation between snowpack levels and water runoff is imperfect. He added that there was no certainty that runoff levels would continue at average levels through the summer.

A spokesman for Sempra Energy Trading, a sister company of San Diego Gas & Electric Co., agreed that increased hydropower was helping to lower prices. The spokesman also noted that some power plants in California that had been out of commission have returned to service.

The state had a record number of plants out of service for months because of what suppliers said were required maintenance outages or unplanned breakdowns.

Doug Kline, the Sempra spokesman, said the state’s success at securing long-term contracts has also taken pressure off spot markets.

A veteran power industry consultant said investigations into alleged market manipulation and a sharpened political focus on high prices have cooled the industry ardor for pushing the market as high as it might otherwise.

“When everyone was not looking, it was a lot easier (to keep prices high),” the expert said.

SDG&E said recent price declines have brought its retail power costs down to 7.7 cents per kilowatt hour — the lowest since last summer — but still 48 percent more than last year’s rates at this time.

Consumer advocates said beleaguered California electricity customers should hesitate to draw optimistic conclusions from the recent price declines.

“Even the current prices are ridiculously inflated,” said Harvey Rosenfield, of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Rosenfield said it was possible that the “energy cartel” had blinked in what he describes as its war on consumers. But he added that it is too soon to tell whether this will become permanent behavior. And he warned that California still faces what he says are exorbitant prices from long-term electricity contracts already signed by the state.

Michael Shames, executive director of the Utility Consumers Action Network, noted that the hottest months and potentially higher prices are ahead.

“These prices are not staying here,” Shames said.

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