Long Term Contracts May Lock in Energy Crisis for Ten Years

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Bush Bureaucrats Blinking?

Los Angeles, Ca. — With the wholesale energy companies “heading for the hills,” at least temporarily, and the Bush administration pondering a temporary retreat to rescue “deregulation” efforts nationally, the long-term energy contracts signed by the state over the last few months commit California to pay the wholesale energy companies tens of billions of dollars in overcharges during the next decade. Advocates with the Foundation for Taxpayer and Consumer Rights (FTCR) urged that the contracts be abrogated if the state was overcharged or the contracts contained unlawful terms. According to the Los Angeles Times, California ratepayers will be locked into prices ranging from $58/MwH to $154/MwH for the next ten years (one contract lasts 20 years), far above prices prior to the deregulation fiasco.

“The state negotiated these electricity contracts at the worst possible time, for far longer than was necessary, at ridiculously inflated prices, and, with a gun to our head, held there by the energy companies, whose sophisticated traders joke that they took advantage of inexperienced state officials,” said Harvey Rosenfield, FTCR advocate. “In effect, we locked in an energy crisis for the next ten years. We cannot afford these deals, and the Attorney General should determine whether the contracts are invalid or otherwise unenforceable.”

FTCR noted rumors, some already substantiated, that the still-secret contracts may include terms that require the state to waive it’s right to dispute such overcharges, require the contracts to be paid before taxpayers are reimbursed, and even require the state to pay any windfall profits tax levied by the legislature against the energy suppliers. However, such terms may be unlawful and would invalidate the contracts. FTCR today renewed its call for full public disclosure of the contracts by the Governor. (A comparison of power costs over recent years follows.)

Meanwhile, with multiple state and federal law enforcement investigations underway against the energy companies that increased the wholesale price of electricity ten-fold over last year, and the Federal Energy Regulatory Commission apparently pondering price controls, the energy companies have suddenly and massively dropped wholesale prices, another indication that they created the state’s energy debacle, using deregulation for their financial gain.

“Like outlaws that have thieved and plundered the West, the energy companies are heading for the hills now that they see the sheriffs coming. They could retire on the long-term contracts alone, if they’re allowed to abscond with them. But it’s unlikely we’ve seen the last of them. Unless state and federal authorities hunt them down, they’ll be back — you can count on that,” Rosenfield said.

FTCR also warned that the “caps” under consideration by FERC would not solve the problem, but are a political sop designed to protect “deregulation” in other states from collapse. “Caps only prevent prices from rising above the already-inflated levels. We need FERC to rollback the unjustified prices and force the companies to make refunds and sell at their cost of production plus a fair but controlled profit,” concluded Rosenfield.


Wholesale Power Prices*

Date Weighted Average Average Megawatt-hours

Price/MwH Purchased per Hour (MwH)

May 15, 1999 $24.87 17,926,829

July 15, 1999 $41.30 28,666,279

August 15, 1999 $22.41 21,075,592

December 15, 1999 $31.19 23,083,129

May 15, 2000 $31.01 20,305,963


July 15, 2000 $62.58 23,098,463

August 15, 2000 $157.54 25,181,575

December 15, 2000 $498.83 19,945,138

January 1, 2001-March 31, 2001 $285/Mwh (According to Bloomberg News)

June 12, 2001 $20-$58/MwH (According to LA Times and Bloomberg News)

*Source: Data collected from California Power Exchange unless otherwise stated

Consumer Watchdog
Consumer Watchdog
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