Municipal power firms cleaned up

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Public producers charged state far more than private

The San Francisco Chronicle

From the start of the state’s energy meltdown, Gov. Gray Davis and many lawmakers have cast private out-of-state energy companies — especially those in Texas — as pirates plundering California’s economy.

But a Chronicle analysis found that some of the most expensive megawatts California bought during the bleak winter months actually came from what many would consider to be sympathetic traders — publicly owned power producers.

The Chronicle study of spot market purchases shows that as a whole, public agencies in California and elsewhere charged an average of about $344 per megawatt hour during the first three months of the year, while private companies charged less than $250.

More than 80 percent of the power sold by public agencies was above the $269 per megawatt hour average that California paid all power providers. Less than a third of the power from private companies exceeded that average.

“I think anybody who ripped off the state ought to be investigated,” said Harvey Rosenfield, head of the consumer group Foundation for Taxpayer and Consumer Rights. “A publicly owned utility shouldn’t be prospering from this crisis. And those munis that did ought to immediately forfeit any excessive profits.”

Yet, like with everything in the power crisis, not everything is always as it appears, and public utility officials say they’re hardly to blame for the sky-high electricity prices.

Interviews with operators of publicly owned power providers paint a picture of state Department of Water Resources electricity buyers sometimes so desperate to avert rolling blackouts that they didn’t haggle over price.

“DWR called us and said we’re looking for power at $500 a megawatt hour for a seven-hour period,” said Kate Hora, a spokeswoman for the Modesto Irrigation District, which delivers power to 95,000 customers in the Central Valley. “There was no negotiation. We just helped them out at the price they named.”

Pete Garris, chief of operations for the DWR department in charge of buying and selling power, said something like that would not have been typical.


“I could see offering $500 per megawatt hour when the market was trading at $650,” he said. “One thing munis do for the most part is provide reliable energy. If they say they are going to deliver so many megawatts, they are going to deliver.”

But that reliability can be expensive.

Much of the public power was hydroelectric from the Pacific Northwest, usually delivered at expensive peak demand hours. And municipal agencies say they were forced to press into operation old, inefficient generators.

“(State officials) would call and say, ‘We need the energy,’ ” said Ignacio Troncoso, director of public service for Glendale Water and Power. “We didn’t really want to give it to them because it meant using some very inefficient turbines, but they said they needed it. Sometimes, it cost $1,000 or $2,000 per megawatt hour, but they paid it.”

S. David Freeman, Davis’ top energy adviser, said the state bought a relatively small percentage of its power from municipal utilities, and it was at a time when the state was getting nearly all of its electricity in the volatile spot market.


About 20 percent of the power purchased by California in the first quarter of 2001 came from publicly owned agencies in the United States, Canada or Mexico.

“You have to consider the volume,” said Freeman, whose hiring in April was controversial because he headed the Los Angeles Department of Water and Power.

Los Angeles charged California on average $292 per megawatt hour for power. Before he joined the state in April, Freeman said Los Angeles’ rates were based on cost plus 15 percent.

“I don’t say we’re angels, but we’re being neighborly,” he said then. “We’re not giving you a cup of sugar, we’re selling it, but not at exorbitant prices.”

Like Los Angeles, Canada’s publicly owned BC Hydro sold more than 800,000 megawatts to the state in the first three months of the year at above-average costs. Spokeswoman Elisha Odowichuk said the utility’s rates to California were higher because of delivery costs.

But the utility made enough money to give their Canadian customers a $130 rebate.


Davis has demanded $8.9 billion in refunds for electricity prices the state says were excessive. The state estimates that it is owed about $600 million from the municipals, Michael Kahn, chairman of the board of the Independent System Operator, said last week.

The state is hoping that the Federal Energy Regulatory Commission will order private providers to issue refunds. But the commission has no jurisdiction over municipal utilities.

At least one offer was put on the table by municipal utilities and is under consideration, said Steve Maviglio, spokesman for Davis. If no deal is reached, the state is prepared to go to court, he said.

“Anybody who is on the list of price gougers, we intend to seek refunds from,” he said.


Energy experts suggested several reasons why public power may have cost the state more than electricity offered by Enron, Duke and other private companies.

The state probably bought most public power during peak usage hours in the evening or during days when rolling blackouts loomed, said Severin Borenstein, a professor with the University of California’s Energy Institute in Berkeley.

That’s how the Modesto Irrigation District briefly got into the business of selling power to the state. The district sold 175 megawatts to California on Feb. 13 for $500 per megawatt hour.

The district bought power from an Oregon utility for $375 per megawatt hour and delivered it to the state from 1 to 7 p.m. during a Stage 3 power alert. The state avoided blackouts that day.

Seattle City Light earned on average the most per megawatt hour of any public utility, getting a price of $634. But an official there also said there were no negotiations with the state.

The utility had a contract to deliver electricity to 35 Nordstrom stores in California. State power grid officials determined that the stores weren’t using all the power and then snapped up the excess for what is referred to as the clearing price: the highest price paid for electricity during that hour.


But Seattle isn’t rolling in money because of its dealings with California. The utility has raised rates three times this year, spokesman Dan Williams said.

Modesto’s and Seattle’s experiences are probably similar to other public utilities, said Michael Shames of the Utilities Consumer Action Network, based in San Diego.

“The munis did make a profit,” he said. “But there’s no evidence that Los Angeles or any other city made the same kind of sky-high profits that the Dukes of the world did. We haven’t seen any municipal utility officials taking expensive vacations because of the crisis.”

Shames suggested that public utilities’ high rates may not have been as high as private companies’ offers.

“When they (state energy officials) got really tight, the private companies were probably offering to sell at exorbitant prices,” he said.


Still, several publicly owned agencies acknowledge that they didn’t treat the state Department of Water Resources as a charity case.

When the state was desperate for megawatts, Burbank officials would look for power on the open market and sell it to the state if they could make a 10 percent profit to cover such things as administrative expenses, said Fred Fletcher, assistant general manager of the utility. Sacramento Municipal Utility District did the same, a spokesman said.

Fletcher scoffed at any charge that municipal utilities owe California a refund.

“It’s insulting to ask for any money back. We weren’t part of the problem, and we helped the state in a crisis,” he said. “And it’s not like we’re doing well.”

Glendale residents face a 10 percent increase in electricity rates beginning this month, and Burbank ratepayers will see their power bills rise 17 percent beginning this month.

Consumer Watchdog
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