Power Contract Renegotiation Could Save Billions

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New Contract Terms Can Eliminate Davis’s Objections to Burton Bill SB18xx; Signing Bill Would Repay Treasury

If Governor Davis renegotiates long-term power contracts with energy companies, consumers could save billions of dollars in future energy costs and he could guarantee that the state Treasury be repaid, according to consumer advocates at the Foundation for Taxpayer and Consumer Rights (FTCR). Many of the power contracts, which will cost consumers an estimated $50 billion over the next two decades, were signed during the height of the power crisis, when the state was subject to enormous price spikes and blackout threats from the very energy generators that were signing the deals.

“Last spring power companies had a gun to the Governor’s head and, with staff that already had conflicts of interest, the Administration signed some terrible deals,” said consumer advocate Doug Heller with FTCR. “Governor Davis is right to look back at the environment in which these contracts were signed and demand that the power companies come to the table and renegotiate, or even throw out, many of the contracts.”

Renegotiations Would Allow the State to Refill the General Fund

The Governor spent approximately $10 billion of taxpayer money to pay for power during last winter and spring, leaving the state General Fund in terrible shape. Although the Legislature passed a bill (SB 18xx — Burton) to repay the Treasury through a bond sale, the Governor has been unwilling to sign the bill because, he alleges, power companies would then sue the state for violating parts of the power contracts. Many of the power contracts contain clauses that require ratepayers to pay off the power companies before repaying the Treasury. In re-negotiating the contracts the Governor should rewrite these problematic provisions and thereby eliminate his main objection to SB 18xx.

Consumer groups support SB 18xx because, in addition to creating the cheapest way to repay the Treasury, it would also:

  • provide for public review of future power deals; and

  • hold the Department of Water Resources (DWR) accountable for its administrative, legal and consulting costs that it passes on to ratepayers.

    SB 18xx is the cheapest way to replenish the Treasury because it creates a statutory promise to bondholders that consumers will repay the bonds. This statutory security reduces the risk on the bonds and would, therefore, reduce the cost of financing and save ratepayers an estimated $1 billion.

    “Renegotiating power contracts is one piece of the fight to fix the long-term problems created by California’s foray into electricity deregulation. This could save billions of dollars, and if the Governor signs SB18xx, consumers will save an additional billion dollars as well as guarantee that the State Treasury is repaid. Additionally, the Governor must continue to press FERC for refunds from power companies that price gouged during the crisis, and we must stop the illegal Edison bailout that will cost consumers another five billion dollars,” said Heller.


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