Long-term contract would lock in prices
San Diego Union Tribune
The proponents of electrical deregulation in California — who promised that open markets would bring an array of consumer choices and lower prices — are now encouraging San Diego to contract for years with a single power provider at prices likely far higher than they were as recently as May.
The calls to lock in prices with a major power company come as politicians, consumer advocates and SDG&E scramble for ways to bring stability to the local power market, where electricity costs have tripled in recent weeks and show no sign of leveling off.
A long-term contract with a single provider at a fixed price is being touted as a “market” solution to San Diego’s power problem.
San Diego Gas & Electric Co., which passes along the price it pays for power to consumers in San Diego County, says it is in discussion with several companies. The local utility declined to discuss details, but state Sen. Steve Peace, D-El Cajon, said one offer has come from Enron Corp., a representative of which was among the leaders of a coalition that defeated tighter state power price controls earlier this week.
Houston-based Enron, the nation’s biggest power marketer, is offering to sell San Diego power for four years at 5.5 cents per kilowatt hour, according to Peace. The price would be about 50 percent less than current costs, but more than 50 percent above rates paid as recently as this spring.
Under California’s deregulation plan, San Diegans became the first in the state to pay market prices for power. Other major urban areas will continue to pay regulated rates for at least one year.
But San Diego has paid a steep price for its precedent: Typical power bills have risen from about $55 last year at this time to $90, with higher costs expected as the summer heats up. Peace, the key architect of California’s deregulation, said the Enron offer was encouraging.
“The good news is that there is an offer on the table that would contain the bleeding,” Peace said. But he quickly added that Enron‘s offer would be the first among many from other power companies.
“We can find out in a few days if the market can respond,” Peace said. “If they don’t, the (California Public Utilities Commission) must put a rate freeze into effect.”
Peace said attempts to bring a competitive electricity market to California have been stymied by power companies, who are exploiting the embryonic market for their own advantage.
“These guys are hiding behind the mantra of competition to profiteer. There is no doubt about it,” he said.
If the “profiteering” can’t be stopped, it “will lead to re-regulation of the power industry in California and the rest of the nation,” Peace said.
SDG&E would need approval from the Public Utilities Commission to enter into a long-term, fixed-price power contract. The PUC rejected such a request last year, but that was before the big run-up in power prices.
Long-term contracts represent a gamble on future prices: if market prices rise about the fixed price, the bet is won. If prices fell below the contract, the bet would in effect cost the region money.
It’s a wager that industry analysts say Enron may be better positioned to make than San Diego.
“What would happen is that you would pay a lower rate than the free market in summer but a higher rate in the winter,” said Michael Heim, a power industry analyst who follows Enron for A.G. Edwards.
“Enron is pretty smart. They don’t put out those bets unless they believe it will be good for them and bad for the customers.”
Added David Fleischer, a managing director of research at Goldman Sachs: “Enron takes less risk than anyone I know.”
A prominent state consumer advocate also criticized the prospect of a long-term power deal at this time.
“This is no better than a boiler fraud on the people,” said Harvey Rosenfield, who unsuccessfully pressed a ballot initiative to overturn deregulation. “They jack up rates over 200 percent — then they offer you a deal at a 50 percent hike.
“I don’t think the solution to this problem is to put the people of San Diego at the mercy of Enron.”
SDG&E, meanwhile, said it will hold a emergency meeting of energy market players in San Diego on Wednesday to explore methods of reining in high power prices.
“Clearly, there are problems in the marketplace that need to be addressed — and addressed now,” said Edwin Guiles, president of SDG&E.
The San Diego utility company also said it will seed a new fund to assist low-income customers with their power bills. SDG&E said it will provide $1 in corporate funding for every $4 other companies contribute, with a minimum $100,000 commitment from SDG&E.
The fund would supplement other programs, along with the utility’s level-payment plan, which allows customers to average power costs over a yearly cycle.
Mayor Susan Golding yesterday scheduled a July 20 public hearing on electricity prices. The hearing is set for 6 p.m. to 8:30 p.m. in Kearny Mesa at the Ridgehaven Court Environmental Services Building, 9601 Ridgehaven Court.
“The mayor’s main concern is to find out the reasons why the public is paying an exorbitant cost of more money in their electricity bills,” said Ric Grenell, Golding’s press secretary.
“It’s inexcusable that they’ve spiked over the last couple of months,” he said.
Among those who have agreed to participate in the hearing are California Energy Commission Chairman William Keese, Commissioner Art Rosenfeld and representatives of SDG&E, the Regional Energy Office and the U.S. Department of Energy, Grenell said.
At the state level, Peace said that by the end of the month he will submit a proposal to provide Gov. Gray Davis with emergency powers to build power plants and transmission line in the state. Peace said the emergency authority is needed to expedite the projects and address the state’s power shortfall.
“The governor indicated to me he’d like to have a proposal before July 24th,” Peace said, insisting the emergency powers would help protect the environment by coordinating project development.
But consumer advocates said such emergency powers could override environmental protection and local review of power plant siting.
“Now that we’re at the mercy of the greed of the utility industry, their response is that we need to strip away the rest of consumer and environmental protections,” Rosenfield said.
“We must cram this genie back into the bottle. We have to get back to regulating this industry.”