State officials to start renegotiating long-term power deals

Published on

The Associated Press

State power officials plan to rework some of the long-term state’s long-term energy contracts, which an administration official says commit the state to buying more power than it needs.

Critics say the contracts, arranged during the height of the energy crisis, are overpriced and contain questionable clauses, including one that prevents the state from seeking federal price reviews.

The 53 contracts, worth at least $43 billion, vary in length from a few months to 10 years and in one case, for 20 years. Gov. Gray Davis pursued the contracts to secure the state’s energy supplies and avoid more blackouts like those that plagued California six days this year.

Davis spokesman Steve Maviglio said plans are in the works for trying to rework some pacts and officials would discuss that Friday in a briefing on the state’s energy revenue requirements.

Davis says the contracts drove down the wholesale cost of power and saved the state money, since it didn’t have to buy expensive energy on the spot market.

But the contracts, signed at the peak of the power crisis, locked California into overly high prices, critics say. Those prices will then be passed to customers of San Diego Gas & Electric, Southern California Edison and Pacific Gas and Electric Co.

The state has bought power for the three utilities since January, when they were unable to buy power on their own after months of record-high wholesale electricity prices wrecked their credit ratings.

The move to renegotiating comes after the Department of Water Resources chief warned the state’s new power authority not to seek any more long-term deals.

DWR Director Thomas Hannigan told Power Authority chairman S. David Freeman in an Oct. 4 memo that “contracting for substantial additional supplies may lead to unnecessary costs for Californians.”

The state has excess power lined up, especially in Southern California, Hannigan said. The authority should line up any new supplies for Northern California and closely coordinate that with DWR.

So far, the authority has signed letters of intent to buy electricity from a dozen wind generators, but Hannigan said those arrangements could exceed the state’s ability to absorb the power and be incompatible with other resources.

Power Authority spokeswoman Amber Pasricha said the two agencies are working together and that a DWR representative highlighted the memo’s points during the Oct. 5 Power Authority board meeting.

A recent private study found that at least eight of the contracts cost too much and should be immediately renegotiated, because they will saddle customers with 10 years of high prices and require buying too much energy for too much money. The study was sponsored by the Center for Energy Efficiency and Renewable Technologies.

Because out-of-state power wholesalers “are desperate to cut deals,” said consumer advocate Harvey Rosenfield, the state has an “excellent” chance to renegotiate.

Wholesalers, Rosenfield said, “could renegotiate these contracts and still walk out with billions in profits.”

Rosenfield’s group, the Foundation for Taxpayer and Consumer Rights, has long criticized the contracts and the secrecy surrounding them. The contracts’ details were released only after lawsuits by Republican lawmakers and several news organizations, including the Associated Press.

Rosenfield criticized a clause in some contracts that bars the state from seeking price reviews by federal regulators who are charged with overseeing wholesale energy costs.

One wholesaler, Houston-based Dynegy Inc., hasn’t been asked to renegotiate the contracts but is willing to talk about it, spokesman Steve Stengel said.

“We would be willing to discuss renegotiating the contracts, if it was mutually beneficial to each party,” he said.

If the deals are changed, V. John White, director of the Center for Energy Efficiency and Renewable Technologies, said he’ll push to include more renewable energy.

Some technical provisions in the current contracts also endanger the state’s ability to sell long-term bonds to repay the state’s treasury the $6.1 billion it spent to buy power for three cash-strapped utilities, said Sen. John Burton. That also could hurt a state budget already hit by a declining economy.

Davis had promised to veto an alternate plan in a bill by Burton, D-San Francisco, because it could conflict with provisions in the contracts.
But Davis’ own plan was voted down earlier this month by the Public Utilities Commission, further delaying efforts to repay the state general fund.

If those clauses were taken out of the contracts, said consumer activist Doug Heller, it could help the state issue those bonds.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases