State sells surplus electricity at a loss

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BUY HIGH, SELL LOW: $14 million deficit

The San Francisco Chronicle

California has lost $14 million during the past three weeks selling surplus electricity back to power generators as mild temperatures and energy conservation slackened demand statewide. The state, which has spent more than $8 billion purchasing power on behalf of financially troubled utilities, became an electricity seller this month, racking up losses and triggering criticism from Republican lawmakers and consumer groups.

State Department of Water Resources Director Thomas M. Hannigan said in a letter that since July 1, the state had sold 177,571 megawatt hours at a rate of $36.95 each. California paid just over $118 a megawatt hour for the electricity, Hannigan said in the letter to Assemblyman John Campbell, R-Irvine.

Some of the exports to 25 buyers went to out-of-state power providers such as Atlanta-based Mirant and Texas-based Reliant Energy, which a state Senate committee has found in contempt for not complying with subpoenas for documents as part of its investigation into alleged price manipulation.

Excess electricity also went to public power agencies such as the Los Angeles Department of Water and Power and even abroad to Powerex, the trading arm of BC Hydro. The giant Canadian power firm has started issuing rebates to its customers, citing “strong exports” to California and elsewhere earlier this year.

“To me this reinforces the idea that the state should get out of the power buying business as soon as practically possible,” Campbell said.


When Pacific Gas & Electric Co. or Southern California Edison makes a similar mistake, he said, shareholders pay for it. But when the Department of Water Resources is to blame, taxpayers are left holding the bag.

A spokesman for Gov. Gray Davis defended the losses, calling them minuscule in the bigger context of the state’s power-purchasing strategy.

“This is all an inexact science,” said Davis spokesman Steve Maviglio. “This has been a handful of days over seven months, and the amount is minuscule. If the choice is keeping the lights on or having rolling blackouts, it’s a small risk to take.”

Because power can’t be stored, all power trading operations are occasionally forced to sell excess electricity, Maviglio said. He said that people would have laughed in January had the administration predicted that the state would have more than enough power this summer.

Mild weather and a strong conservation effort by Californians have led to days when the state hasn’t needed all the power it has on hand.


In recent days, the peak load on California’s grid has been around 33,000 megawatts–far below the 40,000-plus megawatt demand that can come on a hot summer day.

“When we bought power at these prices, who would have thought that it was going to be the coolest July in 20 years?” said Assemblyman Rod Wright, D-Los Angeles. “The problem becomes when you second-guess things.”

The state Department of Water Resources has negotiated about $43 billion worth of electricity contracts spanning 15 to 20 years. The contracts were made public after media organizations, including The Chronicle, and GOP lawmakers sued the Davis administration.

Consumer groups yesterday criticized the losses, calling them an inevitable byproduct of the state’s entry into the power-buying business.

“It’s one of the costs of secrecy. You’ve got an agency that is totally unaccountable to the public,” said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights. “They haven’t done a great job of serving the public’s needs for energy procurement.”

Assemblywoman Carole Migden, D-San Francisco, said Campbell and other critics were not being fair to the Davis administration.

“You can’t say at one time get the energy situation under control, but then question every line item a month out,” she said.

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