The Daily News of Los Angeles
Gov. Gray Davis said Monday a new package of contracts to buy power will only provide about two-thirds of the amount needed during peak summer days.
Announcing the signing of 40 long-term electrical contracts, which he called the “bedrock” of the state’s energy package, Davis said consumers will have to cut their power use at least 10 percent to avoid blackouts this summer.
“Yes, we have more to do, particularly to get through this summer, but our energy future looks a lot brighter now that we have reliable power locked down at affordable rates,” said Davis, speaking inside the control room at the Los Angeles Department of Water and Power’s Scattergood Generating Station in Playa del Rey.
Davis said the contracts, which will supply an average of 8,886 megawatts per year over the next 10 years, will reduce the price the state pays for electricity over the next decade.
The state has been paying 33 cents a kilowatt hour, but the new deals average 6.9 cents a kilowatt hour, about the same as the 7 cents consumers have paid.
The state’s first contracts to buy power for two cash-strapped utilities calls for two different prices. For the first five years, the average price is $79 per megawatt hour – about 75 percent below the recent spot market prices. In the last five years, the average price will drop to $61 per megawatt hour – about 80 percent below recent spot market prices.
While Davis said the agreement will lower consumers’ electric bills the first two or three years and then raise them slightly in five to six years – assuming the price drops as new plants are built – consumer groups say the deal could double electric bills.
“The governor’s announcement today is the equivalent of saying California consumers will see 50 to 100 percent increases in their bills,” said Harry Snyder, senior advocate at Consumers Union, the nonprofit publisher of “Consumer Reports.”
“This is going to double the cost of energy, and with the terms of the other deal regarding transmission lines, he is going to give the power companies everything they want.”
Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said the deal does not provide enough power to solve the state’s energy crisis.
“It’s nowhere near what we need to free ourselves from the grip of the profit-maximizing energy cartels,” he said. “This means we’ll be paying enormously higher prices probably for the next decade.”
David Freeman, Davis’ chief negotiator and general manager of the Los Angeles Department of Water and Power, said he doesn’t see the agreements triggering a rate increase.
“This is not a done deal,” he said. “We have additional deals being put to bed and this work will continue. We have put together a portfolio of contracts that provide a secure future and this fits within the existing rate structure.”
Davis said the agreement will stretch out rate increases over a decade.
“I’m trying to stop the bleeding, keep the utilities viable and string out the increases over a long period of time so there is not sticker shock and people can cope with these rates,” Davis said.
Hoping to sign long-term contracts to reduce the state’s costs, the state has been buying spot market power at premium prices since early January for customers of Southern California Edison and Pacific Gas and Electric.
The utility giants say they have lost close to $14 billion because of soaring power prices and the state’s 1996 utility deregulation law that blocks them from recouping costs from their customers.
Under a new law enacted to ease the power crisis, the state plans to spend an estimated $10 billion over the next 10 years to buy power for Edison and PG&E customers. The money is to be recovered through revenue bonds the utilities’ customers will pay back over several years.
The contracts Davis signed include a diverse mix of more than 20 suppliers and power companies, including Calpine, Duke, Dynegy, Enron, Reliant, Williams, Sempra, Merrill Lynch, Morgan Stanley, El Paso, Constellation, Panda, Cal Peak, Avista, PX BFM, PacifiCorp and Primary Power.
Davis said some of the agreements will rush the construction of power plants, adding about 5,000 megawatts to the state power grid in the next two years, including some as early as this summer.
“I’m trying to buffer the impact on the ratepayer by using some of the surplus we’ve accumulated through our thriving, strong economy,” Davis said. “We believe it will pencil out in the end and the general funds will absorb the initial burden of having to buy power so we can keep the rate base for power affordable.”
Jan Smutny-Jones, executive director of the Sacramento-based Independent Energy Providers, said he supports Davis’ efforts, a solution he has been advocating for months to help stabilize energy prices and bring down the cost of electricity.
“Long-term contracts are a very important first step in the long process of increasing California’s generating capacity and securing reliable and affordable power for the state’s homes and businesses,” he said.
Mindy Spatt, spokeswoman for the Utility Reform Network, said the network is concerned that the agreements cost too much.
“The irony of the proposal is it might put us in a similar position to the one before deregulation,” Spatt said.
–The Davis administration continues negotiations with Edison, PG&E and San Diego Gas & Electric over the governor’s plan to buy their transmission lines to help Edison and PG&E pay their debts.
–The Legislature considers dozens of bills to encourage energy conservation, increase alternative power and streamline power plant siting.
–The state Consumer Services Agency and San Francisco Mayor Willie Brown sponsor an Energy Efficiency Fair in San Francisco on Saturday to demonstrate power-saving techniques.
–An order from Davis requiring businesses to substantially reduce outdoor lighting after business hours will take effect in mid-March. Businesses that fail to comply face a potential fine of $1,000 a day.
–Attorneys for three generators and the Independent System Operator will return to federal court March 19, when a judge is expected to decide whether power suppliers can be forced to sell to the grid.