Big part of supply to come from facilities that don’t exist yet

The San Francisco Chronicle

A whopping 420 million megawatt hours of the electricity California has contracted to buy over the next decade is from power plants that have not yet been built.

That could be a good thing or a bad one, depending on how you look at it.

It’s as if the state, starved for vitamin C, secured a long-term

source of orange juice by signing up farmers who had not yet planted orange groves or even cleared the land.

If your point of view is that California needs more orange juice, the contracts are great because they give producers a financial incentive to build, er, plant more groves. If you think there’s plenty of juice already and believe the orange farmers are getting away with murder because they deliberately withhold it from the market to drive up the prices, you might question whether guaranteeing them big bucks if they plant more trees perpetuates their profiteering.

Gov. Gray Davis‘s view is simple: He wants more juice.

“The governor is committed to bringing more power plants online. Long-term contracts are a powerful incentive to get them built,” said Davis spokesman Steve Maviglio.

“(The contracts) guarantee a revenue stream for the financing. When (power) companies go to get financing for a new power plant, they will have the state contract in hand. Rather than gambling on the financing, it’s a sure thing.”

But consumer advocates see it as a win only for power companies and a loss for taxpayers.

“‘Gov. Davis has been acting in a panic through this crisis to get plants online, to pay the private companies, to bail out the utilities,” said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica.

“These new power plants they’re going to build don’t need between $69 and $154 per megawatt hour to operate profitably. Much of the contracts is gravy for the power producers. We’re giving them sweetheart deals for years to come. It won’t feel good for the consumers who have to pay these unnecessarily high prices for the next decade.”

Just which generators have contracts for power from unbuilt plants has not been made public — in copies of every contract released Friday by court order, the section discussing power plant name, location and other details is blacked out.

But Vikram Budhraja of the Electric Power Group, who is a consultant to the Department of Water Resources, said 70 percent of the volume of megawatt hours over 10 years will come from new power plants. The governor’s office said all the contracts total 600 million megawatt hours.

Maviglio said the unbuilt plants are at various stages of the licensing process, which could mean they are anywhere from initial application to ready for groundbreaking to almost built.

Some observers had speculated that contracting with new plants was a strategic move by Davis to phase out use of older, dirtier plants. But, as Maviglio pointed out, many of the contracts are already in place and rely on existing plants.

Meanwhile, new power plant licensing has dramatically picked up this year.

In the past few months, the California Energy Commission, which added staff to handle a bigger workload, has approved seven major new plants, which collectively will produce 4,066 megawatts. Another nine plants, accounting for 6,278 megawatts, had already gained approval. In fact, three of those will open this summer. Most of the plants are scheduled to come online next summer or in spring of 2003.

Claudia Chander, assistant executive director of the commission, said it will not be under pressure to ignore environmental considerations and push through licenses for plants that have contracts with the state.

“We’re an independent agency. We license power plants based on the Warren-Alquist Act, which incorporates (the California Environmental Quality Act),” she said.

This year’s increase in licensing occurred because many of the plants had already been in the process for many months and because the governor and Legislature changed the law to speed up the process, she said.

“We’re very thorough. We don’t cut corners,” she said.