State Taxpayers In Dark on Details Of Energy Deal

David Lazarus, Chronicle Staff Writer Wednesday, March 7, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/07/MN107294.DTL

Few people would purchase a car simply because the dealer said, ''Trust me, it's a great deal.'' Yet Gov. Gray Davis essentially is telling Californians just that about dozens of long-term power contracts.

Because of confidentiality agreements with power companies, the governor has revealed only scant details about the state's multibillion-dollar contracts for electricity over the next 10 years.

"Gov. Davis has our money, and we can't see how he's spending it," said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights in Santa Monica. "We've been locked out of the room."

Neither Davis nor power companies would divulge specific details about the price, duration or scope of individual contracts. Each cited secrecy clauses that the governor's office said had been desired by both sides.

What consumers do know is this:

-- California has signed 40 contracts and tentative accords, valued at about $40 billion, to secure enough power to light 9 million homes over the next decade.

-- The average purchase price of each deal is $69 per megawatt hour -- well above the $30 to $40 charged by power generators before California's energy market went haywire last summer.

-- If, as is widely expected, wholesale power prices fall in years ahead, the state nevertheless will be locked into paying above-market rates for electricity.

But it is not known which generator agreed to part with the most power at the cheapest level or the full range of the prices in concocting the $69 average. Moreover, it is unclear how shrewdly the state negotiated with taxpayer money in securing power on behalf of cash-strapped utilities.

"These agreements are the bedrock of our long-term energy policy," Davis said Monday in announcing the deals.

The governor's office defended the murky nature of the contracts yesterday.

"It's a business transaction in which private corporate information is included," said Steve Maviglio, a spokesman for Davis. "That's the kind of information that never gets revealed."

While additional elements of the contracts will be publicized in coming months, he said, the contracts themselves will remain a secret.

"You'll never see all the details," Maviglio said.

This did not sit well with many observers.

"It's a breach of public trust," said Daniel Bacon, a San Francisco attorney specializing in business law. "A public servant spending public money shouldn't be able to keep the spending secret."

But Gary Ackerman, executive director of the Western Power Trading Forum, an energy-industry association in Menlo Park, called confidentiality agreements "a necessary evil in transactions like this."

He explained that no power company would agree to a long-term contract if rival firms could learn the terms of the accord. The company would be losing too much of its competitive edge in the marketplace, Ackerman said.

At the same time, he noted that secrecy allowed the buyer -- in this case, California taxpayers -- to secure more favorable terms with individual sellers.

A high price with one generator would not necessarily be sought by all power providers.

Still, the fact that public funds are being used makes confidentiality in this case a different matter than, say, Cisco Systems' quietly negotiating to take over yet another tech rival.

"The public is in a very awkward position," said Michael Shames, executive director of the Utility Consumers' Action Network in San Diego. "It has to rely on the good word and expertise of the governor, and he has yet to demonstrate that he has expertise or good word in this field."

Shames likened consumers to passengers in a plane being flown by a pilot without a license to fly.

"But what choice do we have?" he asked. "I don't see many other options available right now."

There's the rub. No matter how bad a deal California may have cut to help meet its energy demands, the alternative -- blackouts, disruptions, economic catastrophe -- is far, far worse.

On the other hand, it already appears that the new contracts will not shield Californians from the threat of daily outages this summer, when demand surges. Davis said only about 60 percent of the state's summertime electricity needs so far had been met.

Part of the reason is that many power companies already have contracted for their output this year.

Duke Energy said this was why it would not begin its nine-year contract with California until 2002, while Williams Cos. said it would only gradually increase the amount of available wattage in its 10-year contract.

Both companies, meanwhile, will continue to profit this summer by selling into the volatile "spot" market, where wholesale power went for as much as $1, 500 per megawatt hour last year.

"You can't sell all your power into long-term contracts," said Paula Hall- Collins, a Williams spokeswoman. "You save some for the spot market."

Consumer groups worry that consumers will be hammered again this summer with sky-high power prices, and then get nailed down the road by contracts for above-market rates.

"If we could look at the terms of the deals, we'd see that California is being gouged for 10 years," said Heller of the Foundation for Taxpayer and Consumer Rights. "But the governor doesn't want us to see that."

Ackerman of the Western Power Trading Forum said the state had gotten the best rates it could under current market conditions.

"California went for long-term contracts when everyone else moved in as well," he said. "Californians are paying a price for not acting sooner."

E-mail David Lazarus at dlazarus@sfchronicle.com.

-- Martin Thompson (mthom1927@aol.com), March 07, 2001