Davis' Top Negotiator Reveals Some Details of Power Deal

David Lazarus, Chronicle Staff Writer

Friday, March 9, 2001

©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/09/MN169364.DTL

Under fire for secrecy surrounding power contracts purchased with $40 billion in public funds, Gov. Gray Davis' chief negotiator yesterday revealed new details about the accords but insisted that full disclosure remained out of the question.

"We recognize the conflict," S. David Freeman told The Chronicle. "But the state of California is now in the power-purchasing business, and it is a business. It will cost us more if all the details get out."

Meanwhile, state Assemblyman Tony Strickland, R-Thousand Oaks, said he intended to file a lawsuit next week seeking full disclosure of the power contracts unless they were immediately released by the governor's office.

"This is not Gray Davis' personal money," said the assistant minority leader. "It's taxpayers' money, and we have a right to know how it is being spent."

Discussing the contract negotiations for the first time, Freeman stressed that California had done its best to secure thousands of megawatts of much- needed electricity from mostly out-of-state power providers.

"Was the state of California in a strong bargaining position with rolling blackouts and no long-term contracts?" he asked. "Obviously not. We were in a weak bargaining position."

Nevertheless, Freeman said he had sufficient elbow room to negotiate a portfolio of agreements intended primarily to see California through the next four years. After that time, he said, the state will have to negotiate additional contracts or hope that enough new generation has come online to overcome current shortages.

The only things previously known about the contracts were that they are at an average price of $69 per megawatt hour for about 9,000 megawatts -- less than a third of California's current power needs -- over 10 years.

Yesterday, Freeman sketched in a few additional details:

-- The 40 contracts are fairly evenly divided between three-year, five-year and 10-year agreements. Only a few are for shorter durations, and just one runs as much as 20 years.

-- The state is purchasing 6,000 megawatts this year, increasing to a high of 10,000 megawatts by 2004. After that, the annual purchases decline to 9,000 megawatts by 2010.

-- Because demand is expected to grow throughout this period, California will purchase more power on the daily "spot" market after 2004. The state is gambling that wholesale prices will be much lower than the $1,500 level seen last year.

"We left a lot of room for competition to re-emerge," Freeman noted. "Maybe after 2004, we could have surpluses or good prices in the spot market."

Consumer activists were relieved to learn that the contracts were staggered in terms of capacity and duration. They had feared that Californians would be locked into paying artificially high prices for the next decade.

"As upset as we are about the long-term contracts, we'd have been even more upset if there was no wiggle room at all," said Nettie Hoge, executive director of The Utility Reform Network in San Francisco.

Like Freeman, she said it was reasonable to expect that wholesale electricity prices would come down from current sky-high levels once more plants were built and natural gas costs decreased.

CONFIDENTIALITY CLAUSES

As for why full details of the power contracts should remain secret, Freeman cited confidentiality clauses inserted by both himself and the power companies.

"These details definitely need to be confidential," he said. "We haven't completed the negotiations."

However, Freeman acknowledged that only a handful of contracts remained on the bargaining table. His work has progressed so far, in fact, that he will be returning Monday to his job as general manager of the Los Angeles Department of Water and Power.

"At some point down the road, when we're not dickering with people for billions of dollars, there's no reason more of this can't be released," Freeman said.

But he added that full disclosure of the contracts might be prevented by the secrecy agreements with power companies. "The last thing we want is a breach-of-contract thing with them," Freeman said.

DISCLOSURE RULES

Barbara Blinderman, a Los Angeles attorney specializing in public-records cases, scoffed at this suggestion. She said the power companies knew full well that they were dealing with a public entity subject to disclosure rules.

"It's an affront to say these contracts should be kept secret," Blinderman said. "What they're really saying is that they know better than the public. That's not acceptable."

Tony Strickland agreed. The state assemblyman filed a request for disclosure of the power contracts under the Public Records Act on March 1. A separate request has been made by The Chronicle.

If he does not hear from the state Finance Department by tomorrow, as per the conditions of the records act, Strickland said he would file suit for the release of the contracts. "The people have a right to know how much it will cost to keep the lights on," he said. "It's our tax dollars.

"There's an information Gray-out," he added, referring to the governor. "That's wrong, and that's why I'm taking these steps." For his part, Freeman said the public already had learned enough about the power contracts to be satisfied that the money has been well spent.

"Is there enough information for people to make a judgment?" he asked in his characteristically rhetorical manner. "I think there is. The information is out there. "Is this the best way to be buying power? No, it isn't. But we did the best we could."

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

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