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State's power allowance could be depleted before summer's end

Posted at 5:35 p.m. PST Friday, March 16, 2001

BY JENNIFER COLEMAN, Associated Press Writer

SACRAMENTO (AP) -- Several state lawmakers said Friday they're concerned the $10 billion in revenue bonds authorized for power purchases might not be enough to pay for power through the summer, when demand and prices increase.

A Department of Water Resources memo circulated to lawmakers this week shows that the state has been paying an average of 30 cents per kilowatt hour -- about 20 percent higher than what State Treasurer Phil Angelides says that price should be for the bonds to last through September.

And the price for wholesale power is expected to increase when summer electricity demands increase by up to 50 percent. A drought in the Northwest also could deplete hydroelectric power that California imports, further reducing already tight supplies.

Though no power alert was declared Friday, grid officials said 11,000 megawatts were not available due to repairs, and an additional 1,000 megawatts would be out during the weekend.

Jim Detmers, managing director of the Independent System Operator, keeper of the state's power grid, said it's going to be ``challenging to find power'' in the next few weeks as plants that have been running hard all winter are being taken down for maintenance to get them ready for summer.

The DWR memo, given to lawmakers at a budget subcommittee meeting Wednesday, lists the number of megawatt hours purchased through March 11 and the total amount of money the power cost. Daily totals are given for Feb. 15 to March 11.

The state's highest daily average was on Feb. 16 at 43 cents per kilowatt hour. Since then, the rate has decreased with some fluctuation to about 22 cents per kilowatt hour on March 11. Moderate weather, longer days and a fairly stable supply of power in recent weeks led to the lower prices, said Assemblyman Fred Keeley, R-Boulder Creek.

``That's a traditional trend in the spring,'' he said. ``The bad news is it's 10 times what the spot market was 12 months ago.''

Keeley, author of the bill that authorized the long-term contracts and bonds to pay for them, said he had expected long-term contracts to be in place by this point. The governor said in early March that he had finalized about 75 percent of the long-term contracts for power over the next 10 years.

``But those that we have now don't really start putting power into the system until September,'' Keeley said. ``So unless and until the state finalizes those contracts, we're going to be exposed to the spot market.''

Davis spokesman Steve Maviglio said contracts covering up to 70 percent of the power needed will begin before summer, and others are being negotiated. That will reduce the state's exposure to the high prices on the spot market.

The state has authorized $3.7 billion in power purchases since January for customers of the state's two financially ailing utilities, Pacific Gas & Electric Co. and Southern California Edison Co. The utilities' credit was cut off in January after they reportedly amassed nearly $14 billion in debts due to high wholesale costs they couldn't pass on to customers.

The state's power buys will be repaid by $10 billion in revenue bonds issued in May. The bonds will be repaid by ratepayers. DWR Director Tom Hannigan said it was the first time he had publicly discussed the state's daily power purchases.

``It's a very general report. It doesn't have information on peak times and non-peak times,'' Hannigan said. It also doesn't include details of individual power buys or which wholesalers are selling power to the state.

Davis has refused to release details of the power buys or the contracts, saying it would put DWR negotiators at a competitive disadvantage. Republican lawmakers and several news organizations, including The Associated Press, have filed requests for the information under the state's Open Record Act.

Assemblyman George Runner, R-Lancaster, said he was disappointed to see the average price was more than 25 cents per kilowatt hour and said he wanted to see additional details on the purchases.``Our bottom line is that the purchases are higher than anticipated,'' he said.

Another reason prices are expected to rise in the summer is that a large portion of the power available for summer already has been sold, said Sen. Debra Bowen, D-Marina del Rey, chairwoman of the Senate Energy Committee.

``Whoever has the rights to it has the ability to make a lot of money this summer,'' she said. ``That's why we need the intervention of the federal government for a limited period of time.'' Davis has asked federal energy regulators to cap regional wholesale prices.

The Federal Energy Regulatory Commission has said it isn't inclined to cap those prices. But FERC did conduct another review of wholesale prices and found generators may have overcharged the state $55 million in February.

FERC gave wholesalers until March 23 to justify those charges, and an additional $69 million in apparent overcharges in January. FERC could order refunds if commissioners determine the wholesale prices weren't warranted.

Keeley said the state faces a long summer of both short supply and high prices, but Angelides downplayed the threat of higher prices this summer, saying aggressive conservation efforts could help drive down electricity prices. ``It's very hard to predict markets, but there's no question we're in a very hard spot. The generators still have their foot on our neck,'' Angelides said.

How long the bonds last is wholly dependent on summer prices and a Public Utilities Commission decision expected March 27 that will determine how much money the state gets from utilities' customers, Angelides said.

High summer power prices and an unfavorable ruling from the PUC could be a ``double whammy'' against the state, he said. The bonds are being issued against revenue from consumers, and if the state doesn't get a large enough share ``it could crimp our ability to issue bonds,'' he said.

Lawmakers would be reluctant to approve additional revenue bonds, Bowen said.``I'm not certain what the alternatives are, but it was such a struggle to get the measure passed with a cap of $10 billion, I'm not sure it's possible to move another one,'' she said.

-- Swissrose (cellier3@mindspring.com), March 16, 2001