Contracts Won't Meet Summer Demands

DETAILS: 2004 before full impact felt

Lynda Gledhill, Chronicle Sacramento Bureau

Thursday, March 22, 2001, ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/22/MN230640.DTL

Sacramento -- Long-term power contracts negotiated by the state won't cover California's entire demand for electricity until 2004, according to newly released details about the agreements.

The information suggests that California might have to scrounge for electricity on the high-priced spot market for a couple more years even as it continues to push conservation efforts and construction of more generating plants.

Details of the agreements released by Gov. Gray Davis' administration show that the contracts will provide for just over a third of the state's demand for power this year. Energy secured by the contracts will grow to meet the expected demand in three years.

Short-term purchases of power have at least temporarily depleted the state's budget surplus and have raised the possibility of sharp rate increases sometime in the future for electricity customers.

Davis administration officials are banking on the hope that conservation efforts and increased generating capacity will cover the shortfall along with purchases of electricity on the spot market.

"We're facing an extreme challenge still this summer," said Severin Borenstein, head of the University of California at Berkeley Energy Institute. "Signing contracts doesn't create more electricity."

The information released did not include the names of companies that the state has signed contracts with or the purchase prices.

The sketchy details did not satisfy frustrated lawmakers, who said many questions remain, especially how much the state will end up paying under the terms of the contracts.

"The fundamental question is how much is it costing the state of California to keep the lights on," said Assemblyman Tony Strickland, R-Thousand Oaks. "What we really need is total disclosure."

The state started buying power in January, after generators began refusing to provide electricity to the state's investor-owned utilities. Pacific Gas and Electric Co. and Southern California Edison say they have more than $13 billion in past debt.

The state has been spending $49 million a day on power purchases since Jan. 17, according to documents obtained by The Chronicle last week.

Those documents said the average price of the contracts across 10 years is $69 per megawatt hour, including summer peak. The five-year average price is $79 per megawatt hour.

According to one chart provided by the governor's office yesterday, the long-term contracts will fall about 35 million megawatt hours short in 2002. Based on the average price per megawatt hour the state has been paying since January, that could end up costing between $6.6 billion and $13 billion.

The law creating the state purchasing authority allowed purchases up to $10 billion and extends until 2003. The governor's office said 21 contracts have been signed and another 23 agreements that have been reached but not yet signed.

Several generators have said that they will not sign contracts with the state until the back debt by the utilities has been taken care of. "We have some real potential problems," said Senate President Pro Tem John Burton, D-San Francisco.

Strickland and several media outlets, including The Chronicle, have filed public information requests to get more information about the prices of the contracts from the administration. Releasing the information would jeopardize the negotiations for future contracts, said Steve Maviglio, Davis' spokesman.

Lawmakers, also frustrated by the lack of information given out by the Davis administration, were not given notice that the information was coming, and many said it was lost in their mail pile.

The cover letter was on Los Angeles Department of Water and Power letterhead, not that of the administration. The letter was written by S. David Freeman, head of the Los Angeles system who was on leave for the month of February to help the state negotiate the contracts.

Assemblyman George Runner, R-Lancaster, said the "ambiguity of the information raises more questions than it answers." "It's like watching a parade through a peephole," he said. "He's showing us another float, but I don't know what the parade looks like."

Blaming the state's purchases of electricity, Controller Kathleen Connell said yesterday that the state's cash on hand had fallen from $8.5 billion in January to $3.2 billion. Connell ordered an audit of the state's power buying.

Connell said she would block a transfer sought by the Davis administration of $5.6 billion from the general fund to the state's emergency reserve account, claiming it would lead to a ''serious cash flow crisis."

The transfer, however, is not related to the energy crisis. The sum represents a routine rollover of unspent money from the previous fiscal year. State law requires that money to be sent to a special reserve account for emergencies.

Davis officials acknowledged that $3.7 billion in energy purchases have had an impact on state coffers, but they say the state will be repaid once bonds are issued in the coming weeks. They also said the state typically has its lowest cash reserves at this time of year. That changes in mid-April when a flood of income tax revenue pours in.

"The transfer has nothing to do with energy purchases," said Sandy Harrison, a spokesman for the Department of Finance. "It's not helpful to ratepayers, taxpayers and people who want their lights to stay on to have the issue muddied with this sort of inaccurate innuendo," Harrison said.

In other developments yesterday:

-- After two days of statewide rolling blackouts, power grid managers avoided outages. Demand was lower because of cooler temperatures around the state and supply increased as several power plants completed repairs.

-- A federal judge in Sacramento ordered a major power generator to continue supplying power to California. Reliant Energy Services Inc. had insisted that it should not be forced to sell to debt-heavy utilities unless the state guaranteed the bills.

Chronicle staff writer Greg Lucas contributed to this story. / E-mail Lynda Gledhill at lgledhill@sfchronicle.com.

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