Thursday, April 19, 2001

State's power tab may soon double

Experts predict a daily rate of $150 million this summer, as Davis considers not paying beyond a set rate.

April 19, 2001

By HANH KIM QUACH The Orange County Register

SACRAMENTO - The state's tab for buying electricity is expected to double to $150 million a day during the summer's peak-usage periods, experts said Wednesday, meaning an even faster depletion of the state surplus unless a series of measures is undertaken.

Since the state began buying energy in January, California has spent an average of about $45 million a day. As of last week, the state had run through more than half of its $8.5 billion surplus. Last week, though, the cost went to more than $70 million a day, because Pacific Gas & Electric filed for bankruptcy and power suppliers have raised prices for fear of non-payment, and worse times are predicted.

While Gov. Gray Davis has touted a $10 billion bond issue to shore up the state treasury and cover past and future energy purchases, many analysts are saying it won't be nearly enough.

So one of the actions Davis and top legislators now are weighing: Setting a limit on what the state will pay for electricity and facing rolling blackouts if generators aren't willing to sell. Some top economists and consumer activists are pushing for the hardball tactic.

University of California, Irvine, economist Peter Navarro - among those advocating such a "buyers' cartel'' - said Wednesday that if the state doesn't take control of the situation, it could spend as much as $50 billion on power over the next six months. That is about equal to the amount the state spends on kindergarten through college education each year.

Davis is approaching the idea with great caution, his spokesman said.

"When there are blackouts, law enforcement is impacted, traffic lights go out, people living on respirators are affected," said Steve Maviglio. "We'd be playing a big game of chicken with the generators and if they don't blink, then we'll suffer severe consequences."

Need to act swiftly prompts bold talk

Such talk grows from a window of opportunity to act that narrows as summer approaches.

The state was hoping to avoid paying the premium "spot market" price for electricity this summer by locking up a series of long-term contracts to buy energy at relatively low prices. However, analysis of the contract details released so far shows that the state will be far short of the 20,000 megawatts of electricity analysts estimate it will have to buy at peak demand periods - typically hot weekday afternoons.

At best, by July 1 the state will have secured through long-term contracts 4,200 megawatts of power at peak periods. By Aug. 1, the state might have as much as 4,605 megawatts.

That means the state will buy most of its power above the premium rates that have bankrupted one utility and put another on the brink of insolvency.

Based on a variety of assumptions - a modest conservation rate, peak demand numbers and the rate of plants that will be down for maintenance - two analysts, Mark Bernstein of the Rand Institute and Michael Shames of the consumer group UCAN, on Thursday independently came up with the $150 million-a-day estimate.

Navarro said he thinks it could go even higher, considering that at least one provider, the Bonneville Power Authority in Oregon, expects 250 percent rate increases this summer and one power company in the Northwest last month paid the same amount for power as it had the entire year before.

Bond issue relied on to repay treasury

"There's a good possibility that the state will be out of cash because of electricity prices this summer," said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights.

Under that scenario, programs in every facet of state government - which are now being told not to count on new money and in some case have received modest cutbacks - could be severely slashed.

But Davis has been reassuring, saying the bond sale will raise enough money to reimburse the state.

Davis, has said that while power purchases will strain the state budget, it won't deplete the treasury. He expects state spending on electricity would be repaid from the $10 billion in bonds the state hopes to sell in May or June. But bond traders are starting to worry that the size of the bonds will not be enough to cover current spending - and the cost of procuring power in the next few years.

The money would be repaid to the bondholders from what ratepayers in future will pay under Davis' long-term contracts.

Meanwhile, Davis' quest to sign more contracts continues. He has 24 signed and has about two dozen more under negotiation.

http://www.ocregister.com/news/summer00419cci2.shtml

-- Martin Thompson (mthom1927@aol.com), April 19, 2001

Answers

Let's juggle some figures here for the moment. The State's surplus of $8 billion is now half gone. It is still spending $70 million a day to buy electricity, an amount that will increase to $150 million by summer. Over the next six months it will spend some $50 billion for electricity. That's $46 billion more than it has left in its treasury.

Can anybody see anything short of an unmitigated, total catastrophe here?

How could such a nightmare situation -- with state bakruptcy or national emergency bailout a virtual certainty -- do anything but highly impact the whole economy, and, probably the economy of the world?

-- Wellesley (wellesley@freeport.net), April 19, 2001.