Their job: Cut state's power bill

By Carrie Peyton, Bee Staff Writer

(Published April 22, 2001)

http://www.capitolalert.com/news/capalert01_20010422.html

Blink. There goes $800.

Take an hour's stroll: $3 million.

Wait a day. Another $73 million is gone.

Billions of power dollars have been flooding through a hastily formed state office, draining California's treasury with staggering speed and ferocity. Trying to stem -- or at least slow -- the cataract is a collection of state workers and contractors virtually barricaded inside a red brick building.

They are overworked, underappreciated, and more than a little paranoid. And they're frustrated by what their boss calls the "unmitigated greed" of power traders.

"Their goal every single day is to get as much money as they can out of us, and our job is to keep them from getting it," said Ray Hart, deputy director of the state Department of Water Resources.

How well DWR's new California Emergency Resources Scheduling office does that job will affect millions of Californians' electricity bills for decades to come. Since January, the state has become the purchasing agent for roughly one-third of the electricity used by customers of Pacific Gas and Electric Co. and Southern California Edison.

If you get power from PG&E, think of these people as your personal shoppers. They're well-intentioned. They're hardworking. And you're handing them a blank check.

They work in a spare, three-story office on El Camino Avenue, sharing a parking lot with the same mall that houses a failed Montgomery Ward. Here, in a cramped conference room overlooking empty asphalt and a Red Wing Shoes store, pieces of $40 billion deals were done --negotiations on some of the first long-term contracts aimed at reducing electricity prices.

Downstairs, Viju Patel grabs a phone and listens. "No, there's no cutoff date." Pause. "If you have something you can bring on in summer 2001, we are willing to talk to you."

Patel ran the department's electricity operations when they were pretty much limited to balancing the seasonal pumping needs of the State Water Project. Now he's executive director of the emergency scheduling operation. The day before PG&E sought bankruptcy protection, he was working out of an office so new its white walls were bare, its bookcases empty.

"I've never worked so hard in my life," Patel said, putting down the phone. His 12-hour days and seven-day weeks are filled with fine-tuning draft contracts for long-term power and revising deals for peaking plants. He also screens new offers, hoping some of them can bridge the supply gap that gapes ahead for summer.

Physically, things are looking up at the new headquarters of California Emergency Resources Scheduling. The power traders who arrive before dawn have moved from their hallway-shaped room, dwarfed by a single long table, into a three-times-larger office with rows of work bays, plenty of phone lines and electronic whiteboards.

Consultants are trying to help bring the state up to speed, working on card tables until desks arrive. Paper name tags are taped outside offices. The air smells of new carpet.

Strategically, the picture is less shiny.

"This isn't the ideal condition to negotiate contracts in," said Richard Ferreira, a state power buying consultant who recently retired as an assistant general manager of the Sacramento Municipal Utility District.

The sellers know California needs more power than it has. Rainfall is down. PG&E is in Chapter 11. Federal regulators don't want to cap prices. Those aren't a lot of strong cards. "It's like getting on the merry-go-round and people are spinning it faster and faster and faster," Ferreira said.

He and Patel and Hart talk guardedly about how much California will have to spend, on utilities' behalf, to get through the next couple of years until more power plants can be built. Others won't talk at all. Reporters are banned from standing near the traders who make daily purchases. A photographer is told he can't have their names, because someone angry over an electric bill might single them out for retaliation.

Gov. Gray Davis has repeatedly denied requests for more details on the state's power dealings, saying it could hamper ongoing negotiations. "Information is extremely important. Any information that gets out there has a tendency to drive price," Hart said.

Among the few firm numbers the public sees are regular notifications from the state Department of Finance to the Legislature that power buyers will need another half-billion dollars within 10 days.

The latest notice, delivered late Thursday, brings the total the state has allocated toward electricity purchases since January to $5.7 billion. The information black hole has fueled suspicion, opportunities for conflicting spins, and a nagging fear that the state is fumbling its job.

Hart still winces at a Wall Street Journal article last month that painted California as an inept trader, and his media staff produces an e-mailed apology from the seller who was quoted. "We're stressed. We have a huge workload in front of us. But I wouldn't say we're over our heads," Hart said. "People who want to do business in California in the long term have to come to the table. That's a tremendous lever."

Last week, Davis and PG&E clashed over the interpretation of partial figure released by the governor. Davis said PG&E's bankruptcy-protection filing drove up prices. The utility countered by blaming increased state spending on a federal ruling that forced the state to buy more electricity. No one can know for sure because Davis' office declines to release complete information on the trades.

Meanwhile, in the face of that ruling, the state's power buyers now predict they could reach a point where they decide refusing to buy -- and triggering blackouts -- would be better than paying any price. "It's a little bit of an energy chicken game that's taking place," said Ferreira.

The game is full of moves and countermoves, of floated boycott threats that could drive down prices and floated scarcity warnings that could pump them up. Hanging over it all is the question of just how high electric rates will rise to cover the money changing hands at 3310 El Camino Ave.

Officials at the state Public Utilities Commission have been simmering for weeks as they wait for Hart's office to send them its "revenue requirement" -- the formula for how much money has to be collected from utility customers to repay the state. It will affect millions of electric bills from Eureka to Bakersfield.

Late Friday, Hart said he'd have it finished soon -- but it won't be public. The formula includes too many assumptions that would help marketers, he said.

The Bee's Carrie Peyton can be reached at (916) 321-1086 or cpeyton@sacbee.com. Bee Staff Writer Emily Bazar contributed to this report.

-- Swissrose (cellier3@mindspring.com), April 23, 2001