Calif Water Department Signs 466-MW In Long-Term Power Deals

Thursday, April 26, 2001 07:52 PM ET

LOS ANGELES -(Dow Jones)- The California Department of Water Resources has signed five more long-term power contracts, giving the state an additional 466 megawatts of supply for 2001 and 2002, according to an update posted on the department's Website.

But the total volume of contracts being negotiated or signed fell by about 1, 000 megawatts a year through 2003 and by about 500 megawatts in 2004, according to the Website update, which was posted Wednesday.

Neither the department nor the office of Gov. Gray Davis could explain the loss of the megawatts. The department, which is handling the state's power purchases, will need to cover on average 7,000 to 10,000 megawatts at any given time through the end of the year, according to documents on the DWR Website. At peak times, however, those numbers will likely rise to 12,000 to 19,000 megawatts. The DWR is signing long-term contracts in an effort to lock in power supply and to stretch out its costs.

As of April 9, the DWR had signed 24 long-term power supply contracts with 10 generators and secured 25 agreements in principle, up from 19 signed contracts on March 14.

The signed contracts account for 1,912 megawatts in 2001, a year in which the total, including agreements under negotiation, is 5,630. On March 14, the total for 2001 was 6,502.

The signed contracts will provide 3,850 megawatts out of a total of 7,703 megawatts in 2002. On March 14, the total for 2002 was 8,794 megawatts.

The amount of power the state has secured is expected to peak in 2004 through 2006 and declines in 2006 due to "the ramp up of energy purchases under the long-term contracts, the expiration of some of the five to six year contracts and a strategy to acquire the balance of energy requirements from the market in later years when low-cost supply options increase," according to the DWR.

The average long-term contract price for power for the first five years is $86 a megawatt-hour and $60/MWh from 2006 through 2010, with the average 10-year contract cost of $71/MWh. That includes summer super peak, when demand and prices are the highest.

"The state may be liable for certain additional costs under some fixed-price contracts, such as additional taxes due to governmental actions or termination rights of sellers due to credit requirements," according to the DWR.

The DWR said it will continue to negotiate additional long-term contracts and its trading desk will purchase the remainder of the net short position to meet demand.

The DWR is still negotiating about 3,252 megawatts worth of contracts for 2001 and has early-stage offers for another 1,161 megawatts. The department has 3,387 megawatts under negotiation and 1,688 megawatts offered for 2002.

Generators can terminate their contracts with the DWR if the state fails to issue revenue bonds or if the state's credit rating falls below investment grade.

The DWR said a plan is needed for "hedging and/or acquiring fuel supplies to minimize costs under the tolling agreements" - arrangements under which the department will supply the fuel, pay an operating fee and take the power.

The DWR will also "need to expand its organization to actively manage and administer over 40 executed agreements to minimize cost."

-By Jason Leopold, Dow Jones Newswires; 323-658-3874; jason.leopold@ dowjones.com

http://www.business.com/directory/energy_and_environment/electric_power_utilities/news/full_story/index.asp?uuid=EE2850C7-CD70-4F2A-9664-7B70B08848EA&source=Dow%20Jones

-- Martin Thompson (mthom1927@aol.com), April 26, 2001