State acknowledges secrecy clause in power deals

BY JOHN WOOLFOLK Mercury News As state officials cut deals in recent months to spend millions of taxpayer dollars to purchase electricity, they signed agreements not to reveal the terms of those contracts to the public.

Even the state's chief energy czar admits the confidentiality clause conflicts with the public's right to know how its money is spent, and that officials are trying to get around it. But the clause gives sellers veto power over releasing information.

``Our hope would be to release these contracts, but we can't release them, at least our lawyers tell us, without consent of the parties,'' said S. David Freeman, who acknowledged the agreements for the first time Wednesday. Consumer advocates voiced outrage.

``There's no such thing as a non-disclosure agreement with regards to taxpayer money,'' said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

The administration's secret electricity spending has been a top concern among lawmakers and public advocates since January, when the state stepped in to buy power for its troubled utilities at a cost that has reached more than $70 million a day.

Freeman said Wednesday that the state was so pressured to sign contracts to lock up lower-cost power supplies that negotiators never considered the ramifications of the secrecy clause. He said violating that agreement could void the contracts.

Would companies bail?

A representative for power companies said Thursday that he doubts companies would bail on existing contracts but might not sign more.

Without seeing details of the spending, lawmakers this month approved a record $13.4 billion in ratepayer-backed bonds to cover power costs that have reached nearly $8 billion. Critics question whether the state is getting a good deal and wonder whether the bonds will cover the costs.

Until now, Gov. Gray Davis has answered critics by arguing that revealing the deals would jeopardize the state's bargaining position, exposing ratepayers to even higher costs. Critics said the administration never before mentioned confidentiality clauses.

``These contracts have been out there for a couple of months and this is an excuse I've never heard before,'' said Mindy Spatt of the Utility Reform Network, a consumer group. ``It makes me wonder whether they've really got a good reason or something they're trying to hide.''

The state routinely enters into contracts in other areas, and those contracts are governed by public-records law and open for review. But Freeman suggested new rules may be in play.

``Businesses don't reveal their contracts, and the state has gone into the business of buying power,'' Freeman said. ``I recognize that if the state does something that people have a right to know about it. On the other hand, if the government is acting in an emergency way as businesses do, there's a clash.''

Freeman said the administration plans to reveal the contracts ``in the very near future'' and is working to find a way around ``this legal problem'' with the confidentiality clause.

``We have nothing to hide,'' Freeman said. ``We're very proud of those contracts.''

2003 release date

But in response to lawsuits from news agencies and lawmakers seeking to compel disclosure, the administration has argued it shouldn't reveal the contracts until Jan. 1, 2003, when they are no longer commercially sensitive. The state's power-buying authority ends on that date.

News agencies, whose case will be heard Friday, say there's no evidence disclosure would jeopardize the state's bargaining position, and that the secrecy serves the governor's political interests more than the public's.

Alonzo Wickers, a lawyer for the news agencies, including the Mercury News, said the administration hasn't made an argument based on confidentiality clauses, and that the law wouldn't support that claim.

``The courts have said you can't do that if you're a public agency,'' Wickers said.

Jamie Fisfis, spokesman for Assemblyman Dave Cox, R-Sacramento, said the confidentiality argument is ``frankly outrageous.''

``If he signed a contract to build roads, would he then argue he couldn't disclose it?'' Fisfis said.

Daily deals costly

The contracts guarantee a supply of power at costs below today's high market prices, helping to avoid rolling blackouts and limit rising rates. Without the deals, the state must scramble to buy power day by day at much higher prices.

The administration has signed dozens of contracts ranging from several months to a decade or more, and said the average price over 10 years is 7.1 cents per kilowatt-hour, a bargain compared with the 20- to 30-cent daily rates.

Even with the contracts already signed, the state still will have to buy half to two-thirds of its power day by day this summer. It's unclear how many sellers might walk away from deals if the state discloses them.

A spokesman for Calpine of San Jose, which has signed two, 10-year contracts and another for 20 years, said it already has revealed the basic terms and wouldn't oppose further disclosure.

``I don't know any reason for us to get upset,'' said Calpine spokesman Bill Highlander. ``We came in at a very attractive price that we think is good for California and good for us.''

A representative of several major power sellers said companies probably wouldn't walk away from deals they've already signed. But he said confidentiality is important.

``It certainly would drive away people from doing deals like this in the future,'' said Gary Ackerman, executive director of the Western Power Trading Forum. ``It's just not professional.''

-------------------------------------------------------------------------------- Contact John Woolfolk at jwoolfolk@sjmercury.com or (408) 278-3410

http://www.siliconvalley.com/docs/news/depth/power053101.htm

-- Martin Thompson (mthom1927@aol.com), May 31, 2001