Posted at 1:41 a.m. PDT Tuesday, July 10, 2001

California's power purchase bills exceed $7.5 billion

BY MARK GLADSTONE, NOAM LEVEY AND DION NISSENBAUM Mercury News Sacramento Bureau

SACRAMENTO -- Six months after jumping into the electricity business, the Davis administration on Monday provided the first detailed glimpse of California's daily power purchases, showing more than $5 billion in payments, much of it to government-owned utilities and private companies that state officials have branded as price gougers.

The state spent an additional $2.5 billion on a variety of contracts and other electricity services designed to stabilize the volatile energy markets, according to documents that the state agreed to release last week amid a legal dispute over public access to the data.

In roughly the first five months of the year, the state shelled out $1.2 billion to Atlanta-based Mirant, the most any company was paid for electricity, followed by $1 billion to Powerex, the marketing arm of BC Hydro in British Columbia. It also paid $331 million to the Los Angeles Department of Water and Power.

The documents raise questions about some of the common assumptions that have arisen around the electricity crisis. For instance, almost 40 percent of the state's purchases have come from government-run power generators in California and elsewhere, but not Texas; some of the biggest suppliers are from the Northwest.

Gov. Gray Davis, who has ambitions to run for the White House, has put much of the blame for the soaring costs of power on energy companies based in President Bush's home state.

The figures are tucked inside 1,770 of pages of invoices that Davis has resisted divulging, saying disclosure would encourage suppliers to charge more. The state, which last month released information on its long-term electricity contracts worth $43 billion, agreed Thursday to release the first quarter details.

Short on explanation

The figures were disclosed late Monday by the California Department of Water Resources, which buys power for the state's financially strapped major utilities, and seem to buttress the administration's contention that the price of power is gradually dropping but offer little or no explanation for what prompted the decrease.

In January, for instance, the average price for power on the spot market was $321 a megawatt hour. It peaked in April at $332 and dropped to $271 in May.

One megawatt powers about 750 homes.

Davis spokesman Steve Maviglio said the price data supports the governor's assertions that California has been gouged. ``The bad guys are clearly the out-of-state generators,'' Maviglio said. ``There has been a significant shift of money out of California.''

But the documents fail to shed much light on whether, as the administration contends, the price drop was due to long-term power contracts negotiated by the state earlier this year. Critics contend that the Davis administration panicked and rushed into deals that commit the state to pay high prices for many years.

Used for support

Republican officials used the price information to bolster their attacks against Davis, a Democrat, for signing long-term contracts with power generators even as the price of power on the spot market was coming down, partly because of the declining price of natural gas used to fuel many plants.

``It's more clear than ever that the long-term contracts are a bad deal,'' said Assemblyman Tony Strickland, R-Camarillo. ``The governor's really hurt the ratepayers for the next five or 10 years.''

The newly released bills highlight the volatility of California's energy market, where the price per megawatt hour ranged from $70 to $1,000. On any given day, the records show, the prices from seller to seller varied widely, with some of the highest prices being charged by public utilities and companies outside Texas.

On one day in February, for example, San Diego-based Sempra Energy was charging $165 per megawatt hour, the Eugene Water and Electric Board was charging nearly $500 and Duke Energy, a North Carolina company, was charging up to $575.

The state's daily spending peaked May 10 at $102.4 million for all power, including the spot market and contracted power.

The state began buying power in mid-January on behalf of the state's major utilities, which were unable to borrow money to buy power after amassing enormous debts for electricity.

San Jose-based Calpine Corp., which is building several new power plants around California including one in South San Jose, did only $29 million worth of business with the state in the first five months of the year, according to the figures.

The state began buying power in mid-January when Pacific Gas & Electric Co. and Southern California Edison Co. were on the ropes financially. PG&E later went into bankruptcy.

On Monday, state lawmakers took another shot at trying to cobble together a plan to rescue financially ailing Edison.

While most concede that a rescue plan Davis worked out with Edison will not win the necessary support in the Legislature, lawmakers have created several working groups to come up with alternatives.

Compromise plan

On Monday, state Sen. Byron Sher, D-Redwood City, unveiled the latest compromise proposal that seeks to protect average ratepayers and small businesses from further rate increases and forces everyone else to help finance the Edison bailout.

The ``shared pain'' proposal would force power producers, owed about $1 billion, to take a 30 percent ``haircut'' and agree to forgive about $300 million in Edison debts. Edison would be asked to swallow $1.2 billion -- about a third of its debt. And big users would be asked to pay off the remaining $2 billion in debts, possibly by paying higher prices for power.

In exchange, large companies would be given the opportunity to buy power on the open market, a system that would allow many of them to sign cheap energy deals.

Sher presented the proposal to Senate Democrats Monday afternoon, but it remains unclear how much support the framework will receive in the Legislature.

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-------------------------------------------------------------------------------- Contact Mark Gladstone at mgladstone@sjmercury.com or (916) 325-4314.

-- Martin Thompson (mthom1927@aol.com), July 10, 2001