Calif. power spending shrinks as prices tumble

LOS ANGELES (Reuters) - California is now spending $30 million a day or less on electricity, down sharply from close to $100 million a day in May, an official with the state's Department of Water Resources said Sunday.

The state took over the purchase of power on the wholesale market on behalf of its cash-strapped utilities earlier this year. The California Department of Water Resources (DWR) is the agency charged with buying power for the state.

B.B. Blevins, the DWR's Assistant Director for Energy, told a conference call that the agency has spent around $368 million buying power so far this month, compared with about $1 billion for the whole of last month and around $2 billion in May.

``We have every expectation to keep that trend moving downward,'' Blevins said.

The total average cost so far this month is $133.00 per megawatt hour, compared with $243.00 per MWh in May, he noted. Figures for June were not immediately available.

One megawatt is enough power for around 1,000 homes.

Blevins attributed the drop to four factors -- long-term contracts signed by the state, conservation, new price controls imposed by federal regulators and mild weather.

He noted the state had bought less than 5 percent of its power in the volatile spot market this month, compared with close to 45 percent earlier this year due to long-term and near-term contracts and conservation.

``We have dramatically shrunk the spot market,'' said David Freeman, senior energy advisor to California Gov. Gray Davis.

The California Department of Water Resources took over power purchases earlier this year after the state's two leading utilities ran out of money.

The utilities spend billions of dollars buying power at soaring prices in the wholesale market which they were not allowed to fully pass on to customers due to a retail price freeze imposed under the state's much criticized power deregulation legislation.

FINANCIAL WOES

California's largest utility, PG&E Corp. unit Pacific Gas and Electric filed for Chapter 11 bankruptcy protection in April while Edison International unit Southern California Edison has been teetering on the brink of bankruptcy for several months.

The state is currently seeking about $8.9 billion in refunds from power generators who it believes overcharged the state between May 2000 and May 2001.

Freeman said the drop in prices provided further evidence to back up the state's claim.

``These prices further confirm the outrageous nature of the overcharges of the past. This is saying they really took us to the cleaners real bad,'' he said.

Gov. Davis has repeatedly accused generators of ''profiteering'' and has argued that rates were not ``just and reasonable'' as required by U.S. law.

Generators contend prices they charged reflected soaring natural gas prices, strict environmental regulations, tight electricity supplies and the huge financial risks in California's volatile power market.

The companies California accuse of overcharging include Reliant Energy Inc. , Duke Energy Corp. , Mirant Corp. , Williams Cos. and Dynegy Inc. .

Consumer electricity rates in California have been raised twice this year to cover soaring power purchase costs and there has been talk that the California Public Utilities Commission may be considering a possible third rate hike.

Freeman said, however, that the recent drop in power purchase costs meant such an increase is not warranted.

``We have no need for a rate increase at this time in my opinion,'' he said.

http://www.bayarea.com/rc/business/docs/09488661.htm

-- Martin Thompson (mthom1927@aol.com), July 15, 2001