Calif. had to give power away as energy demand lessened

By CHRIS BOWMAN

Scripps-McClatchy Western Service

October 25, 2001

SACRAMENTO, Calif. - Demand for electricity in California has been so slack at times that the state has had to give away power and even pay utilities to take it, state financial records show.

The state altogether lost about $26 million in its first three months of trading power on the daily wholesale electricity market as demand and prices declined, documents released this week indicate.

The figures reflect a dramatic shift in market conditions from earlier this year when the state couldn't find enough power to buy on the spot, let alone sell.

"Before, we had to buy all the power we could and we still came up short, and that's when we saw some (price) gouging," said Oscar Hidalgo, spokesman for the state Department of Water Resources, which has intervened as the power buyer for utilities.

Beginning in May, demand softened and prices gradually dropped as more generators came on line in peak hours and consumers heeded calls for conservation - despite an unseasonably warm May - energy analysts say. The state's entry as the biggest buyer in the California power market also tamed spot prices as it began to secure long-term power contracts.

The state's electricity purchases totaled $1 billion in June compared with $2 billion in May, primarily because of declining prices, Hidalgo said. But the softening market also hurt the state when it turned around and sold power at prices significantly lower than what it was charged.

The losses fuel critics who want government out of the power-buying business, saying its better left to private corporations structured to maximize profits.

"They're selling electricity that taxpayers paid for at 10 cents on the dollar," said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights.

Officials say the success of Gov. Gray Davis' power-trading program should not be judged by quarterly sales, but whether its goals of taming prices and averting blackouts have been met. By that measure, they said, the program is succeeding.

"We're meeting demand. We're stabilizing the market," Hidalgo said.

The state began buying power in January but didn't begin selling it until April when the daily scramble to meet California's power needs eased. The records released Wednesday show the state sold 224,871 megawatt-hours during the three-month quarter that ended June 30. That represents about 1 percent of the total traded.

Spot sales averaged $45 per megawatt-hour. The average includes days when power went for next to nothing, or nothing at all.

State traders found themselves in the position of having to give away a total of 1,415 megawatt-hours. They found no takers and wanted to avoid paying penalties that the operator of the state's power grid charges for dumping surplus electricity, Hidalgo said.

A few times the state had to pay a utility to take the excess power. On May 28, for example, the Los Angeles Department of Water and Power charged the state about $33,000 to take 2,175 megawatt-hours of electricity off its hands, the records show.

Although the losses aren't out of the ordinary for a large power buyer, the numbers for April-June indicate that bigger losses are in store, said Gary Ackerman, a spokesman for power generators and traders.

Ackerman said the third quarter, July through September, when the state experienced a major power glut, will almost certainly reveal heavier losses.

The state withholds public release of its quarterly figures for three months to protect its negotiating power. But earlier this year it revealed power transactions for the first half of July indicating it had lost $14 million.

Bee staff writer Dale Kasler contributed to this report.

-- PHO (owennos@bigfoot.com), October 26, 2001

Answers

Lets see, corporate earnings way down, that means less taxes paid if any at all due to losses, more unemployment which means less payroll taxes and also less sales taxes paid. More companies going bankrupt or moving overseas where labor is dirt cheap and then icing on the cake is that CA is blowing tens of millions of tax and rate payers dollars on the most mismanaged crisis of state California history in terms of people affected, dollar amount, and length of time.

I predict that Moodys and S&P will have to continue to downgrade Californias securities until the the state actually has to go bankrupt, the first state in the history of the U.S. Well it won't actually go bankrupt, federal taxpayers will bail them out. My timeframe for this is three years.

-- Guy Daley (guydaley1@netzero.net), October 26, 2001.