Gambles Pay Off as Public Universities Avoid Spiraling Costs

With a savvy electricity contract and their own power plants, California’s public universities have escaped the power crisis gripping most of the state.

Seeking to avoid the perils of the volatile spot market, the University of California and California State University signed long-term electricity contracts with Houston-based Enron Energy Services in 1998. The deals locked them in to a four-year fixed rate of 5% below the 1998 market price for electricity.

“In the logic of a public institution, we will err to [the] side of long-term contracts for stability’s sake,” said Dan Johnson, associate vice president for facilities development and operation at San Jose State. “We can’t afford to pay high when the price is high and low when it’s low.”

Energy policy experts say these kinds of long-term power contracts are essential to restoring stability and extricating the state from its power crisis.

The deal the universities struck with Enron was one of the relatively few cases in which a power customer took advantage of deregulation to switch providers. The deck was stacked against such deals under rules designed to ease the utilities into the competitive market.

At the onset, the Enron deal was supposed to save the UC and Cal State systems nearly $20 million on their estimated $300 million in electric utility bills over the four years.

Officials estimate the savings to be substantially more, because the fixed rates have insulated the universities from recent price hikes.

Although the savings systemwide have not been calculated, UC San Diego alone avoided $12.3 million in rate increases between April and November, according to a UC report.

Signing with an out-of-state supplier was a gamble that only a handful of California’s major electricity users were willing to take--Pacific Telesis, Patagonia and the San Francisco Giants among them.

“I think we’re all pleased with the way the deal has gone,” said David Johnson, UCLA’s director of energy services.

In addition to long-term contracts, the UC and Cal State systems have another weapon in their power arsenal: cogeneration plants.

The UC system generates 100 megawatts, or about a third of the power it uses, with plants at its Los Angeles, Davis, San Francisco, Berkeley and San Diego campuses.

The Cal State system has power plants at its San Luis Obispo, San Francisco, San Diego, Long Beach and Humboldt campuses that generate a total of about 60 megawatts.

Combined, the Cal State and UC systems generate enough power to light about 160,000 homes.

The power plants are known as cogeneration plants because waste heat from the electricity-producing process is used to heat and cool the campus, saving the campuses even more on their electricity bills.

San Jose State and UCLA have power plants big enough to generate about 80% of their needs. The campuses generate so much power, in fact, that when demand is low at night they sell the excess at market rates to the state’s Independent Service Operator.

The university power plants are generally smaller and cleaner than those operated by public utilities. UCLA’s plant, which is larger than most, is housed within an 80,000-square-foot complex on campus.

The Cal State and UC systems, which together consume 1% of the state’s electricity, are now seeking $185 million to build more of their own power plants and other energy conservation projects in the next two years as a way of weaning themselves from private-sector energy producers.

The plan was developed in response to a request by Gov. Gray Davis last month that all state universities and colleges “move toward energy independence through cogeneration and other means.”

University officials are counting on getting the money from a wide variety of sources, with much of their hopes riding on the $1-billion Senate Bill 5X, which would funnel funds to agencies to upgrade power generation plants and to add conservation equipment, such as energy-efficient lighting.

With a $12-million expansion, San Jose State could triple its output and become a supplemental provider of energy for the hard-to-supply Bay Area, Dan Johnson said.

“When energy was cheap, no one understood why we were trying to make more power,” Johnson said. “It didn’t feel good to be right and not be able to do anything about it. Now I think we’ll get the money with no problem.”