The Haggler We Need

The state’s unprecedented auction seeking long-term contracts for supplying electricity brought a score of offers from power generators, reportedly at prices higher than the state wants to pay--6.9 cents per kilowatt-hour on weighted average, compared with Gov. Gray Davis’ range of 5 to 5.5 cents. But getting the bids was just the start. Now comes the tough part of negotiating the terms of power supply contracts, and the governor’s choice, S. David Freeman, a seasoned utility executive with years of experience in buying and selling electricity, is the right man to do it.

Davis’ decision to buy energy on behalf of the beleaguered utilities is an important part of the state’s plan to stabilize energy prices and secure a steady supply of power. Under long-term contracts, prices can be substantially lower than those on the spot market. They would be even lower for the state than for California’s two largest private utilities, whose bonds now are rated in the “junk” category.

The 75-year-old Freeman has spent much of his professional career buying and selling electricity for government-owned utilities. Before becoming general manager of Los Angeles’ Department of Water and Power in 1997, he ran four public utilities, including the Tennessee Valley Authority. His work for a public power system has made him sensitive to the needs of consumers, rather than the utilities. It also blunts some legislators’ criticism that, as an executive of a utility that sold $200 million in power to the California electricity grid, he will have little incentive to negotiate the prices downward. Consumer groups, which are among the loudest critics of the utilities, welcomed Freeman’s selection.

In asking Freeman to do the negotiating, Davis picked one of the more vocal critics of the energy auction. Freeman had predicted the bidding would not yield the low prices Davis wanted and said the state Department of Water Resources, which will be buying the power, doesn’t know enough about the electricity wholesale market to conduct the negotiation. He said Monday he could “sit down and buy power a whole lot cheaper than they know how to do.” He will now have a chance to deliver.

Bringing the prices of electricity down will not be easy in California, where spot prices average between 22 cents and 30 cents per kilowatt-hour, five to six times higher than elsewhere in the country. The average California household uses about 500 kilowatt-hours a month. But experts believe Freeman can strike a deal close to Davis’ terms, provided the governor gives him the room to maneuver and the authority to act. With the full faith and credit of the state treasury behind him, Freeman could shorten the odds in what is a sellers’ market.

The long-term contracts could take California off the critical list and keep the lights on. But a solution to the power crisis--including conservation, building new generation plants and cleaning up the mess of accumulated debts--will require a lot more work.