Hidden Costs Revealed in Power Pacts

California consumers on Monday were given their first detailed glimpse of the unpredictable and potentially higher costs they’ll face in the future under power-buying deals signed by Gov. Gray Davis’ administration.

State Controller Kathleen Connell released previously secret elements of the state’s long-term electricity contracts, along with a new warning that the price tag could exceed the administration’s previous estimate of $43 billion.

Technical vagaries in the pacts, Connell said, could leave state power bills open to wild fluctuations over the next decade. Even after weeks of analyzing the 41 agreements, she said, her office is still unable to say “what the [cost] ceiling could be.”

Among other things, the controller said, most costs under the contracts are now running between $70 and $200 per megawatt-hour, and she predicted that costs over the next decade will be far higher than the $69 per hour suggested by Davis’ aides.

More certain are the amounts the state is paying more than two dozen private consultants who have been drawn into the electricity crisis and whose contracts also were released Monday by the controller.

Some of those consultants--working on behalf of Davis or the state agency that has been purchasing power since January--are making tens of thousands of dollars each month.

Connell’s release of the uncensored electricity contracts came one day after the California attorney general said Davis would not appeal a judicial order declaring them public records in their entirety. The court action in San Diego was filed by The Times and other news organizations.

Three weeks ago, after another ruling favorable to the media, the administration released the contracts, which will govern the cost of wholesale electricity for years to come. But key technical provisions were redacted from those documents.

Davis planned to release the contracts later this week, but the controller upstaged him Monday, offering her own spin on the deals and prompting the governor’s office to shoot back.

His aides insisted Connell’s warning of possibly higher costs was based on incomplete information. Her price figures, they said, were skewed toward purchases made earlier in the year, when electricity and natural gas prices were significantly higher.

“Unfortunately, the controller doesn’t let the facts get in the way of a good story,” said Davis spokesman Steve Maviglio, adding that the controller has been at odds with Davis since he endorsed her rival, Antonio Villaraigosa, in the Los Angeles mayor’s race. “This is just a drive-by shooting where she does not have the full set of information.”

Millions in Hidden Costs

Still, the contracts released Monday show for the first time the millions of dollars in hidden costs that are being shouldered by taxpayers.

At least one of the energy suppliers, Houston-based Dynegy Inc., negotiated terms that allow it to pass along to the state high-cost delivery charges for natural gas, experts said.

Robert Michaels, an energy consultant and professor of economics at Cal State Fullerton, said the Dynegy contract permits the firm to use the state’s most costly benchmark of natural gas prices.

Dynegy “has its choice of the highest [cost delivery] point,” said Michaels, who once advised the company. Like Connell and others, Michaels said that even with the complete picture of the contracts, it is difficult to determine how much added cost ratepayers may face as the deals extend into the next decade.

Also, in just the first three months of the Dynegy contract, the state picked up about $10 million in pollution, start-up and other operational costs for the firm.

Likewise, a contract with San Diego-based Sempra Energy Resources, parent company of San Diego Gas & Electric, allows the company to choose where it delivers electricity into the state grid, Michaels said after an initial review of the agreement.

“It seems to offer a lot of flexibility for the supplier,” said Michaels, who also has been a consultant for power suppliers. “It’s not obvious what the state got out of this [deal].”

The new details on fuel and emission costs underscored some critics’ fears. “As you look at the devil in the details, it gets worse,” said UC Irvine economist Peter Navarro.

He noted, for example, that Dynegy has been one of the power merchants labeled by Davis as “pirates.”

But examining the company’s complete contract Monday, Navarro said, it seemed as if the state was saying, “You pirate, take California’s dowry.”

Navarro and other critics note that power prices have fallen dramatically in recent weeks, well below those the state is paying under the long-term contracts.

A Times analysis of payments made so far under the contracts shows the average cost per megawatt-hour has been $173. Recent spot prices for peak power have been as low as $50 a megawatt-hour, according to surveys by Platts Energy Trader, an industry newsletter. By Monday, when an energy emergency was declared, the price had risen to about $92 a megawatt-hour.

Administration officials, including Davis’ chief contract negotiator, S. David Freeman, have said the state had little negotiating leverage when many of the deals were struck early this year.

“Early on, we were having a very difficult time gaining any advantage,” said Oscar Hidalgo, spokesman for the state Department of Water Resources, which oversees power purchases. Still, Hidalgo and others in the administration contend the power deals will stabilize prices in the long term, and have tamed high spot prices this year.

“Now, we have gained the upper hand,” Hidalgo said.

A Big Payday for Consultants

Meanwhile, payments to outside consultants hired to assist the governor and the state Department of Water Resources in dealing with California’s energy crisis reached nearly $2.8 million by late last month, according to the figures released Monday.

But those payments represent only a fraction of the total contracts the state has signed with a broad array of consultants to assist with the purchase of power and acquisition of transmission lines, to provide legal and technical advice, and to mount advertising campaigns and polish Davis’ image.

The agreements include a $1.5-million multiyear contract with the Washington, D.C., law firm of Grammer, Kissel, Robbins, Skancke & Edwards, which specializes in energy and environmental law.

Attorney Elisa J. Grammer and other members of the firm will represent the state in proceedings before the Federal Energy Regulatory Commission and related court proceedings through the end of May 2004.

Another contract calls for the state to pay $1.1 million to two New York consulting firms--the Blackstone Group and Saber Partners--at the rate of $275,000 a month. The contract includes the services of Joseph Fichera, one of Davis’ chief advisors on the energy crisis.

Blackstone/Saber could be paid an additional $14.58 million if the Legislature approves deals to buy electric transmission systems from the state’s three private utilities--the financially rocky Southern California Edison, Pacific Gas & Electric, which has filed for bankruptcy, and San Diego Gas & Electric. Critics say the contract, in effect, provides a huge financial incentive for the consultants to boost the price the state will have to pay for the transmission system, which would result in higher fees for them.

Davis also drew criticism in late May when he hired two former White House strategists--Mark Fabiani and Chris Lehane--at $15,000 a month each. Both also did consulting work for Edison to help the utility win approval of a financial rescue package that Davis is pushing. Critics charged the two had a conflict of interest representing both the governor and the utility.

The governor announced late Friday that Fabiani no longer works for him and that Lehane would work for less money. Davis’ statement said that Lehane would be paid $9,900 a month, roughly the same pay as the governor’s last communications director, and he would not work for Edison while consulting for Davis.

Also released was the state’s contract with the governor’s energy conservation czar, Freeman. The former head of the Los Angeles Department of Water and Power is being paid $120,000 for six months’ work from April 15 through Oct. 15.

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Times staff writers Nancy Rivera Brooks, Virginia Ellis, Davan Maharaj, Doug Smith, Nancy Vogel and Daryl Kelley contributed to this story.