Millions Extra Go to Power Buyers

Contract workers who are trading electricity for California have earned millions of extra dollars because of a bureaucratic delay that keeps them off the state payroll.

The Legislature confirmed this month that the state Department of Water Resources, which has been purchasing electricity for 27 million utility customers since January 2001, must spend $3.4 million more than expected because about 40 workers have not been classified as state employees.

“What it comes down to is paying somebody $30 an hour or paying a consultant a minimum of $105 an hour,” said Oscar Hidalgo, spokesman for the state Department of Water Resources.

The additional cost will be borne by customers of the state’s largest private utilities, not California’s over-tapped general fund.

Last June the Water Resources sought authorization from another state agency, the Department of Personnel Administration, to create a new class of state worker called a “utility systems operator.” The personnel department rejected the proposal, saying that the job description was too broad.

Water Resources has been working since then to break down the job into several categories that will satisfy the personnel department. Meanwhile, about 40 department workers who trade electricity, schedule its flow, finalize power deals and coordinate with transmission grid operators have been employed as private contractors.

They get paid, according to a Feb. 1 report by the legislative analyst’s office, “salaries that are on average 60% above those in comparable positions at municipal utilities around the state.”

Department officials said they based the contractors’ pay on a survey of private utilities and energy companies. Many of the contractors have said that they would like to become state employees, even at a lower pay rate, Hidalgo said. But without a new job classification, that is not possible.

He said the legislation that thrust the department into the emergency task of buying electricity last winter specified that the Personnel Administration should help Water Resources expedite the hiring of staff.

“We’re not experts on classification,” Hidalgo said. “It would have helped all of us if we’d gotten more support and guidance and expertise in this area.”

Michael T. Navarro, chief of the Personnel Administration’s classification and compensation division, said Water Resources is “on its own to the degree that they’re defining the jobs.”

“But if at any time they want to sit down with us,” he said, “we’re there.”

A simple request for a new job classification--there are officially more than 4,500 types of jobs in state government--typically can be processed within three months, Navarro said.

“In all fairness to the DWR,” he said, “this is kind of a new function for state government. You’re looking at energy traders, you’re looking at technicians, you’re looking at engineers. These are not easy packages to put together.”

The additional money to pay power-buying contractors is among $40 million in operational costs Water Resources officials hadn’t expected when they projected last February how much money they would need. The department’s costs are paid with money collected from the monthly bills of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric customers.

The department began buying billions of dollars worth of electricity for those customers after a haywire electricity market, set up under a 1996 deregulation scheme, stripped the utilities of cash and ruined their good credit.

The department blames its higher-than-expected costs on lawsuits, extensive audits, a long delay in the sale of bonds to cover power costs, and the sheer complexity of becoming overnight the largest buyer of electricity in the West.

Those factors have forced the department to rely much more heavily on private consultants and attorneys than anticipated, according to the agency’s report to the Legislature.

Among the consultants with expanded roles is the accounting firm Deloitte & Touche.

The department expects to pay the company $8.6 million--more than twice the original estimate--for analyzing risk, advising on computer software and providing 14 consultants to finalize power purchases.

Navigant Consulting Inc. is expected to earn $13 million by next summer--not the $367,000 estimated in February 2001--for helping to negotiate power contracts and prepare financial documents.

Computer software to manage the department’s long-term contracts has cost $10 million, much more than the $2 million expected.

And Hawkins, Delafield and Wood, a New York law firm hired to help the state sell bonds to cover past and future power costs, has been paid $7.4 million, a cost the department had not anticipated a year ago.

California officials had expected to borrow as much as $13.4 billion by last June to cover past and future electricity costs, but the bonds have yet to be sold.