State Disputes Long-Term Power Pacts
California officials alleged Sunday that 22 energy companies overcharged the state about $21 billion for long-term power contracts signed during the energy crisis and extracted other unreasonable terms because they had the electricity-starved state in a bind.
As expected, the Public Utilities Commission and the Electricity Oversight Board announced they would file similar complaints today with federal energy regulators seeking to void or modify $45 billion in long-term contracts.
State officials blamed not only energy companies but also the Federal Energy Regulatory Commission, which they said encouraged the state to enter into long-term pacts a year ago while energy companies were positioned to demand unreasonably high prices.
“When these contracts were negotiated, the sellers had California over a barrel,” PUC President Loretta M. Lynch said. “Now it’s time for the FERC to recognize last year’s out-of-control market prices and lower California’s power costs.”
FERC officials in Washington could not be reached for comment.
Representatives of energy companies said the contracts are valid and were fairly negotiated with state consultants and officials.
“These are the contracts they negotiated in good faith ... and now they want the federal government to correct their alleged mismanagement of the process,” said Gary Ackerman, executive director of the Western Policy Trading Forum, which represents many of the companies. “Those contracts ... will withstand any scrutiny by any court or federal agency. It would be incumbent on the state to establish a massive collusion or manipulation to strike those contracts.”
When the contracts were signed, Gov. Gray Davis hailed them, saying they calmed the volatile wholesale electricity market and reduced the state’s reliance on spot power purchases. As current power prices declined and criticism of the contracts mounted, state officials moved to renegotiate the deals--but without success thus far.
“We still paid more than we should have,” Davis said in an interview in Washington, where he was attending a governors conference. “We’re going to the FERC for relief, asking them either unilaterally determine the price ... that energy companies should get for those contracts, or force the energy companies to negotiate in good faith.”
Davis said California will sue the energy companies if it does not succeed in persuading federal regulators to take action.
The PUC’s petition, released Sunday, as expected describes a wide range of weaknesses in the contracts signed by the Department of Water Resources after the agency began buying power in January 2001 for the customers of financially troubled utilities.
“Despite its best efforts, DWR was forced to pay unjust and unreasonable prices and to agree to onerous, unjust and unreasonable non-price items and conditions, to ... ensure that the lights stayed on in California,” said the petition.
“In many instances, DWR was forced to accept high-priced power for 10 or even 20 years in order to obtain any power at all for the two- to three-year period in which it sought to focus its efforts.”
The PUC said that Sempra Energy Resources--one of the largest suppliers--is charging $160 a megawatt hour for peak energy from April through September, which is almost 250% above a benchmark price.
Doug Kline, spokesman for Sempra, said this high price was negotiated because the company had to go into the market to acquire power from other companies while its new plants were being built.
“The state said, ‘If you want to do business with us, we have a serious power crunch this summer and next summer, and you need to provide us with 250 to 300 megawatts and sell it to us at a discount to these very high market rates,’” he said.
Kline said the company is losing money on those power sales to the state. And he noted that power Sempra is providing for the vast majority of the 10-year state contract will cost less than a third as much as the early years.
San Jose-based Calpine contracted to sell California more power than any other company. Joe Ronan, vice president of government affairs, said that he is not worried about a federal review and that the company’s prices were among the lowest. “This was not like someone held a gun to their head,” he said. “The state was asking for the bids and setting the price targets. They took some bids and rejected others.”
In arguing the contracts are illegal, state officials are relying in part on a December 2000 order in which FERC said the state’s market structure can allow power providers to get unreasonable prices.
After summer 2000, California turned to FERC for help in subduing wholesale energy prices, which helped drive major utilities into insolvency and forced the state into the power buying business.
Federal regulators imposed price caps in June, and they still are considering California’s bid to get $8.9 billion in refunds from power sellers.
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Times staff writer Edmund Sanders in Washington contributed to this story.
