State Reworks Morgan Stanley Power Contract
The Davis administration has renegotiated another long-term energy contract signed two years ago at the height of California’s power crisis, reducing both the price and the amount of electricity the state had agreed to purchase.
Under the terms of the rewritten deal, Morgan Stanley Capital Group trimmed $41 million from a $209-million, five-year electricity supply pact, state energy officials said Friday.
The supplier also slashed the amount of power California is obligated to buy to 40 megawatts from 50 megawatts and then to 35 megawatts on Jan. 1. One megawatt is enough to power about 750 homes. Morgan Stanley now will charge the state $81 a megawatt-hour rather than $95, a reduction of nearly 15%.
Although the state trumpeted the new accord as a victory for consumers, electricity today is much cheaper on the open market. A megawatt-hour could be purchased Friday for $55 to $59 in California.
The state has renegotiated 33 of the 56 long-term power contracts signed in early 2001, shaving $6 billion off the $43-billion figure in the original agreements, said Richard Katz, energy advisor to Gov. Gray Davis.
During the energy crisis, supplies were tight, causing sporadic blackouts and driving up the wholesale price of power more than tenfold. The state’s two largest utilities, units of PG&E; Corp. and Edison International, incurred billions of dollars of losses.
To ensure demand for electricity would be met, the state signed expensive, long-term deals with suppliers. The contracts were criticized by experts and ratepayers who said the Davis administration paid too high a price for too much energy.
Davis has steadfastly defended the policy, saying it broke a cycle of market manipulation by a cadre of energy companies.
The Morgan Stanley contract runs through 2005.
As part of the new deal, the California Public Utilities Commission and the Electric Oversight Board agreed to withdraw complaints against Morgan Stanley before the Federal Energy Regulatory Commission.
California energy officials have asked FERC to void many of the contracts, arguing that the state was illegally gouged by suppliers. FERC denied the state’s petition last month.
But Katz said the agreement announced Friday demonstrated that California would continue to press for renegotiated energy deals that would be better for ratepayers.
Morgan Stanley also agreed to sell the state Department of Water Resources, which signed the power contracts, up to 30,000 million British thermal units per day of natural gas.
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Bloomberg News was used in compiling this report.
