Events in California‘s power crisis are happening too swiftly and too slowly. Too swiftly for informed, democratic decision making. Too slowly for the pace of events.
As is his custom, Governor Gray Davis called this week’s announcement of some long-term power contracts ”a major breakthrough.“ But the situation is still far darker than he describes. Deals to take over the Southern California Edison and San Diego Gas & Electric transmission lines are still incomplete, and Pacific Gas & Electric is balking. There is real concern in the governor‘s ranks about the negotiations with all the utilities. The long-term contracts are coming in way over the governor’s target price, and the state is still looking to the exorbitant spot market for the summer. In fact, some of the contracts he says he has are denied by the companies. And looming over all is a supply problem with the coming summer air-conditioning crunch.
The more we wait, the more we pay. And the out-of-state power generators that bought much of the state‘s generating capacity after deregulation want every dime they are overcharging for. In the longer term, a big revenue-bonds deal is to reimburse the general fund for all these emergency short-term purchases. But the total is swiftly mounting.
The latest installment of $500 million has been set aside from the state’s general fund to buy power on the spot market, bringing the total committed so far to $3.2 billion. The state is buying about a third of the power used by customers of Southern California Edison and Pacific Gas & Electric, both of which have been denied credit by suppliers who haven‘t been paid by the reeling utilities. The plan is for the state to recover those short-term costs not covered by consumer payments by issuing $10 billion in revenue bonds in May, with the balance going to finance cheaper long-term contracts.
The normally voluble David Freeman, the L.A. Department of Water and Power chieftain who negotiated the long-term power contracts as a volunteer for the state, has been virtually incommunicado since accepting his appointment from Davis. One reason is Davis’ management style, which frowns on substantive comments from policymakers in favor of carefully controlled spin from the governor‘s press office. Another reason is the difficulty Freeman encountered in the negotiations with power generators, who have California over a barrel.
The long-term contracts that have just been agreed to are at much higher rates than the governor’s oft-declared goal of 5.5 cents per kilowatt-hour. Indeed, the price over the first five years is a whopping 44 percent higher.
What will this mean for consumer rates next year, already certain to be about 20 percent higher than at the beginning of this year? That‘s not clear yet, since some energy experts believe that further increases will be amortized over the life of the contracts, neatly holding down consumer rate increases through the 2002 elections.
And a Davis source concedes that the long-term contracts lauded by the governor won’t cover much of the coming crunch time -- summer peak demand, when some 30 percent to 45 percent of the state‘s power will still have to be bought on the expensive spot market.
There’s another pitfall with these deals. ”Signing all these long-term contracts tied to natural gas may shortchange new investment in renewable techn logy,“ notes Center for Energy Efficiency and Renewable Technologies director John White.
While the Public Utilities Commission works to get Edison and PG&E to pass on the money they are collecting from ratepayers to partially reimburse the state‘s buying of power for them in the expensive spot market, state Treasurer Phil Angelides is working to arrange short-term ”bridge financing“ to reimburse the state’s general fund for the billions flowing now to out-of-state power generators to keep the lights on. ”We intend to have $3 billion to $5 billion in short-term loans from banks and financial institutions in place by the end of the month,“ says Deputy Treasurer Cathy Calfo.
These short-term bridge loans to make the general fund whole again are to be paid off by the proceeds from what will be the biggest municipal-bond sale in U.S. history, the $10 billion revenue-bond sale slated for May to finance the state‘s long-term power contracts. But that original $10 billion will almost certainly have to be more. For, as the negotiations over long-term contracts dragged on, the general fund’s hemorrhaging into the sky-high spot market increased.
One way or another, as you see, the Southern cartel of out-of-state power generators will get the money they say they are owed. But they insist on getting their money upfront, as well.
Davis says that one or two power companies will accept partial payment. It‘s not clear which companies those might be, and Davis won’t say. What is clear is that some of the biggest players in the power business say they will not accept partial payment. Enron, Reliant and Duke Power all say they won‘t take a penny less than they are owed. And they have engaged in heel dragging on long-term contracts for more affordable power to try to ensure that they will be paid for all the power they’ve already provided at their gouge-plus rates.
