California rate hike gives DWR funding source

A boost in retail rates for customers of Southern California Edison Co. and Pacific Gas & Electric Co. could help speed up power supply negotiations between the California Department of Water Resources (DWR) and the state's big independent power generators. According to a Mar. 14 report by the DWR, only 1,712 Mw is scheduled for delivery starting on or before June 1. Having spent its state appropriations, DWR's ability to negotiate new contracts was limited.


By the OGJ Online Staff

HOUSTON, Mar. 28�A boost in retail rates for customers of Southern California Edison Co. and Pacific Gas & Electric Co. could help speed up power supply negotiations between the California Department of Water Resources (DWR) and the state's big independent power generators.

But the generators complained the increase won't bring the utilities past due bills for wholesale power purchases up to date.

The DWR began negotiating long-term supply contracts with nonutility generators after Southern California Edison and Pacific Gas & Electric halted payments to the generators. But with summer just 2 months off, time to line up supplies is growing short. Meanwhile, the level of activity between the DWR and the generators appears to have slowed in the past 2 weeks.

According to a Mar. 14 report by the DWR, only 1,712 Mw is scheduled for delivery starting on or before June 1. In all, 19 contracts have actually been signed, but much of the power is not scheduled for delivery for several years. The DWR had reached an agreement in principle on at least that many more contracts, but they remain unsigned.

Now that rate hike is in place, "the credit question disappears," said Biju Patel, executive manager of power systems for the DWR. "It will help a lot to finalize pending contracts."

After spending more than $500 million appropriated by the legislature and after lawmakers balked at appropriating more money, the DWR was not assured of funds to pay for power purchases. But by law the agency is mandated to fill the utilities' �net short� position or the difference between utility self-generation and power contracts and their load. DWR has been spending about $40 million/day to buy power.

The problem with funding left the DWR with less flexibility to negotiate contracts because of uncertainty about when and if the legislature would appropriate more money to pay generators for power bought on behalf of utilities.

The California Public Utilities Commission rate hike will give the DWR the wherewithal to buy electricity on behalf of the utilities going forward. It also forces the utilities to pay their past due DWR bills. The utilities have collected money on behalf of the DWR but were holding the funds.

The PUC action sets the stage to raise rates on average 3�/kw-hr but the final rates and structure have not been determined. The CPUC is still waiting for a revenue requirement from the DWR

�This is a positive move for the simple reason that the generators and marketers will get paid by the state,� said Raymond Niles, analyst with Solomon Smith Barney in New York. �It has to benefit the utilities so they may be able to meet some of their other obligations, too.�

However, the PUC rate action did nothing about the $9 billion that the utilities collectively owe the generators through the California Independent System Operator and the California Power Exchange.

�The order falls short because it doesn�t address the past debts or how we will get paid for power already provided,� said Steve Stengel, spokesman for Dynegy Inc.

Other generators, including Mirant and Reliant Energy Inc., agreed. �It�s a step in the right direction. But there are a lot of things out there still left to be resolved,� said Reliant Energy Inc.'s Richard Wheatley. �How will we be paid for the outstanding receivables?�

Together, Dynegy and Reliant together are owed about $500 million. Mirant Corp.'s Chuck Griffin said the company is encouraged by the move to increase rates, but agrees that it does nothing about past due bills.

More in General Interest