California owes munis $300 million, including 'sleeved' deals, group says

By the OGJ Online Staff

HOUSTON, June 4 -- California owes municipal utilities $300 million for power they have provided the state during the electricity emergency, an industry group said in protesting Gov. Gray Davis's threats to seize power plants in the state.

"What the Governor said makes no sense," said Jerry Jordan, executive director of the California Municipal Utilities Association (CMUA), whose 31 publicly owned electric utilities serve 25-30% of the state's load.

He said the state has already confiscated publicly owned utility customer's power. "Every time there is a rolling blackout in California, power is taken from publicly owned consumers who paid for reliability and given to investor-owned utilities that have failed to provide that same security to their customers," he said. Jordan also defended the state municipal utilities against the governor's accusations they are charging excessive prices in transactions with the California Department of Water Resources (DWR).

He said publicly owned utilities have been asked to "sleeve'" transactions for the state, or use their own credit to front transactions for the DWR when the agency responsible for buying electricity on behalf the state reached its credit limits.

Most publicly owned utilities in California are net purchasers of energy and many have had to buy power on the market at inflated prices, Jordan said. He noted the general manager of the Modesto Irrigation District informed the governor during a meeting he recently paid more than 40¢/kw-hr to insure reliability.

"Very few publicly owned electric utilities have surpluses," Jordan said. "Many have had to raise rates to their customers to pay for purchases in the inflated power market. When they do have short-term surpluses they have and will continue to make those surpluses available to the state, but the governor can't expect publicly owned utility customers to subsidize the state by buying high and selling low."

In addition, Jordan pointed out publicly owned utilities have operated power plants, including using up air emission credits that may be needed by their customers, and curtailed loads through a variety of means to help the state through the crisis.

Several member utilities were requested to produce power this winter from power plants they had no intention of running, and, therefore, had to purchase natural gas and emissions credits on the open market, Jordan said.

Other municipal utilities brought power plants with high operating costs out of mothballs to serve the needs of the state, he said. As net purchasers of electricity, Jordan said most publicly owned utilities are subject to the volatile market rates and cannot unilaterally sell at cost-based rates while being forced to make up the shortfall at market rates. Cost-based rates must be applied to all sellers in the West, he said.