Reliant Energy responds to California call for power bids

California's request for bids for power expired at noon Wednesday, but the governor's office delayed the results which were scheduled to be released at 3:30 p.m. PST. Because of restrictive bidding conditions, industry participants were skeptical the volume would meet state expectations. The department is seeking electricity for varying terms starting Feb. 1 and up to 10 years.


Ann de Rouffignac
OGJ Online

California's request for bids for power expired at noon Wednesday, but the governor's office delayed the results which were scheduled to be released at 3:30 p.m. PST.

Because of restrictive bidding conditions, industry participants were skeptical the volume would meet state expectations.

With California suffering its ninth day of a severe power shortage, the state offered to ease the crisis by purchasing power on longer term contracts through the Department of Water Resources (DWR). The DWR posted its request for bids for electricity Jan. 23 and bids were due only 24 hours later.

The department is seeking electricity for varying terms starting Feb. 1 and up to 10 years.

Gov. Gray Davis expressed the hope of receiving bids for power in the 5.5�/kw-hr range. But generators are skeptical that such prices could be reasonable unless over a very long-term contract. Jan Smutny-Jones, executive director of California Energy Producers Association and formerly chairman of the California Independent System Operator board, said in a conference call Wednesday he doubted if there would be very much volume bid, if at all, at that price.

Reliant Energy Inc. said late Wednesday it bid to supply only 500 Mw of on-peak energy. Dynegy Inc. also said it bid but details were not revealed.

Reliant said it couldn�t bid more of its 4,000 Mw of in state generation because of the �rigid� restrictions on the bids concerning the fuel. Reliant�s objections included the following:

� Bids would be kept open for 7 days exposing bidders to price fluctuation in natural gas.

� Bidders must offer �firm� products with no allowances for unit breakdown or maintenance.

� Bidders can�t include in their bids any lower cost power that will be available in the future.

� Reliant Energy�s available capacity is limited because of existing forward sales contracts.

� Bidders must accept that DWR is the buyer even though DWR�s revenue or assets won�t be made available for credit security increasing risk.

The company submitted five more proposals to show how flexibility could result in lower costs to consumers. Reliant said it can offer up to 3,500 Mw of supply if the above mentioned restrictions are lifted.

The Houston-based energy company said by separating the cost of natural gas from the cost of converting fuel into electricity, it could offer generation capacity as low as 1.6�/kw-hr for 10 years or 2�/kw-hr for 5 years. To obtain this price, the Department of Water Resources would have to buy the natural gas and Reliant Energy would convert it into electricity.

The amount of power required to serve customers in California varies from 20,000 Mw during the dead of night to 45,000 Mw during peak summer days.

Getting that supply scheduled into the electricity grid has gripped the Independent System Operator almost hourly. The volatility of the spot wholesale power price coupled with the frozen retail rates have brought the utilities to the brink of bankruptcy and made them poor credit risks. Generators are very reluctant to sell to the utilities.

The state stepped in and proposed the bid as the situation deteriorated.

Smutny-Jones said the most controversial question is what constitutes a fair price for electricity on various contract terms.

�The only way to find out what the 5-year strip of electricity costs is to put it out for bid and see what shows up,� said Smutney-Jones. The state may not get many bids this time around but it�s a start, he said.

�The generators and marketers will respond. They are interested in offering longer term products foregoing some profitability in volatility in return for stability,� he said.

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