SDG&E gets OK to sign long-term power contracts

The California Public Utilities Commission gave permission late yesterday to San Diego Gas & Electric Co. to shop around for long-term contracts for power. The utility was previously required under California restructuring law to buy all of its power from the California Power Exchange, which is a day-ahead market marked by volatility.


Ann de Rouffignac
OGJOnline

California Public Utilities Commission said San Diego Gas & Electric Co. can purchase electric power on long-term contracts to lessen recent volatility of power prices. The utility was previously required under California restructuring law to buy all of its power from the California Power Exchange, which has extremely volatile prices.

Because of the tight generation supply situation in California and growth in electricity demand, power prices on the wholesale market have surged. SDG&E, which sold most of its generation, had to supply its customers with electricity purchased on the spot market. So far, few alternative providers for electricity have emerged on the residential side, even though the market has been deregulated. The utility was left to serve most of its customers.

SDG&E will be able to enter into long-term contracts with electric generators to lock-in fixed prices. But the commission said the amount of power that can be purchased with these contracts is limited. The term of the contracts also cannot extend past Dec. 31, 2005.

In a recent congressional hearing this month looking into the problems of deregulation and high retail electric prices, industry experts testified that if SDG&E could have purchased power from providers over the longer term, much of the pain of the summer�s high prices could have been avoided.

Since rate caps have been imposed on retail electricity prices, SDG&E said, it expects to under-collect from $600 million to $800 million in electricity bills from customers through 2002 and 2003 respectively depending on how long the freeze lasts.

The rate caps fix a retail problem for consumers. But rate caps do nothing for the problem of short supply and volatile wholesale prices affecting the utility, said Stephen Baum, chairman and CEO of Sempra Energy, parent of SDG&E. Baum addressed a conference sponsored by the Interstate Oil and Gas Compact Commission held in Ohio this week.

The state�s other large investor-owned utilities, PG&E and Southern California Edison, asked for permission to enter into long-term contracts before the summer began. The commission granted that permission in July, too late for the utilities still operating under a rate freeze to recover the high costs of purchased power this summer.

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